International Commerce Terms

In our last class, professor Jose made an introduction about the International Commercial Terms (Incoterms) and their importance in worldwide interexchange of goods and services. By definition, Incoterms are a set of 11 globally accepted standards, issued by the International Chamber of Commerce (ICC), that specify sellers’ and purchasers’ duties. Incoterms define who is responsible for paying for and handling the cargo, as well as for insurance, documentation, customs clearance, and other logistical tasks. (https://bit.ly/3MU2xYs). Incoterms are not compulsory regulations; in order for them to have legal validity, the parties must explicitly integrate them into their contract.

The ICC originally proposed Incoterms in 1921, and the first Incoterms regulations were developed in 1936. In 1936, they were formally classified as Incoterms. Incoterms have since grown into a defined international contractual standard. They are updated on a regular basis when major international trade events occur. In 1953, 1967, 1976, 1980, 2000, 2010, and 2020, amendments and additions were made. 13 ICC commissions formed of private-sector experts from throughout the world decide on these international trade terminology. These people specialize in anything from local issues to multinational business. (https://bit.ly/3KXJviq)

The Incoterms are divided into four principal categories: E, F, C and D.

Category E (Departure), which contains only one trade term, i.e. EXW (Ex Works).

Category F (Main Carriage Unpaid), which contains three trade terms:

• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free on Board)

Category C (Main Carriage Paid), which contains four trade terms:

• CPT (Carriage paid to)
• CIP (Carriage and Insurance paid to)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)

Category D (Arrival), which contains three trade terms:

• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

The four above-mentioned categories can also be classified as per the means of transportation:

• Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP;
• Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF.

If you want to have more detailed information on each category, I invite you to visit Aceris Law’s website (https://bit.ly/38d5Paz).

In below image, you can get a resumed interpretation on the eleven incoterms:

(https://bit.ly/39Lsb3p)

This topic is very important to have in mind at the moment when two companies are doing business. Some people may find this not as important as it should be, because they can think “what can go wrong?” or just think that in business it only matters the payment and receive/deliver the merchandise in good order. But these incoterms can resolve any unexpected matter, because they clearly establish the responsibility of both parties, who, when, and where the risk is transferred and who must respond or act if certain situation is presented. So, always have in mind this part in business so you won’t find any unpleasant surprises in your negotiations.

Logistics Hubs in the Logistics World

Is my last post, I wrote about Freight Forwarders and how they contribute to the supply chain of the companies, making their operational process a lot easier and (in most of the cases, cheaper).
Also, there is another post about Logistics Operators that is very interesting that talks about the different party logistic (from 1PL to 5PL).

Now, another topic that is interesting to write about is about Logistics Hubs and how they are so important in freight transportation. Basically, a logistics hub is a large agglomeration of warehouses where businesses may handle a wide range of freight processing operations. It is a the place where cargoes of goods are brought together in order to be redistributed to their final destination. These locations are not only destinated receive and consolidate/deconsolidate cargo but also there are several operations that can be handled, such as Customs clearance, dangerous good handling, cargo transshipment, etc.

Magna Park located in Great Britain

Some of the advantages that Logistics Hubs provide, in can be mentioned the following:

-Agility in product shipments: the ecosystem that surrounds the logistics hubs helps to speed up shipments, since all operations are focused on acting quickly and with maximum effectiveness.
-Reduction of operating costs: the location of these centers, together with the application of technology for the organization of routes, has a positive impact on the speed of deliveries, thus avoiding possible cost overruns due to inefficiency in the transport of goods.
-Adaptation to the needs of eCommerce: new consumer trends have forced logistics companies to optimize their processes in order to meet the needs of consumers who are increasingly demanding and expect the most effective service possible when shopping online.

As per Vancouber’s 3PL and freight forwarding company Canadian Alliance Inc (https://bit.ly/3KwpBf1), these are some of the top Logistics Hubs in the world:

-Hong Kong: is a top logistics hub because this Asia Pacific region boasts high-quality industrial and logistics

-Vancouber: is a highly competitive global logistics hub, it’s able to deliver, exchange and receive goods with other top logistics hubs in the world along with the people and companies they serve. High pricing for industrial rent space also encourages prosperous competition since “Limited new supply and rising rents [drive] capital to high-performing markets.

-Tokyo: is a leading international hub within the context of modern technology, giving it a competitive edge in comparison to other logistics hubs. As an example, an AI startup company placed robots in a warehouse – the first operation of its level in the world.

-London: They have several specialized warehouses, allowing goods of all kinds are sent along the supply chain. Is it known for DP World London Gateway which is a logistics hub in itself. It includes “a state-of-the-art deep sea port and rail terminal on the same site as an expansive land bank for the flexible and fast development of logistics facilities and warehouses.

As you may notice, Logistics Hubs is like a great machinery that interconnects different kind of processes. So, you also may imagine that is cannot be an easy task to manage them!

Freight Forwarding in the Logistics world

It’s not a surprise that the world is moving faster as each day passes. Customers want to receive their products and services as fast as possible, making their suppliers to also work under a rush schedule to deliver their clients in the most efficient way. Normally you can think that shipping an item from one point to another is not a hard task; what difficulty can be in taking your phone and calling some transport company, ask for a truck and move the merchandise from origin to destination? Maybe you can even have your own transport company, meaning this will be less effort as you don’t depend on another company to deliver the client. But when it comes to more complex operations, such as move cargo from one country to another (by road, ocean, or air) where you don’t fully know foreign Customs or Transport regulations or whether which is the best cost/time efficient way, it is possible to end up with a more expensive operation that could affect the profits the company was hoping to receive.

By Bff International (https://bffinternational.net/que-hacen-los-freight-forwarder)

This is where Freight Forwarders come into the play. I had the opportunity to work in this type of company back in the Dominican Republic and, in my experience, I can honestly tell you that this is a problem solver for companies since they are in charge of getting their customers the best option that can adjust to their budget. They must organize transportation, identify the most efficient route to save time and money, obtain insurance, select the appropriate packaging for the shipment in question, organize freight storage and/or distribution, and so on. Also, as Freight Forwarders are internationally connected, they are in the capacity to oversee those foreign regulations to move the cargo within the destination/origin country.

In the company I worked in the Dominican Republic, they offered a huge variety of services, which some can be found below:

If you are planning sometime in the future to have your own company, or if in your workplace are having issues with logistics matters, I would totally recommend you make and approach to a Freight Forwarding company to have those matters solve with ease. Of course, it will cost you, but trust me that it is all worth and you and your final customers will be grateful for making that decision!