Logistics Functions in International Trade

1. Labeling

Importers are required to comply with domestic labeling laws. Even though an imported product may comply with the labeling requirements of the country where it was manufac­tured, it may not comply with the labeling laws of the importing country. Labeling require­ments are imposed in many countries to ensure proper handling (e.g., “Do Not Roll”; “Keep Frozen”) or to identify shipments (e.g., “Live Animals”). Exporters need to be aware of cer­tain labeling requirements to avoid unnecessary delays in shipping. The cartons or containers to be shipped must be labeled with the following: shipper’s mark or purchase order number, country of origin, weight in both pounds and kilograms, the number of packages, handling instructions, final destination and port of entry, and whether the package contains hazardous material. Markings should appear on three faces of the container. It is also advisable to repeat the instructions in the language of the importing country.

Under the U.S. Clean Air Act (amended in 1990), all products containing ozone-depleting substances are required to be labeled. More detailed and specific regulations can be obtained from freight forwarders, since they keep track of changing labeling laws in various countries.

2. Packing

The rigors of long-distance transportation of goods require that merchandise be protected from possible breakage, moisture, or pilferage. This means that goods in transit must be packed not only to allow the overseas customer to take delivery of the merchandise but also to ensure the goods’ arrival in a safe and sound condition. Consumers in many countries often prefer packaging with recyclable or biodegradable containers due to environmental concerns. For example, about 70 percent of packaging material used in any of the federal states in Germany must be recycled or reused. Packaging cost has an influence on product design. In certain cases, it is considered less costly to ship disassembled parts or dense cargo to save shipping cost.

Merchandise should be packed in strong containers, adequately sealed, and filled, with the weight evenly distributed. Goods should be packed on pallets if possible to ensure greater ease in handling and containers should be made of moisture-resistant material. Packing must be done in a manner that will ensure safe arrival of the merchandise and facilitate its handling in transit and at its destination. (See International Perspective 6.2 for an example of product packing tips.)

Insufficient packing not only results in delays in the delivery of goods but also entitles the customer to reject the goods or claim damages. Export products must be packed to comply with the laws of the importing country. For example, Australia and New Zealand prohibit the use of straw or rice husk as packaging materials. The United Nations has adopted standards for packaging hazardous materials and provides for training of personnel, use of internation­ally accepted standards, and certain other conditions. Freight forwarders and marine insur­ance companies can advise on packaging.

3. Traffic Management

Traffic management is the control and management of transportation services. Such func­tions include selection of mode of transportation carriers, consolidation of small cargo, documentation, and filing of loss and damage claims. The international logistics manager’s selection of a given mode of transportation depends on a number of factors. First, for prod­ucts that are perishable, such as cut flowers, delivery speed is of the essence. Speed may also be required in cases involving important delivery dates or deadlines. In such cases, airfreight becomes the only viable mode of transport to successfully deliver the product to the overseas customer on time. Airfreight is also more reliable than other modes of transport that have more cumbersome unloading operations, which could expose the cargo to loss or dam­age. Second, the selection of transportation mode is influenced by cost considerations. Since airfreight is more expensive than other modes of transport, the international logistics man­ager has to determine whether such high costs are justified. Export firms tend to transport compact products or high-priced items by air because such products are more appropriate for airfreight or because the price justifies the cost. Third, government pressures could be imposed on exporters to transport by national carriers, even when other more economical alternatives exist. The choice of airport or port may be another important decision to be made. Such choices may be influenced by the desire to consolidate cargo or the presence of adjoining highways (to the port) on which weight limits are not rigorously enforced (David and Stewart, 2010; Guelzo, 1986).

4. Inventory and Storage

The proper management of an export-import firm’s inventory is a critical logistics function. The costs associated with holding inventories can easily account for 25 percent or more of the value of the inventories themselves and could potentially create liquidity problems for many firms. In addition to this are the cost of storage, interest paid on borrowed money, and the risks of deterioration and obsolescence. It is important to establish certain guidelines with respect to such issues as maximum holding period, time of shipment of inventories to the sup­plier, and other related factors. Acceptable levels of inventory can still be maintained to serve overseas customers on time without unduly increasing costs and creating storage problems. To reduce warehousing costs, it may be necessary to store inventory in distribution centers according to customer needs. Inventories that are slow moving (no activity for six to twelve months) can be shipped from the exporter or manufacturer. Appropriate inventory planning and control will reduce the number of storage facilities as well as carrying and freight costs.

In certain situations, accumulating inventories may have its own benefits. In countries that have certain macroeconomic problems, inventory may be a good edge against inflation and devaluation of currency.

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