SUPPLY CHAIN

AND
LOGISTICS
BASICS
A resource guide covering the basics, terminology,
and things to consider when starting your journey
into supply chain and logistics.
 2

Managing your supply chain

is critical to running and growing your enterprise, regardless of
what you make or buy and deliver to your customers. The skillful
management of your logistics and transportation activity is
especially important in a global environment, where you will be
sourcing, marketing, and delivering products across international
borders. In a global environment, the level of complexity, regulation,
and potential cost can make or break the success of a company
whether it is a start-up or an established player.

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A supply chain is the system of organizations, people,

activities, information and resources involved in moving a
product or service from supplier to customer. Supply chain
activities transform raw materials and components into a
finished product that are delivered to the end customer.

Logistics refers to activities that occur within the boundaries

of a single organization. Logistics is focused on activities
such as procurement, distribution, maintenance, inventory
management, and transportation. Logistics activities are key
elements to a supply chain’s performance.

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When effectively managed, logistics becomes

a source of value and creates a competitive
advantage, helping your company grow.

To succeed, your company will need the skill and expertise

to take care of moving products around the world, while
keeping costs and risks contained so they do not become
an obstacle to your future growth.

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We have created this guidebook to help get you started. We have organized the document into sections by
topic to cover some of the most important issues in global logistics and transportation.

SOURCE BOOK
PLAN DELIVER
MAKE MOVE

PL A N BOOK/MOVE

All of the activities involved in deciding how to meet Covers packing and shipping goods by air, sea,

your supply and demand needs. It includes putting or road, dealing with risks in transit, and clearing

everything in place to ensure that your shipments will shipments through customs. Since many global

move as planned, in full compliance with regulations, logistics activities are performed by 3rd party

and with minimal intervention necessary when they providers, it also includes selecting and working with

depart or arrive. Essentially, doing the preparation work them. From a logistics perspective, this is the phase
in which most of the action happens, but it only goes
upstream to avoid complications or delays downstream.
smoothly when the other phases are done right.

SOU R C E/ M AK E DELI VER

All of the activities needed to purchase (source) or This phase includes the final activities needed to get

manufacture (make) the goods you intend to sell to products ready and delivered to your customers.

your customers, including raw materials, components, Managing diverse sales channels, warehousing,

and finished goods. It covers identifying and distribution, and delivery functions fall within this stage.

interacting with suppliers. It also includes setting up

and executing the transactions that will set supply
chain flows in motion, like settling on the right
shipping terms and currencies.

These steps are adapted from the Supply Chain Operations Reference (SCOR) model, developed in 1996 by the Supply Chain Council, now part of APICS

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 MAJOR LOGISTICS AND
SUPPLY CHAIN RELATED TOPICS

SOURCE BOOK
PLAN DELIVER
MAKE MOVE

8. 21. 27. 38.

Supply Chain Sourcing Strategy Selecting Logistics Distribution Channels
Management Service Providers
22. 39.
10. Shipping (trade) 29. Warehousing and
Product Selection, Terms Product Packaging Distribution
Pricing, and Cost
Management 24. 30.
Foreign Currency Modes of
12. Transactions Transportation
Methods of Payment
32.
14. Cargo Insurance
Trade Regulations
and Compliance 34.
Customs Clearance
16.
Documentation and
Record-keeping

E X P E D I T O R S S U P P LY C H A I N F
AONR
D SLTA
O GRI S
T TUI C
PSS BASICS
 PLAN

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PLAN 8

SUPPLY CHAIN MANAGEMENT

BAC KG R O U ND

Supply chain management is a growing field, becoming more widespread and complex all the time. Due
to the increasing importance of the supply chain to companies’ financial performance, supply chain
management has become a skill and expertise that is in great demand. Typically, many of these activities
are outsourced to experts and consultants. As you design, operate, and optimize your network, you will
encounter situations where you would benefit from innovative supply chain solutions to challenges, whether
those solutions come from internal resources, or from external providers and consultants.

K E Y C O N S I D E R AT I O N S

NETWORK D I AG R AMMI N G
Visually mapping your network, including suppliers and customers, is a good way to identify flows, nodes, and
potential trouble spots, or places where you could implement a process improvement. As you seek to understand your
supply chain, visually mapping is a great first step.

UK Customers’
Stores (3PL)

ST

ST

ST
Birmingham, GB
SUPPLIER DELIVERY MODEL (3PL)

IDENTICAL IN EACH ORIGIN

DC
CU
DC
SU Consolidation Center
(30% of volume)
UK Customers European
DCs (5) Customers’
Stores (375)
SU CC Maastricht, ML
(3PL)
ST

SU DC ST
European Customers
DCs (15)
SU Amsterdam, NL ST
(Acme)
CU
DC
SU DC

LEGEND
Suppliers
• 40% South China • 10% Taiwan
SU Supplier
• 40% Shanghai Area • 10% Vietnam CU
To Suppliers CC Consolidation Center
DC Distribution Center
CU ST Store
Web Customers CU Customer

CU Forward Flows - Default

Forward Flows - Default
Reverse Flows

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PLAN 9

SUPPLY CHAIN MANAGEMENT

SUPP LY C HA I N M O DE L I N G
(BAS EL I N E, F O R E C AST I N G, WH AT- I F S CE NARIOS )
It can be very difficult to measure the impact of any particular decision on overall supply
chain performance in the real world. Even when you can clearly see the impact of a
decision like changing modes, or increasing lead times, it is often too late to change it
if it did not work. Effective supply chain managers use data models to create a realistic
baseline of their network and its cost. They can then “run” operations virtually and
forecast what will happen in the future, or test the effects of multiple scenarios before
they make drastic changes. This is one way that you can use technology to predict the
impact of your supply chain decisions.

NETWORK D ESI GN
The goal of supply chain management is to provide the best service, to the most
customers, at the lowest total cost. One way that you can improve your chances of
reaching that goal is to design your physical network to maximize these outcomes. You
should determine the optimal number of physical nodes and their locations, sizes, and
activities, using systems and outside help where needed.

PR OC E SS & F LOW DE S I GN
The supply chain consists of both the physical network, as well as the flows of data,
goods, and money within it. You should design, document, and continuously improve
processes so that they work efficiently now, and so that they will sustain your company’s
growth over the long term. Just as with the physical network, you should design processes
using a combination of internal resources and external expertise.

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PRODUCT SELECTION, PRICING,

AND COST MANAGEMENT

B AC KG R O U N D

Products shipped internationally are subject to additional taxes, regulatory restrictions, transportation
infrastructure constraints, and other challenges that would not apply to domestically sourced products. When you
calculate how to price your products, where to source them, and how to manage costs associated with delivering
them it is essential to take into account the complete “landed cost” of each unit, the feasibility of shipping, and all
compliance costs you will have to bear.

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PLAN 11

PRODUCT SELECTION, PRICING,

AND COST MANAGEMENT
K E Y C O N S I D E R AT I O N S

COUN T RY VA RI A B I L I T Y
Sourcing countries and locations vary widely in terms of shipping costs, free trade program
eligibility, import quotas, etc. Consider whether shipping from the source location in question
will add costs, lead time, or compliance burdens to your company.

EFFE C T O F CON ST R U C T I O N O N CO MP L I ANCE DE TAILS

Product components, construction, and assembly methods have significant impacts on
country of origin, tariff classification, and duty or tax rates. Since an unexpected duty
rate can eliminate margins and create losses, you must understand how your planned
product will be categorized for customs purposes.

PR OD UC T- REL AT E D R E ST R I C T I O NS
Constraints related to the product itself will impact how and where products can be shipped.
Make sure you understand any restrictions on shipping, like haz-mat handling, US export
controls, quotas, etc., between your suppliers and customers. Be aware that certain modes of
transportation, packaging materials, destinations, or consignees are not permitted for certain
types of product.

RELAT ED - PA RT Y T R ANSAC T I O N S
Most countries require the importer to declare an arms-length price paid to the exporter,
and they use that price to calculate duties and taxes. Transactions between related
parties, such as a parent and subsidiary or two companies with the same owners,
can complicate the issue. You may need to adjust invoice prices in order to declare
the legally required import value. Consider whether any of your suppliers are related
parties and factor in any price adjustments you will need to make for margins,
assists, discounts, etc.

PR OD UC T SE L E C T I O N A N D CO N F I GU R ATIO N
Packaging issues, like carton shape or size, exterior packing, stackability, etc., can have
significant impacts on transportation cost and availability. When choosing products and
suppliers, consider how they will be packed for transport. Ask questions like, is the packaging
sturdy, does it use space efficiently, and will the dimensions affect shipping costs?

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PLAN 12

METHODS OF PAYMENT

B AC KG R O U N D

Supply chains consist of the movement of information, products, and payment. It is important to understand that
you have a choice of methods by which you will pay your suppliers, and your customers will pay you. Each of the
basic methods has numerous sub-types, and each one has different features and benefits.

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PLAN 13

METHODS OF PAYMENT

K E Y C O N S I D E R AT I O N S

AVAI L A BL E PAYME N T ME T H O DS
Traditionally, there are several major types of payment methods in international transactions. Each one typically
provides a different level of security, in exchange for simplicity. They include:

• C ASH I N A DVANC E . You require that your • O PE N ACCO U NT. You deliver to your customers
customers pay you prior to delivery or shipment. They without payment in advance, and send them an
can do this per transaction or by funding an account invoice, which they pay based on the payment
from which you deduct. This provides the highest terms agreed in advance (net 30 days, for example).
security for the payee but the least simplicity.

• L E T T E R O F C R E DI T ( L /C ) . A bank issues a • B ANK PAYME NT O B LIG AT IO N (B P O). This

document that guarantees payment to the seller for is a newer method of payment in international
goods as long as they meet certain criteria, which trade. It is an irrevocable obligation, also issued by
are spelled out in the L/C. Criteria might include how, a bank, to pay the seller as long as specific data
when, and in what condition, goods are shipped to the requirements are met. Unlike an L/C, a BPO relies
customer. This method provides a high degree of security, on data and uses an open account, as opposed to
but it can be complex to set up, and it usually requires original or negotiable documents.
original documents.

BILL S O F L A D I NG
A Bill of Lading is a document that accompanies the shipment to you or your customer. It is both a receipt for the
goods from the carrier, and a contract to deliver the shipment. As a contract, the bill of lading will specify information
such as quantity, description, shipper and consignee, delivery address, cost of transportation, etc. While there are
several types of bill of lading, the two most important kinds to remember are:

• ORI G I N A L BIL L O F L ADI N G (O B L ) . An OBL is • E XPRE SS (O R ST RAIG H T ) B ILL O F LADING.

issued by the shipper, is usually sent separately from the This document describes the shipment and
shipment, and is given to the buyer only when they have specifies the parties involved in the transaction. It is
paid for goods. An OBL is a negotiable document, which non-negotiable and is normally used when payment
entitles the bearer to receive the shipment from the is made by a method other than an LC (like open
carrier. These should be treated like cash. An original is account). An original is not required to receive the
required to receive the shipment from the carrier. shipment from the carrier.

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PLAN 14

TRADE REGULATIONS AND

COMPLIANCE — UNITED STATES
BAC KG R O U ND

Shipping internationally requires a new and different set of requirements than domestic trade. Broadly speaking,
these regulations are enforced by United States Customs & Border Protection, on the import side, and by the
United States Department of Commerce on the export side. Different agencies, known collectively as “Partner
Government Agencies,” also enforce regulations governing the shipment of specific commodities. For example,
imports of medical devices are regulated by both Customs and the United States Food & Drug Administration.
Exports of military commodities are regulated by both Commerce and the United States State Department.
Exports of commercial or dual-use items are regulated by Commerce. Because it is impractical to stop and
inspect every shipment, agencies that regulate trade place the responsibility for knowledge and compliance on
the importer or exporter. For this reason, when you begin importing or exporting goods in the United States, it is
vital that you understand the rules that apply to you and that you have procedures in place to comply with them.

K E Y C O N S I D E R AT I O N S

BAS I C RE QUI REME N TS O F AN I MP O R T E R

Under US law, importers are required to exercise reasonable care and perform informed compliance, using information
provided by Customs & Border Protection, in meeting trade regulations. At a very basic level an importer will need to
accurately determine, declare, and maintain:

a. Commercial Invoice Requirements, e. Trade Preference (free trade agreements

or 19 CFR 141.86 Contents of and other reduced duty programs)

Invoices and General Requirements f. Anti-dumping/Countervailing Duties

b. Customs Value g. Requirements of approximately 40 other

c. HTS Classification government agencies

d. Country of Origin

Import regulations vary by country, but the essential responsibilities of the importer are very similar amongst member
countries of the World Trade Organization (WTO).

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PLAN 15

TRADE REGULATIONS AND

COMPLIANCE — UNITED STATES
BAS I C RE QUI REME N TS O F AN E X P O R T E R
Jurisdiction over export regulations under US law varies somewhat by product, so it could belong to the departments
of Commerce, State, and/or Treasury. Regardless of the agency, exporters must exercise due diligence, in knowing and
complying with export regulations as part of an Export Compliance Program (ECP). At a very basic level an exporter
will need to accurately determine, declare, and maintain:

a. Export Value (and other required Export f. Export Licensing Requirements

Information data elements) g. Schedule B classification (HTS

b. Export Commodity Jurisdiction Classification can be used in lieu of

c. State Department DDTC Schedule B)

d. Commerce Department BIS h. Embargoes and Sanctions ( List of

e. Export Control Classification Number Countries of Concern – OFAC and EAR)

(ECCN) (found in CCL and used for the i. Denied or Barred parties (on the Lists of

license determination purposes) or USML Parties of Concern)

Classification (found in ITAR)

At the top of the list of key steps you should take with every export shipment is to ask the following questions

1. What is the item being exported 6. Determine the export Jurisdiction

(i.e. how is it classified)? (i.e. does State or Commerce regulate
2. Where is the item ultimately going? this export)?
3. Who will be the end-user of the item? 7. Identify the classification (i.e. how is the
4. What will they do with the item? item listed in the CCL or USML)?
5. What other functions or activities does that 8. Conduct a License determination (i.e. is an
user perform? export license required)?

BROK E R/ F I L E R R E S P O NS I B I L I T I E S
Most shippers use customs brokers or export filers to submit import and export declarations on their behalf. These
providers are very effective because they normally have systems dedicated to preparing and submitting government
declarations in an efficient, cost-effective, and compliant manner. Regardless, it is important to remember that a broker
or filer does not replace the shipper’s obligation to determine compliance information. Like income tax preparers,
brokers must accurately and faithfully declare the information given to them by the customer. They have compliance
and record-keeping responsibilities of their own, which are separate from and do not replace the responsibilities of the
shipper. US Customs & Border Protection publishes detailed information on Customs Brokers.

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PLAN 16

DOCUMENTATION AND
RECORD-KEEPING

B AC KG R O U N D

As an importer or exporter, you will be responsible for keeping records to document each transaction, and each
declaration you make to the government. Common lists of records and retention periods may be available to help
you, but as a general rule you should retain every document that supports any of the information in a declaration,
for at least as long as the required time stipulated by the governing regulatory agency.

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PLAN 17

DOCUMENTATION AND
RECORD-KEEPING
K E Y C O N S I D E R AT I O N S

RECO RD - K E E P I N G R E Q U I R E ME NTS F O R RE CO RD-K E E PING RE Q U IRE ME NTS FOR

IMPO RTS E XPO RTS
a. Read the Informed Compliance Publication on a. BIS Export Administration Regulations (EAR)
Record-keeping Record-keeping Requirements include the
b. The “(a)(1)(A) list.” (a)(1)(A) is an appendix to 19 following export control documents:
CFR part 163 in the federal customs regulations for • Memoranda, notes, and correspondence
importers. It is a summary of your responsibility • Contracts
under customs law and not a list per-se itself. You • Invitations to bid
can use it as a guide to create your own list of • Books of account
required records, which could include: • Financial records
• Evidence of right to make entry - airway bill/bill • Restrictive trade practice or boycott
of lading or carrier certificate documents and reports
• Declaration of entry - form 3461 and form 7501 • Notifications from BIS and,
• Power of attorney • Other records pertaining to the types of
• Commercial invoice transactions described in §762.1(a) which are
• Packing list made or obtained by a person described in
• Bond information §762.1(b) of this part
• Vessel, Vehicle or Air Manifest (filed by the b. The Census Bureau Foreign Trade Division
carrier; you as the importer may not see or Record-keeping Requirements include the export
receive this) transaction documents:
• Specific Records Required for Special Trade • Commercial Invoice
Programs like Free trade agreements, GSP, U.S. • Electronic Export Information (EEI) filing
Goods Returned, etc. • Shipping documents (bill of lading, air
• Records required by participating government waybill, etc.)
agencies (e.g., Fish & Wildlife, FDA, FCC) • Orders (PO, SO, etc.)
• Packing list
• Correspondence
• Any other relevant information bearing upon
a specific export transaction at any time within
the five year time period

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PLAN 18

DOCUMENTATION AND
RECORD-KEEPING
M ETH ODS, P ERI O D A N D LO C AT I O N S
a. Unless you have adopted an approved alternate record-keeping method, following
the applicable regulations, you must keep records in their original format, whether
paper or electronic. Details are in the regulations specific to your records.
b. Generally speaking, both import and exports records must be maintained for at
least five (5) years from the date of import, export, or the activity which created the
document. You should identify the required retention periods for each document
and keep it for the longest of these.
c. Records do not have to be maintained in a specified location, but they must be kept
in a clear and legible format, and you must be able to produce them timely if they are
requested by a governing agency.

IND EX I N G A N D ACC E SS I N G R E CO R DS
In order to produce, inspect, or reference documents for an import or export, index
them using several references (e.g. PO number, entry number, date, EEI number, etc.),
and keep them in a location where they can be retrieved quickly and easily (e.g. stored
electronically on external drives, in a secure cloud location or file server).

AUD I T I N G T RA N SAC T I O N R E CO R DS AND FO LLOW U P

Keeping detailed records on import and export transactions is important because
it enables the implementation of an audit process. Auditing a significant sample of
transactions, to ensure that information is correctly declared, is a vital part of a trade
compliance program. When errors are identified, you should correct the relevant
transactions in addition to implementing preventive actions. Agencies that regulate
both imports and exports have processes for voluntarily disclosing information and
correcting declarations.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 Working with Expeditors has enabled
us to leverage their global network
to support our rapid growth and
“
changing needs. Their local support
wherever we need it helps us get
things done quickly and the right way,
and provides compliance expertise.

Ligon Johnson
Parachute

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 SOURCE
MAKE

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SOURCE / MAKE 21

SOURCING STRATEGY

BAC KG R O U ND

At this point you will most likely have already formed your company’s sourcing strategy, ensuring that you are able to
consistently meet the criteria of adequate quality, competitive pricing, and supply availability. Sourcing internationally
brings additional factors into this equation, however, which will influence the strategy and which you may not have
fully considered. Transportation, logistics, and trade regulation introduce additional variables you need to include in
your sourcing strategy.

K E Y C O N S I D E R AT I O N S

LOC AT I O N CO N S I DE R AT I O NS INFLU E NCE AND CO NT RO L OVE R VENDOR S

If you have identified suppliers, you may already have Issues such as relative size, experience, competitors, and
considered whether there is a well-developed industry, Incoterms®, can affect how much influence you have
and established vendors in the country or location on vendor responsiveness, service level, order/booking
you are evaluating. In addition to the right suppliers compliance, etc. Consider whether relative experience
in terms of quality and price, other factors to consider in global trade will help or hinder your ability to source
are climate patterns, transportation infrastructure, raw effectively in difficult conditions. Logistics providers with
material availability, distance from customers, etc. Keep personnel in the vendors’ locations, and vendor or order
in mind that the sourcing location with the lowest ex- management services, can be beneficial.
factory cost may not end up giving you the lowest all-in
landed cost in your destination country.

SUPP LY RI SK CO NS I DE R AT I O N S
International networks can have more supply risks
than domestic ones. It is important to identify multiple
suppliers, preferably in different locations. You can
mitigate risks such as natural disasters, political or labor
strife, war, and transport delays by having more than one
supplier from which to source. These considerations also
apply to raw material, or tier-two, suppliers.

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SHIPPING (TRADE) TERMS

BAC KG R O U ND

Every international transaction involves multiple steps, costs, changes in ownership, and risks. Before beginning any
transaction, the buyer and seller should agree on the terms of the shipment, so they are clear about who pays for
each step, who chooses providers, and who bears the risk of damage, among other things. Ambiguity about any of
the terms in a complicated shipment is an invitation for trouble when things do not go as planned. If you do not know
whether or not the unit price includes international transportation, for example, you may be surprised to find that you
have to pay for it. If you do not know who bears risk, and a shipment is lost a sea, you may end up in a dispute with
your supplier over who has to pay to replace it.

K E Y C O N S I D E R AT I O N S

INCOT ERM S®
In order to avoid confusion, or the need to negotiate detailed terms for each order,
international buyers and sellers typically use a common standard. This allows them
to apply a term, which defines responsibility for each phase of a shipment, in clear
language both parties understand. The most commonly used set of uniform shipping
terms in use today is called the “ICC Incoterms®”, updated in 2020 by the International
Chamber of Commerce.

IMPAC T OF T ERM S
The Incoterms® you and your business partners choose will determine who pays,
and who is responsible, for each phase in the transportation of goods from origin to
destination. It is very important that you and your business partner both know and
agree on the Incoterms® that apply to every order or shipment. The parties should
clearly document the Incoterms® in transaction documents, such as a contract, sales
order, purchase order, or commercial invoice. This will make shipments move more
smoothly and cost-effectively, and will help avoid disputes and disagreements should
anything go wrong.

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SHIPPING (TRADE) TERMS

COMM O N T ERM S AND ME A N I NG

Incoterms® cover a spectrum of responsibility from the buyer to the seller, indicated by the first letter of each term.
Terms beginning with “E” place the most responsibility on the buyer. Terms beginning with “D” emphasize the seller.
In between these are the “C” and “F” terms. While there are 11 trade terms listed in the ICC Incoterms® 2020, among
the most common ones used are:

• E X W ( E X WO R K S ) . The seller makes • CIF (COST, INSURANCE, AND FREIGHT).

the goods available to the buyer at a As the definition implies, under CIF, the
named place, which is usually the seller’s price includes the cost of goods, as well as
own warehouse or factory. The seller is not insurance and transportation (freight) to the
responsible for any cost or risk once they named port – usually the port of destination.
have made the goods available to be picked It is important to note that, even though
up. Nothing is included in the price other the seller pays for insurance, the risk of loss
than the unit cost of the goods. EXW is an passes to the buyer as soon as the goods are
“omni-modal” term; it can be used for any on board the vessel. CIF is intended only for
mode of transportation. ocean or inland waterway shipments.

• F O B ( F REE O N B OA R D) . The seller is • DDP (DE LIVE RE D DU T Y PAID). This

responsible for clearing the goods for export Incoterm® places the most responsibility on the
and loading them onto the vessel at the port seller, who is responsible for all cost and risk
of shipment. Once the goods are cleared and until they deliver the goods to a named place,
aboard, the buyer is responsible for all costs cleared for import and duty-paid. Essentially all
and risks. FOB is intended only for ocean or costs to deliver the goods are included in the
inland waterway shipments but it is often transaction price.
also used for air shipments, which can lead to
confusion. FCA (Free Carrier) is the preferred
“F” term for air shipments.

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FOREIGN CURRENCY
TRANSACTIONS
B AC KG R O U N D

In international transactions, the buyer and seller typically operate their business using different currencies. For
example, a seller in the US conducts business in US Dollars, and his buyer in France conducts business in the Euro.
Despite using different currencies in the normal course of business, the buyer and seller need to agree on a single
currency to settle any transactions between them. For at least one party, this means they will execute the transaction
in a currency different from their own. In order to settle the purchase, they will need to convert it into their own
currency by either buying currency to pay or by selling currency to receive payment.

K E Y C O N S I D E R AT I O N S

F LUC T UAT I ON S I N F O R E I GN E XC H ANGE RAT E

Between the time the sale is agreed to, and the time the transaction is completed,
the exchange rates of the currencies chosen may fluctuate. In this case the buyer
will either pay more, or less, than they were expecting to at the time they agreed to
the transaction. Fluctuations in foreign exchange rates can be unpredictable, they
can cause unexpected gains or losses, and they become more likely the longer the
payment terms are.

C UR RE N CY RI SK
Exchange rate fluctuations create the risk of financial loss for both parties, when they
cause the settlement price to differ greatly from the initially-agreed transaction price.
Buyers and sellers in international transactions typically try to reduce currency risk by
including a margin to cover the risk, or by settling the transaction in their own currency.

SELEC T I ON A N D DO C U ME N TAT I O N
Due to the potential risk of loss, both parties should specify the settlement currency,
the exchange rate, and any margin in transaction agreements, like the sales or purchase
order. Since currency risk also applies to transportation, it should also be stipulated in
logistics provider fees and rates.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 “
When launching our first product, there
is always a lack of internal resources.
Working with Expeditors has provided
us a global platform enabled by their
expertise, technology, and network that
was crucial in delivering our products to
our customers.

Michael DeJesus,
Director of Supply Chain & Logistics
Automatic Labs
 BOOK
M OVE

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 27

SELECTING LOGISTICS
SERVICE PROVIDERS

B AC KG R O U N D

Most shippers do not own and operate their own transportation assets, like planes and ships, or even functions like
customs clearance or booking. To a greater or lesser degree, companies use service providers to transport goods
because it is more cost effective, simpler, and more flexible. Service providers in the transportation industry go by
various names, depending on what they do, like forwarder, broker, NVOCC, carrier, booking agent, etc. It is important
to partner with service providers who can provide the technology, geographic coverage, customer service, pricing, and
innovation needed.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 28

SELECTING LOGISTICS
SERVICE PROVIDERS
K E Y C O N S I D E R AT I O N S

BAS I C T YP ES OT H E R CO NS IDE RAT IO NS

Shippers generally decide between using asset-based Due to of their importance to your company’s supply
carriers, like a steamship line, or a third party logistics chain, and since what they offer is a service rather than
provider (3PL) like a forwarder, NVOCC, or a broker. a commodity, there are other factors to consider in
The choice will depend on your need for flexibility, addition to price. Consider things like local expertise,
competitive pricing, and value-added services. technology, and innovation, in addition to price, in order
Generally, larger shippers with higher volumes and to understand the true cost and value of each service
more internal resources would use a carrier directly, provider.
and shippers with lower volumes or more complicated
needs, that are not met internally, would use a 3PL. PART NE RS H IP MO DE LS
In addition to the attributes of an individual service
G EOGRA P HI C COV E R AGE provider, consider how your company will partner
Logistics service providers differ in their level of with and work with them. Models range from a single
geographic coverage. Some are global, while others source to using multiple providers for each service
operate on a regional or local basis. As a shipper, the and location. Likewise, partnerships can range from
key consideration is that the entire geographic area strategic ones, where the provider is a “trusted adviser,”
in which you need services should be covered by the to tactical ones, where the provider is a transactional
same provider, so that gaps in coverage are limited and vendor. The model you choose depends on your need
systems, procedures, and processes can be streamlined for a “one stop shop” or multiple vendors to procure,
as much as possible. manage and pay.

SCOP E OF SERV I C E S
Logistics providers offer a very wide variety in scope
of services. Scope of services can be broken down
based on various factors, like geography – international
vs domestic, mode – air vs ocean vs road, function–
transportation, customs, distribution, supply chain
consulting, etc. When evaluating service providers, look
for ones that offer as many of the specific services,
modes and locations needed.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 29

PRODUCT PACKAGING

B AC KG R O U N D

The packaging opened by the end customer when they purchase a product is usually different from the
packaging required to ship the same product internationally. In the first case, the packaging will focus on
appealing to the customer, explaining the product’s features, and making it look attractive. In many ways,
packaging for international shipment has the opposite goals. It is intended to protect the product from
damage, make it cost-effective to ship, and conceal the contents from potential cargo thieves.

K E Y C O N S I D E R AT I O N S

RIS K O F DA M AG E I N T R A N S I T
Shipping a product over long distance, involving several carriers, comes with an inherent risk of damage. Products
can be harmed by moisture, handling, equipment (like forklift blades), exposure to the elements, crushing, dropping,
etc. They can also be stolen or deliberately manipulated. When you choose packaging to ship products overseas,
understand and account for the risks it will face during its journey to the customer, and select materials designed to
minimize those risks.

INNE R V ERSUS O U T E R PAC KAGI NG

Products shipped internationally typically have both inner and outer packaging. Inner packaging is usually how
the product will be delivered to the end customer (whether that’s a consumer, a retailer, or a manufacturer). Outer
packaging is normally much more durable and plainer. It is how the product will be delivered to the carrier and will
protect the inner packaging, as well as the product itself, from damage in transit. Outer packaging can consist of cases,
cartons, crates, shrink-wrapped pallets, drums, etc.

STAC KA BI L I T Y, LOADAB I L I T Y, AND T R A N S PO RTAT IO N COST

In addition to protecting product from damage, you should also consider the effect of outer packaging on the ease of
loading your product into conveyances or vehicles, as well as on the cost of shipping it. Dense, evenly shaped packages,
which can withstand stacking, are more cost effective to ship than fragile, irregular, packages with empty spaces.
Furniture shippers (especially big-box retailers) for example, typically ship their products disassembled and packaged in
flat-pack boxes. This method makes it more practical to stack and load furniture into ocean containers without wasting
space. It also makes shipping more cost effective by increasing container utilization (the percentage of a fixed-rate ocean
container loaded with cargo, and not empty).

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 30

MODES OF TRANSPORTATION

B AC KG R O U N D

Several transportation methods are available to international shippers, including airfreight, ocean, road, and rail.
Collectively they are referred to as “modes of transportation.” The mode you use for a particular shipment will
depend on several factors, such as shipment size, required speed, geographical area covered, etc. More than one
mode of transportation can be used for a single shipment. For example, goods may be picked up by truck, shipped
overseas by ocean, and delivered by truck. In some cases, both airfreight and ocean are used in a single shipment, in
a mode called “sea/air.”

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 31

MODES OF TRANSPORTATION

K E Y C O N S I D E R AT I O N S

COST VS SERV I CE L E V E L FO RE CAST ING AND PLANNIN G MODES

Generally speaking transportation modes are chosen based on When you forecast demand in advance,
a trade-off between cost and speed (also referred to as service you can plan orders and shipments to
level or responsiveness). Slower modes, like ocean and road, are meet demand using the least expensive
typically less expensive than airfreight. However, you may need mode possible. Planned orders will usually
faster and more expensive modes in order to meet the service account for the total cycle time, including
levels you agree to with your customers. Faster modes may manufacturing lead-time and transit time, so
also be required to avoid or mitigate situations like a stock-out, that products arrive on time using the cheapest
replacing damaged goods or a line going down. mode. In some cases however, due to the value
or urgency of a shipment, airfreight can be the

OTH ER P ERF O RM A N C E ME AS U R E S preferred planned mode. Using slower modes

One good way to think about the performance of your supply can also increase inventory levels since goods

chain is by applying the APICS SCOR supply chain performance remain in the in-transit inventory, of either

attributes. When you choose a mode of transportation for a buyer or seller, during shipment.

shipment, you typically make a trade-off between cost (rates)

and one or more of the four other attributes. For example, FAST E R MO DE S FO R U RG E NT OR DER S
airfreight is more costly than ocean freight, but it allows you to No matter how good forecasting and planning
increase the responsiveness and agility of your supply chain, is, there will always be situations in which you
because you can get product to your customers more quickly, need to use a faster, more expensive mode to
and adapt quickly to external events, like a natural disaster or a get the shipment where it needs to be. While
surge in demand. most routine orders can be fulfilled using ocean
freight, you may need to ship smaller orders

C HOOSI N G M OD E B AS E D O N NE E D DAT E by air to replace damaged goods, prevent

In order to optimize cost-effectiveness, choose the least expensive back-orders, or respond to an urgent need like

mode of transportation that will get the shipment to you or your an aircraft-on-ground (AOG) or a promotion.

customer when they need it, neither sooner nor later. Doing Since your needs can change quickly, it is

this requires moving your supply chain process from “as soon important to have suppliers, procedures,

as possible” to “when you need the shipment.” The “need date” and rates lined up for all possible modes of

should be communicated between buyer and seller, and compared transportation.

with shipping schedules and transit times, in order to select the

optimal mode of transportation.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 32

CARGO INSURANCE

B AC KG R O U N D

Cargo insurance, also called “marine cargo insurance,” is different from other types of insurance. While
it helps you manage the risks associated with transporting goods. Marine cargo insurance is an “all
risk” coverage and is the broadest form of insurance you can purchase. It provides you with protection
beyond the carriers’ legal liability limits. Marine cargo insurance covers any external physical loss or
damage to your product. It covers all modes of transportation - air, ocean, truck and rail, and is door to
door wherever you have a financial risk.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 33

CARGO INSURANCE

K E Y C O N S I D E R AT I O N S

BAS I C T YP ES OF R I S K T R A N SAC T I O N A L VS
Since international shipments travel a long distance, P O L I CY I N S U R A N C E

are handled by multiple parties, and potentially are There are a few ways to purchase marine cargo

exposed to delays, weather and natural disasters, insurance:

they are subject to several forms of risk. This includes a. Transactional: You can purchase insurance

physical damage, moisture, complete or partial loss, on a transactional basis from your freight

delay, theft, etc. forwarder or carrier for each shipment. This is

a more expensive way to buy insurance, and
the coverage can vary per freight carrier. The
STAT UTORY L I A B I L I T Y L I MI TS WI T H O U T
benefit is that you pay as you go, with no
INSURA N C E
minimum premium required.
In order to facilitate trade, the carriers (airlines,
a. Policy: Buying an annual policy allows you to
steamship lines, truckers) limit their liability for lost or
leverage all your values shipped and get a very
damaged cargo as follows:
competitive premium with broad coverage. It
a. Air Carriers: 22 SDR’s (“special drawing rights”) per
allows you to cover all shipments and select
kilo (approx. $30.00 per kilo)
deductible options. You may also be able to
b. Ocean Carriers: $500.00 per CSU (customary
file claims and get customer service from a
shipping unit, smallest unit you tender to the
dedicated team that understands your business.
steamship line, which could be anything from a
carton to a full container)
PNCS AND FORMAL CLAIMS
c. Truck: $0.50 cents per pound
As soon as you notice damage or loss, it
is important that you (or your agent) file a
These limitations are subject to many exclusions and
Preliminary Notice of Claim with the carrier, in
can take up to 45-90 days to collect. The best way
order to secure your right to file a formal claim,
to protect against limited legal liability is to purchase
and place the burden of proof on the carrier. There is
marine cargo insurance.
a limited time frame for submitting a PNC, normally
stated on the bill of lading or air waybill. Once you
submit a formal claim to the carrier, you will need to
provide supporting documentation, and the carrier
has a specific period within which to resolve the claim
by paying or denying it.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 34

CUSTOMS CLEARANCE

B AC KG R O U N D

The majority of import compliance preparation and planning should be done well in advance of a shipment arriving,
as outlined in the Plan section. That includes making decisions about how to classify products, what the country of
origin is, and whether any additions or deductions from the commercial invoice value need to be made. Preparing
this information well in advance, and providing it to your broker, will expedite the clearance process and limit errors
that you need to correct later.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
BOOK / MOVE 35

CUSTOMS CLEARANCE

K E Y C O N S I D E R AT I O N S

ENTRY T YP E RE LAT E D PART Y T RANSACT IO NS

The majority of products imported into the United Before you determine the customs value and file an
States are through what is called a “Consumption import declaration, you will need to determine if you
Entry,” in which goods are cleared into US commerce, and the other party to the transaction are “related
duty is paid, and goods can be re-sold, used parties.” Customs generally does not consider a related-
in manufacturing, etc. There are other types of party transaction to be arms-length, and you may need
importation, however, including temporary (in-bond) to prove that the transaction was at a fair price not
imports, Foreign Trade Zone (FTZ) entries, etc. Your influenced by the relationship. If not, you may need to
broker can help you determine which import type is add adjustments to the value such as assists.
right for your situation.

CO U NT RY O F O RIG IN
C L ASSI F I C AT I ON Prior to entry, you will need to determine the correct
When you file a customs entry, each of your products country of origin of the merchandise. As a general rule,
will need to be classified under the Harmonized Tariff this is the country in which the goods were wholly-
Schedule, in order to determine the correct duty rate, produced, or in which they underwent a “substantial
as well as other issues like admissibility, eligibility for transformation” and became a new article.
special trade programs, etc. Your broker should not
classify products for you, since they do not have in- CO MME RCIAL INVO ICE AND PACK IN G LIST
depth knowledge about the products. Rather, there are Prior to or at the time of entry, you will need to provide
outside consulting firms that can provide these services. your customs broker with the commercial invoice
and packing list that came with the shipment. This is
VALU E in addition to transportation documents, like a bill of
Prior to entry, you will need to determine the correct lading, air waybill, or carrier certificate.
customs value of the merchandise you are importing.
This is normally based on the commercial invoice value,
as long as the parties are not related, plus or minus
certain adjustments. As a general rule, the customs
value should approximate the FOB invoice price in an
arms-length transaction.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 “
We haven’t had the luxury of building
a team of subject matter experts, so
we love Expeditors’ seminars and
webinars that allow the team to learn
the complexities of import/export
Industry. Overall, the Expeditors team
has tremendous industry expertise
and I appreciate how professional and
solutions-oriented everyone is.

Marcus Chung,
VP, Manufacturing & Supply Chain
ThirdLove
 DELIVER

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
DELIVER 38

DISTRIBUTION CHANNELS

B AC KG R O U N D

At this point you will also most likely have identified your company’s sales channels. That choice will
directly influence how, when, and by whom you should ship, store and distribute, whether internationally
or domestically. The channel - wholesale, retail stores, e-commerce, residential deliveries, etc. - will
determine whether you ship full containers or small packages, and whether you deliver to a distribution
center (DC), a customer stocking location, or a home. Each of these decisions will require a different
choice of mode, order process, shipment cycle, quantity, and carrier selection in order to optimize cost
and help you meet performance goals.

K E Y C O N S I D E R AT I O N S

D ELI V E RY M E T H O D
You will need to select a method, and a provider, that will deliver products to the end
customer in a reliable, cost-effective, and practical way. For example, shipping full
containers to a DC where they can be unloaded and staged for store delivery is feasible
for a wholesaler but it will not work for e-commerce home deliveries of one unit at a
time. For those, you would need to select a carrier that handles ground or air small
packages and final mile deliveries.

NETWORK A N D D E L I V E RY LO C AT I O N
Channel selection will determine the type of physical logistics network that supports it.
If you ship wholesale and deliver full containers at the port, for example, you may not
need a network of stocking locations beyond your suppliers or shipping plants. If you
ship retail or e-commerce to many locations, on the other hand, you may need to build
or use a network of warehouses, DCs, and cross-docks, in the right combination.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
DELIVER 39

WAREHOUSING AND
DISTRIBUTION
B AC KG R O U N D

In order to meet customer demand and fulfill orders, either internationally or domestically at some point you will need
access to a warehousing and distribution facility or network. Various different operations are performed within such a
facility, such as fulfilling orders, processing returns, meeting customer specific delivery requirements or a variety of other
value-added services. Warehousing and distribution operations can either be wholly-owned, in which your company
operates and staffs the facility, or a 3rd party, in which a service provider takes care of the responsibilities for a fee. They
can also be a blend of the two. The key point is that, since it is rare to deliver shipments directly from the air or ocean
carrier to your end customer, you will most likely need to think about your arrangements for fulfilling orders through a
warehouse. Your inventory is precious and the lifeblood of your company; the efficient operation and control of your
facility and its contents normally requires a warehouse management system (WMS) to adequately manage, control and
financially account for it.

K E Y C O N S I D E R AT I O N S

S ERV I C ES A N D T Y P E S
Many different services are performed in different types of warehouses – from storage to pick/pack to
cross-dock. The services you use will depend on your needs, your internal capabilities, your production and sourcing model
and your customers. Some of these are listed below:
a. Order fulfillment services: retail store replenishment, e-commerce, pick/pack, kitting, and seasonal promotions.
b. Specialized programs: Vendor Managed Inventory (VMI), spare parts management, and returns processing.
c. Direct delivery programs: cross-dock, and upstream fulfillment.
d. Value-added services: product inspection, labeling, localization and final assembly.

LOC AT I ON I N SU P P LY C H AI N & C U STO MER NE T WO RK

Just as there are many types of warehousing and distribution facility activities, there are many considerations for where
to locate them and how many you should have. You will want to position inventory in facilities so that they allow you
to fill customer orders, within the agreed service levels, cost-effectively, no matter where the customer is located. A
determination of what inventory to place in what facilities is an important one that affects customer experience, cash flows
and administrative complexity.

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
SO, WHAT’S NEXT?
 41

Expeditors can provide

transportation, logistics,
and consulting services
to help you evaluate and
manage the issues outlined
in this guidebook, including
complex areas like risk
management and supply
chain solutions.

We are always here to help.

To find out how we can help and what we offer, reach out to
[email protected].

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
 42

FURTHER
READING
Here are some ways that you can
continue to learn more about logistics,
transportation, and compliance through
websites, books, seminars, etc.

Reach out to our team for any

additional resources needed.

a. ICC website, books, Incoterms®, courses

b. World Trade Press Dictionary of International Trade
c. US Customs & Border Protection “Tips for New
Importers and Exporters”
d. US Customs & Border Protection Informed
Compliance Publications
e. US Customs & Border Protection Trade Outreach
webinars
f. Commerce Department Bureau of Industry and
Security Export Seminars
g. State Department Directorate of Defense Trade
Controls outreach and support
h. United States International Trade Commission (ITC)
Harmonized Tariff Schedule
i. Expeditors events and seminars
j. Expeditors Trade Resources, including whitepapers
and case studies
k. Tradewin Seminars

E X P E D I T O R S S U P P LY C H A I N A N D L O G I S T I C S B A S I C S
Thank you!

EXPEDITORS.COM