IB0016 International Logistics and Distribution management

Q1. Logistics is one of the key areas in international business. Explain the meaning and objectives of logistics. Logistics Meaning According to Council of Logistics Management, Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement. From this definition it becomes clear that it is a continuous process. Logistics is happening around the globe 24 hours a day, 7 days a week during fifty two weeks a year. The word logistics is, derived from the French word loger which means art of war pertaining to movement and supply of armies. Basically, it is a military concept but is now commonly applied to marketing management. Logistics Objective The general objectives of the logistics are: i) Cost reduction, ii) Capital reduction, and iii) Service improvement Although the general objectives are such, the definite objectives are i) Improving customer service Profit in the long run can be maximized only by improving the customer service and maximizing his satisfaction ii) Reduce total distribution costs The cost of physical distribution consists of various costs such as transportation, warehousing and inventory maintenance. iii) Generating additional sales A firm can generate additional sales by offering better services at lowest prices. This may be achieved by decentralizing warehousing operations or by using economic and efficient modes of transportation iv) Creating time and place utilities Products do not serve any purpose unless they are moved at the right place and at the right time. v) Price stabilization Stabilization in the prices of products can be an important objective of logistics. vi) Quality Improvement The long term objective of logistics system is to seek continuous quality improvement. vii) Movement Consolidation Transportation cost is one of the most significant logistical costs which is directly related to the type of product, size of shipment and distance. Premium transportation is high-cost.

Q2. Which is the main transport document while transporting goods through sea? Give details and types of that document. The transport document issued by the carrier for transportation is called Bill of Lading. It signifies a contract between the shipper (exporter) and the shipping company. Bill of Lading is a document of title which is negotiable by endorsement and delivery. B/L is issued in set of negotiable and non-negotiable copies. It is only the negotiable copy which is a document of title; non-negotiable copies are for record purpose only. The reverse side of B/L contains the terms and conditions of the contract of carriage. Details Each shipping company has its own Bill of Lading. The format may differ from company to company. A B/L will have following contents:i) Name and address of the shipper ii) Name and address of the shipping company iii) Name and address of the consignee iv) Name and address of the Notify Party v) Port of Loading vi) Port of Discharge vii) Port of transshipment, if any viii) Name of vessel ix) Place of delivery x) Quantity, quality and markings xi) Freight paid or payable xii) Description of goods xiii) Number of originals issued xiv) Date of Loading xv) Transit Route xvi) Invoice Number and Date Types of Bill of Lading i) Shipped On Board Bill of Lading Issued when the goods have been received on board the ship. A letter of credit normally requires shipped on board B/L. ii) Received for shipment B/L Issued when the goods have been received by the shipping company but not placed on Board the ship. iii) Clean Bill of Lading Issued when the goods received on Board are in apparently good condition and with no shortage. iv) Claused or Foul or Dirty Bill of Lading When the goods received on Board are damaged or short, and the Bill of Lading contains remarks to this effect, it is called Claused or Foul or Dirty Bill of Lading. v) To Order Bill of Lading A Bill of Lading issued to the order of a specified person, e.g., issued To order of L/C Opening Bank or To order of shipper. vi) Charter Party Bill of Lading Issued when shipment is on a chartered ship. Chartered Party Bill of Lading is generally not acceptable under a Letter of Credit unless specified otherwise.

vii) Through Bill of Lading A B/L which covers the entire journey by more than one mode of transportation. The transshipment is en route. This type of B/L is also known as Combined Transport Document or Multi-modal Bill of Lading. Q3. List the various modes of transportation used in international trade. Discuss the advantages and disadvantages of fastest and safest mode of transportation. Various Modes of Transportation Modes of transportation used in international trade can be of various types such as road, rail, water, pipeline, air and multimodal. The relative importance of each mode can be measured in terms of system mileage, traffic volume, revenue and the nature of traffic composition. An exporter can send goods to his buyer by using any one of the following modes of transport (as specified in the contract) : Sea Transport Air Transport Rail Transport Road Transport Pipeline Transport Multimodal Transport Fastest and Safest Mode of transport is air transportation Air transport in India has made rapid strides during the last two decades because of liberalization, and privatization. It is the youngest mode of transport. Today, about 20-25% of the total world trade in terms of value, is moved by air transport. Currently, not only perishables and highly valuables but many products like electrical and electronic goods, garments, travel goods, hand tools, pharmaceutical goods and even machinery parts are transported by air. Under air transport goods are sent through one of the international airlines. There is no need for the exporter to approach the airlines. This job can be entrusted to authorized Clearing and Forwarding Agents who may sometimes consolidate the cargo of several exporters. They get heavy discount from airlines and pass on a portion of the same to the exporters. In this way, the exporters will get the benefit of lower freight charges. Carriage of goods by air is covered by the provisions of Warsaw Convention for settling the disputes and to determine the liabilities of the parties. Advantages of Air Transport Air transport has following advantages:1. It takes least time for carriage of goods, because of fast speed. 2. It is convenient and easy to administer as space can be booked direct with an airline or through a cargo agent. 3. It is suitable for transport of perishable goods and in case of urgency. 4. The risks associated with deterioration and obsolescence of goods are reduced because of shorter period involved in the transportation process. 5. The warehousing costs are reduced to the minimum. 6. The insurance premium in case of air transport is lower as compared to Sea Transport.

Drawbacks of Air Transport However, air transport suffers from following drawbacks. 1. The freight cost is very high as compared to other modes of transport. 2. The main document used in Air transport, i.e., Airway Bill is not a document of title. It is nonnegotiable. 3. Air transport is not suitable for heavy non-perishable goods. 4. Air services are subject to weather delays. 5. There is often lack of connectivity between international and domestic destinations. Q4. Discuss the meaning and advantages of containerization. List the various types of containers available for transportation. Container is a single rigid, sealed, reusable metal box in which merchandise is shipped by vessel, truck or rail. The container can be made of steel, aluminium or fibre board. Containers have the following features:a) Can be repeatedly used b) So designed as to be easy to fill and empty c) Fitted with hardware to allow easy handling d) Designed to facilitate transfer of goods by one or more modes of transport without intermediate reloading Advantages of Containerization i) It permits door to door service, i.e., from the warehouse of the seller to warehouse of the buyer. ii) There is no need of intermediate handling at port or at transshipment points. iii) Low risk of cargo damage and pilferage iv) Much competitive freight rates v) Provision of through documentation vi) Packing costs are reduced substantially vii) Faster cargo flow viii) Reduction in congestion at the ports ix) Reduction in transportation cost x) Savings in port charges xi) Reduction in insurance premium xii) More cargo carrying capacity resulting in higher return on investment Types of Containers i) End Loading Fully enclosed, equipped with end doors ii) Side Loading Fully enclosed, equipped with side doors iii) Open Top Fully enclosed with open top, generally used for carriage of heavy, bulky items. iv) Ventilated suitable for cargo which should not be exposed to sudden temperature changes v) Reefer refrigerated container; insulated and equipped with a built in refrigeration system used in case of frozen foods. vi) Dry Bulk designed for carriage of dry bulk cargo such as grains, etc. vii) Liquid Bulk tank type for carrying liquid in bulk such as oil. viii) Flat Rack used for carrying lumber, large, heavy or bulky items; vehicles, etc.

ix) Livestock containers for carrying livestock like poultry, cattle, etc. Q5. What is pre-shipment inspection of export goods? Discuss the systems of pre-shipment inspection. Pre-Shipment Inspection Pre-shipment inspection is the process of inspection of goods just before the shipment to determine whether they satisfy the specification relating to quality, weight, packaging, etc. There are two types of pre-shipment inspection. These are as follows: 1. Voluntary Inspection It may be conducted by: a. Exporter himself b. The buyers representative c. The buying agent or buying house in the exporters country d. The inspection agencies in the exporters country 2. Compulsory Inspection It may be conducted by : a. Export Inspection Council through its export inspection agencies b. Authorized Export Promotion Councils c. Authorised Commodity Boards, e.g. Tea Board, Coffee Board, Central Silk Board, etc. Pre-shipment Inspection in India The Govt. of India had enacted Export (Quality Control and Inspection) Act, 1963 which came into force from January 1, 1964. The Govt. of India had set up Export Inspection Council (EIC) under section 3 of the Export (Quality Control and Inspection) Act of 1963 to provide for sound development of the export trade through quality control and pre-shipment inspection. The EIC has prescribed standards of quality and inspection of various commodities meant for exports. Systems of Inspection There are three systems of Inspection viz, 1. Consignment-wise Inspection 2. In-Process Quality Control (IPQC) 3. Self-Certification Scheme. Under Consignment-wise Inspection system, each export consignment is inspected and tested by the recognized inspection agencies. The selection of the items is made on the basis of statistical plan to satisfy conformity of the products with the prescribed standards. After inspection, the recognized inspection agency issues the pre-shipment inspection certificate to the exporters. IPQC units are issued pre-shipment inspection certificate on request by EIA. Such units have to submit a statement of certificates issued in respect of various shipments during a month. This statement must be submitted by 15th day of the following month. However, periodic sample checks may be carried by the EIA officials. The inspection fee is 0.2% of the F.O.B. value of each consignment and is to be remitted along with monthly statements. Under the system of Self-Certification, the manufacturing units which have proven record of maintenance of quality are given the facility of self certification so that they can issue pre-shipment

inspection certificate themselves. The unit shall be well equipped with testing facilities. The units intending to avail of this facility should apply to the Director (Inspection and Quality Control), Pragati Tower, Rajendra Place, New Delhi 110 008. The Director, while considering the application, will inspect the manufacturing units for proper maintenance and testing facilities provided in the units. Q6. Write short notes on export packaging, packing and marking. Export Packaging Today packaging is considered as one of the most important elements for marketing any product. Nobody can underscore the need for good packaging when he decides to export his product. Packaging means packing of the product in some container to reach the ultimate consumer. Packaging is the inner wrapping or container which covers one or more units of a product. It should not be confused with packing. Packing refers to the external protective covering used for the safe transportation of the goods to the buyer. For example, the plastic bottles and the inner box used for cough cyrup is packaging whereas the corrugated box used for packing the plastic bottles for their safe transportation represents packing. Packaging fulfills a vital role in helping to get the export products to the market in the best condition, as well as in presenting goods to overseas buyer in an attractive way. In other words, packaging of a product performs the role of silent salesman as it, 1. Improves presentation of the product. 2. Protects the product during distribution, and 3. Makes handling and retail display of the product easier. Export Packing Export packing is the outer casting and materials used to transport the product or number of products in one box or case. The type of packing (boxes) depends upon the mode of transportation. Sometimes, even wooden case, pallets or crate may be used for packing. The exporter must ensure that packing instructions specified in the contract / L/C are strictly complied. If no instructions are specified, packing should be of a recognized customary and trade standards of the buyers country. Sometimes, shipping companies do provide packing specifications for certain products. The Bureau of Indian Standards (BIS) has prescribed packing standards for certain items. Types of Packing The following types of boxes can be used for packing of the packages meant for exports:i) Wooden Boxes The wooden boxes are the most useful forms of packing as these are strong enough to withstand the loads placed on the top of it without crushing or causing damage. ii) Fibre Board or Corrugated Board Boxes These boxes are useful for shipment of non-fragile goods. Its use is very common in developed countries. The boxes should be, as far as possible, cube-shaped and each box should not exceed 20-25 kgs in weight. Iii) Steel Drums Steel drums are used for sending liquids in bulk. A drum should normally not exceed more than 250 kg (50 gallons).