With 95% of the world’s customers residing outside of the U.S. and with domestic companies importing $2.19 trillion in goods every year—the lure of the international marketplace is strong for companies looking for new business opportunities. Because the global supply chain presents its own set of challenges, it must be managed in a way that maximizes opportunities while minimizing risk. This is a point that’s lost on some organizations in the quest to leverage global opportunities.
A recent survey from the University of Tennessee, for example, found that just 25% of a typical company’s end-to-end supply chain is being assessed in any way for risk.
The good news is that there are proven ways to mitigate risk while leveraging the opportunities presented by the global market. Here are five international shipping challenges that can rear their ugly heads, and some tips for avoiding or mitigating these issues:
1 – No end-to-end supply chain visibility. More companies are feeling increased pressure to coordinate the diversity of forwarders and suppliers that are delivering a wide collection of merchandise. But as more and more imports and/or exports are moved around the globe, the need for better visibility and transparency over that freight becomes paramount. Simply extending the supply chain from one week from a local supplier in the U.S. to six weeks from China, for example, can infuse a large amount of additional inventory into the supply chain. This, in turn, drives the need for better end-to-end supply chain visibility. By engaging a third-party logistics (3PL) provider or other logistics partner that already has an established distribution center and vendor contacts overseas, shippers wind up taking on less risk while ensuring a more successful experience in the global marketplace.
2 – Overlooking Incoterms, purchasing terms, and other critical details. The shipper that jumps into global trade without taking the time to understand Incoterms (i.e., trade terms published by the International Chamber of Commerce that are commonly used in both international and domestic trade contracts), purchasing terms, and other critical details could face significant challenges in the international shipping arena. “It’s amazing how many companies overlook these very important details,” says Laura J. Gisleson, director of DB Schenker’s USA ocean operations. “This oversight can literally hold up a shipment for months as we try to figure out which party is responsible for what charges.” To overcome this issue, Gisleson says organizations should determine those financial responsibilities well in advance of shipping their goods, and then share that information with their logistics providers, 3PLs, freight forwarders, and other partners. “If you don’t have everything nailed down long before you transact your first shipment,” she adds, “you could end up in a situation that’s out of your control.”
3 – A lack of forecasting and inventory management. With freight covering longer distances than it ever did in the past, and with more and more entities involved in the process, the need for good forecasting and inventory management grows exponentially. A company that has to grapple with longer lead times and delayed shipments in a world where customers have come to expect next-day or two-day deliveries, for example, is just setting itself up for more hurdles in the international marketplace. Cycle times can be lengthy when manufacturing is outsourced to Asia, for example, and anything the companies can do to compress that time is worth considering. To overcome this issue, focus on good forecasting, solid inventory management, and alternative sources of supply. By working with logistics partners that have the hands-on experience in target countries — and that know the rules and regulations of those countries —companies can lessen potential shipment delays and improve their own customer service.
4 – Paying too much for rushed shipments. Companies that commit 100% of their budgets for ocean shipping don’t generally have backup logistics plans in place. Because of this, shipments that need faster service and attention are usually shifted to more expensive air options without regard to other options. “Most companies immediately turn to air when they can’t wait for ocean,” says Gisleson, “without realizing that there are various ways to mix ocean and air for greater efficiencies.” For example, shippers can opt for deferred air—a move that saves money while giving their freight forwarder a time cushion to work within. Shippers that have good visibility over their transit time requirements and drop dead delivery (DDD) dates are best positioned to take advantage of these alternatives. A company that can’t wait three weeks—but that has a 10-day window for shipping—for example, can usually get better rates by using non-prime shipping days. “The more data we have from the shipper,” says Gisleson, “the better the chances are that we can get them the best possible mode and deal on the market, and meet the shipper’s transit tie expectations.”
5 – No contingency plan for supply chain disruptions. A container doesn’t comply with the new SOLAS VGM rule and it is held up at port. A supplier’s factory burns down overseas and you need to source an alternative vendor quickly. The workers at the port where your goods are being shipped from suddenly go on strike. These and other supply chain disruptions can have an impact on your operations — even if your firm is based in the U.S. To avoid or overcome these disruptive forces, Kevin McCormack, assistant professor at Northwood University, says companies must go beyond just knowing the lead times of their Tier 1 vendors and look deeper into the solvency and capabilities of the Tier 2 and Tier 3 firms that are supplying their vendors. “Only when you know where everything is coming from and who’s making it,” McCormack says, “can you begin to effectively manage your global supply chain.” Finally, don’t forget to share and discuss the contingency plan with your logistics service providers before the interruptions occur.
In the past, both domestic and global supply chains functioned almost on autopilot as companies focused on other aspects of their operations. In today’s global economy, this approach no longer pays off for organizations that want to expand internationally. By paying attention to the potential risks and solutions, organizations can more effectively pave their way in the global marketplace while taking advantage of the plentiful opportunities that it has to offer.
Call your DB Schenker customer service representative to talk about your international shipping or find out more on our website.
Phone: +1 (800) 225-5229 (in USA)
Phone: +1 (602) 458-6200 (outside USA)