Breakbulk Veteran John Vogt Presents the Latest in his Series on Incoterms
John Vogt, former Halliburton vice president of global logistics, presents the latest in his series of articles on Incoterms, a set rules that define the responsibilities of buyers and sellers in international and domestic trade contracts. New instalments are published each month in BreakbulkONE.
The ability to move goods efficiently and effectively is predicated on a clear understanding of the role of each party in the transaction. There are, on average, about 25 parties in an international transaction, all of whom must be clear on what they must perform, and when and what reporting they must undertake.
While domestic transactions involve fewer parties, these principles are equally valid. Without the precise knowledge of the role, responsibilities and the reporting, the chances of an overlap between parties or the presence of a gap which then has one or another party scrambling to fix, will result in inefficiency and potential delays.
The shipper is the responsible party to ensure there is precision by all the parties involved in the movement and logistics. Many companies abdicate this to freight forwarders. This is somewhat problematic as we will discuss.
The correct method is to produce a Shipper’s Letter of Instruction, or SLI, which informs the forwarder or other parties to perform precisely what is required – the role, responsibility and reporting details. Let us call these the 3R’s of movement management. What is this magic document and what must it contain and not contain?
Before we look at the details of the SLI, let us debunk some myths that exist. Companies with a modicum of logistics understanding realize that standard forms published by shipping companies or even the National Customs Broker and Forwarders Association of America, for example, are strongly biased to protect the broker or forwarder. Some companies still use the old Shipper’s Export Declaration, or SED, document which was retired by the Foreign Trade Regulations in 2014.
The more balanced way is to create your own SLI which puts all your needs into a document, which becomes part of your contract with the service provider.
The SLI is a set of instructions. It is aimed at providing precise information to the service provider for movement between one country and another. It will cover everything the shipper wants to happen to its shipment, from which ports to use, the other service providers that must be included and how to report. The SLI should be an accompaniment of the Commercial Invoice, or CI, which is for a particular shipment.
Duplicating information on documents is inefficient, so the practice of making a SLI duplicate the CI information can only be valid if the service provider is to create a CI for the shipper. As we discussed previously, this is not a clever way for a shipper to act, as the shipper is the accountable entity for the CI and its data, not the service provider. Errors by the service provider will be the responsibility of the shipper unless it can prove the forwarder was negligent. The shipper must produce the CI to minimize the potential for errors and issues with the customs authority.
The SLI must therefore cover the following instructions for the service provider, bearing in mind that the 3R’s must be covered precisely for all the parties in the logistics chain. The following example would hold for a freight forwarder, but similar principles could be written for a customs broker that is not a forwarder:
SLI Instructions for Country A to Country B movement:
1. Role
a. From whom goods are to be collected, where the goods are collected and to whom the goods are to be delivered and to which physical location.
b. What means of movement are to be used for each mode and lane the service provider is responsible for. This may mean truck collection, delivery to an airport, loading on an aircraft and so on. These must be specific for each mode and lane.
c. If the shipper has a contract with a (say) shipping line, this must be specified here as the required means of transport.
2. Responsibility
a. Collection is to be effected within X hours of the notification of goods availability by shipper.
b. Whether the service provider must book the next ship / aircraft / transport movement (to prevent delays).
c. For each lane the requirement to deliver the goods to the end location within the time agreed during the contract negotiation (if your company did not do the RFP with the requirement to specify a period for delivery, you need to rectify that quickly if you want effective logistics).
d. Issues such as stowage, packaging and so on must be specified. Some goods must be stowed above deck on a vessel, special transport requirements will be spelt out here for categories of goods including hazardous goods.
e. Specify who is responsible for customs clearance outbound and inbound to the delivered country.
f. Are there special clearances required for the movement such as trucking permits in some countries?
3. Reporting
a. Specific data such as shipment number, time and date, and location.
b. The data that must be reported and at which locations such as:
i. Collection point,
ii. Transit intermediate points such as trans-shipment points,
iii. Delivery and handover POD information.
iv. Delays at any point which are more than a specified period (this makes the service provider responsible to monitor and to manage its movement responsibilities).
c. How the data must be delivered and within what time scale. Data should not be sent to an individual, as that person may not be at work. Preferably a common mailbox must be set up to collate the data so it may be sorted by the shipment number and given to whoever is working on the shipment at the time. The delivery of the data must be on the same day or within a period, so delays of data do not affect the control and management of the movement by both the shipper and the service provider.
It becomes apparent that the more detail that is put into the SLI, the more that effective control will be feasible, the fewer opportunities for inefficiency there are, and the faster issues will be raised. Of course, the reporting requirements means the information must be scrutinized and action taken quickly.
In moves across time zones, it is of value to have delays reported to specific persons or mailboxes that are monitored continuously. It is evident that the fastest response is that where the origin time zone, the destination time zone and the main trans-shipment points are informed and the party closest to the delay is immediately tasked with problem solving. If the problem cannot be resolved within the working day in that time zone, it should be formally handed to the next location which is operating so the problem is never forgotten and the solution is effected as quickly as possible.
Do you have an Incoterms experience to share that you'd like John to comment on that could be included in a future article? Submit to Breakbulk's Leslie Meredith at [email protected] and include description, locations (origin and delivery), Incoterm used and lesson learned if applicable.
About the author:
John Vogt has his own consulting company and, at the end of his 42 years in industry around the world, was the Vice President of Global Logistics for Halliburton. Thereafter he spent five years as a Professor of Record for the University of Houston-Downtown MBA for International and Supply Chain courses. He has experience as a Board Director and has travelled the world to improve trade.
In his career, he has driven the correct use of Incoterms as part of the trade improvements he has implemented to drive efficiency and effectiveness. In his role as a professor of record, he taught multiple courses on the use of Incoterms and trade-related agreements. He has published with colleague Dr. Jonathan Davis (Associate Professor, Supply Chain Management Chair GMSC Department, Marilyn Davies College of Business, University of Houston-Downtown), three formal research papers on Incoterms with two more in consideration, making him the most published Incoterms researcher. He has also published numerous articles, presented papers at multiple international conferences around the world on logistics, trade and compliance including Incoterms. He has served as track chair for multiple conferences as well.
Vogt has a Ph.D. (Logistics), an MBA, and a B.Sc. (Engineering), holds the title of European Engineer (Eur. Ing), is a Chartered Engineer (UK) and has been elected as a Fellow of the Institute of Engineering and Technology (UK). You can reach him at [email protected].
