Chapter 3: International Transportation Management

Chapter 3:

International Transportation Management

​Prepared by, Dr. Sharon

​Recap chapter 2:

• Supply Chain Structure: A supply chain consists of all the activities involved in delivering a product or service, from sourcing raw materials to delivering the final product. It includes internal processes such as production, and external distributors who manage logistics.

​Recap chapter 2:

• The Bullwhip Effect: This refers to the distortion of demand information as it moves up the supply chain, leading to inefficiencies. Causes include inaccurate demand forecasting, price fluctuations, and order batching.

​Recap chapter 2:

• Supply Chain Management (SCM): SCM integrates and coordinates supply chain activities to ensure efficient movement of goods and information. Global supply chains span across countries and are affected by issues like transportation infrastructure and customization needs for local markets.

​Recap chapter 2:

• Major Issues Affecting SCM: Factors such as information technology (e.g., EDI, bar code scanners), e-commerce (B2B and B2C), and global competition drive changes in SCM. Green supply chain management focuses on reducing environmental impacts.

​Recap chapter 2:

• Make or Buy Decisions: Businesses must analyze whether to produce products in-house (make) or purchase them from external suppliers (buy). This involves comparing fixed and variable costs for both options and considering the firm's core competencies

Ready for Recap quiz!

Multiple Select

The bullwhip effect often disrupts supply chains, leading to inefficiencies. Which of the following strategies can help mitigate this effect? (Select two)

• Increase order batching

• Share real-time demand information

• Stabilize prices

• Delay demand forecasting

• Implement price fluctuations

Multiple Select

Compare global supply chains with local supply chains. Which of the following challenges are more specific to global supply chains? (Select all that apply)

• Long transportation lead times

• Customs and regulatory issues

• Lack of supplier options

• Limited scalability

• Product customization for local markets

Match

Technological advancements have reshaped supply chains. Match each technology with its corresponding effect on supply chain management.

• Bar code scanners

• Electronic Data Interchange (EDI)

• Internet and e-commerce

Real-time inventory management

Automated order processing

Direct connection with global suppliers

• Real-time inventory management

• Automated order processing

• Direct connection with global suppliers

Multiple Select

Evaluate the benefits and risks of insourcing versus outsourcing. Which of the following are benefits of insourcing? (Select all that apply)

• Lower production costs

• Greater control over quality

• Access to advanced technology

• Protection of intellectual property

• Lower operational costs

Multiple Choice

A local bakery is deciding whether to bake their own bread or buy it from a nearby supplier. If they decide to make the bread in-house, the fixed costs will be $5,000 annually, and the variable cost per loaf will be $0.50. If they buy the bread, the fixed costs will be $1,000, and the variable cost per loaf will be $1.00. If they expect to sell 10,000 loaves, should they make or buy the bread?

• Make the bread

• Buy the bread

• It doesn’t matter

• Neither, just sell cake instead

Overview of International Logistics

Key Components:

• Forward Flow:

  • This includes the movement of goods, services, and information from the point of origin to the final customer. It involves activities such as procurement, manufacturing, warehousing, and distribution. The objective is to deliver products efficiently across international borders to various markets.

• Reverse Flow:

  • Reverse logistics deals with processes that involve returns, recycling, or disposal of products. For instance, if a product is returned by a customer or requires recycling, it must be managed through a system that brings it back through the supply chain. This is critical in today's environmentally-conscious business practices.

cont.

Materials, Services, and Information:

• International logistics is not just about physical goods. It also involves the management of services (e.g., customer service, financial transactions) and information (e.g., tracking shipments, data flow across global supply chains). Coordinating these elements is essential to ensure efficiency and customer satisfaction.

cont.

Materials, Services, and Information:

• International logistics is not just about physical goods. It also involves the management of services (e.g., customer service, financial transactions) and information (e.g., tracking shipments, data flow across global supply chains). Coordinating these elements is essential to ensure efficiency and customer satisfaction.

Overview of International Transportation

​The Importance of Transportation in Global Logistics:

• Transportation is the backbone of global supply chains, enabling the movement of goods across borders and continents.

• Without efficient transportation, goods would not be able to reach international markets in a timely manner.

Modes of Transportation in International Trade::

• Sea Freight (Ocean Shipping):

  • Used for large, bulky, or non-urgent shipments. It is the most common mode for international trade due to its cost-effectiveness.

  • Advantages: Cost-effective for large quantities, can handle oversized cargo.

  • Challenges: Slow transit times, subject to delays from port congestion and weather.

Modes of Transportation in International Trade::

• Rail Freight:

  • Commonly used for overland transport across continents (e.g., Europe-Asia routes). It's cost-effective and eco-friendly compared to road or air.

  • Advantages: Energy-efficient, reliable for bulk goods.

  • Challenges: Infrastructure limitations in certain countries, slower than air.

Modes of Transportation in International Trade::

• Air Freight:

  • Ideal for high-value, time-sensitive goods. Air freight is faster but significantly more expensive than sea freight.

  • Advantages: Fast delivery, good for perishables and high-value goods.

  • Challenges: High cost, limited by cargo size and weight restrictions.

Modes of Transportation in International Trade::

• Road Transport (Trucking):

  • Essential for moving goods within a country or across borders on shorter routes. It’s also a key part of the “last mile” in logistics.

  • Advantages: Flexible, can reach areas without rail or sea access.

  • Challenges: Traffic congestion, fuel costs, and regulatory issues at borders.

The choice of transportation mode impacts:

• Cost Efficiency: Different modes of transport vary in cost. For instance, sea freight is generally cheaper for bulk goods over long distances, whereas air freight, though more expensive, is faster.

• Speed and Reliability: Some transportation modes, such as air, offer faster delivery times but come at a premium. Others, like road and rail, may be slower but offer greater flexibility for shorter distances.

• Environmental Impact: Each mode of transport has a varying carbon footprint. Sea and rail are generally more environmentally friendly than air or road transport.

• ​When selecting a mode of transport, logistics managers must consider the trade-offs between transit time, predictability, cost, and non-economic factors.

• The best option depends on the nature of the goods being transported, the urgency of delivery, budget constraints, and external factors like environmental considerations or regulations.

• Balancing these factors allows businesses to optimize their supply chains while meeting customer expectations.

Infrastructure and Logistics Networks:

• Logistics Hubs:

  • Definition: Strategic locations where goods are stored, sorted, and redistributed to their final destinations. They serve as points of consolidation and deconsolidation in supply chains.

  • Importance: Logistics hubs reduce transportation costs by allowing companies to store inventory closer to their customers and distribute efficiently.

  • Examples: Major logistics hubs include Rotterdam (Europe), Singapore (Asia), and Dubai (Middle East).

Infrastructure and Logistics Networks:

• Ports:

  • Definition: Ports are critical entry and exit points for goods in international trade. They are often linked to multimodal transport systems, connecting sea freight with rail and road networks.

  • Key Functions: Container handling, storage, customs processing, and intermodal transfers.

  • Challenges: Port congestion, security issues, and the need for modernization to handle larger container ships.

Infrastructure and Logistics Networks:

• Transportation Corridors:

  • Definition: Established routes that are critical for international trade, connecting major markets through road, rail, or maritime channels.

  • Examples:

    • Suez Canal (Sea): A key maritime route connecting Europe to Asia, reducing travel times for ocean-going vessels.

    • Panama Canal (Sea): Vital for trade between the Atlantic and Pacific Oceans.

    • Trans-Siberian Railway (Rail): Connecting Europe and Asia by rail.

• Tariffs and Duties:

  • Definition: Taxes imposed by governments on imports and exports. These can significantly impact the cost of international trade.

  • Strategies to Mitigate Tariffs: Companies may utilize Free Trade Zones (FTZ) or negotiate Free Trade Agreements (FTA) to reduce the cost of tariffs.

​Source: Rodrigue, J-P (2012) “Supply Chain Management, Logistics Changes and the Concept of Friction”, in P.V. Hall and M. Hesse (eds) Cities, Regions and Flows, London: Routledge. ISBN 978-0-415-68219-0.

Transportation Regulations and Compliance

• Incoterms:

  • Definition: International Commercial Terms (Incoterms) are standardized trade terms published by the International Chamber of Commerce. They define the responsibilities of buyers and sellers for the delivery of goods in international trade.

  • Examples of Common Incoterms:

    • EXW (Ex Works): Buyer takes full responsibility from the seller's premises.

    • FOB (Free on Board): Seller is responsible for delivery to the port, but the buyer assumes responsibility after the goods are on board the ship.

    • DDP (Delivered Duty Paid): Seller is responsible for all costs, including shipping, insurance, and import duties.

• Transportation infrastructure plays a critical role in shaping a firm's logistics strategy.

• By selecting locations with favorable transportation options, understanding how public policies impact operations, and staying informed about infrastructure developments, logistics managers can optimize their supply chains for cost-effectiveness and efficiency.

• Customs Procedures:

  • Documentation: Exporters and importers must provide accurate documentation, such as the Bill of Lading, Commercial Invoice, and Certificate of Origin.

  • Customs Compliance: Companies must comply with the import/export laws of both the exporting and importing countries. Non-compliance can result in delays, fines, or seizure of goods.

Risk Management in International Transportation

• Delays:

  • Causes: Weather, port congestion, labor strikes, and customs delays.

  • Mitigation Strategies: Buffer stock, flexible supply chain partners, and diversification of routes and carriers.

• Damages and Losses:

  • Causes: Poor handling, improper packaging, and accidents during transit.

  • Mitigation Strategies: Proper packaging standards, cargo insurance, and working with trusted logistics providers.

• Geopolitical Risks:

  • Causes: Political instability, trade wars, and sanctions can disrupt supply chains.

  • Mitigation Strategies: Geographic diversification, hedging against currency risks, and close monitoring of geopolitical trends.

• Supply Chain Disruptions:

  • Example: The COVID-19 pandemic caused widespread disruptions in global transportation. Companies had to quickly pivot, seeking alternative routes, increasing air freight usage, or reshoring some production activities.

​Conclusion

• International transportation plays a critical role in global trade and logistics, ensuring the efficient movement of goods across the world.

• However, companies must navigate complex regulations, manage risks, and adapt to challenges to ensure that their supply chains remain resilient and cost-effective.

• Understanding the dynamics of transportation modes, infrastructure, regulations, and risk management is key to optimizing global logistics strategies.

Case Study:

DHL transportation logistics in the time of covid-19

Open Ended

During the COVID-19 pandemic, DHL, one of the world’s largest logistics and transportation companies, played a crucial role in maintaining the global flow of goods despite unprecedented challenges. The pandemic disrupted supply chains globally, and DHL had to quickly adapt to ensure the continued movement of essential goods, such as medical supplies, personal protective equipment (PPE), and vaccines. How DHL managed its transportation logistics during this challenging period?

Open Ended

What challenges did DHL face globally?

Open Ended

What are the Key Strategies Employed by DHL During COVID-19?

Open Ended

What are the Key Lessons Learned?

Chapter 3 Recap!

Multiple Choice

Which transportation mode is most cost-effective for large quantities of low-value goods over long distances?

• Air Freight

• Rail Freight

• Sea Freight

• Road Transport

Multiple Choice

What is the primary benefit of placing a distribution center near a major port in global transportation?

• Faster delivery to inland areas

• Reducing transit time for international shipping

• Increased warehousing capacity

• Lower fuel costs for road transportation

Dropdown

​ Using air freight guarantees lower costs compared to sea freight for transporting electronics.​

Select answer

Dropdown

Tariffs and customs regulations have a minimal impact on the overall logistics cost in international transportation.​

Select answer

Match

Match the following: Match the transportation risk to the correct mitigation strategy.

• Delays due to port congestion

• Damage to goods in transit

• Geopolitical tensions causing route disruptions

• Poor handling of temperature-sensitive goods

Rerouting via less congested ports

Use of shock-absorbing packaging

Alternative routing and risk monitoring

Cold chain logistics

• Rerouting via less congested ports

• Use of shock-absorbing packaging

• Alternative routing and risk monitoring

• Cold chain logistics

Reorder

Reorder the following:Rank the following factors from most important to least important when selecting a mode of transport for perishable goods like food or vaccines:

• Availability of Cold Chain Infrastructure

• Transit Time

• Predictability

• Cost

1

2

3

4

• 1
• 2
• 3
• 4

Open Ended

Explain how the presence of logistics hubs and transportation corridors enhances global trade. Include the impact on transit time, cost, and flexibility in your response.

Open Ended

A manufacturer of electronic components based in South Korea wants to export products to Europe. They are weighing the options between air freight for speed and sea freight for cost savings. However, they must also consider new European customs regulations that could delay sea freight. Evaluate the best transportation mode based on the following factors:

1.The urgency of delivery

2.Cost limitations

3. Customs regulations

Question: Which transportation mode would you recommend and why?

You've complete chapter 3!

Open Ended

Do you have any question?

Thank you!