Unless an exporter’s manufacturing or distribution warehouse sits along-side an airport or an ocean terminal there will always be an inland freight movement from the origin point to the outbound gateway. The clear majority of these movements travel via truck, but rail, barge, and air could certainly be options. In remote areas of the world and in some third-world or developing nations, this inland mode could be manual labor, donkey, or even a horse- drawn carriage.
In some shipments, the inland move could be 4 miles, 5 kilometers, or 1,000 yards. In some supply chains, as an example goods originating in Sioux City, Iowa, exporting from the Port of Los Angeles could see dis-tances of over 1,000 miles from origin to outbound gateway.
In Australia, goods originating in the Outback could see distances over 2,000 miles to go from origin points to outbound gateways, such as Sydney, Perth, or Melbourne. In Venezuela, goods originating in an inland city such as Cucui could have over 1,000 kilometers before reaching the port city of Puerto Cabello. One would then travel through a dense Amazon jungle with little transportation infrastructure to favorably impact inland freight options. In contrast, I have a client in Long Beach, California, that is located right on the tarmac at Long Beach Airport/ Daugherty Field. It manufactures airplane parts and ships directly from that warehousing location. It moves the freight approximately 400 yards in its own vehicles from dock to plane side both for domestic and international shipments.
I have another client located on the Thames River in England. As part of its energy business facility, it has a dock/ pier facility for the loading of vessels.
The freight moves about 80 meters from storage locale to the pier apron alongside the vessel.
In every case—from 80 meters to 2,000 miles—a cost is associated with the movement from the point of sale to the outbound gateway from within the country of export. In an ExWorks shipment these costs are designed for and are typically for the account of the buyer. In other Incoterm options, these inland freight charges are for the account of the seller, such as FOB, CIF, and DDP.
The questions that are always of concern are, is the exporter recouping these costs in the sales price or are they eating these costs in the “costs of goods sold?” And which party can accomplish these in both a timely and cost-effective manner?
EXPORT PRO FORMA COMMERCIAL INVOICE OUTLINING FOB TERM AND THE ACCUMULATION OF COSTS
TAC COMPANY Exports Abound 12 Benjamin Ave, Hamptons, NY Phone: 212 345 6789; Fax: 212 345 6781
Export Pro Forma INVOICE Invoice #[100]
Date: August 7, 2013 To:Star Fishing, Hook DivisionTyson
23 Rue de Housen
1234 Paris, France Ph# 33 124 56789
PO # 2345
Terms of Sale … CIP Incoterms 2010 Elizabeth, NJ
DESCRIPTION HOURS RATE AMOUNT
23 Hook assemblies, Style 4500 Green
23,897 USD IPC 2136789456
All goods exported according to U.S. EAR regulations. Diversion contrary to U.S. Law.
Make all checks payable to TAC Company Total due in 45 days. Overdue accounts
subject to a service charge of 1% per month. ExWorks 23,897.00 USD Inland
Freight 527.00 USD TOTAL FOB PRICE 24,424.00
USD
Landed Cost Modeling • 105
The importer would take these costs and now add their additional costs:
• Ocean freight
• Clearance
• Duties, taxes, VAT
• Inland freight to final destination
And these will now bring the importer to a total landed cost calculation.
The Paris- based importer reaches out to its Le Havre– based customhouse broker/ freight forwarder, which has an agent in New Jersey, and asks for costs to pick these goods up. It will have a shipment every week. Star Fishing is advised that the inland freight would be approximately $650.00 per trans-action. This is over $100.00 more than the manufacturer is charging.
It then asks the manufacturer for a CIP Le Havre quote. It receives a Pro Forma Invoice showing the following:
TAC COMPANY Exports Abound 12 Benjamin Ave, Hamptons, NY Phone: 212 345 6789; Fax: 212 345 6781
Export Pro Forma INVOICE Invoice #[100]
Date: August 15, 2013 To:Star Fishing, Hook DivisionTyson
23 Rue de Housen
1234 Paris, France Ph# 33 124 56789
PO # 2345
Terms of Sale … CIP Incoterms 2010 Le Havre, France
DESCRIPTION HOURS RATE AMOUNT
23 Hook assemblies, Style 4500 Green 23,897 USD
IPC 2136789456
All goods exported according to U.S. EAR regulations. Diversion contrary to U.S. Law.
Make all checks payable to TAC Company Total due in 45 days. Overdue accounts
subject to a service charge of 1% per month. ExWorks 23,897.00 USD TOTAL FOB PRICE 26,899.00
USD
When compared, the insurance cost is $100 greater, but the overall sav-ings, mostly in the ocean freight area, saves an additional $400 per ship-ment. This represents a savings of over $20,000 annually in just this one trading lane.
The importer scrutinizes some additional considerations in the overall evaluation:
• Ocean freight times
• Frequency of shipping options
• Which carriers are being stylized
• Reputation of freight forwarder with reference checks
• Claims history
The new shipping option proves to be a viable alternative, and the importer amends the Incoterms from FOB Elizabeth to CIF Le Havre.
The importer in France now applies this process of quoting to all the millions of euros of goods and services it purchases around the world. It estimates that it has reduced landed costs by almost a million euros annu-ally. These savings are passed on to the customers because the importer’s price points have now been significantly reduced.
Sales have increased from 6% to almost 11% annually, demonstrating that Incoterms choices impact the competitiveness of global supply chains.