Chapter 7

Transportation and Delivery

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Total Transportation Costs

United States* Canada*

Highway $ 450 $ 12.5

Railroads 36 4.5

Water 22 2.4

Pipelines 9 N/A

Air 26 4.3

Freight forwarders 6 3.6

Shipper related 5 N/A

Total $ 554 $ 27.3

* In Billions

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Major Issues Facing the Logistics Industry

• Congestion

• Mergers and anti-trust concerns

• Cargo and liability concerns

• Safety regulations

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Transportation Industry Segments

• Air cargo

• Air passenger

• Motor freight

• Railroad

• Marine

• Intermodal

• Pipeline

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Third-Party Logistics Suppliers

• Integration of services desirable

- transport and logistics

• Opportunity for logistics/transport companies to provide more value-added services under deregulation

• Outsourcing issue for manufacturers

• $50 billion industry

- Growth market

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Third-Party Logistics Suppliers

• Facilitated by advances in information technology- Logistics deals with the flow of goods and information

• TPL providers differentiated on the basis of:- geographic scope- industry specialization

• Potential economies of TPL- economies of scale- economies of scope- specialized expertise

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The Selection of the FOB Point Determines Four Things

1. Who pays the carrier

2. When legal title to goods being shipped passes to the buyer

3. Who is responsible for preparing and pursuing claims with the carrier

4. Who routes the freight

Since deregulation of the transport sector, purchasers

are increasingly taking control of transport arrangements

as a means of controlling costs

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Terms of Sale: Possible FOB Points

Title passesto buyer

Terms of Sale: F.O.B. Origin, Freight Collect

Freight charges paid by buyer

Seller Buyer

Buyer - Pays freight chargesBuyer - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)

Seller - Pays freight chargesSeller - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)

Terms of Sale: F.O.B. Origin, Freight Prepaid

Title passesto buyer

Freight charges paid by seller

Seller Buyer

Terms of Sale: F.O.B. Origin, Freight Prepaid and Charged Back

Title passesto buyer

Freight charges paid by seller

Seller Buyer Seller - Pays freight chargesBuyer - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)

…then collected from buyer by adding amount to invoice

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Terms of Sale: Possible FOB Points (continued)

Title passesto buyer

Terms of Sale: F.O.B. Destination, Freight Collect

Seller Buyer Buyer - Pays freight chargesBuyer - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

Terms of Sale: F.O.B. Destination, Freight Collect and Allowed

Title passesto buyer

Freight charges paid by buyer

Seller Buyer

Buyer - Pays freight chargesSeller - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

Seller - Pays freight chargesSeller - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

Terms of Sale: F.O.B. Destination, Freight Prepaid

Title passesto buyer

Freight charges paid by Seller

Seller Buyer

Freight charges paid by buyer

…then charged to seller by deducting amount

from invoice

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The Effects of Transportation Deregulation

• Greater innovation and efficiency- by carriers and shippers

• Wider range of services available to shippers• Carriers free to experiment with geographical extent and nature

of services• Restructuring of transport industry

- true of all modes

• Greater pressure on all suppliers to carriers to be more efficient• Decreases in actual or real transport costs

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Incoterms

• Developed by the International Chamber of Commerce• Updated: Incoterms 2000• Internationally recognized standard definitions that describe the

responsibilities of a buyer and seller in a transaction- Variations across regions and among carriers possible so make

sure to specify conditions• 13 standard Incoterms• Each term must be followed by a geographic location, such as a

port or city

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Incoterms: Departure

• EXW: Ex Works (named place)

- Buyer takes title when goods picked up at the supplier’s factory and is totally responsible for shipment, customs clearance and duties.

- Places greatest responsibility on the buyer

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Incoterms: Main Carriage Unpaid

• FCA: Free Carrier (named place)- Goods have cleared by the seller for any export customs

procedures and the seller is responsible for loading the goods- The buyer takes possession at the named place in the seller’s

country

• FAS: Free Alongside Ship (named port of shipment)- The seller clears the goods for export and delivers them to the

port of export- The buyer takes possession at the dock at the port of export

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Incoterms: Main Carriage Unpaid

• FOB: Free on Board (named port of shipment)

- The supplier clears the goods for export and is responsible for the costs and risks of delivering the goods past the rail at the named port of shipment

- The buyer takes responsibility for the goods as they pass over the ship’s rail during the loading process.

- Note: This term is used differently from the conventional North American term “F.O.B.”

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Incoterms: Main Carriage Paid

• CFR: Cost and Freight (named port of destination)

- The supplier clears the goods for export and arranges and pays freight as far as the port of entry

- Title and risk of loss transfer to the buyer from the time the goods go over the ship’s rail in loading - the buyer owns the goods on a carrier selected by the supplier.

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Incoterms Main Carriage Paid

• CIF: Cost, Insurance and Freight (named port of destination)- The supplier clears the goods for export, arranges and pays the

freight and marine insurance for the goods- Title and risk transfer once the goods clear the ship’s rail while

being loaded• CPT: Carriage Paid To (named port of destination)

- The supplier clears the goods for export, delivers the goods to the carrier and pays for carriage to the port of destination, unloading customs clearance and duties

- Title and risk risk of loss transfers when goods are transferred to the carrier

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Incoterms Main Carriage Paid

• CIP: Carriage and Insurance Paid To (named port of destination)

- The supplier clears the goods for export, delivers the goods to the carrier and is responsible for paying carriage and insurance to the named port of destination

- The seller is also responsible for costs of unloading, customs clearance and duties

- Title and risk risk of loss transfers when goods are transferred to the carrier

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Incoterms: Arrival

• DAF: Delivered at Frontier (named place)- The supplier clears the goods for export and is responsible for

making them available to the buyer at the named place at the frontier, and not cleared for import.

- Title transfers at named place and time at the frontier.

• DES: Delivered Ex Ship (named port of destination)- The supplier is responsible for clearing the goods for export and

for making them available to the buyer on board the ship at the port of destination, not cleared for import.

- Title transfers from time the goods are made available at the named port

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Incoterms: Arrival

• DEQ: Delivered Ex Quay (named port of destination)

- The supplier is responsible for clearing the goods for export and making them available to the buyer on the warf at the named port of destination, not cleared for import

- The buyer is responsible for import clearance, duties and other costs upon import and transport to the final destination

- Title transfers from time the goods are made available at the warf

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Incoterms: Arrival

• DDU: Delivered Duty Unpaid (named place of destination)

- The supplier clears the goods for export and is responsible for making them available to the buyer at the named destination, not cleared for import.

- The buyer is responsible for import clearance, duties and associated administrative costs.

- Title transfers at the named place of destination

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Incoterms: Arrival

• DDP: Delivered Duty Paid (named place of destination)

- The supplier clears the goods for export and is responsible for making them available to the buyer at the named destination, cleared for import, but not unloaded

- Title transfers at the named place of destination.