Organise transport, storage and other trade logistics

The collection and delivery of goods is an integral part of international trade. Agreeing how quickly goods should be delivered, for instance, is essential, particularly since shorter product life cycles and mass customisation mean lead times for delivery have become much tighter. But speed of delivery also needs to be balanced against the higher costs of air freight and express services.

It's important to negotiate how the buyer and seller will divide the responsibility for transporting goods and clearing them through customs. It's equally important to ensure that this agreement is absolutely clear. At the same time, you need to decide whether to manage deliveries yourself or to use a freight forwarder; quality suppliers can offer complete solutions for managing inventory across an international supply chain, reducing delays, problems and costs.

Whether you choose to outsource, or manage deliveries yourself, accuracy is essential. Failing to understand exactly what your responsibilities are can expose you to unexpected risks, and even small errors with paperwork can lead to significant disruption and delay. Many businesses find expert advice essential when they first get involved in international trade.

Logistics can be complex and frustrating, but their effective management can give you a competitive advantage. Exporters who offer quality service and reliable deliveries find it easier to win and retain customers. Importers who are prepared to share the burden are in a position to negotiate better prices.

1 Agree delivery terms

1.1 Plan your negotiating strategy.

You will want to limit your costs and risks. However, if you are competing with other suppliers, you may need to be flexible.

If you are the customer, you may be able to negotiate a better price if you are prepared to take more responsibility for delivery.

1.2 Consider any limitations on what you are prepared to agree with the other party.

It may be difficult or expensive for you to organise some parts of the journey. For example, you may not want to take responsibility for clearing goods through customs in a foreign country.

In some countries, however, there are regulations specifying what delivery terms must be used.

1.3 Agree exactly what each of you will take responsibility for.

Agree where the goods will be delivered, and who will arrange their transport.

Specify responsibility for the goods at every stage of the journey, and whether any insurance is required. The precise agreement will depend on how the goods are to be delivered (see 2).

Agree who will handle export and import customs clearance, and who will pay any duties and taxes.

It is essential to have a written contract that sets out who is responsible for moving the goods at each stage of the process.

1.4 Use Incoterms to avoid any misunderstandings.

Incoterms are an internationally recognised set of standards governing trade contracts. Each Incoterm specifies what the buyer's and seller's responsibilities are.

You will need to obtain a copy of the detailed text of relevant Incoterms to see which Incoterm suits you and what your obligations are. Order a copy from http://iccbooks.com/Product/ProductInfo.aspx?id=653

You may need to take advice from an experienced lawyer or international trade expert to understand exactly what each Incoterm specifies and how to use it.

For more information, visit the International Chamber of Commerce website

1.5 Incorporate the agreed delivery terms in any relevant documentation.

For example, if payment is being made using a letter of credit, the letter of credit will specify where the supplier must make delivery.

2 Assess transport options

2.1 Decide how quickly the goods need to be delivered.

Speed may be essential for perishable or fashionable goods, and for supplies that are urgently required.

Faster delivery can allow inventory levels to be lowered and payment delays to be reduced.

2.2 Identify any special requirements.

Goods that are hazardous, perishable, fragile, liquid or alive require appropriate packaging and handling.

You must comply with legal requirements in every country through which your goods travel. For example, you may have to comply with additional rules, reporting, and licensing requirements if you are transporting items such as chemicals and hazardous substances outside the EU.

2.3 Decide whether you want to handle deliveries yourself.

Most smaller businesses use a freight forwarder to handle deliveries (see section 3).

2.4 Identify the most cost-effective mode of transport.

For trade within the EU, road freight is the most common option. Good motorway links and minimal border controls will often allow next-day delivery.

Sea freight is common for longer distance deliveries.

Standard containers are easy to handle in 'multimodal' deliveries: for example, where a container is taken by road or rail to the port, then lifted onto the ship. Specialised containers can be used for chilled, frozen, liquid or hazardous goods.

Air freight is a faster and increasingly popular alternative but can be prohibitively expensive, particularly for bulky or heavy goods.

For each mode of transport, different routes can affect costs and delivery times. Costs and delays will be increased if goods have to clear customs in intermediate countries.

2.5 Assess the total cost.

These may include packing, handling, documentation and insurance as well as freight.

Import duty and taxes will increase the final costs. Your contract should specify who is responsible for these.

3 Consider outsourcing

3.1 Assess the services on offer.

A freight forwarder can act as your agent. They can assist with an order from the start by advising on different transport options and costs, documentation and regulations.

Many forwarders can provide a total logistics solution, co-ordinating the movement of freight from one part of the world to another, and liaising with both buyer and seller.

Couriers and some forwarders offer an express service, typically for small consignments up to around 40kg.

Some freight forwarders offer added-value services, such as delivery tracking and storage (see section 5).

3.2 Consider the potential savings you can make.

Forwarders can provide specialist advice and plan the most cost-effective routes.

If you want to deliver less than a full container, transport and customs clearance costs can be reduced by grouping your consignment with others into a standard load.

Experienced forwarders can minimise any delays in clearing customs. Forwarders often have guarantees and bonds with customs to allow the easy movement of goods through ports and airports.

Using a forwarder means that you will reduce the amount of time your staff spend handling paperwork and you won't need expensive software.

3.3 Identify potential suppliers.

Look for forwarders who regularly deliver to your destination. Subcontracted deliveries will generally be more expensive.

Find out how flexible they are: whether they provide a door-to-door service or what delivery and collection points they provide.

Check how often they make deliveries to your destination, and how long deliveries take.

Make sure that they can handle any specialist requirements for your goods, such as special handling.

Ask for quotes.

See www.bifa.org to find freight forwarders who are members of the British International Freight Association.

3.4 Ensure that you have a clear contract specifying what they will do for you.

Investigate any potential legal liabilities you may have: for example, for the actions of someone acting as your agent.

4 Arrange insurance

4.1 Make sure that you understand when risk passes from seller to buyer.

For example, using 'Cost and Freight' terms, the seller delivers when the goods are placed on board the ship. Even though the seller also pays for the costs of shipment, the buyer takes the risk of any loss or damage during the voyage.

4.2 Assess the risks.

Moving goods internationally carries a real risk of loss or damage.

Depending on your contract, either buyer or seller could be at risk if delivery is delayed.

Pursuing carriers for liability or negligence is uncertain. It can be difficult to prove who was responsible for loss or damage, particularly if several different carriers and methods of transport have been used.

4.3 Arrange appropriate insurance.

Some Incoterms require the seller to arrange insurance. For example, using 'Cost, Insurance and Freight' (CIF) terms, the seller is required to arrange marine insurance to cover delivery to the specified port.

Cargo insurance covers the tranport of goods by sea and over land, protecting you from theft, loss or damage during transit.

Premiums are usually calculated according to the value of the consignment, the type of goods and the risks involved in the route and the method of transport.

Individual consignments can be covered through a specific voyage policy. Regular traders often arrange open cover, which allows for any number of shipments over a period of time.

Contingency insurance protects you when customers, who were responsible for insuring the goods in transit, refuse to accept damaged goods.

4.4 Identify and minimise the remaining risks.

For example, insurance is unlikely to cover predictable damage, such as metal rusting or foodstuffs rotting. Instead, you will need to ensure that goods are packaged and handled effectively, and if necessary delivered quickly.

To make an insurance claim, you may need to be able to prove that you acted prudently and that any loss was not the result of negligence.

As an importer, if you are relying on insurance arranged by your supplier you will need to know exactly what it covers.

5 Organise handling and storage

5.1 Package goods effectively.

Ensure your packaging is legal to enter the UK. For instance, wood packaging (often used to transport food or animals) needs to be accompanied by a phytosanitary certificate. Make sure dangerous goods are properly labelled and packaged.

Ideal packaging containers will be strong but lightweight and avoid unnecessary bulk.

Packing filler can help reduce the effect of any impact and resist moisture penetration.

Strapping, seals and shrink-wrap help deter thieves. Avoid displaying the contents of high-risk packages.

If you are the customer, you may want to check packaging - and if necessary repackage goods - at the point where you take responsibility for the goods.

5.2 Ensure goods are appropriately labelled.

Ensure your labelling is legal. For instance, you must label dangerous goods clearly.

Mark and label your goods for safe and efficient delivery in both English and the language of your country of destination. Use international shipping and handling symbols to do this.

Give the shipper's mark, your name (or identification code), destination and country of origin.

Display the number of packages with their size and weight.

Include any special handling instructions, as well as any information about hazardous materials.

Ensure that you comply with the labelling requirements for goods in transit for any countries your goods will pass through.

5.3 Arrange storage.

If you use a freight forwarder, they may offer storage facilities or picking and packing operations.

Customs warehouses (and free zones) allow goods to be held without paying import duty or taxes until they leave the warehouse. Goods can be re-exported without paying import duty.

5.4 If possible, track deliveries.

Real-time tracking systems improve supply chain efficiency and help you identify problems and new trends more quickly.

Offering customers access to tracking systems can give you a competitive advantage.

Many freight forwarders offer online systems for tracking goods.

More sophisticated solutions allow suppliers and customers to share their data electronically, reducing purchasing costs and improving stock control.

Some larger customers are beginning to require suppliers to use radio frequency identification (RFID) tags on goods, allowing them to be automatically tracked.

6 Manage documentation

6.1 Ensure that you understand what your responsibilities are.

Your contract should state what your responsibilities for customs clearance are in the UK and overseas. Although it is normal practice for each party to be responsible for customs in their own country, this is not automatically the case.

Buyer and seller need to cooperate. For example, even if the customer is responsible for clearing import customs, the supplier will need to provide the right paperwork.

6.2 Check what export and import documentation will be required.

Some goods, such as food, arms, chemicals and technology, may require an export licence.

In the UK, most export declarations can be made electronically using the customs computer CHIEF.

For goods travelling through the EU, a single administrative document (SAD) must be presented at the point of exit from the EU.

Each country has different import regulations. You may require a certificate of origin to import goods or to claim preferential duty rates.

Some goods require special documentation. For example, you may need documents showing that your goods conform to local product standards.

Even within the EU, where most goods are able to circulate freely, it is good practice for goods to be accompanied by a numbered commercial invoice.

HM Revenue & Customs' (HMRC) Authorised Economic Operator (AEO) scheme is an accreditation scheme for businesses using the international supply chain. A quality mark for international traders, AEO offers benefits such as fewer customs inspections of goods, less paperwork and faster clearance of goods through customs.

6.3 Check what transport documentation will be required.

Any freight forwarder or carrier you are using will need shipping instructions from you.

You will want documentary evidence, such as a bill of lading, showing that they have taken receipt of the goods.

Attach a packing list to the goods, itemising the contents of each package being transported.

For all hazardous goods, a dangerous goods declaration is required.

Keep all transport documents, as you will have to produce them to validate any insurance claim.

6.4 Make sure all documentation is present and correct.

Customs clearance and payment for goods can be delayed, or even fail completely, if documents are missing or inaccurate.

If payment is being made under a letter of credit, accurate transport documentation must be supplied before payment can be completed.

Documentation requirements can be complex. If necessary, take advice from your business adviser or freight forwarder.

SIGNPOST

  • For information from the British International Freight Association, see www.bifa.org
  • To find an insurance broker belonging to the British Insurance Brokers Association, visit www.biba.org.uk
  • For information on duty, free zones and customs warehouses, visit the HMRC website
  • For advice on international trade, and information about the requirements of individual countries overseas, visit the UK Trade & Investment website