There are several considerations for adopting Incoterms in supply agreements that can have a strategic impact to an organisation. These can include the envisaged mode and method of transport, as well as both parties’ knowledge of how to move products and get customs clearance. They also need to consider the type and quantity of commodities to be procured, insurance coverage for the specific project and whether the products can be combined with other orders being purchased at or delivered to a comparable place. This article discusses the key strategic considerations for adopting Incoterms in contractual agreements.
Table of Contents
The Need for Forwarding Agent
A freight forwarder is an individual or more likely a company who arranges for the transportation of goods from one location to another. A freight forwarder’s primary responsibility is to organize the transportation logistics associated with the shipment and be responsible for all customs clearance paperwork. In most cases, when a buyer uses a freight forwarder, the buyer will agree on a quote for the entire end-to-end process of moving the shipment from its origin to the final store or warehouse. That means the costs would make up about 20 different components on average. Transport costs may be calculated based on cargo weight, volume, or both. Costs of documentation, including export and import paperwork. Palletization or packing will depend on the nature of items to be shipped, whether there is a need for the items to be placed on pallets before being loaded into a container, or they may need to be packed for air freight.
The Need for Trade Financing
Trade finance refers to the financial products and instruments used by businesses to facilitate international trade and commerce. This enables and facilitates importers and exporters to conduct business through trade. By reconciling an exporter’s and importer’s divergent needs, trade finance can help reduce the risk associated with global trade. Trade finance provides receivables or payment to the exporter in accordance with the agreement, while the importer may be extended credit to fulfil the trade order. The parties involved in trade finance are numerous and can include as follows banks, trade finance companies, importer and exporters, insurers, export credit agencies and service providers. A few of the financial instruments used in trade finance are Banks can provide lending lines of credit to both importers and exporters. Factoring is the practice of receiving payment based on a percentage of a company’s receivables. Exporters can be provided with export credit or working capital.
Multimodal Transportation
Multimodal transport is the combination of various modes of transportation to facilitate cargo movement, that is, to make it faster and more efficient. When it comes to this mode of transportation, more than one type of vehicle is required to transport the goods to their destination, such as trucks, trains, ships, airplanes, or some other mode of transportation. The advantage of Multimodal Transport lies in the most efficient combination of multiple modes of transportation, while optimizing deadlines, reducing inventory costs, and thus keeping merchandise costs under control. The combination of these results in high environmental sustainability, as Multimodal Transport reduces transportation’s environmental footprint. It may incur additional costs due to the use of modal interfaces, such as trans-shipments, handling, and so on. However, a company can hire a Freight Forwarding Company to act as an intermediary between the various modes of transportation, without involving the importer or exporter in the transaction.
Intermodal Transportation
Intermodal transportation is a combination of two or more modes of transportation. It implies that freight should be moved without any handling while changing modes. A different carrier manages the load at each stage of shipping. Finding capacity can be difficult with all the modern trucking problems, such as tight capacity, high gas prices, gas emissions, and a driver shortage. Ultimately, many shippers are looking for ways to cut transportation costs and move freight more efficiently. Intermodal shipping turns out to be an excellent solution for these requirements. Finally, intermodal shipping is a dependable and cost-effective shipping method that saves money on transportation while reducing a company’s carbon footprint. This will help long-distance loads and add value to the supply chain.
Packaging and Packing Consideration
Packaging is also the process of preparing goods to be wrapped and shipped or transported in other ways. Packing is a material that is used to pack and protect goods in a container, particularly in the shipping industry. Packing is the act of packing items for delivery by a person or machinery. Packaging is Visual – The importance of “shelf impact” cannot be overstated. The packaging design is what draws buyers to the product on the shelf and is what they remember when they leave. Packaging is Informative – Packaging is a form of information delivery for the prospective consumer. This may seem self-evident, but it bears repeating.
Delivery Consideration according to Destination
The point in the transaction at which the seller transfers the risk of loss or damage to the goods to the buyer. Arrival: The point specified in the Incoterm for which carriage is paid. Free: The seller is obligated to deliver the goods to a specified location for transfer to a carrier. DUP is defined as “Delivered at place unloaded” This Incoterm requires the seller to deliver the goods unloaded at the specified location. The seller pays for all transportation costs (export fees, carriage, unloading from the main carrier at the destination port, and destination port charges) and assumes all risk until the shipment arrives at the destination port or terminal. DAP is defined as ‘Delivered at Place’ the seller delivers when the goods are placed at the buyer’s disposal on the arriving means of transport, ready for unloading at the named place of destination.
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References
Chris B. Murphy. (2020). “The need for Trade Financing”. Retrieved from https://www.investopedia.com/terms/t/tradefinance.asp, accessed 10/10/2021.
David Noah. (2020). “Contract Risk and Insurance”. Retrieved from https://www.shippingsolutions.com/blog/incoterms-cif, accessed 10/10/2021.
Dewitt, W. & Clinger, Jennifer. (2017). “Intermodal Freight Transportation”. Retrieved from https: https://publication.sipmm.edu.sg/considerations-selecting-transportation-mode, accessed 10/10/2021.
Diane. (2010.) “Delivery Consideration”. Retrieved from https://kghcustoms.com/en/insight/choose-right-delivery-terms-incoterms/, accessed 9/10/2021.
Lawrence Ho Mun Yong, DLSM.(2021). “Packaging Techniques for Outbound Logistics”. Retrieved from SIPMM:https://publication.sipmm.edu.sg/packaging-techniques-outbound-logistics/ accessed 10/10/2021.
Leong Teck Lee, DLSM. (2019). “Crucial Factors to Consider for Multimodal Freight Transportation”. Retrieved from SIPMM: https://sipmm.edu.sg/crucial-factors-consider-multimodal-freight-transportation/ accessed 10/10/2021.
PLS logistics. (2019). “Intermodal Transportation”. Retrieved from https://www.plslogistics.com/blog/when-should-you-use-intermodal-transportation, accessed 8/10/2021.
Seah Shiow Ling, ADPSM. (2021). “Application of Smart Contracts for Oil Storage Terminals”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/application-smartcontracts-oil-storageterminals/, accessed 10/10/2021.