Learning Activity 12

Apprentice

Monica Gutierrez Rendón

Tab 1881670

Program

Technology in International Negotiation

Evidence 1: Writing and essay about logistics costs

SERVICIO NACIONAL DE APRENDIZAJE

SENA

GUADALAJARA DE BUGA

2020
 Introduction

This essay contains important data on international physical distribution, including the costs
that companies have to assume when performing an export.

The main strategy before initiating an export is the logistic development, to know distribution
channels, routes and incoterm suitable for the operation of foreign trade. The physical
distribution is the forced complement in the international agreements that allows to optimize
the times and costs of the processes of Transport, storage and distribution, from the import to
the final consumer and also allowing the exporters to improve their costs FOB to enter with
competitive prices to the international markets.

The factors that intervene in exports, such as international transportation, customs processes,
storage and national transportation must be directed and designed under models that allow
maintaining optimal competition from the countries that make up the trade agreements.
 DFI International Physical Distribution

International physical distribution DFI is the process of placing a product in a foreign market,
complying with the terms negotiated between the seller and the buyer. Its main objective is to
reduce as much as possible the time, costs and risk that may be generated during the journey
from the point of departure at origin to the point of delivery at destination. The implications
of the cost of transportation on a company's competitiveness and permanence in the market
are undeniable, whatever the nature of the company. That is why logistics management
systems and International Physical Distribution pay special attention to the concept of
transporting raw materials, products in process or finished products.

When initiating a foreign trade operation, the following subjects intervene in the customs
operations:

 Depending on the property of the goods: importer, exporter, consignee or consignee.

 Depending on the transport: the shipowner, shipping agent, maritime agent, airlines,
land or river transport companies.
 According to the loading and unloading of the goods: the port authority, customs,
health, stevedores, port workers.
 According to the storage of the goods: bonded warehouses, storage terminals, simple
warehouses, authorized customs warehouses.
 According to the customs destination of the goods: customs agents, storage terminals,
simple warehouses, authorized customs warehouses

When initiating a foreign trade operation, the following subjects intervene in the customs
operations:

 Depending on the property of the goods: importer, exporter, consignee or consignee

 Depending on the transport: the shipowner, shipping agent, maritime agent, airlines,
land or river transport companies.
 According to the loading and unloading of the goods: the port authority, customs,
health, stevedores, port workers.
 According to the storage of the goods: bonded warehouses, storage terminals, simple
warehouses, authorized customs warehouses.
 According to the customs destination of the goods: customs agents, storage terminals,
simple warehouses, authorized customs warehouses
In this way, the goods that are shipped abroad, cross 3 different geographical routes: export
country, international transit and import country.

Cost components of the exporting country

 Means of transport

Land, air, sea

Direct Costs

 Packaging: labor, materials, equipment

 Marking: cost, identification, packed units, iso, dangerous cargo. It is of great
importance in DFI, it is the way to identify each piece of cargo. Marking is related to
the packaging of goods.
 Export documents: Certificate of origin, customs documents, transport documents
depending on the INCOTERM chosen
 Unitarization: palletization, containerization
 Handling (exporter's premises): equipment, labor
 Transport and insurance: from the exporter's warehouse to the international shipment
location
 Storage: cost of storage in the company
 Handling at the place of loading: unloading, loading, storage
 Customs: cost of customs clearance
 Storage: cost of storage in the secondary or primary zone

Indirect costs

 Administrative: information gathering, salaries, communications

 Idle time: cost of the time required in the production line until the loading in the
dispatch vehicle at the exporter's warehouse and time between the exporter's
warehouse and the place of international shipment.

International Transport Cost Components

This is the primary part of DFI's operations, and depending on the Incoterms negotiated, it
defines the route of shipment and delivery to the buyer
 Means of international cargo transport: air or sea

How to choose the mode of transport? Rate, distance, transit time, value of goods, insurance,
packing and crating, costs and times of loading and unloading

Direct Costs

 Storage: fiscal deposit, proven deposit (free zone) which includes cost of unloading
and loading
 Agents: per processing service, customs broker commissions, freight forwarders

Advantages of Air Transport

Speed, reliability, security, lower insurance costs.

Disadvantages of air transport

Most expensive, limited capacity, restricted for certain hazardous products

Advantages of Shipping

Lower rates, mass transport of large volumes, diversity and specialization of vessels, no
restrictions for dangerous products

Disadvantages of shipping

Low speed, insurance and more expensive packaging, port costs, high risks of looting and
deterioration, more spaced frequencies

Road Transport

This applies to road and rail transport

 Door-to-door contracting through freight forwarders

 The cargo is transported in specialized containers according to its characteristics
 No restrictions for dangerous products
 Depending on the distance, it can be less expensive than air travel but more expensive
than sea travel

Land transport by train

 Terminal to terminal is contracted through freight forwarders

  The cargo is transported in specialized containers according to its characteristics
 It is the least expensive of the land transports especially over long distances.

Indirect costs

 Idle time: cost of transit time between international loading and unloading

Cost components of the importing country

 Means of international cargo transport: land, air, sea

 Direct and indirect costs as well as the exporter

Criteria for the selection of the international physical distribution channel

Nature of the product, characteristics, volume, availability, distance, climatic alternatives,

location, transport, means and deposits, current capacity, potential absorption market,
operating frequency, costs, profitability

Costs of inventories in physical distribution

It is the time delay of the stock substitution: they are those in which it is incurred to make
arrive the finished product from its center of production to the deposit or point of stock for its
later dispatch towards the distribution channels

There are two main types of costs: Supply costs, which include

 Capital costs: it has a direct relation with the opportunity cost, that is to say this capital
invested in stock of fixed products until its sale, could be used for a different
investment
 Storage cost: there is an opportunity cost analysis since it is the investment used to
safeguard the finished products until their delivery to the distribution channels.
 Cost of deterioration or obsolescence: the stock of finished product is possible to
break, lost and may become obsolete due to changes in mode, technology.
 Cost of insurance: it is currently unacceptable that a company does not have insurance
on the stock in order to prevent any incident.
 Supply costs, are integrated by:
 Out-of-stock costs: are considered those costs that the company enters when an order
is placed and does not have enough capacity to fill it
 Procurement costs: are those related to the conformation of the stock. From the
moment a goods order is requested, the company must provide the necessary means to
comply with the delivery of the goods.

Choice of the chain of the DFI

The exporting entrepreneur has usually made his decisions based mainly on the costs of the
product and its transportation and according to the services available in his country, but other
costs of the distribution chain are omitted or taken only as marginal. Therefore, the final
choice must consider other parameters, such as:

 The international sales contract

 Load stowage factor and weight/volume ratio by mode of transport
 The transport services available in the countries involved
 The comparative analysis of cost and time

After talking about the costs of international physical distribution it is important to integrate
the INCOTERMS which are the international language for commercial terms and which
facilitate the oppressions of international trade and delimit the obligations of both the buyer
and the seller, making the risk in export decrease.

They regulate four major problems that support every commercial transaction:

 The delivery of the goods

 Risk transfer
 Distribution of expenses
 Documentary procedures

What are the advantages of reducing logistics and transportation costs in International
Physical Distribution and the disadvantages of high costs in it?

A company has a cost advantage when it has lower costs than its competitors for a product or
service similar or comparable in quality. Thanks to the cost advantage the company is able to
lower its prices until it cancels out the margin of its competitor.
 Conclusion

I think that the logistic system in Colombia is currently delayed so the main reason for the
excessive costs assumed by the exporting companies of the country, is the cost of transport
due to the delay in infrastructure (rail, air, sea and land) making it the most expensive item
when exporting. The Colombian infrastructure applied to foreign trade indicates that the
incidence on costs and operations of exports is direct and that to a great extent the
international indicators that position Colombia in the last positions of efficiency are given by
reasons of corruption, lack of administration and the low governmental investment in the
sector, giving as results products with high logistic costs that significantly affect the exporting
companies at the moment their international distribution.

.
 Bibliography

James, R. Stocks, Douglas, M. Lambert, 1 january 1983, Revision de marketing internacional,

https://www.emerald.com/insight/content/doi/10.1108/eb008243/full/html

Alan, E. Branch, Esstrategia y Gestion de Distribucion Fisica Internacional,

https://link.springer.com/chapter/10.1007/978-1-4899-7258-3_19