AA12 Evidence 1: Writing and essay about logistics costs

Yesica Natali Carrillo Alvarado

FICHA: 1966032

SENA
International Negotiation Technologist
2020
 How INCOTERMS Terms Help International Physical Distribution

For a negotiation to be successful, several aspects such as costs, documentation

and Incoterms must be taken into account, these are the terms used by the seller
and the buyer to define the delivery of the products to a destination, as well as the
responsibilities and risks that may have in the course of negotiation. These
operations bring advantages and disadvantages for the exporter and importer in
which costs can influence. One of the most important operations is logistics and
transport costs, as they can affect the negotiation.

For the seller and the buyer, it is important to make a profit on their orders, so they
look for the most suitable INCOTERM for sale and thus reduce logistics and
transport costs. MyABCM in its article mentions three words that are the
fundamental basis in logistics: "Through planning, execution and control, this area
aims to optimize processes and reduce costs, increasing profits". Regarding
transport, Beetrack says “According to the Perlog study: Latin America Logistics
Profile, logistics costs represent between 18% and 35% of the value of a product,
which reveals the need to improve logistics processes to reduce the costs towards
the final consumer”.

If it is the case that there are high costs in distribution, companies adapt measures
to reduce those expenses, but it is then that the terms of the incoterms take center
stage because they can change the entire process of a negotiation giving more
advantages, preferably using a term such as the CIP which is the agreement
where the seller performs all the procedures from the place of origin to the point of
unloading and the buyer takes care of the procedure from the point of unloading to
the place of destination. At first glance it is seen that the seller is the one who must
make the most expenses but one of the rules of this term is that the buyer
assumes the risk from the transport of origin to the destination, so it is balanced
and both parties benefit of earnings.

Usually, companies implement these methods to reap the benefits of reducing

logistics and transportation costs. How they can influence the international physical
distribution, is where the advantages are found by minimizing costs and these are:
savings for companies (by reducing costs, investing in other processes and other
steps), knowing the load (allowing planning to anticipate actions to be done in the
process) and most importantly: more balanced negotiations (using INCOTERMS
terms, the seller and the buyer look for appropriate prices to the benefit of both
parties). On the contrary, there are disadvantages of high costs, which are the
decrease in income, less negotiations, an income strategy based mainly on costs
and not on service, finally the reduction of production due to the high costs
invested in logistics and transportation. In conclusion, the opportunities offered by
all international physical distribution must be taken into account, make the correct
arrangements, use the methods, especially implement INCOTERMS to reduce
logistics and transport costs, guaranteeing optimal negotiations.

In conclusion, the opportunities offered by all international physical distribution

must be taken into account, carry out the correct operations, use the methods, also
consult with a customs agent but above all implement INCOTERMS to reduce
logistics and transport costs that guarantee an optimal negotiation.
 Bibliography

 Beetrack. (2020, August 5). Transport costs in last mile logistics: how to
reduce them? Blog https://www.beetrack.com/es/blog/costos-de-transporte-
terrestre-logistica.

 MyABCM. (2016, September 12). 6 ways to reduce logistics costs in the

company. Blog The best content in costs and profitability.
https://www.myabcm.com/es/blog-post/formas-de-reducir-costos-de-
logistica/