International Trade, Transport and Logistics Exam

Key contributions of Container shipping

1. Quicker 2. Safer 3. More effective movement of freight along the supply chain (not only reduction in ocean shipping charges) an impact on end-to-end costs

Environmental Separation Index

Differences between working environments of the outsourcer and outsourcee.

Monetary union

agreement between two or more states creating a single currency area.

Material Substitution

Replacement of physical product by virtual product. (ex: softwares)

6 Distribution channels

1. Direct 2. Commission agent 3. Distributor 4. Retailer 5. Local Company 6. License or franchise

Never Outsource

1. Activities generating the majority of the costs 2. Capability of scale - Anything that generates revenue - Technology/ or a product - Patents

Production and Raw Materials Main Countries (5)

1. Chili 2. China 3. Congo 2. Brasil 3. South-Africa For many materials no substitute is available: for parts used in lasers and electronics China is responsible for 90% of world production. 15 minerals are critical for the world economy: Used in producing smartphones, LED screens, computer chips, etc.Crucial for companies are both availability and price (strong increases as a result of shortages).

Top 3 Commodities - Northern Europe/Med to Asia

1. Cork and wood 2. Pulp and waste paper 3. Crude fertilizers and minerals

Emphasis on Inventory Reduction

1. Cost savings as a result of more integrated & focused management of inventory 2. - Eliminating unnecessary inventory 3. Just-in-time (JIT)

6 Key Dimensions of Global Logistics Performance Index (LPI)

1. Customs 2. Infrastructure 3. International shipments 4. Logistics competence 5. Tracking & tracing 6. Timeliness The global logistics performance index (LPI) ranks 160 countries' logistics performance. It benchmarks a country's overall performance and assess the quality of a country's connections to the global market.

Economic cooperation refers to (5):

1. Determine tariffs 2. Concluding trade and tariff agreements 3. Uniformity in liberalization measures 4. Export policy 5. Protective measures against unfair trade, such as dumping and export subsidies

Mitigating the Exchange Risk

1. Do nothing (robust partners, countries, high margin...) 2. Currency accounts ($, £, €) to deal with your suppliers and customers 3. A forward exchange contract (agreement on a particular exchange rate in the near future) with a bank (at a cost) 4. A currency option (you can choose between the "spot" rate and the "agreed rate" (all at a particular cost)

Mitigation of Physical Risks (5)

1. Education/training (time/cost) 2. Port security (time/cost) 3. Improved packaging (volume/cost) 4. Quality Control in/out (time/cost) 5. An insurance contract (cost) but always at a certain cost.

Top 3 Commodities - Asia to Northern Europe/Med

1. Electrical machinery 2. Metal manufacturers - other 3. Textiles and made-up articles

Site Selection Factors - Labour Cost (8)

1. Employment regulations 2. Available skills 3. Land costs and availability of suitable sites 4. Energy costs 5. Availability of suitable suppliers 6. Transport and logistics costs 7. Transport linkages 8. Communications infrastructure and costs

The export order process (10 steps)

1. Enquiry 2. Quotation 3. Order / Purchase 4. Order acknowledgement 5. Order process and progress 6. Packing and Marking 7. Space Booking (ex: on a vessel, truck) 8. Documents prepared (Transport, Customs, Insurance, Payment) 9. Goods dispatched 10. Payment received

Site Selection Factors - Political Stability (8)

1. Environmental regulations 2. Taxation rates 3. Government supports 4. Currency stability 5. Benefits of being part of a cluster of similar companies 6. Preferred locations of competitors 7. Access to markets 8. Community issues and quality of life

Trends in the manufacturing sector emerging from globalization

1. Global competition 2. Competitors, partners, and customers from around the world 3. Global sourcing 4. Global presence 5. Global value chains resulting in increasing complexity and competition 6. Global access to knowledge and new technologies 7. High level of customer awareness and expectation 8. Rapid pace of technological change 9. Fast rate of product commoditization 10. SCM expertise and innovation are preconditions for business success

Challenges for Geopolitics (5)

1. Global versus local (post Covid) 2. East versus West (Russia-Ukraine) 3. Man versus machine (Robotisation) 4. Protection versus performance (immigration) 5. Today versus tomorrow (decision taking)

7 Risk management points in Trade

1. Goods description 2. Price description 3. Lead times agreement 4. Payment terms 5. Order acknowledgment 6. A proforma invoice 7. To minimise trade risk

Mitigation of Credit Risks (6)

1. Goods from supplier A to customer B, 30d payment term 2. Company B in financial difficulties 3. Credit insurance company sends warning to A 4. B becomes insolvent 5. A makes a claim to the credit insurance company 6. A stays in business and can pay their suppliers

4 Dimensions of Globalization

1. In how many countries are active? 2. Value chain of the company: organic growth vs. born global - From multinational to transnational - National origin remains valuable: Barry Callebaut, AB-Inbev. 3. Access to the international capital market 4. Generic company philosophy: the need for diversity

Risks of holding too much stock?

1. It can rot or expire in date 2. Risk of item not selling 3. Higher storage cost

Impacts of disruption of supply chain

1. Lack of supplies 2. Price goes up 3. Empty shelves 4. 12 months delivery 5. Supply shock 6. Chances of recession

Production Factors (5)

1. Land 2. Labour 3. Capital 4. Technology 5. Geopolitics

Outsourcer and outsourcee relationship development (4 stages)

1. Master-Servant Stage: Conventional: servant follows outsourcer (low cost) 2. Consultative Stage: Consultant-client relationship (quality, reliability, cost) 3. Peer-to-Peer Relationship Stage: Ideal stage, win-win long-term relationship between equals 4. Competitive Stage: Outsourcee takes the lead and competes with outsourcers in global markets

Supply chains' several key flows:

1. Physical flows of materials 2. Data and information flows that inform the supply chain Resources (mostly financial, but also people and equipment) enable the supply chain to function correctly. 3. Good quality intercompany connections are frequently regarded as a critical - yet an intangible - component of effective supply chains.

Root causes of damages

1. Poor handling in stowage ( 44% ) 2. Physical damage on / in conveyance ( 33% ) 3. Theft and pilferage ( 22% ) 4. General ( 1% )

6 Advantages of European Economic Community (EEC)

1. Preferential trade zone 2. Free trade area 3. Customs union 4. Common market 5. Monetary union 6. Full economic integration

Reasons for manufacturing outsourcing (15)

1. Reduce direct and indirect costs: provide the service cheap 2. Increased flexibility 3. Focus on core competencies 4. Using up-to-date technology 5. Reduce capital costs 6. Reduce taxes 7. Reduce logistics costs 8. Overcome tariff barriers 9. Provide better customer service 10. Spread foreign exchange risks 11. Share risk 12. Build alternative supply sources 13. Pre-empt potential competitors 14. Learn from local suppliers, foreign customers or competitors 15. Gain access to world-class capabilities or attract talent globally

6 Key Developments behind the Evolution of logistics and SCM

1. Reduced transport intensity of freight: this concept states that international trade went from being dominated by raw materials to more refined and finished goods. 2. Falling product prices: this concept describes the phenomenon that occurs when competition is introduced into the marketplace: performance improves, quality improves, and prices fall. 3. Deregulation of transport: unnecessary trade barriers have been removed to allow for easier and more efficient transport of goods and services across borders. Along with more trade, this initiative has reduced the cost of these goods and services due to competition. Because of this, companies may move their operations to low-cost countries if it becomes easier and cheaper to transport goods. 4. Productivity improvements: containerization's introduction led to massive productivity gains. Other enhancements to transport were bar-coding and online tracking of products. 5. Emphasis on inventory reduction: reducing inventory lessens costs to companies and overall reduces prices, the less time a product can sit in the warehouse, the more you make money. 6. Changes in company structure: standard company structure used to be vertically integrated. Companies are becoming more horizontally integrated due to outsourcing and offshoring efforts. Companies are now focusing on their competitive advantage and getting the rest for the other experts around them. All of these developments have had a significant impact on the evolution of Logistics and SCM.

Criteria for evaluating and selecting outsourcees (10)

1. Reliability of delivery 2. Quality certifications 3. Conformance to agreed specifications 4. Delivery lead time 5. Financial capability 6. Performance track record 7. Price or cost reduction 8. Senior management attitude 9. Responsiveness to demand uncertainty 10. Record of corporate social responsibility

Order Qualifiers Criteria

1. Reliability of delivery 2. Quality certifications 3. Conformance to agreed specifications 4. Delivery lead time 5. Financial capability (ex: If the company goes bankrupt, that's not a good company, you need to have experience, right costs, good attitude, good records of not only a quality but also corporate social responsibility) 6. Performance track record 7. Price or cost reduction 8. Senior management attitude 9. Responsiveness to demand uncertainty 10. Record of corporate social responsibility

The 8 Rs of Logistics

1. Right Cost 2. Right Customer 3. Right Place 4. Right Product 5. Right Quantity 6. Right Quality 7. Right Time 8. Right Way

6 Steps to Fulfill the Customers Need

1. Specification 2. Selection 3. Contracting 4. Ordering 5. Safeguard 6. Aftercare

Characteristics of Hard Currency

1. Stable currency 2. Belongs to a sound economy 3. Highly liquid 4. Easily convertible 5. Has the trust of international investors 6. Considered as foreign currency reserve 7. Used widely in international exchanges

The 10 major regional trading blocks in the world

1. The European Economic Area (EEA) 2. The North American Free Trade Agreement (NAFTA) 3. The Mercado Comun del Cono Sur (MERCOSUR) 4. The Asean Economic Community (AEC) 5. The Common Market of Eastern and Southern Africa (COMESA) 6. The Asia Pacific Economic Cooperation (APEC) 7. The South Asian Association for Regional Cooperation (SAARC) 8. The Indian Ocean Rim Association (IORA) 9. The Latin American Integration Association (LAIA) 10. The Southern African Development Community (SADC)

Q: Why do countries trade?

1. The receiving country itself cannot produce the goods or provide the services in question or where they do not have enough. 2. they can produce the goods or supply the services but still import them because it's cheaper to import than produce. (Opportunity Cost - Comparative Advantage)

The 4 Perspectives on Logistics vs SCM

1. Traditionalist (SCM evolved from Logistics and therefore is a subset of Logistics) 2. Unionist (Logistics is a part of SCM and involves getting the 8 Rs; Logistics is a subset of SCM and that SCM is a much broader concept than Logistics) 3. Re-Labelling (SCM encompasses all of Logistics and is, therefore, just a new name for Logistics) 4. Interventionist (There is an overlap between parts of Logistics and SCM, yet they remain two separate entities)

EU top 5 export countries

1. US 2. UK 3. China 4. Switzerland 5. Russian Federation

Issues with outsourcing (14)

80% needs renegotiation and 20% fails 1. Commitment of supplier 2. General responsiveness 3. General reliability 4. Communication 5. Late delivery 6. Mistakes 7. Need for frequent reminders 8. Customer complains 9. Differences in culture 10. Time difference 11. Quality consistency 12. Confidentialities 13. Outsourcee being too polite 14. Cost realization competency

Geocentricity

A company acts completely independent of geography and adopts a global perspective, and will tailor to the local environment as appropriate (i.e. 'glocalisation')

Polycentricity

A company adopts the host country perspective (When in Rome, do as the Romans do).

Ethnocentricity

A company when doing business abroad thinks and acts as if they were still operating in their home country, notwithstanding that business can be dissimilar.

Hard currency

A currency issued by a nation that is seen as politically and economically stable. Hard currencies are widely accepted worldwide as a form of payment for goods and services and may be preferred over domestic currency.

Soft Currency

A currency that is not trusted for international exchange or investment and belongs to a nation with unstable or shaky political conditions.

Transport

A derived demand that is dependent upon other needs (consumption or production needs); dependent upon someone wishing to move freight from one point to another. Doesn't directly add value to the raw material, assembly part, or finished product, but makes it available where the customer wants. 1. Growth as a result of outsourcing & offshoring 2. Supply chains are becoming more stretched => increased freight movements 3. Internalisation also leads to increased transfer pricing: goods or services are transferred between divisions of the same company in different countries (taxes) All socio-economic efforts the society needs to perform to move people, goods, and messages between two places.

Free Trade Area

A group of countries with few or no barriers to trade in the form of tariffs or quotas. 1. Form of regional integration in international economic relations 2. Customs tariffs, quotas, and tax rates abolished for members 3. Reduced bureaucratic requirements 4. Often the limited number of member countries 5. Under the control of the WTO 6. Usually, countries with complementary economies 7. Usually no standard policy towards non-members! 8. The second step in economic integration

Customs Union

A group of states that have agreed to charge the same import duties as each other and usually to allow free trade between themselves. 1. Integrated economic cooperation between members 2. Free movement of goods, uniform trade policy vis-à-vis third parties, and sharing of revenues from levied import duties 3. Uniform import and export tariffs in relation to third parties 4. Third step is economic integration

Service Level Agreement (SLA)

A negotiated agreement between the customer and the vendor. The SLA may specify the levels of availability, serviceability, performance, operation, or other commitment requirements.

Original Equipment Manufacturer (OEM)

A producer whose products are used as components or subsystems in another firm's products.

Traditional Routing

A routing system, where vessels move in both directions on each route. If imbalance exists on any of the routes, then these will not be avoided.

8 basics of a contract

An agreement between two or more parties must always include: 1. Term 2. Responsibilities 3. Court (disputes) 4. Force majeure 5. Products and services (SoW statement of work) 6. Pricelists 7. SLA (service level agreement) 8. Termination

Logistics

An aspect of the supply chain that stores or delivers finished goods or services to the customer, whether a manufacturer, distributor, or consumer. Logistics aims to get goods and services to the customer on time and at a competitive price.

Just-in-Time (JIT)

An inventory-management approach in which supplies arrive just when needed for production or resale.

Embargo

An official ban on trade or other commercial activity with a particular country.

Special economic zone

Area in which the business and trade laws differ from the rest of the country. 1. Not the same as the free trade area! 2. Area within the country where special laws apply that make foreign investment more attractive 3. Fewer import duties and other taxes paid 4. Often notable investments in specific infrastructure

Common Market

Common markets are similar to customs unions in that they eliminate internal barriers between members and adopt common external barriers against nonmembers. This difference is that common markets also allow the free movement of resources (e.g., labor) among member countries. 1. Shape of economic integration 2. Area without internal borders and common external border just like with customs union 3. Not only goods can move freely, but also people, services and capital! 4. Fourth step in economic integration

Comparative Advantage

Comparative advantage refers to a business's ability to produce a cheaper good compared with other companies.

Competitive Advantage

Competitive advantage refers to one company's ability to differentiate itself from its competitors.

Complete economic integration

Complete economic integration is the final stage of economic integration. After complete economic integration, the integrated units have no or negligible control of economic policy, including full monetary union and complete or near-complete fiscal policy harmonization. Ex: Free Trade Area (NAFTA) Customs Union (EU) Common Market (Shengen) Economic Union (€)

Container shipping

Containers are super efficient, easy to stack, have an uniform built factor. Started in the mid 50s.

European Economic Community (EEC)

Created by the Treaty of Rome in 1958. Community that work together towards integration and economic growth through trade, establishing a common market based on the free movement of goods, people, services, and capital. Since then, the number of economic cooperation between countries has increased tremendously.

Growth in Demand and Supply in Container Shipping

Demand boom = supply and demand didn't meet Changing capacity is not that easy (depreciation, construction...) - Low container prices in 2008, 2015 - High prices in 2010, 2021 Alliance = always guarantees 80% occupied container

Derived demand

Demand for a good or service that arises as a result of demand for another related good or service. One example of derived demand may be demand for a certain size and configuration of smartphone case for a new smartphone that just came on the market.

Deregulation of Transport

Designed to make it easier for businesses to enter the transportation industry market without having fixed prices on a rail or truck transportation. Governments have deregulated different forms of transport and transport markets (ex: online shopping). That encourages competition.

Foreign Direct Investments (FDI)

Financial flows from a company in one country to invest (for example in a factory) in another country. - Very significant in the overall global economy - Can be key to dictating a country's success - Strong competition to attract external FDI. Some countries put in place certain conditions to attract more FDI (ex: low rates of corporate taxation).

Risk Analysis

For every action, a certain probability can be determined: 1. Using political risk-indexes that provide an indication of the stability of a country (PRS-risk index). 2. Limitations of probability scores: events that are sometimes not predictable (force majeure). 3. Using Scenario Analysis: predicting the future based on different scenarios

UNCTAD Liner Shipping Connectivity Index (LSCI) (5)

Generated from five components: 1. Maximum vessel size in a country's ports (larger vessels require deeper ports and crane investments) 2. The number of companies providing services to a country's ports (higher number = more choice and often lower costs) 3. The number of services offered by the liner companies (higher number = more options to shippers) 4. The number of ships deployed on services to a country's ports (more ships are correlated with higher frequencies) 5. TEU capacity on the deployed ships (economies of scale and lower freight costs)

Globalization

Globalization refers to a mix of extreme viewpoints: 1. Complex series of economic, social, technological, cultural and political changes throughout the world 2. Allowing people and companies to be interconnected 3. Proxy for global capital flows "Globalisation is the process by which firms operate on a global basis, organizing their structure, capabilities, and people in such way as to address the world as one market." Ex. of Commercial shipping of globalization: Greek vessel owner, built in Korea, chartered by the Danish shipping company, Philippine seafarers, Panamese flag, transports German-made cargo from Antwerp to China

Transport Cost Sensitivity

Higher value freight is better able to absorb high transportation costs (ex: diamonds get shipped with an airplane)

Risks of JIT deliveries?

If you don't get your materials on time you can't deliver. Your entire production is put on hold. (ex: Strikes, personnel doesn't come to work) You can avoid those risks by stocking, not a huge stock but for a few extra days.

Productivity Improvement

Improvement in workflow resulting in time and money savings. (ex: containers)

Supply chain management (SCM)

Management across and within a network of upstream and downstream organizations of relationships and material, information, and resource flows. The purposes of SCM are to create value, enhance efficiency, and satisfy customers. SCM sets the strategy and directs daily logistical activities in factories, warehouses, local shipping centers, and other facilities.

Exchange Risk

March 1: Purchase assembly parts for €100 June 1: Sold finished product at $150 Sept 1: Exchange rate fluctuated, so profit fluctuated too

Maritimisation of the economy

Maritime transport is becoming ever more important, because of considerable growth in trade and the large movement of freight around the world. The global transport is about 3/4 of maritime transport with annual traffic of +/- 11 billion tonnes. * Asia discharge is bigger because they need more resources to produce all the goods. * Oceania has almost no imports because of strict regulations for imported goods to help minimize the risk of pests and diseases entering the country.

Directional Imbalances

Mismatches in the volumes or types of freight moving in opposite directions in a freight market. Cost of transport is the same both ways, but on the return journey there's a surplus of empty containers, so there's a loss of profit. Ex: - Same price to transport Munich-Hamburg as Shanghai-Hamburg - Double price to transport Hong Kong-Eu as in the opposite direction (surplus of empty containers)

Q: Are logistics and SCM only of interest to manufacturers?

No, everyone has a stake in logistics and SCM, and it should be of the upmost importance to all types of producers, manufacturers, and sellers. The supply chain affects all areas of commerce, including the consumers.

Order Winners

One or more criteria that lead to the selection of a particular outsourcee by an outsourcing company.

Major risks in trade

Physical loss or damage: will I receive the goods? Credit risk: will I receive the money?

Protectionism

Refers to government policies that restrict international trade to help domestic industries. These type of policies are usually implemented to improve economic activity within a domestic economy but can also be implemented for safety or quality concerns. Ex: 1. Protecting jobs (and in particular during periods of crisis) 2. Tariffs barriers (like a tax or import duties) 3. Non-tariff barriers (quotas on import, export restraints, domestic subsidizing, import deposits, particular Health&Safety standards, or technical specifications.

Preferential trade zone

Preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them altogether. 1. Trading block 2. Preferential access for certain products from participating countries 3. Reduce rates or zero duty WITHOUT complete abolition 4. Agreement in a preferential trade agreement 5. Often thin border with free trade zone because this is often the ultimate goal 6. The first step in economic integration

Multinational companies (MNCs)

Presence in overseas markets as trade develops (areas beyond home countries).

5 Types of Risk in the Geopolitics for a International Company

Probability x impact = risk 1. Geopolitical risks emerge when the interests of countries in defined policy areas collide, or when the international system at large is undergoing transformation. 2. Country-level risks emerge when the national political environment, the stability of the government and institutions, or legislation has measurable economic consequences for companies acting in that market. 3. Regulatory risks emerge when governments — at the international, national or local level — change the rules or implementation of environmental, health and safety, financial market, and other regulations. 4. Societal risks emerge when groups, from trade unions to consumer bodies, launch public activism such as boycotts or protests that have consequences for markets and companies operating globally.

Incoterms

Provide definitive definitions of trade terms in common use, in the form of a very detailed breakdown of the seller's and buyer's duties. Whilst exporters can invent any term they choose, it is clearly better to use terms for which standard definitions are available.

Circular Routing

Routing system, where vessels move in one direction only, preferable in the direction of greatest traffic volume. Of course, in reality, different combinations in mixes of frequencies will be used (for example, where an imbalance exists, one in four vessels may play in the opposite direction where there are lower traffic volumes). It's also referred to as linear routings, as this is a pattern that was in the past, and to an extent still is, adopted by many passenger liner vessels. Carriers will prefer ports where you have lots of expert volumes.

Internationalize

Set up operations in overseas locations (sales, production, core company functions).

Demolition of Ships

Ship-breaking (also known as ship recycling, ship demolition, ship dismantling, or ship cracking) is a type of ship disposal involving the breaking up of ships for either a source of parts, which can be sold for re-use, or for the extraction of raw materials, chiefly scrap. Happens mainly in India/ Pakistan/ Bangladesh.

Contract manufacturer

Suppliers who manufacture products for OEMs.

Freight price

The amount paid to a carrier company for the transportation of goods from the point of origin to an agreed location.

Geopolitics

The practice of states controlling and competing for territory and the resources within them (e.g. control of Africa). Focuses on political power linked to geographic space. In particular, territorial waters and land territory in correlation with diplomatic history -> political/ideological functions for great powers. The study of the effects of Earth's geography on politics and international relations. A contemporary rationalization of power politics: its a way of seeing the world. It deals with power, politics, policy, space, place, and territory and embraces an innumerable multitude of interactions within these various fields.

The ABC analysis

The ranking of all items of inventory according to importance. A: 20% of the suppliers add 80% of the purchase volume B: 30% of the suppliers add additional 15% of the purchase volume C: 50% of the suppliers are representing only 5% of the purchase volume

Modelski's Model of World Leadership

The strength of the world leader rises and falls -> passed from one country to another in a sequence of cycles of world leadership. Each cycle of world leadership lasts approximately 100 years and comprises four roughly equal phases of about 25 years. 1. The phase of global war: the ability to act as a world leader is decided through a period of global war last as much as one-fourth of the total long cycle 2. The phase of world power: after the victory has been achieved, the geopolitical project of the new world leader is enacted -> apply and enforce the new agenda. On the whole, the new agenda is welcomed and followed. 3. The phase of delegitimization: over time, dissent grows over the imposed order (self-serving and alternative agendas occur = challenge of the world leader (withdraw legitimate status or authority from) 4. The phase of deconcentration: challenges become stronger, and the leader is more vulnerable -> reaction that leads to the phase of global war based on violent and organized campaigns.

Offshoring

The transfer of specific operations, activities, or processes to lower-cost locations in other countries. Necessary to contextualize to factors such as infrastructure, education, training, local and national regulations, culture and organizational networks.

Outsourcing

The transfer of to a third party of the management and delivery of a process previously performed by the company itself.

Risk Assessment in Trade

There are sources of information available which can help make an objective estimate of country risk and normal payment methods. Rating agencies like Standard & Poor's and Moodys produce long term gradings of countries and large corporations, including banks, in a sort of league table descending from AAA ( triple A) down.

Glocalization

Thinking on a global world-market scale but adapting to local wants as an appropriate. (ex: McDonalds that changes burgers for local tastes. They have a global perspective, but they are changing their products a bit for their local people)

Order Qualifiers

Those criteria and/or performance expectations that a company must meet for a customer to even consider it as a possible supplier.

Transnational corporations (TNCs)

Trade across many borders with operations in multiple countries (sometimes difficult to know home country).

TUE

Twenty Foot Equivalent Unit is an exact unit of measurement used to determine cargo capacity for container ships and terminals. This measurement is derived from the dimensions of a 20ft standardized shipping container. Because standard containers can be 20 or 40ft in length the capacity of a container ship can depend on the ratio of the two sizes. In order to avoid confusion and standardize a ship's capacity, the number of containers a ship can load is translated into a number of 20ft containers and that measurement is known as TEU. For example, one forty foot container is two TEUs.