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.
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Chapter 5

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.
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Chapter 5

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.

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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.

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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.
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Chapter 5

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.
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Table 5-1 Top U.S. Trading Partners

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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.
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Chapter 5

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.
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Chapter 5

Customer Service Strategies for Global Markets: Four Characteristics
1.

2.

3.

4.

Marketing becomes standardized yet customized. Product life cycles shorten, sometimes to less than one year. Outsourcing and offshore manufacturing are becoming more prevalent. Marketing and manufacturing activities and strategies tend to converge and be better coordinated in firms operating globally.4
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Chapter 5

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.
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Chapter 5

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.
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Chapter 5

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
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Chapter 5

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.
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Chapter 5

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.
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Chapter 5

Figure 5-1 Types of International Intermodalism

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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.
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Chapter 5

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.

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Table 5-2 Effect of Currency Fluctuations on Exports and Imports
Scenario U.S. $ Value U.S. $ Cost of 5000-Yen In Japanese Item Yen 100 120 130 $ 50.00 $ 41.67 $ 38.46 Yen Cost of U.S. $1,000 Item 100,000 yen 120,000 yen 130,000 yen
20

A B C
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Changing Political and Legal Environments 
    

A Single European Market Eastern Europe North American Free Trade Agreement Maquiladora Operations Asian Emergence New Directions

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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.
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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.

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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.
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Chapter 5

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

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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.
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Chapter 5

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.
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Chapter 5

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

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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.
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Chapter 5

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

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Global Transportation Options  

More complex than domestic due to distance and number of parties involved Major international transportation modes  Ocean  Air  Motor  Rail

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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.

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Table 5-3 Top Ten Ocean Carriers

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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).
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Chapter 5

Table 5-4 Major International Cargo Air Carriers

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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.
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Chapter 5

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.

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Strategic Channel Intermediaries    

Foreign Freight Forwarders Non-VesselOperating Common Carriers Export Management Companies Export Trading Companies  

  

Customs House Brokers Ship Brokers Ship Agents Export Packers Ports

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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.
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Chapter 5

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.
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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.
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Chapter 5

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.

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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.
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Chapter 5

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.

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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.
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Chapter 5

Figure 5-4 Port Evaluation Factors

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Table 5-5: Ranking of U.S. Ports by Containers, Tons, and Cargo Value
By Containers Long Beach Los Angeles NY & NJ San Juan Oakland Seattle Charleston Hampton Roads Tacoma Houston
Chapter 5

By Tons Houston New Orleans South Louisiana NY & NJ Corpus Christi Hampton Roads Beaumont Long Beach Philadelphia Morgan City

By Cargo Value Long Beach Los Angeles NY & NJ Houston Seattle Charleston Hampton Roads Oakland New Orleans Baltimore
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Management of Business Logistics, 7th Ed.

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.

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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.

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Figure 5-5 Some Symbols Used for Packing Export Shipments

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Governmental Influences 
 

Customs Regulation Other Customs Functions Foreign Trade Zones

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Figure 5-6 Export-Import Flowchart

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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.
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Chapter 5

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.

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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 reexported without paying duty.
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Chapter 5

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