International TransportationModule 4

Topics

• Freedom of Air Passage – Traffic Rights

• Types of Transportation

– Air freight

– Sea freight

– Surface freight

• Challenges of Transportation

• World Cargo Hubs – trends and growthareas

Freedom Of AirPassage

Traffic Rights

• 1944 Chicago Convention mapped out theframework of future bi-lateral & multi-lateral air agreements.

• Airlines needs approval to operate withinand between countries.

• Although they are classified as “freedom ofrights”, they are actually privileges, notrights.

• Generally, there are 9 Rights.

Traffic Rights

1st Freedom of air passage• Right for Home Country to fly over Country A i.e. without

landing.

Home Country Country A Country B

Traffic Rights

2nd Freedom of air passage• Right for Home Country to make a technical stop in Country A

for non-commercial purposes i.e. for refueling, maintenanceetc.

Home Country Country A Country B

Note

• The 1st and 2nd Freedoms are founded under the InternationalAir Services Transit Agreements in the Chicago Convention.

Traffic Rights

3rd Freedom of air passage• Right for Home Country to carry commercial loads to

Country A, example Singapore to Narita, Japan.

Home Country Country A

Traffic Rights

4th Freedom of air passage• Right for Home Country to carry commercial traffic from

Country A, example Narita, Japan to Singapore.

Home Country Country A

Traffic Rights

5th Freedom of air passage• Right for Home Country to pick up commercial loads in

Country A and carry them to other countries, exampleSingapore-Bangkok-Narita.

Home Country Country A Country B

Traffic Rights

6th Freedom of air passage• Not formally part of the original convention, this refers to a

state's right to carry traffic between two other countries viaan airport in its own territory.

• Right for Home Country to carry commercial loads fromforeign Country A to another Country B via its own territory.

Country A Home Country Country B

Traffic Rights

7th Freedom of air passage• Pure foreign flight: Right for Home Country to carry

commercial loads from foreign Country A to anotherCountry B.

• Also an unofficial extension, this covers the right tooperate stand-alone services between two other countries.

Home Country Country A Country B

Traffic Rights

8th Freedom of air passage• No Cabotage: Right for Home Country to carry commercial

loads from City A in foreign to another City B in that country.

• Example, Sinagpore-Mumbai-Dehli

• Almost no country permits this.

Home Country City A inForeign Country

City B inForeign Country

Traffic Rights

9th Freedom of air passage• Pure Cabotage: Right for Home Country to carry

commercial loads from City A in foreign country to City Bin the same country, the flight need not originate in HomeCountry.

Home Country City A inForeign Country

City B inForeign Country

Types OfTransportation

Transportation Types

• Generally three modes of transportation– Air Freight

– Sea Freight

– Land/Surface Freight (trucking/rail)

• Multimodal– Refers to the carriage of goods between two points using

at least two modes of transportation.

• Speed & Cost– Air freight generally the most expensive but also the

fastest.

– Ocean the cheapest form but also almost always theslowest.

– Generally an in-between service but security is a concern.

Transportation Types

• High value parts generally move by air – lowerinventory carrying costs.– Air freight charges by per kg.

– The heavier the volume, the lower the per kg cost.

– Air freight charges based on higher of volumetric weight orgross weight.

• Bulky lower value items (e.g. plastics) generallymove by ocean.– Two kinds of ocean freight rates

• LCL – less than container load charges by per cubic meter.

• FCL – full container load charges by per container.

– Where possible, try to ship FCL

Challenges

• Air Freight– Costly

– High security

– Time specific & less flexible

• Sea Freight– Slower than most other modes

• Land/Surface Freight– Security the biggest concerns e.g. hijacking

Challenges of Transportation

Key Challenges

• Freight Weight Calculation

• Using the right Incoterms

• Understanding transportation modesand lead times

• Geographical considerations

• Understanding Trade Compliance

Freight Weight Calculations

• Greater of Gross Weight Versus Volumetric Weight– Gross weight = actual weight + wooden pallet weight

– Volumetric weight = dimensional weight

• Volumetric weight calculation– {Length(cm) x Width(cm) x Height(cm)}/6000

– {Length(in) x Width(in) x Height(in)}/366

• Most finished (retail) goods are charged based onVolumetric weight.– Need to minimize dimensions in order to keep freight cost

down.

– Wooden pallet must not be much larger than size ofcartons.

Volumetric Freight Wastage

• Wooden pallet larger than cartons

–Poor packaging design

–Lack of coordination between Logisticsand Packaging Engineering

• Non-full pallet shipping

Larger Wooden Pallet

• Volume Weight

– (100x100x150)/6000

– 250kg

• Carton Volume Weight

– (90x86x150)/6000

– 193.5kg

• Difference

– 56.5kg per pallet

– 22.6% per pallet

• Case in point

– Larger wooden palletleads to freight wastage

– Damage in transit

100cm

100cm

45cm

86cm

45cm

43cm 43cm

90cm

Height – 150 cm

Non Full Pallet Shipping

20cm

39.3cm

39cm

Volume Weight with pallet = (101.6x118x132cm)/6000 = 263.8kgNo. pcs per carton – 20 pcsNo. cartons per pallet – 18 cartonsNo. pcs per pallet – 360 pcs per pallet

Double Layer

20 pcs per ctn

If we ship between 13and 18 cartons, we willbe charged the sameVolumetric weight.Therefore, if we shipless than full pallet, wewill incur higher perunit freight cost.

Non Full Pallet Shipping

• Full pallet is 18 cartons per pallet.

• Every carton less than full pallet means lessthan full utilization of space.

Length

(cm)

Width

(cm)

Height

(cm)

Vol Wt

(kg)

Nbr Carton/

Pallet

Nbr Pieces/

Pallet Weight/Pc

%

Difference

101.6 118 132 263.8 18 360 0.73 -5.88%

101.6 118 132 263.8 17 340 0.78 -6.25%

101.6 118 132 263.8 16 320 0.82 -6.67%

101.6 118 132 263.8 15 300 0.88 -7.14%

101.6 118 132 263.8 14 280 0.94 -7.69%

101.6 118 132 263.8 13 260 1.01

Pallet

Non Full Pallet Shipping

• Air freight cost will increase substantially ifwe do not ship in full pallets.

• Other than air freight cost, damages willalso occur further adding to cost of goods.

Vol Wt

(kg)

Nbr Carton/

Pallet

Nbr Pieces/

Pallet

Air Freight

Per Kg

Air Freight

Per Pallet

Air Freight

Per Piece

263.8 18 360 $5.00 $1,318.77 $3.66

263.8 17 340 $5.00 $1,318.77 $3.88

263.8 16 320 $5.00 $1,318.77 $4.12

263.8 15 300 $5.00 $1,318.77 $4.40

263.8 14 280 $5.00 $1,318.77 $4.71

263.8 13 260 $5.00 $1,318.77 $5.07

Poor Packaging

• Examples of poor packaging.

• Non-full pallet.

• Poor utilization of wooden pallet.

M7333J/A M7333J/A

PalletLoadOut

Sheet

M7333J/A M7333J/A M7333J/AM7333J/A M7333J/A

PalletLoadOut

Sheet

M7333J/A M7333J/A

Incoterms

• 13 internationally recognized InternationalCommercial Terms (Incoterms)– Internationally recognized as evidence of the buyer’s and

seller’s responsibilities for delivery under a sales contract

• The 13 incoterms do not cover all aspects of salescontract in the real world.– Need for users to modify and be as specific as possible.

– Include provisions in order to obtain further precision.

– Amended or added term should be carefully worded toavoid unintended consequences.

– Incoterms DO NOT determine title of ownership.

Incoterms

• Divided into Four Categories– Group E – EXW

• Under EXW, the seller minimizes his risks by only making thegoods available at his own premises.

– Group F – FCA, FAS, FOB

• Under F terms, and under FCA unless otherwise agreed, theseller arranges and pays for all the pre-carriage in the countryof export.

– Group C – CFR, CIF, CPT, CIP

• Under C terms, the seller arranges and pays for the maincarriage but without assuming the risk of the main carriage.

– Group D – DAF, DES, DEQ, DDU, DDP

• Under D terms, the seller’s cost/risk is maximized because hemust make the goods available upon arrival at the agreeddestination.

Incoterms

OriginHandling Port-To-Port Transportation

DestinationHandling

Buyer

Seller

Seller

Seller

Buyer

Buyer

E

F

C

D

Lead Times• Transportation Lead Times consists of

– Origin handling• Booking, pick up, export customs declaration etc.

– Point-To-Point• Transportation between one city to another

– Destination handling• Import customs clearance, retrieval, delivery etc.

Lead Times• Need to understand

– Cut off times – just like passenger who need tocheck in 2 hours before flight departure, cargoneeds to be at airport 6 hours before flightdeparture.

– Routing – not all sailings or flights are direct.Some are routed via intermediate points.

– Departure/Arrival• First departure does not always mean first arrival.

• Direct flight from New York to London may depart 2hours later but arrive an hour earlier than a flight viaFrankfurt.

• Use arrival as indication, not departure.

Lead Times• Companies typically have several service

levels (SL) to choose from.

– Deferred Service: 6-7 days

– Normal Service: 4-5 days.

– Express Service: 1-3 days.

• Cost is driven by SL – the faster the SL, thehigher the cost.

• Typically, all shipments are planned usingDeferred Service.

• In the event of upgrading of SL, recovery isimportant. Who pays for upgrade?

Geographical Considerations

• Recognize that each geography is different fromanother– North America has different requirements from Europe.

– Europe has different requirements from Asia.

– Even Asia is not one homogenous region.

• What is applicable to you in one geography may notbe applicable in another country.

• Most trade in Asia are cross national borders.

• Even within the same country, different regulationsmay apply – example China.– Shipments for Shanghai are not allowed to be terminated in

Beijing unless VAT (17%) is paid.

– Beijing may be capital of China, but not the main gatewayfor trade.

Geographical Considerations

• Malaysian state of Johor is closer to Singapore thanit is to Kuala Lumpur.– Shipments routed via Singapore is faster.

• Mexican city of Tijuana is closer to USA than it is toMexico City.– Shipments routed via Los Angeles better than from Mexico

City.

• Chinese city of Dongguan is closer to Hong Kongthan it is to Beijing.– Shipments for Dongguan almost always routed via HKG.

• Knowing which gateway to use is critical in Asia.

Geographical Considerations

• Biggest challenge for Asia Inbound is using the rightgateway in Europe and North America.

• Europe major gateway– Frankfurt (Germany)

– London and Manchester (UK)

– Amsterdam (Netherlands)

– Paris (France)

• North America gateway– New York, Atlanta (East Coast)

– Chicago, Dallas, Houston (Mid West)

– Los Angeles, San Francisco (West Coast)

– Miami (Latin America)

Geographical Considerations

•• North America major gatewayNorth America major gateway

–– East CoastEast Coast –– New York, AtlantaNew York, Atlanta

–– Mid WestMid West –– Chicago, Houston,Chicago, Houston,DallasDallas

WASHINGTON

OREGON

IDAHO

MONTANA

WYOMING

UTAH

NEVADA

CALIFORNIA

Olympia

SalemHelena

Boise

Cheyenne

Salt Lake CityCarson City

Sacramento

Denver

COLORADO

ARIZONA

NEWMEXI CO

TEXAS

KANSAS

OKLAHOMA

Phoenix

Santa Fe

Topeka

Oklahoma City

Austin

NORTHDAKOTA

SOUTHDAKOTA

NEBRASKA

MINNESOTA

IOWA

MISSOURI

ILLI NOIS

WISCONSIN

MICHIGAN

Bismarck

Pierre

Lincoln Des Moines

St. Paul

LansingMadison

Jefferson City

LakeSuperior

LakeHuron

LakeMichigan

LakeOntario

LakeErie

INDIANA OHIO

KENTUCKY

TENNESSEE

MISSISSIPPI

ALABAMA

LOUISIANA

FLORIDA

SOUTHCAROLINA

GEORGIA

NORTHCAROLINA

VIRGINIA

ARKANSAS

SpringfieldIndianapolis

Columbus

Frankfort

Nashville

Raleigh

Columbia

Atlanta

Tallahassee

Montgomery

Jackson

Banton Rouge

Little Rock

CharlestonRichmond

Annapolis

Washington D. C.WESTVIRGINIA

MARYLANDDELAWARE

NEWJERSEY

NEWYORK

PENNSYLVANIA

Harrisburg

Dover

Trenton

AlbanyHartford

Providence

BostonConcord

RHODEISLANDCONNECTICUT

MASSACHUSETTS

VERMONTNEWHAMPSHIRE

MAINE

Montpelier

Augusta

North America major gateway

West Coast – San Francisco,Los Angeles

Latin America - Miami

North America major gateway

West Coast – San Francisco,Los Angeles

Latin America - Miami

Miami

New York

Atlanta

Chicago

Houston/Dallas

Los Angeles

San Francisco

Trade Compliance – Duty & Tax

• Almost all trade are cross border trades in Asia.

• Shipments are expected to be subject to Duty andLocal Taxes.

• With exception of Hong Kong and Singapore, mostcountries are not duty free.

• Different countries have different tax and dutystructures.

• When costing a product, need to take intoconsideration duty & taxes in the calculation ofLanded Cost.

Trade Compliance - Documentation

• Different countries require different documentationfor import and exports.

• Common documents are– Commercial/Proforma Invoice (India does not accept

Proforma Invoice)

– Packing List

– House Air Waybill

• Exceptions– Fumigation Certificate required for China imports from

USA, Europe, Japan and Korea for conifer-wood packingmaterials.

– Used Machinery/Equipment – other specific documentsmay be required by local customs. Varies from country tocountry.

World Cargo Hubs

World Cargo Hubs

• International Air Transport Association(IATA) groups country into three trafficconferences

– Area I – North and South America

– Area II – Europe, Africa and Middle East

– Area III – Asia & Australasia

• Every Area has distinct cargo hubsdetermined by the availability of and typesof infrastructure.

World Cargo Hubs

• Characterized by

– Large and efficient air, sea and landinfrastructure.

– Strategically located within key markets.

– Geographically strategic.

– Good governmental development & support.

– Close to and easily accessible to mainmanufacturing locations.

– Large national carriers.

World Cargo Hubs

• Asia

– North Asia• Seoul/Pusan

• Narita/Tokyo

• Shanghai

• Hong Kong/Yantian

• Taipei/Keelung

– South East Asia• Sinagpore

World Cargo Hubs• EMEA

– Amsterdam/Rotterdam

– Frankfurt

– London

– Dubai/Jebel Ali

• North America– Los Angeles/Long Beach

– Chicago

– Dallas

– Miami

– New York

– Atlanta

Global Top 20 AirportsRank

(2006) Airport Total Cargo % Change

1 Memphis, TN (MEM) 3,692,205 2.62 Hong Kong, CN (HKG) 3,608,789 5.13 Anchorage, AK (ANC)* 2,803,792 5.94 Seoul, KR (ICN) 2,336,571 8.75 Tokyo, JP (NRT) 2,280,026 -0.56 Shanghai, CN (PVG) 2,159,321 16.37 Frankfurt, DE (FRA) 2,127,797 8.48 Louisville, KY (SDF) 1,982,985 9.39 Singapore, SG (SIN) 1,931,881 4.210 Los Angeles, CA (LAX) 1,907,173 -1.111 Paris, FR (CDG) 1,854,950 512 Miami, FL (MIA) 1,830,592 3.913 Taipei, TW (TPE) 1,698,808 -0.414 New York, NY (JFK) 1,660,158 0.215 Chicago, IL (ORD) 1,618,331 4.816 Amsterdam, NL (AMS) 1,559,787 4.317 Dubai, AE (DXB) 1,503,696 14.418 London, GB (LHR) 1,343,932 -3.119 Bangkok, TH (BKK) 1,181,814 3.620 Indianapolis, IN (IND) 1,044,293 0.3

Source: Airport Council International

Top 10 Asia Airports

Source: Airport Council International

Int'l Rank

(2006) Airport Total Cargo % Change

2 Hong Kong, CN (HKG) 3,608,789 5.1

4 Seoul, KR (ICN) 2,336,571 8.7

5 Tokyo, JP (NRT) 2,280,026 -0.5

6 Shanghai, CN (PVG) 2,159,321 16.3

9 Singapore, SG (SIN) 1,931,881 4.2

13 Taipei, TW (TPE) 1,698,808 -0.4

19 Bangkok, TH (BKK) 1,181,814 3.6

21 Beijing, CN (PEK) 1,028,908 31.6

23 Osaka, JP (KIX) 842,085 -3.1

24 Tokyo, JP (HND) 832,854 4.3

Top 10 American Airports

Source: Airport Council International

Int'l Rank

(2006) Airport Total Cargo % Change

1 Memphis, TN (MEM) 3,692,205 2.6

3 Anchorage, (ANC)* 2,803,792 5.9

8 Louisville, KY (SDF) 1,982,985 9.3

10 Los Angeles, CA (LAX) 1,907,173 -1.1

12 Miami, FL (MIA) 1,830,592 3.9

14 New York, NY (JFK) 1,660,158 0.2

15 Chicago, IL (ORD) 1,618,331 4.8

20 Indianapolis, IN (IND) 1,044,293 0.3

22 Newark, NJ (EWR) 969,936 2.1

27 Dallas/Ft Worth, TX (DFW) 748,056 1.5

Top 10 EMEA Airports

Source: Airport Council International

Int'l Rank

(2006) Airport Total Cargo % Change

7 Frankfurt, DE (FRA) 2,127,797 8.411 Paris, FR (CDG) 1,854,950 516 Amsterdam, NL (AMS) 1,559,787 4.317 Dubai, AE (DXB) 1,503,696 14.418 London, GB (LHR) 1,343,932 -3.126 Luxembourg, LU (LUX) 751,645 1.929 Brussels, BE (BRU) 691,250 -0.330 Cologne, DE (CGN) 691,110 7.4

Top 10 Cargo Airlines

779Air France (France)10

825China Eastern Airlines (China)9

844EVA Airways (Taiwan)8

926Emirates (United Arab Emirates)7

1,118Cathay Pacific (Hong Kong)6

1,136Lufthansa (Germany)5

1,161Japan Airlines (Japan)4

1,214Singapore Airlines (Singapore)3

1,344China Airlines (Taiwan)2

1,495Korean Airlines (Rep of Korea)1

TonnesAirlineRank (2005)

Source – Lufthansa Cargo 2005