Operations Management

Global Value Chain Module — International Distribution

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A Case of Late Deliveries

Background

Mario is the new supply chain manager at Excel Air Enterprises Inc., a U.S. manufacturing company based in South Carolina that provides air blasting and painting equipment. The company recently started selling equipment in Bangladesh.

To date, Excel’s only customer in Bangladesh is Modu Equipment. Modu’s president, Vivek Sharma, complained that products have not been delivered on time. Vivek was told in January that it would take four weeks to have all ordered products delivered to Bangladesh, but it is now March and he has only received some of the equipment. He added that he ordered motor wheels urgently needed for a client, but they have not yet arrived, despite his flagging the order to the previous supply chain manager. Vivek has also been waiting on Excel to send a signed statement certifying the country of origin of the products and that the products were in accordance with the invoice. Vivek advised Mario that if Excel did not fix its problems immediately, Modu Equipment would begin using a Miami-based company that had recently approached him.

Mario began investigating what type of equipment was being shipped and where the bottleneck was. He reviewed the purchase order and saw that Modu had ordered storage elevators, blast cabinets, vacuum equipment and a few smaller items including the motor wheels. With this information, he would determine how the products were sent from the warehouse and then try to track the exact location of the products on their way to Bangladesh.

Trucking and Packing from Excel

In March, Excel started to use the low-cost U.S. carrier Demplar Logistics to transport larger products from the warehouse to the shipping port in Charleston, North Carolina. The owners of Demplar and Excel were good friends. The companies had negotiated a new two-year agreement in early March. Mario searched through emails and files, but couldn’t find the contract from Demplar Logistics. He had no idea what the carrier was supposed to do. He contacted Demplar to get further details about the services it offered Excel, but was unable to reach anyone there. Mario then went to the warehouse to speak with Keith, the shipping and warehouse manager, about the products shipped to Modu—particularly the motor wheels. He was surprised when Keith told him, “We thought the motor wheels could go with the rest of the equipment, so we packed them in the sea freight container, too. You know, it may save us some money. We ran out of filling

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material, but don’t worry—we packed it in a way that nothing will happen to them.” Mario knew that some of the larger equipment had protruding parts, so he became concerned the smaller items would be damaged en route. Mario also realised the blast cabinet Modu had ordered was still in the warehouse. Keith said the light box component had to be removed from the top of the blast cabinet in order to meet the sea freight container height regulations, and his staff needed the company’s engineer to help make the modification before the shipment could proceed. Modu was also waiting on the vacuum equipment, which was found next to the blast cabinet in the warehouse. Keith and his staff had never sent vacuum equipment by sea, and they needed a forty-foot container with an open top. Someone had ordered a hard top container instead. If the open-top container was not used, the container could not be loaded by crane on to the cargo ship. Mario thought to himself, “How did we not know this before?” After Mario finished speaking with Keith, he went back to the office and received a call from Steve at Demplar Logistics. Steve advised that there was a verbal contract in place between Demplar and Excel; a written contract was still being prepared. He also said Demplar was experiencing a shortage of truck drivers and could not come for another four to five days to carry containers to the port. Steve added that Mario would be very fortunate to find a company able to assist in trucking, as finding new truck drivers to replace those retiring had become a nationwide problem. Mario had to find a solution to this, as he needed to get equipment moved not only internationally, but in the U.S. as well. The Compromise

Mario called the freight forwarders that Excel used, DWE World Express, which offered a full range of services, such as export packing and containerization. To save costs, Excel did not use DWE’s U.S. pick-up service or any other packaged services. It used DWE as shipping agents and customs brokers to arrange the export customs clearance and to pay the export duties. Mario was used to working with freight forwarders who offered door-to-door service, so this would be an adjustment. However, DWE did offer satellite tracking, and Mario used his smartphone to track Excel’s latest shipment to Modu through the mobile application. To Mario’s disappointment, the latest shipment was in Bangladesh, but delayed due to customs clearance issues. At the seaport in Chittagong, Bangladesh, goods are unloaded from the ship and then inspected by customs and stored. The consignee has four days to provide the required documents needed for customs clearance and then remove the goods from the storage area. Vivek has been waiting for a missing document from Excel to be able to provide the complete set of documents to Bangladeshi customs. The demurrage has been accumulating for the past two weeks. Vivek knew that the sales agreement with Excel stated that Modu was responsible for charges once the shipment arrived in Bangladesh, but as he believed the missing documentation was Excel’s fault, he wanted Excel to pay for the demurrage. As a part of the sales contract between Excel and Modu, they negotiated the following shipping delivery terms: “CFR, Port of Chittagong, Bangladesh, Incoterms® 2010.” Modu had a great relationship with its own freight forwarders in Bangladesh and could negotiate favourable freight rates. With this in mind, Excel had already offered Modu a reduced price for its equipment.

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Mario called Vivek to explain he would be getting all the outstanding equipment shipped as soon as possible. He prepared the signed statement certifying the country of origin and sent it by email to Vivek, hoping the Bangladeshi customs would accept it until the original arrived by courier in three days. Mario also offered to pay for the extra demurrage. Vivek was still not happy with the service offered by Excel. He told Mario he would not be purchasing equipment from Excel again.

Learning Outcomes This case study relates to the following learning outcomes from the module International Distribution in the course Global Value Chain:

• Decide on the most efficient method(s) of transportation based on identified requirements to minimize risks, maintain quality of the product, minimize costs and ensure on-time delivery to the target market.

• Prepare goods for shipping while following appropriate procedures, such as packing, lashing, container selection, to minimize risks and maintain the quality of goods.

• Ensure regulatory requirements for exporting and importing are met. • Comply with customs regulations, protocols and trade facilitation

programs when transporting goods across borders. • Contract and deliver services to meet needs of the clients, in a manner that complies with

the importing country’s requirements.

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1. a) Identify the challenges Mario faced with shipping the products to Modu Equipment. (b) What steps could have been taken by the previous supply chain manager and owner to prevent these challenges?

2. What modes of shipping would be most cost-effective for Excel Air Enterprises in the following situations?

a. Shipping from the U.S. to Bangladesh b. Shipping within the U.S.

3. Why would using full-service freight forwarders be beneficial to Excel Air Enterprises?

4. How will the looming driver shortage affect Excel Air Enterprises and freight forwarding

companies?

Although based on research of actual events, organizations and/or individuals, this case study is fictional and is intended to support learning. Cases are not intended to serve as endorsements, sources of primary data or illustrations of effective or ineffective management.

Case Study Questions

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Sources Banks, Steve. “The Impact of the Trans Pacific Partnership to Canada – Supply Chain (Part 3 of 3).” The Logistics Blog. Accessed December 12, 2016. triskelogi.com/the-impact-of-the-trans- pacific-partnership-to-canada-supply-chain-part-3-of-3.

Durgavich, John. Customs Clearance Issues Related to the Import of Goods for Public Health Programs. Arlington, VA: USAID | DELIVER PROJECT, Task Order I, May 2009. Accessed December 12, 2016. deliver.jsi.com/dlvr_content/resources/allpubs/policypapers/CustClearIssu.pdf.

Mason, Ella. “Choosing 3PLs You Can Trust.” 3PL News. August 14, 2014, accessed December 12, 2016. www.3plnews.com/3pl/choosing-3pls-you-can-trust.html.

Mason, Ella. “International Shipping – Opportunities and Challenges.” 3PL News. May 01, 2014, accessed December 12, 2016. www.3plnews.com/ocean-freight/international-shipping- opportunities-and-challenges.html.

“Report: Driver Shortage, Labour Demographics Concerning for Atlantic Trucking.” Canadian Trucking Alliance. February 19, 2016, accessed December 12, 2016. cantruck.ca/report-driver- shortage-labour-demographics-concerning-for-atlantic-trucking.

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Photo Attributions Photo # 1 (Trucks)

Attribution: No attribution required Licence: Public Domain Free for commercial use

pixabay.com/en/canada-trucks-truck-784392

Photo # 2 (Port)

Attribution: No attribution required Licence: Public Domain, free for commercial use

pixabay.com/en/port-ship-crane-load-container-407412

Photo #3 (Spray painting)

Attribution: U.S. Navy photo by Gary Nichols Licence: Public domain, via Wikimedia Commons

upload.wikimedia.org/wikipedia/commons/3/31/US_Navy_040413-N-5328N- 029_A_U.S._Air_Force_Airman_spray_paints_a_piece_of_equipment_in_a_paint_booth_at_Na val_Air_Technical_Training_Command_%28NATTC%29.jpg

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