Category Archives: Global Trade

What’s Worse? The Personal Automobile or 15 Container Ships?

A recent article in The Guardian noted that the health risks of shipping pollution have been ‘underestimated’, to put it very lightly. A recent study by the Danish government’s environmental agency found that ONE giant container ship can emit the same amount of cancer and asthma-causing chemicals as 50 Million cars. That’s right … just 15 of the world’s biggest cargo ships emit more pollution than the roughly 750 Million cars currently in operation around the globe … AND THERE ARE 90,000 of them! Current estimates is that global shipping is responsible for 3.5% to 4.0% of ALL climate change emissions.

So the next time you start calculating the costs of global sourcing you might want to step back and think about whether a temporary savings of a few percentage points is really worth global sourcing when YOU could be ultimately responsible for not only draining trillions of dollars from the world’s economy to pay for the health care required to treat the tens of thousands of victims who suffer from pollution-induced lung and heart disease but causing thousands of deaths a year. I don’t know about you, but I think it’s time for home-cost country sourcing.

The British Chambers of Commerce Top Ten Export Tips

The BCC, which recently urged small business to take a measured approach to export opportunities (created as a result of the weakening pound), also provided exporters with a handy dandy notebook filled with its top ten exporting tips that covered some basics that even old pros need to be reminded of every now and again. So, without further ado, here are the BCC’s top ten export tips:

  1. Do Your Homework
    There are export rules for your home country and import rules for the country you plan to import into that cover reporting requirements, safety requirements, and duties and tariffs, among other things. Learn these facts up front, or risk massive fines and seizures later that could, insted of growing your business, kill it.
  2. Understand the Market
    Is your product and service appropriate for the market you want to export into? Will people buy it at a profitable price point? Are you trying to sell a Nova in Mexico?
  3. Research Costs
    In addition to the duties and tariffs, you’ll also incur shipping costs and loading, unloading, and storage costs at the docks, at a minimum. And these costs can increase substantially in good economic times.
  4. Understand Exchange Rates
    A small fluctuation in the exchange rate can lead to a large fluctuation in your profit margin, possibly wiping it out completely.
  5. Look to the Future
    Is there long-term potential in the new market? Or is it a short-live opportunity that will disappear when the economic situation improves at home or abroad?
  6. Assess the Competition
    Who are you competing against? Could they wipe you out with a simple change in their marketing strategy?
  7. Communicate Effectively
    You need to be sensitive to language and cultural differences in your target market. The last thing you want to do is imitate the AT&T Commercial and call your potential buyer Mr. Stinky Fish Face.
  8. Streamline Paperwork
    Not only should you secure export certification and documentation online to save time and money, but you should use leading SaaS trade management systems to manage the process as this will allow you to track your shipments and create any additional documents or reports you might need on-demand. Remember, you need trade visibility.
  9. Don’t Over-Commit
    Take new markets one by one and make sure you’re solid in one before embarking on a second. If you over-commit, not only could you risk them all, but you could lose key customers at home.
  10. GET HELP
    Expert support and advice through every stage of the process the first few times you go through it is invaluable. It is often the difference between success and failure.

Hidden Costs of Global Sourcing

Purchasing recently ran a good article on “the nine hidden costs of global sourcing” that should not be overlooked if you think global sourcing is your way out of the downturn. It might be, but if you don’t consider all the costs, you could easily make a wrong decision.

As per the article, the following 18 costs (which includes 9 bonus costs found only in the web version) can add up and turn that 20% labor-based savings you expected to see into a 10% loss over your current solution when compared to your current arrangement.

  • Internal Expenses
    The resource intensity of sourcing in unfamiliar markets with unsophisticated suppliers can easily erode forecasted savings by 5%.
  • Supplier Health
    If a supplier goes bankrupt, there go your savings, and then some, when you have to quickly switch to a (much) higher cost of supply.
  • Post-Contract Lull
    In order to insure that savings materialize, you need to monitor the contract in the weeks and months after it is signed. There is a resource cost associated with the monitoring.
  • Duty and Tariff Changes
    A change in the duty or tariff rate could dramatically affect the cost of a product being sourced and the savings that materialize.
  • Contract Non-Compliance
    If your buyers go maverick, so do you savings.
  • True Inventory Costs
    Sourcing from an overseas supplier lengthens lead times, which increases safety stock, and increase time in transit and this significantly increases your average inventory cost.
  • Logistics Volatility
    Not only does increased distance increase your freight costs, but so do rapid increases in freight demand which could cause freight costs to spike.
  • Technology
    Tracking product flow from global suppliers could require new technology, which will increase costs as well.
  • Quality Breakdowns
    If a contract manufacturer’s quality affects delivery of the part or increases the number of failures, it could wind up costing more than originally forecasted and wipe out the global sourcing ROI. And if it forces a costly recall, it could wipe out your business — period.
  • Transition Costs
    There’s nothing “soft” about this cost which will affect initial ROI.
  • Margin/Burden Stacking
    If supplier sites compete against each other, that can cost you.
  • Lost Tariffs/Taxes
    Improper classifications and missed recoveries on VAT add up quickly.
  • Packaging
    If you’re not careful, your supplier might try to profit off the packaging, taking another chunk out of your ROI.
  • Logistics Costs
    It’s not just freight — it’s handling, intermediate storage, and the costs of inevitable delays.
  • Hardware Costs
    Some overseas suppliers have difficulty obtaining standard parts at your cost. Failure to recognize this, and help them obtain parts cost effectively, also costs you money.
  • Labor Costs
    Failure to understand the labor cost breakdown can cost you.
  • Markup vs. Margin
    Know the difference — it can be very substantial.
  • Burden on High Dollar Parts
    Some suppliers may try to burden a $6 part the same as a $6,000! Be careful!

Optimizing Your Procurement Technology Investments

The Sourcing Interests Group recently ran an interesting article on “optimizing your procurement technology investments in 2009”. Although it had some good suggestions, my top five suggestions would be the following:

  1. Get Visibility Into Your Spend (Spend Analysis)
    If you don’t know how much you’re spending on each category, sub-category, product, and service, who you’re spending it on, in what amount, by unit, you need to get this visibility. Get a good spend analysis solution and dive in!
  2. Take Your Strategic Sourcing up a Notch (with e-Sourcing)
    Start with the most attractive savings opportunities that were outlined in step 1. This is your best bet to negotiate big savings in this downturn.
  3. Focus on Contract Compliance (adopt Contract Management)
    You need to enforce hard-won savings by insuring that internal staff and suppliers are compliant with contractual agreements.
  4. Implement e-Procurement
    Done right, this will make it easy for your buyers to buy on contract.
  5. Get a Grip on Global Trade (adopt Trade Visibility solutions)
    Chances are your global sourcing endeavors are needlessly costing you more than you think! As per my recent Illumination on why you need trade visibility, you’re probably paying more than you need to on duty, using costly inefficient processes, paying unnecessary document preparation costs, and making costly errors that are costing you million of dollars a year.

10+2 Is In Effect. Are Your Trade Programs Ready?

The requirements of the Importer Security Filing, 10+2, took effect on January 26. The clock is now ticking, and there are only eleven months left in the CBP informed compliance period to achieve full compliance before full enforcement and (significant) monetary penalties take effect.

Under the Importer Security Filing initiative, the electronic transmission of 10 data elements from an importer (or its freight forwarder), and 2 from the vessel, must be executed no later than 24 hours prior to the loading of cargo onto a vessel destined for the US, shifting data transmission to an earlier stage of the supply chain distribution process.

If a company does not comply, it can be fined a minimum of $5,000 for each violation. If you do a lot of importing, that will add up fast.

Are you in compliance? Are you sure? If you don’t have good trade visibility, and don’t verify the 10+2 submissions filed (on your behalf by your freight forwarder and broker), you might not be … and you won’t know it without good trade visibility. Moreover, you might be risking other non-compliance losses. For more insight, check out the latest Sourcing Innovation Illumination on Why You Need Trade Visibility.