External Influences on Logistics Functions in International Trade

A number of external factors influence international logistics decisions: regulations, compe­tition, and technology.

1. Regulations

Governments in many countries encourage their domestic carriers to handle their exports or imports since the provision of such transportation services contributes to the nation’s bal­ance of payments. This can be illustrated by U.S.-China trade, which is mostly transported by Chinese vessels. This occurs because the Chinese Foreign Trade Agency insists, whenever possible, on terms that allow it to control most of the transportation and thus use its state- run transport companies (Davies, 1987).

International logistics activity in the form of overseas transportation, handling of ship­ment, and distribution management also creates jobs. Besides the need to earn or save for­eign currency and to create employment opportunities, governments have a third reason to support their national carriers: ensuring national shipping capacity during war or other emergencies. Governments also control or limit the export and import of certain commodi­ties through a host of devices, such as export controls, import tariffs, and nontariff barriers, for example, quotas or cumbersome import clearance procedures. There are also bilateral negotiations between countries on airline routes and the provision of various services, such as insurance. All this has an influence on international logistics and transportation. The pro­cess of privatization and deregulation in transportation and communications has reduced shipping costs and increased productivity. This has also increased the possibilities for dif­ferent prices and services, thus underscoring the need to integrate marketing and logistics functions.

2. Competition

The proliferation of new products and services and short product life cycles creates pressures on firms to reexamine their logistics systems. This often requires the need to reduce inven­tory, lower overall costs, and develop appropriate logistics networks and delivery systems to retain and enhance their customer base. Crucial to the success of any logistics system is also a holistic examination of the relationship among transportation, warehousing, and inventory costs in order to adapt to the changing competitive environment. Such a reexamination of its various logistics functions resulted in a substantial reduction in inventory costs and delivery time for Cisco Systems of San Jose, California, in 1997. The company ships routers to Europe and needed to let customers know when orders would arrive and to be able to reroute an order to fill urgent requests. It hired UPS Worldwide Logistics to handle the various logistics functions. Using its expertise, UPS can now track Cisco’s routers from San Jose, California, to European customers in less than four days as opposed to three weeks. In cases in which UPS’s planes or trucks cannot offer the quickest route, it subcontracts the job to other carriers such as KLM or Danzas, a European trucking firm. This resulted in more savings in inventories (Woolley, 1997).

3. Technology

Technology improvements, added to the deregulation of transportation and communica­tions, have transformed the logistics industry. They have helped to increase logistics options, improve performance, and decrease costs. The use of communications technology has now integrated marketing and distribution activities with overseas customers, enabling the latter to know the date of shipment, the location of the cargo on transit, and the expected date of arrival. Importers have achieved total visibility of goods in transit and can make adjustments when a shipment is running late. Such tracking and tracing of cargo has the added advantage of synchronizing promotions and long-term inventory decisions for customers.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.