Chapter 5

Global Logistics

Chapter 5 1
Learning Objectives
 Describe the major similarities and differences
between domestic and global logistics.
 Discuss the reasons for the increase in global
business activity.
 Define a global company.
 Explain Porter’s dynamic diamond theory of
global competitive advantage.

Chapter 5 Management of Business Logistics, 7th Ed. 2

Learning Objectives
 Describe the critical changes affecting global
logistics.
 Explain the effect of the changing legal and
political environment in Europe, Asia, North
America, and South America.
 Discuss North American Free Trade
Agreement and its effect on logistics.
 Define the nature and benefit of a
Maquiladora.

Chapter 5 Management of Business Logistics, 7th Ed. 3

Learning Objectives
 Explain the major transportation systems
available for global logistics.
 Distinguish among the global logistics
intermediaries, freight forwarders, customs
house brokers, non-vessel operating common
carriers, and export management companies.

Chapter 5 Management of Business Logistics, 7th Ed. 4

Learning Objectives
 Explain the criteria used to select a port for
global shipments.
 Discuss warehousing and packaging
requirements for global shipments.
 Define the role of customs duties and free
trade zones.

Chapter 5 Management of Business Logistics, 7th Ed. 5

Global Business Logistics
 Important issues to consider:
 To gain a competitive advantage, global

sourcing is a given for companies engaging

in global marketing strategies.
 The longer the supply chain, the more

cooperation and coordination is required

between production, marketing, purchasing
and the logistics management group.

Chapter 5 Management of Business Logistics, 7th Ed. 6

 The Magnitude of
Global Logistics Activity
 World trade is growing as fast logistics systems
have had the effect of shrinking the world,
empowering competitive trade.
 Foreign trade has grown in tonnage and in value
for the United States and other nations.
 Lower labor costs from international outsourcing is
a critical component of the supply chain.
 Focused manufacturing fits well into an
international logistics strategy.

Chapter 5 Management of Business Logistics, 7th Ed. 7

Table 5-1
Top U.S. Trading Partners

Chapter 5 Management of Business Logistics, 7th Ed. 8

Global Markets
and Global Corporations
 Trade barriers continue to fall, accelerating
global business activity.
 Global markets result from the general
homogenization of global needs and wants.
 Local needs suborned to lower-priced,

higher-quality products.
 Preferences for international products can

also be related to attempts to copy other

more prosperous cultures.

Chapter 5 Management of Business Logistics, 7th Ed. 9

Global Competitive Strategy
 To effectively serve global markets, firms
should consider adopting integrated
worldwide strategies.
 These firms are more likely to search for
global sourcing for materials and
components, depots, assembly, distribution
centers, and logistics.
 Global firms typically design synchronous
strategies around technology, marketing,
manufacturing, and logistics.
Chapter 5 Management of Business Logistics, 7th Ed. 10
Customer Service Strategies for
Global Markets: Four Characteristics
1. Marketing becomes standardized yet
customized.
2. Product life cycles shorten, sometimes to
less than one year.
3. Outsourcing and offshore manufacturing are
becoming more prevalent.
4. Marketing and manufacturing activities and
strategies tend to converge and be better
coordinated in firms operating globally.4

Chapter 5 Management of Business Logistics, 7th Ed. 11

Customer Service
Strategies for Global Markets
 Logistics networks tend to become more
expansive and complex.
 Thus, lead times and inventory may rise.
 Logistics activities must be operated as a
system to provide a countervailing force.
 Most importantly, the service needs of
internationally-dispersed customers must
drive the design and implementation of the
logistics system.

Chapter 5 Management of Business Logistics, 7th Ed. 12

Critical Factors and Key Trends:
Importance of Competitive Environment

 Michael Porter’s study concludes that “a

nation’s ability to upgrade its existing
advantages to the next level of technology
and productivity is the key to international
(global) success.”5
 Porter feels that the US loss of global market
share in advanced fields of transportation and
technology shows the US slipping recently in
international trade.
Chapter 5 Management of Business Logistics, 7th Ed. 13
Critical Factors and Key Trends:
Porter’s Model

 Factor conditions
 Ability to transform basic factors into competitive

advantage
 Demand conditions
 Market size, buyer sophistication, exposure

 Related and supporting industries

 Partners in supply chain, manufacturers

 Company strategy, structure, and rivalry

 Market structure and nature of competition

Chapter 5 Management of Business Logistics, 7th Ed. 14

Critical Factors and Key
Trends: Changes in
Logistics and Transportation
 Deregulation of the U.S. Ocean Liner
Industry
 Shipping Act of 1984 and Ocean Shipping

Reform Act of 1998 gave freedom to set

rates, establish service and capacity on
shipping lanes.
 Ocean rates now more flexible to move in

response to the laws of supply and

demand.
Chapter 5 Management of Business Logistics, 7th Ed. 15
Critical Factors and Key Trends:
Changes in Logistics and Transportation
 Intermodalism
 Joint use of two or more transportation
modes.
 Microbridge moves logistics capabilities from

port-to-port through port-to-point directly to

point-to-point.
 Shipment Control
 High tech permits tracking & diversion of

shipments.
Chapter 5 Management of Business Logistics, 7th Ed. 16
Figure 5-1
Types of International Intermodalism

Chapter 5 Management of Business Logistics, 7th Ed. 17

Critical Factors and Key Trends:
Changes in Logistics and Transportation
 Free Trade Agreements
 NAFTA is the most current.

 EU is the 15 country European equivalent.

 APEC is the Pacific equivalent.

 Remaining customs barriers can impair

logistics activities where they remain.
 Cultural differences can result in shipment
delays where they are not understood.

Chapter 5 Management of Business Logistics, 7th Ed. 18

Critical Factors and Key Trends:
Changes in Logistics and Transportation
 Currency Fluctuations
 The exchange rate of dollars to other

international currencies affects both the

volume and direction of global trade.
 The effects of weak or strong dollar

positions carry through to marketing and

logistics.

Chapter 5 Management of Business Logistics, 7th Ed. 19

 Table 5-2 Effect of Currency
Fluctuations on Exports and Imports

U.S. $ Value U.S. $ Cost Yen Cost of

Scenario In Japanese of 5000-Yen U.S. $1,000
Yen Item Item

A 100 $ 50.00 100,000 yen

B 120 $ 41.67 120,000 yen

C 130 $ 38.46 130,000 yen

Chapter 5 Management of Business Logistics, 7th Ed. 20

Changing Political and Legal
Environments
 A Single European Market
 Eastern Europe
 North American Free Trade Agreement
 Maquiladora Operations
 Asian Emergence
 New Directions

Chapter 5 Management of Business Logistics, 7th Ed. 21

Changing Political and Legal
Environments: European Market
 230 million consumers
were established as one
market thru the 1987
Single European Act
 EU has eliminated:
 Physical barriers like

customs.
 Technical barriers like

health & safety issues.

 Fiscal barriers like

value-added tax and

excise taxes.

Chapter 5 Management of Business Logistics, 7th Ed. 22

 Changing Political and Legal
Environments Eastern Europe
 Currently restructuring but generally working to improve
from former communist-style governmental restrictions.
 Older infrastructure is holding these nations back from
full participation in global markets.
 Governments have been selling assets to use for capital
investment.
 Future is uncertain, but markets are large enough to
attract foreign capital if political environment is seen as
stable.

Chapter 5 Management of Business Logistics, 7th Ed. 23

Changing Political and Legal
Environments: The North American Free
Trade Agreement (NAFTA) of 1994
 360 million people market
 $6.6 trillion market
 Phasing out tariffs on more than 10,000
commodities over the next 10 to 15 years
 Poor transportation infrastructure remains in
Mexico.
 Labeling inconsistencies are problematic.
 NAFTA will mature eventually.

Chapter 5 Management of Business Logistics, 7th Ed. 24

Figure 5-3A A Typical Truck
Shipment Crossing into Mexico

Chapter 5 Management of Business Logistics, 7th Ed. 25

Changing Political and Legal
Environments: Maquiladora Operations
 Maquiladora Operations takes its name from
the region of Mexico in which the business
facilities are located.
 Companies such as General Motors have built
campus-style collections of assembly plants,
supplier facilities and housing in Maquiladora.
 Currently more than 2,000 U.S./Mexico
facilities use the low wages, taxes, and low
duties of the Maquiladora.
Chapter 5 Management of Business Logistics, 7th Ed. 26
Changing Political and Legal
Environments: Asian Emergence
 The Pacific Rim nations have emerged as key players
in the global business environment.
 In the first three months of 2000, imports from
Pacific Rim countries accounted for 32.9 percent of
total U.S. imports.
 Japan, Korea, Taiwan, and Singapore purchased 24.7
percent of U.S. exports in this same period.
 Japan is the leading regional supplier, followed by
China, Taiwan, and Korea.
 Low labor and high quality characterizes these Asian
nation’s raw materials and finished goods.

Chapter 5 Management of Business Logistics, 7th Ed. 27

Changing Political and Legal
Environments: New Directions
 Offshore plants and logistics facilities
 Focus production plants often require
complex logistics facilities.
 General expansion of worldwide markets
 Worldwide growth of affluence
 Growth of Caribbean, Australian, African,
Russian, and Eastern European markets

Chapter 5 Management of Business Logistics, 7th Ed. 28

On the Line: Holiday May Be
Hazardous to International
Logistics Systems
 Workers not on the job…logistics activities
come to a halt.
 Holidays vary by country and must be known
to international logistics managers.
 By scheduling pickup and delivery around a
country’s holidays, the logistics manager can:
 Prevent disruptions in the international

supply chain;
 Maintain desired logistics service levels.

Chapter 5 Management of Business Logistics, 7th Ed. 29

On the Line: 2001 Holidays for the
United States and Its Top Six Trading
Partners

Chapter 5 Management of Business Logistics, 7th Ed. 30

Global Transportation Options
 More complex than domestic due to distance
and number of parties involved
 Major international transportation modes
 Ocean

 Air

 Motor

 Rail

Chapter 5 Management of Business Logistics, 7th Ed. 31

Global Transportation
Options: Ocean
 Ocean structure
 Liner – scheduled service; regular routes

 Charter – contract service; no set routes

 Private – service firm’s own logistics needs

 Include bulk, container, RO-RO

 Most pervasive and important global mode
 Revenues are substantial – see Table 5-3.

Chapter 5 Management of Business Logistics, 7th Ed. 32

Table 5-3
Top Ten Ocean Carriers

Chapter 5 Management of Business Logistics, 7th Ed. 33

Global Transportation
Options: Air
 Speed allows large compression of transit times.
 Linkages with package delivery and courier
services provide true point-to-point service.
 Rates have traditionally restricted cargo to low
density, high value goods.
 Volume is approximately 1% of movements, but
nearly 20% of the value.
 New airfreighters can carry up to 13 TEUs (20
foot containers).

Chapter 5 Management of Business Logistics, 7th Ed. 34

Table 5-4
Major International Cargo Air Carriers

Chapter 5 Management of Business Logistics, 7th Ed. 35

Global Transportation
Options: Motor
 Global motor characteristics of speed, safety,
reliability, and accessibility basically the same
as for domestic transportation.
 Container sizes are largely standardized into
20, 40, 45, 48, and 53 foot boxes.
 Paperwork can be streamlined by having a
bonded warehouse seal the container at point
of shipment and not opened until it reaches
its destination country.
Chapter 5 Management of Business Logistics, 7th Ed. 36
Global Transportation
Options: Rail
 International rail movements are problematic.
 Rail gauges often vary.
 Containers maybe transloaded from rail to
ocean to rail and/or motor if standard
international sizes are used.
 Maritime bridge movements gain speed by
using an intermodal strategy.

Chapter 5 Management of Business Logistics, 7th Ed. 37

Strategic Channel Intermediaries
 Foreign Freight
Forwarders  Customs House
 Non-Vessel- Brokers
Operating Common  Ship Brokers
Carriers  Ship Agents
 Export Management  Export Packers
Companies
 Ports
 Export Trading
Companies

Chapter 5 Management of Business Logistics, 7th Ed. 38

Strategic Channel Intermediaries:
Foreign Freight Forwarders
 Consolidate small shipments into
economical container or larger-sized lots.
 Used by small or inexperienced shippers.
 Consolidators and agents regulated by the
Federal Maritime Commission.
 Fee for service and/or commission
from shipping companies.
 Use ocean and air modes.

Chapter 5 Management of Business Logistics, 7th Ed. 39

Strategic Channel Intermediaries:
Non-Vessel Operating Common Carriers

 These carriers are used to disperse traffic moving

to and from an inland port.
 These NVOCCs then collect traffic from inland
ports back to the ocean port cities.
 This service saves the shippers from having to pay
to return empty containers to the ocean carriers.
 NVOCC service widens markets of the ocean
carriers and provides expertise to the smaller
inland shippers.

Chapter 5 Management of Business Logistics, 7th Ed. 40

Strategic Channel Intermediaries:
Export Management Companies
 Export Management Companies (EMCs) act as
a knowledgeable shippers agent in a foreign
country.
 Act as the sellers agent in getting orders, and
arranging for distribution, promotion, and
dealing with the foreign government.
 Exclusive arrangements are possible and the
EMC may sell with or without taking title to
the goods.
Chapter 5 Management of Business Logistics, 7th Ed. 41
Strategic Channel Intermediaries:
Export Trading Companies
 Similar to the EMCs, the Export Trading
Companies (ETCs) export goods and services.
 The ETC locates buyers, arranges for inland
and international transportation, and meeting
foreign government requirements.
 Allows small and medium-sized firms the
ability to compete globally.

Chapter 5 Management of Business Logistics, 7th Ed. 42

Strategic Channel Intermediaries:
Customs House Brokers
 Oversee the movement of goods through
customs and ensures that paperwork
accompanying a shipment is in order.
 Operate under power of attorney from the
shipper and can pay any duty on freight.
 Much of the paperwork is done ahead of the
shipment using integrated computer systems,
greatly reducing the time it takes to clear
customs, thereby reducing transit times.
Chapter 5 Management of Business Logistics, 7th Ed. 43
Strategic Channel Intermediaries: Ship
Brokers/Ship Agents/Export Packers
 Ship brokers act as agents in securing the
charter of a ship.
 Ship agents are the local (port) agent of the
ship operator when the ship is in port.
 Export packers supply a shipper specialized
export packing services to help with customs
and to protect the goods.

Chapter 5 Management of Business Logistics, 7th Ed. 44

Strategic Channel
Intermediaries: Ports
 Port selection is a very important
part of the international logistics strategy.
 Different ports often specialize in different types
of shipments.
 Selecting the wrong port can add miles, time,
and therefore cost to a shipment not
appropriately routed.
 Overall door-to-door transit time and variability
most important factors.

Chapter 5 Management of Business Logistics, 7th Ed. 45

Figure 5-4
Port Evaluation Factors

Chapter 5 Management of Business Logistics, 7th Ed. 46

 Table 5-5: Ranking of U.S. Ports by
Containers, Tons, and Cargo Value
By Containers By Tons By Cargo Value
Long Beach Houston Long Beach
Los Angeles New Orleans Los Angeles
NY & NJ South Louisiana NY & NJ
San Juan NY & NJ Houston
Oakland Corpus Christi Seattle
Seattle Hampton Roads Charleston
Charleston Beaumont Hampton Roads
Hampton Roads Long Beach Oakland
Tacoma Philadelphia New Orleans
Houston Morgan City Baltimore
Chapter 5 Management of Business Logistics, 7th Ed. 47
Storage Facilities
 Storage may be necessary for containers,
bulk, or finished goods.
 This may require different types of in transit
facilities depending upon the method of
shipment and cargo type.
 Longer term storage may require a public or
bonded warehouse.

Chapter 5 Management of Business Logistics, 7th Ed. 48

Packaging
 Export shipments generally require a higher
level of protection than domestic shipments
because of extra handling and the motion of
the ocean and its effect on cargo.
 Shippers expect to pay more for more
protection, as settling liability claims can be
very difficult due to the large number of firms
that may be handling the goods.

Chapter 5 Management of Business Logistics, 7th Ed. 49

Figure 5-5 Some Symbols Used for
Packing Export Shipments

Chapter 5 Management of Business Logistics, 7th Ed. 50

Governmental Influences
 Customs Regulation
 Other Customs Functions
 Foreign Trade Zones

Chapter 5 Management of Business Logistics, 7th Ed. 51

Figure 5-6
Export-Import Flowchart

Chapter 5 Management of Business Logistics, 7th Ed. 52

Governmental Influences:
Customs Regulation
 Customs regulations of the importing country
have the greatest effect on the international
movement of goods.
 In place to protect domestic industries from
unfair or predatory competition, these
barriers to trade are handled differently in
various countries.
 Duties are expressed either as a percent of
value, a fixed amount, or in combination.
Chapter 5 Management of Business Logistics, 7th Ed. 53
Governmental Influences:
Other Customs Functions
 Determine that the goods value is as stated.
 Ensure that the goods are properly marked.
 Ensure that the items are permitted for entry.
 Ensure correct price and quantity.
 Control quota amounts.

Chapter 5 Management of Business Logistics, 7th Ed. 54

Governmental Influences:
Foreign Trade Zones (FTZs)
 Goods enter without customs formalities, duty or
bond.
 Shippers can break bulk before entry.
 Goods can be processed, repacked, or remarked
to avoid fines before entry.
 FTZs can hold excess goods until the next quota
window.
 Buyer can test or sample before entry.
 Goods can be stored indefinitely and/or re-
exported without paying duty.
Chapter 5 Management of Business Logistics, 7th Ed. 55