Bradley Waller explains the crucial factors that are fundamental to the importing and exporting industry.
Choosing the appropriate mode of transport when importing or exporting goods is an important part of a profitable supply chain.
Each mode has its merits, but there are certain factors to consider before committing to a decision that could have an adverse effect on your bottom line.
Incoterms describe and define who is responsible for the tasks, costs and risks involved in the delivery of goods from sellers to buyers.
As such, choosing the correct Incoterm is crucial to the seamless supply or sale of your goods internationally. Careful consideration should be made when agreeing on Incoterms with a supplier or customer.
For example, as an importer, if you are working to a production schedule and you require raw product urgently from a supplier overseas, it is likely you would want to retain control of the decision for which mode of transport is utilised and are likely to choose a service or mode of transport that gets the goods to you on time to meet your schedule.
If you agree to an inappropriate Incoterm, you may lose this control and your production schedule could be affected by a poor decision which suited your supplier’s needs and not your needs as the buyer.
Cost v Urgency
In general terms, air freight is more expensive than sea freight when shipping goods in bulk. As a result, there needs to be a balance between the cost of shipping your goods and the urgency with which they are required at their final destination.
For example, a shipment of this autumn’s fashion collection ready for despatch this weekend from the Far East wouldn’t demand a particularly quick transit time so long as it was on the high street in time for autumn. The transit time from say Shanghai is roughly 30 days by Sea, therefore it would be far more economical and practical to ship this by sea.
However, if you are a manufacturer of pumps for the oil and gas industry, and your customer has had a catastrophic failure of a pump at one of their rigs causing production to halt, then there is an immediate need to expedite a replacement part to the concerned rig due to the fact that every hour of downtime could be costing the customer thousands. In this instance, a priority air freight service would be the most suitable mode of transport.
Fragile, dangerous and perishable goods
Another consideration to make is to determine the nature of the goods you are importing or exporting. Is the commodity, fragile for instance, or does it have a short shelf life (such as fresh flowers or fresh foodstuffs).
If so you may want to consider air freight due to reduced handling, which your fragile goods would benefit from, and a much shorter transit time, which means your perishable goods arrive nearly as fresh as they departed!
Additionally, are the goods hazardous or do they contain lithium batteries, which are becoming increasingly more difficult to ship by air due to safety concerns? Certain types of hazardous goods cannot be shipped via air freight, or if they can, then it may be that it has to be sent via cargo air craft only.
In this situation, sea freight may be the only option and therefore the supply of your goods should be carefully planned to allow for the increased transit time.
Bradley Waller is the Logistics Development Manager of Alliance Shipping