1. Engage senior management.
2. Establish a point person and a team approach.
Incoterms: Foundation of Global Trade • 65 3. Learn Incoterms and establish an Incoterms guru.
4. Integrate Incoterms in every corner of the organization.
5. Partner with providers.
6. Plan the best options and leverage sales and purchases.
7. Educate suppliers, customers, and vendors.
8. Develop and use technology options.
9. Develop competitor- friendly options: network.
10. Develop resources.
Engage Senior Management
The only way change will occur in most larger and even smaller companies is when senior management is informed of the issues and believes that the company will be best served in the long- term. Typically, in all companies cost is associated with positive change. Senior management will always be involved in “spend.” Change also requires infrastructure and person-nel issues, which senior management can most favorably impact. Many companies are littered with fiefdoms, silos, and areas of individualized territories that are difficult to broach. Senior management has the best opportunity to get past these artificial barriers and cause better cohesion between internal working units. Senior management can also exercise a
“hammer approach” when necessary.
Establish a Point Person and a Team Approach
An individual person irrespective of the company size will need to take “ownership” of managing Incoterms inside the organization. That
individual will best be served by organizing a committee made up of all the individuals and divisions that are “stakeholders” in the global supply chain. These might include the following:
• Sales
• Purchasing
• Logistics, traffic, and freight
• Operations, distribution, and warehousing
• Manufacturing
• Legal
• Finance and accounting
• Customer service
• Technology and information technology (IT) services
That “point” person along with the committee would be charged with the following:
• Evaluate all the stakeholders in the global supply chain and make sure they have a word in what the committee does.
• Evaluate all the issue in their global supply chain that impacts Incoterms use.
• Assure that the company has “benchmarked” itself against other operators in their industry or scope of business or size.
• Guide and establish protocols for specific personnel, sales or pur-chasing, company or divisional nuances regarding Incoterms use.
Incoterms: Foundation of Global Trade • 67
• Establish a line of accountability and responsibility both into senior management and into company operations at all levels.
• Establish a direct line of communication into tax, legal, and finance for Incoterms issues that impact these corporate areas of concern.
• Establish a direct line of communication into the company’s tech-nology group or providers to determine how techtech-nology can play a role in the management of Incoterms matters.
• Be able to create standard operating procedures (SOPs) in the use and application of Incoterms throughout the organization, with a need for an ability to tailor and customize the SOPs for individual needs without compromising consistent and standardized applications.
• Develop internal training and instructional regiments in the organi-zation on what are and best use of Incoterms.
• Engage outside counsel, advisors, or consultants to support the com-mittee’s initiatives.
• Establish communication capabilities to address information flow internally to all aspects of the organization.
In addition, reach out to vendors, providers, suppliers, customers, and potentially government authorities.
Committees provide an excellent platform for team initiatives that will typically produce the best results when managing projects inside and within corporations. Committees can also span divisions, various enti-ties, countries, and the globe.
Learn Incoterms and Establish an Incoterms Guru
One person has to become the “go- to” person for Incoterms in an organi-zation of any size. That person would need to:
• Establish some degree of skill set in Incoterms
• Have access to Incoterms professionals for clarification, edification, and practical counsel
That person may not necessarily be the Incoterms point person or com-mittee chair but might even be a subordinate who has shown interest and identified a capability in Incoterms. This person would attend all Incoterms training and updates and take the Advanced Incoterms class offered by the World Academy (http://www.theworldacademy.com), the ICC (http://www.iccwbo.org), and the United States Council for International Business (http://www.uscib.org). This person could also be made available to conduct in- house training exercises or manage third- party training initiatives. An additional responsibility of this person could be the actual internal coordination of Incoterms utilization and practice coordinated with the committee and the point person.
Integrate Incoterms in Every Corner of the Organization
Incoterms impact every aspect of an organization, from sales to purchas-ing, from warehousing to legal, from finance to customer service, from manufacturing to traffic. A committee that engages all the stakeholders will help with this effort, and it is very important that all personnel who have anything to do with the global supply chain be involved with:
• Understanding the basics of Incoterms
• How Incoterms impact what they have as company responsibilities
• How Incoterms impact the other aspects of their company interfaces
• How to make better decisions that leverage supply chain variables with Incoterms utilization
Companies that assure total Incoterms compliance with all personnel and divisions in every nook and cranny of sales, purchasing, and logistics are those that have the best- run global supply chains producing the best opportunity for growth and profits.
Incoterms: Foundation of Global Trade • 69
Partner with Providers
Our expertise in global trade points to the fact that a clear majority of com-panies, upward of 95%, use the services of freight forwarders, custom house brokers, or third- party service providers in the operation of their interna-tional sales and purchase programs mainly in the freight and logistics arenas.
This is covered in more detail in Chapter 6. This is a very important relation-ship that develops among the principal relation-shippers, importers, and exporters and their providers. It will make or break the success of the supply chain.
When the principal shipper, importer, or exporter views the relationship as a “partnership” instead of just a “vendor,” there is a dramatic improve-ment in the performance level of the provider in being able to deliver on promises and commitments. Partnership mind- sets allow for better com-munication, information flow, and ease of operational adherence. It also affords a better opportunity for problem resolution or mitigation. As prob-lems are always likely, it is important to note that how we resolve these likely issues is critical to the overall relationship. They are likely to happen, and how they are dealt with will impact performance of both parties. A partnership mind- set affords the best opportunity for success.
Plan the Best Options and Leverage Sales and Purchases
When we are discussing best practices, we are mitigating risk and maximiz-ing opportunity. Developmaximiz-ing a strategy and plan of action then becomes an integral part of our business process in managing Incoterms. We are trying to discover which are the best Incoterms to use to give us advantage in our export sales or our import purchases.
In the various chapters that follow are numerous examples and over-views of how best to leverage Incoterms. An example that my colleague Rennie Alston (an accomplished licensed customhouse broker and trade professional) uses relates to goods being shipped to the United States and how importers value the goods for declaration to U.S. Customs and Border Protection (CBP).
Foreign Inland Freight Can Be a Nondutiable Charge
In every country, various factors affect the compliant reporting values for imported merchandise. CBP defines proper value based on five dif-ferent methods of valuation. The most common method of valuation is
transaction value, which is defined as the price paid or payable between a buyer and seller of imported merchandise. Valuation factors also must be added to such cost to properly ascertain a valuation sum consistent with CBP regulatory standards.
CBP assesses the dutiable value concept on all charges including the cost of the merchandise and all charges to get the goods packed and to a point of an on- board status on a vessel, vehicle, or aircraft destined for the United States. Many importers associate their customs declared value on this concept as the term of sale as FOB to include foreign inland freight as a proper element of their declared value.
Many purchasing options available to buyers of imported merchandise are often reflected in the selected Incoterms. This is another example of why personnel engaged in managing various aspects of the global supply chain need to be instructed on the basic tenement of Incoterms.
Many importers purchase under ExWorks or ex- factory terms and are incorrectly declaring a U.S. import value inclusive of foreign inland freight. This practice results in the assessment of an incorrect entered value as the cost of foreign inland freight is not included under the terms of an ex- factory transaction as per 19CFR 152.103 (a) 5 (i), which states: If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise, those charges will not be added to the price.
There also exist areas in which terms other than ex- factory may also qualify for the exclusion of foreign inland freight in such cases as when such cost are itemized separately and occur after the goods are shipped on a through bill of lading and are placed with the carrier as referenced in CFR 152.103 (a) 5 (ii).
Many importers are not aware of this regulatory position and are declar-ing foreign inland freight for their import transaction declarations result-ing in an overpayment of duties for all dutiable entries. This issue is worth a detailed review and analysis to determine if in fact your firm is eligible for a revenue recovery process in the form of a possible protest of liquida-tion as well as a proactive adjustment to declared value computaliquida-tions to save your firm millions of dollars in unnecessary duty amounts.
Keep in mind that it is a penalty or fine as much for paying too much duty as for not paying enough. Customs around the world expect the
“importer of record” to declare the “correct value” based upon the import rules of that country. Importers understanding how this aspect applies
Incoterms: Foundation of Global Trade • 71 can take advantage not only of how to make a purchase and declare the correct values to stay out of trouble but more importantly also to how to reduce the landed cost for a competitive edge.
Educate Suppliers, Customers, and Vendors
The global supply chain includes the principal seller or buyer, and the sales agreement, the purchase order, commercial invoice, and contract all include the parties who work with us in the logistics, handling, clearing, and movement of funds. It is imperative that they be included in our pro-cess of deciding the best Incoterms since they will also be impacted by that decision. What you want is a decision that is in the best interest of all parties. This may require some compromise.
Do Not Operate in a Vacuum
We need to keep in mind that the supplier, vendor, and customer need to take part in the decision- making process. They must be educated, informed, and made aware of the issues that impact that decision- making process. Over the last 30 years, I have witnessed successful supply chains:
they engage all parties to the transaction, proactively, with transparency and compromise.
Develop and Use Technology Options
In the early 1990s, technology was a very small part of global trade. Today it is a big component and an even more important factor impacting supply chain efficiency and performance. What it took five people to do in an hour to move freight in 1990 can be done by one person today in 10 minutes.
Around the world today more and more freight moves globally “paperless”
or certainly with a minimum amount of paper. Not only does that create supply chain savings, but more and more companies go “green.”
Reducing paper, documentation, protecting the environment, and elim-inating waste are the future.
Technology’s advantages are
• Efficiency
• Compliance benefits
• Record- keeping components
• Government requirements
• Reports for management oversight
• Performance measuring
• Better communications
• Better quality control
Technology can be incorporated into Incoterms management in numer-ous ways.
Some Incoterms applications with technology options are as follows:
• Companies can place the desired Incoterms right into sales agree-ments or purchase orders as they are administered.
• Incoterms options can be decided based upon parameters of an agreement and can pop up automatically to the individual involved in the transaction. For example, the product, the customer, and countries of sale or purchase when factored could impact the choices of Incoterms on a preprogrammed automatic basis.
• Additionally, parameters can be set up in sales and purchase order databases to point to preferred Incoterms options or to alert users when the wrong Incoterms options are being considered.
• Technology can be programmed with SOPs that mirror corporate or company- wide Incoterms protocols and strategies.
Incoterms: Foundation of Global Trade • 73 Companies engaged in global trade need to invest into technology solu-tions, which can be sourced independently from software companies or acquired from transport providers who offer access to their IT capabilities.
Develop Competitor- Friendly Options: Network
Networking is a vital aspect of every individual in the global supply chain with management oversight responsibilities. It allows a beneficial interface with friendly competitors who share intelligence, contacts, and best practices.
Learning occurs on the back of their experience. Trade associations, public seminars, and government outreach initiatives are all options for networking.
The United States Council for International Business (USCIB), http://
www.uscib.org
The United States Council for International Business promotes open mar-kets, competitiveness and innovation, sustainable development and cor-porate responsibility, supported by international engagement and prudent regulation. USCIB’s vision and strength are provided by an active member-ship of leading corporations and organizations, while our unique global network helps turn the vision into reality. USCIB also provides a range of business services, including the ATA Carnet for temporary exports, to facilitate overseas trade and investment.
The World Academy, http://www.theworldacademy.com
The World Academy provides training programs and seminars for the following:
Trade Associations
Global Trade Organizations
In Association with Pre- existing Teaching Centers Public Seminars
Customized In- house Training Programs
Specially Designed and Tailored Training Activities
Topics covered in classes and workshops include all phases of Import/ Export logistics and compliance including hazardous materials (HAZMAT), letters of credit, harmonized tariff schedules, Incoterms, and other topics needed to compete in today’s global trade arena, such as sales and sales management classes.
American Management Association (AMA), http://www.amanet.org Seminars
Sharpen skills and stay ahead of the competition with AMA’s leading- edge seminars in 21 distinct subject areas. With over 140 workshops to choose from in 40 cities across the country, AMA offers training to meet every individual’s needs.
Professional Association of Import/Export Compliance Managers (PACMAN), http://www.compliancemaven.com
About PACMAN
Our Mission Statement:
To provide a formal structure of corporate executives engaged in import and export compliance management for mutual solution development, more compliant and secure global supply chain management and career advancement opportunities.
Deliverables:
• To develop a free exchange of ideas in import/ export compliance management
• To provide a testing and certification capability for all profes-sional members
• To develop a database of resources, such as websites, literature, and regulations for all members
Incoterms: Foundation of Global Trade • 75
• To provide a lobbying presence in Washington
• To provide a medium to gain access to senior government officials in the BIS, U.S. Customs, DOT and State Departments, ITAR, CDC, USDA/ FDA, etc.
• To provide web-based and telephone “help- lines” for questions and inquiries
• To provide a forum for research, education, and training on import/
export compliance management
• To grow the membership and overall forum, to be a positive advocate in overall global trade and international business
• Career development opportunities
• Compliance technology capability
• Develop dialogue with carriers for more compliant and secure trans-portation services
• Develop better trade relations with various government agencies
• Develop in- house capability for establishing SOP’s on compliance management
• In- house education and training systems
The International Trade Administration (ITA), http://www.trade.gov ITA strengthens the competitiveness of U.S. industry, promotes trade and investment, and ensures fair trade through the rigorous enforcement of our trade laws and agreements. ITA works to improve the global business environment and helps U.S. organizations compete at home and abroad.
ITA supports President Obama’s recovery agenda and the National Export Initiative to sustain economic growth and support American jobs.
ITA is organized into four distinct but complementary business units:
U.S. and Foreign Commercial Service—Promotes U.S. exports, particu-larly by small and medium- sized enterprises, and provides commer-cial diplomacy support for U.S. business interests around the world.
Manufacturing and Services—Strengthens U.S. competitiveness abroad by helping shape industry- specific trade policy.
Market Access and Compliance—Assists U.S. companies and helps cre-ate trade opportunities through the removal of market access barriers.
Import Administration—Enforces U.S. trade laws and agreements to prevent unfairly traded imports and to safeguard the competitive strength of U.S. businesses.
International Chamber of Commerce (ICC), http://www.iccwbo.org ICC is the voice of world business championing the global economy as a force for economic growth, job creation, and prosperity.
Because national economies are now so closely interwoven, government decisions have far stronger international repercussions than in the past.
ICC—the world’s only truly global business organization—responds by being more assertive in expressing business views.
ICC activities cover a broad spectrum, from arbitration and dispute resolution to making the case for open trade and the market economy system, business self- regulation, fighting corruption or combating com-mercial crime.
ICC has direct access to national governments all over the world through its national committees. The organization’s Paris- based international sec-retariat feeds business views into intergovernmental organizations on issues that directly affect business operations.
The world’s most influential business lobby group.
—Financial Times, 2008
Networking
Supply chain executives must be consistently committed to networking.
Anywhere from 3 to 10 percent of one’s time can be structured into creat-ing networkcreat-ing opportunities. Networkcreat-ing creates:
• Camaraderie
• Information flow
• Benchmarking
• Resource development
All these foster an environment in which to learn, grow, and positively act for mutual benefit to the company and the executive.
Incoterms: Foundation of Global Trade • 77
Develop Resources
No matter how experienced an individual is in supply chain management, it is necessary to process a great deal of information every day to success-fully operate in global business.
The key element to success is to develop resources from numerous areas so that when circumstances come up they have variable options to find out what their solutions are. Many consider resource development their
“gateway” to managing all their responsibilities successfully. The old adage
“gateway” to managing all their responsibilities successfully. The old adage