UPS implementing escape clause for A380

Via Air Cargo News:

The agreement postpones initial delivery dates for the A380F and provides for possible termination of the original purchase agreement by either party later in 2007.

Key quote from UPS:

“This agreement will provide us additional time to evaluate our network requirements and make a decision once and for all as to how best to ensure service to our customers,” Lekites added.

Translation: We’re just buying time before we decide whether to pull the plug on our A380 orders.

Look for a future announcement that UPS has canceled their A380 orders with Airbus.

Imports 101: Understanding duty impact

You’ve just discovered an awesome item to import from overseas, or perhaps you’ve decided to source a key product from another country. Everything is in line and looks great: your supplier overseas is a reliable outfit with a proven track record, payment and shipping terms have been sorted out and agreed upon, and calculated profit margins look fantastic.

Did you remember to factor in import duty?

It sounds elementary, but too often in the excitement of discovering a new product or low-cost supplier overseas, it can easily be overlooked or simplified. Sometimes companies leave the decisions and calculations to departments or staff who are not experienced in international logistics or trade. Sometimes its a simple matter of neglecting to consult and coordinate with their logistics/supply chain department or personnel. And some companies show poor judgment by relying solely on their overseas suppliers for such important information, placing far too much faith in their supplier’s knowledge and experience in such matters.

Here are a couple of examples to illustrate this important part of import planning:

Example 1: Company neglects to factor import duty into their cost calculations.

ABC Company, a small distributor without a dedicated logistics/supply chain department, decides to begin sourcing their widgets from an overseas supplier, saving more than $2.00 per widget in total costs. The supplier’s first cost includes transportation all the way to ABC Company’s warehouse. Purchase orders are issued and the orders begin coming in. Then the bills start coming in from their customs broker detailing duty amounts on the product that not only wipe out the cost advantage sourcing from overseas, but actually increase the total cost per widget by $0.25 per widget. The company, after wasting a significant amount of time and money implementing the change and going through the initial run of orders, is forced to terminate the agreement with the overseas supplier and put into the embarrassing position of going back to their original domestic supplier. After investigating, it is discovered that at no time did anyone in the company think to consult with their customs broker to find out the duty impact.
Sounds so simple, but it happens EVERY. DAY.

Example 2: Company factors in the duty cost in their analysis but neglects to take into account anti-dumping measures related to their product.

XYZ Company has found a unique product in China that they believe will sell well in their stores. They do a careful cost analysis and dutifully check with their overseas supplier to ensure they have the correct classification and tariff number for US Customs. Their supplier in China assures them the classification is correct and the duty rate should be 2.7%. Orders begin coming in, but after a short time they notice with alarm that profit margins are half what they expected. The culprit? Their product is subject to anti-dumping, boosting the applicable duty rate to 67%! This could have easily been discovered had the product development team checked with their own customs department before placing the orders. Upon investigation, it is discovered that the product development team placed too much faith in their overseas supplier and neglected to ever consult with their customs people, ignoring the fact that an overseas supplier has little, if any, experience with the Harmonized Tariff Schedule and rulings of United States Customs.

Yes, I have seen this happen as well, with companies large and small.

The bottom line is that companies have logistics and supply chain departments and personnel for a reason. Use them. Profile any successful corporation involved in international trade and you will find that logistics and supply chain management are high visibility functions within the organization that are coordinated with at many levels, particularly when it comes to sourcing or product development. Smaller companies who do not have such resources have the option of partnering with their 3PLs or other logistics service providers to ensure they have all their bases covered. And companies should never rely on their suppliers or agents to supply such critical information; it’s certainly possible that they may have intimate knowledge of their own product, particularly from past orders and history of shipments to the U.S., but always back it up by checking with your own people on this side to ensure it is correct.

Infrastructure key to Indiana’s success as a manufacturing leader.

Wise words of advice from the governor of Indiana:

Get your house in order. Keep taxes down. Have a regulatory regime which is firm but also consistent, predictable, but most of all, quick. Get out and hustle and market your state to businesses, as I try to do everywhere I go.

And also have the best infrastructure possible. We tackled the roads and rails problems of Indiana directly, because it means everything to our ability to bring future jobs. Honda, Toyota, all these companies you’re asking me about, when asked why they picked Indiana, invariably mentioned access to transportation as either the No. 1 or No. 2 reason.

Carter Wood from NAM, the author of the post, adds this:

Whether it’s roads, rail, airports, ports or waterways, a top-notch infrastructure is essential for getting U.S. products to the customer. All the productivity in the world doesn’t matter if you cannot ship your goods.

Asia Logistics Wrap is back – Using logistics as an economic barometer

After a lengthy leave of absence, Asia Logistics Wrap is back, and we’re glad to see him up and running. His latest post refers to a recent Walls Street Journal article about the Dow Theory, using the Dow Jones Transportation Average as an economic barometer. Asia Logistics Wrap notes:

I think one of things often missed today is just how much the services industry has become part of the supply chain industry–assisting firms in developing the more complicated architectures related to relationship-building and innovation initiatives that build upon and help reinvigorate what is already established in the physical, financial and informational (technology) practices of supply chain operations. As the above paragraph mentions, technologies and their complementary services (consulting, support, maintenance, etc) are not independent of–they are approached horizontally across–physical distribution and thus analysis shouldn’t be independent–not approached functionally or vertically.

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