Chapter 6

International Trade
Logistics

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 Introduction
Learning Outcomes
After this lesson, you should be able to:
• understand the role of international trade logistics and
the necessity for compliance with country regulations
• comprehend the elements of international trade logistics
• recognise the link between global trade, lead times and
variation in management decisions
• note the facilitators of international trade logistics
• note the role of governments in international trade
logistics
• recognise the factors in international trade management
that must be incorporated into a supply network model.

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 Globalisation and World Trade
• A level of variation is introduced into supply
chains as they become longer.
• Lead times can become too long for people to
respond rationally when unexpected changes
occur in demand patterns.
• Additional complexity and risks in global supply
chains can increase costs and affect the cash
flow position of brand companies.
• More working capital required to fund increased
inventories to cover the longer order cycles and
their uncertainties.

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 Globalisation and World Trade
• This can be made worse by:
 senior management failing to understand the complexity
in global supply chains
 not employing people with the range of skills required to
implement and manage the logistics of international
trade
 poor selection, implementation and integration of
information systems to assist logistics and international
trade.

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 Globalisation and World Trade
Cross-border trade
• International trade logistics (ITL) – The study
and activity of logistics in an international
environment (also called global commerce
management (GCM)).
• ITL – ‘Management of asset and non-asset
sourcing, manufacturing and distribution across
international borders to meet the demand
requirements of the organisation’s customers’
(Blinco Systems, 2004).
• ITL incorporates the increasingly important role of
trade governance, risk and compliance (GRC).

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 Globalisation and World Trade
Cross-border trade
• Integral part of ITL is global trade management
(GTM) – nature and flow of documentation
(electronic and physical) in the ITL environment.
• Procure to pay – inbound supply chain.
• Quote to cash – outbound supply chain.

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 International Trade Logistics

Source: Adapted from Supply Chain Digest, 2008. Integrated/interface applications

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2012
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 Globalisation and World Trade
Complexity in international trade logistics
• Complexity of ITL – an enterprise does not have
one supply chain, but multiple supply chains,
operating as a network that can resemble a
spider’s web.
• Every step of buying and selling in a global setting
has distance (physical and cultural) and time
being synonymous with ITL.
• The longer the distance, the less control can be
exercised in the supply chains.

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 A Supply Network and
Global Trade Management

Compliance and customs

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Elements of International Trade Logistics
International trade developments
• International trade – exports of goods and
services by a firm to a foreign-based buyer.
• Provides a nation with commodities it lacks in
exchange for those that it produces in abundance.
• Linked with other economic policies, it tends to
improve a nation’s standard of living.
• Theory of comparative advantage – countries
should concentrate their efforts on providing goods
that have a comparative advantage over other
countries and import those goods where a
comparative advantage does not exist.

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Elements of International Trade Logistics
International trade developments
• Increases in global trade since the 1950s have
occurred due to two factors:
1. Liberalisation of trade:
a) reduced tariffs paid on imported goods
b) elimination of import quotas on products.
2. Business drivers:
a) increase sales volume to cover fixed costs
b) rise of outsourcing, ‘offshoring’ and ‘nearshoring’ as a means
of companies reducing their manufacturing costs
c) IT applications and technologies available in most countries.

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Elements of International Trade Logistics
Regional transport capacity
• UNCTAD estimates that merchant ships contribute
about US$380 billion in freight income within the global
economy – equivalent to about 5 per cent of total world
trade
• Asian ports now handle about 50 per cent of the world’s
container volume
• Between 2000 and 2007, value of world trade grew by
12 per cent, but total freight costs increased by about
half this figure – demonstrating the falling unit costs of
transport
• In 2009, the top 10 container shipping companies
controlled more than 58 per cent of the total containers
in circulation
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Facilitators of International Trade Logistics
Customs
• To protect the community in their country by
controlling who and what crosses the borders into
that country.
• Perform the border clearance function, which
includes processing import–export documentation
that uses the harmonised system (HS).
Customs brokers
• ‘A firm which consolidates critical business
information that allows importers to clear their
goods through customs safely, securely and
quickly’ (IFCBA).

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Facilitators of International Trade Logistics
Freight forwarders
• Buy large quantities of space from companies that
own ships, aircraft and trucks and then consolidate
customers’ shipments so the space is fully utilised.
• They are essentially a ‘buy low and sell high’ broker
of cargo space.
• Offer a range of services for clients, such as door-
to-door goods movement, transport feasibility cost
studies, incoterm analysis and transit insurance.
• Common for freight forwarders to offer both freight
forwarding and customs broking capabilities.

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Facilitators of International Trade Logistics
Incoterms
• A set of internationally accepted trading terms
that defines the transfer of transactional costs,
risk and responsibilities between buyer and seller.
• Examples:
Maritime and inland waterway transport only:
 FAS – free alongside ship (named port of shipment)
 FOB – free on board (named port of shipment)
 CFR – cost and freight (named port of destination)
 CIF – cost, insurance and freight (named port of
destination)
 DES – delivered ex-ship (named port of destination)
 DEQ – delivered ex-quay (named port of destination).

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Facilitators of International Trade Logistics
Harmonisation system
• Harmonised commodity description and coding
system (HS) – international standard for classifying
traded items.
• Developed and maintained by the World Customs
Organization (WCO).
• Over 200 countries use the HS, equating to more
than 98 per cent of world trade.
• A six-digit record nomenclature that equates to a
particular item and cannot be altered in any way, in
order to ensure the integrity of the harmonisation.
• Basis for international trade negotiations.

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Role of Government in International Trade
Trade agreements
• Regional trade agreements (RTA) and Free
trade agreements (FTA) between countries
provide for a reduction and, in some instances,
elimination of tariffs on exports and imports
between parties to the agreement.
• Agreements frequently cover aspects concerning
goods, services, investment, intellectual property,
e-commerce, temporary movement of business
people and economic cooperation.

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Role of Government in International Trade
Free trade zones
• FTZ is an area within a country set aside and not
subject to tariffs and quotas for companies to
establish import or export operations – attract
new business and foreign investments.
• Organisation can transit or hold inventory for a
period of time, without the need to pay otherwise
applicable duties and excises.
• Means of quarantining inventory that exceeds the
permitted quota applying at its ultimate
destination.

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Role of Government in International Trade
International trade organisations
• World Trade Organization (WTO) – administers a
system of rules for international trade, aimed at
liberalising and expanding trade under agreed and
enforceable rules for reciprocal benefit.
• Asia–Pacific Economic Cooperation (APEC) –
enhance economic growth and prosperity for the
region and to strengthen the Asia–Pacific
community.
• Organisation for Economic Co-operation and
Development (OECD) – bring together the
governments of countries committed to democracy
and the market economy.

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