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PART II
ANSWERS TO END-OF-CHAPTER QUESTIONS
CHAPTER 14: INTERNATIONAL LOGISTICS
14-1. Discuss some of the key political restrictions on cross-border trade.
Political restrictions on cross-border trade can take a variety of forms. Many nations ban certain types
of shipments that might jeopardize their national security. Likewise, individual nations may band
together to pressure another country from being an active supplier of materials that could be used to
build nuclear weapons. Some nations restrict the outflow of currency because a nation’s economy will
14-2. How might a particular country’s government be involved in international trade?
Governments may exert strong control over ocean and air traffic because they operate as extensions of
a nation’s economy and most of the revenue flows into that nation’s economy. In some cases, import
licenses may restrict movement to a vessel or plane owned or operated by the importing country. In
14-3. Discuss how a nation’s market size might impact international trade and, in turn, international
logistics.
Population is one proxy for market size, and China and India account for about one-third of the world’s
population. As such, these two countries might be potentially attractive markets because of their
14-4. How might economic integration impact international logistics?
Potential logistical implications of economic integration include reduced documentation requirements,
14-5. How can language considerations impact the packaging and labeling of international shipments?
With respect to language, cargo handlers may not be able to read and understand the language of the
exporting country, and it would not be unusual for cargo handlers in some countries to be illiterate.
14-6. What is a certificate of origin, a commercial invoice, and a shipper’s export declaration?
A certificate of origin specifies the country or countries in which a product is manufactured .This
document can be required by governments for control purposes or by an exporter to verify the location
of manufacture. A commercial invoice is similar in nature to a domestic bill of lading in the sense that a
14-7. Discuss international terms of sale and Incoterms.
International terms of sale determine where and when buyers and seller will transfer 1) the physical
goods; 2) payment for goods, freight charges, and insurance for the in-transit goods; 3) legal title to the
goods; 4) required documentation; and 5) responsibility for controlling or caring for the goods in
14-8. Name the four methods of payment for international shipments. Which method is riskiest for the
buyer? For the seller?
Four distinct methods of payment exist for international shipments: cash in advance, letters of credit,
bills of exchange, and the open account. Cash in advance is of minimal risk to the seller, but is the
14-9. Discuss four possible functions that might be performed by international freight forwarders.
The text describes eight functions, such as preparing an export declaration and booking space on
carriers, so discussion of any four would be appropriate.
14-10. What is an NVOCC?
An NVOCC (nonvessel-operating common carrier) is often confused with an international freight
forwarder. Although both NVOCCs and international freight forwarders must be licensed by the
Federal Maritime Commission, NVOCCs are common carriers and thus have common carrier
14-11. What are the two primary purposes of export packing?
One function is to allow goods to move easily through customs. For a country assessing duties on the
weight of both the item and its container, this means selecting lightweight packing materials. The
14-12. Discuss the importance of water transportation for international trade.
A frequently cited statistic is that approximately 60 percent of cross-border shipments move by water
transportation. Another example of the importance of water transportation in international trade
14-13. Explain the load center concept. How might load centers affect the dynamics of international
transportation?
Load centers are major ports where thousands of containers arrive and depart each week. As vessel
sizes increase, it becomes more costly to stop at multiple ports in a geographic area, and as a result,
14-14. Discuss the role of ocean carrier alliances in international logistics.
In the mid-1990s, ocean carrier alliances, in which carriers retain their individual identities but
cooperate in the area of operations, began forming in the container trades. These alliances provide two
14-15. How do integrated air carriers impact the effectiveness and efficiency of international logistics?
Integrated air carriers own all their vehicles and the facilities that fall in-between. These carriers often
provide the fastest service between many major points. They are also employed to carry the
14-16. How do open-skies agreements differ from bilateral agreements?
Bilateral agreements generally involved two countries and tended to be somewhat restrictive in nature.
For example, the bilateral agreements would specify the carriers that were to serve particular city pairs.
By contrast, open skies agreements liberalize aviation opportunities and limit federal government
14-17. Discuss the potential sources of delays in certain countries with respect to motor carrier
shipments that move across state borders.
One source of delays is that certain countries limit a motor carrier’s operations to within a particular
state’s borders; as a result, multi-state shipments must be transferred from one company’s vehicle to
14-18. Define what is meant by short-sea shipping (SSS), and discuss some advantages of SSS.
Short-sea shipping (SSS) refers to waterborne transportation that utilizes inland and coastal waterways
to move shipments from domestic ports to their destination. Potential benefits to SSS include reduced
14-19. What are some challenges associated with inventory management in cross-border trade?
Because greater uncertainties, misunderstandings, and delays often arise in international movements,
safety stocks must be larger. Furthermore, inventory valuation on an international scale is difficult
Firms involved in international trade must give careful thought to their inventory policies, in part
because inventory available for sale in one nation may not necessarily serve the needs of markets in
14-20. What is the Logistics Performance Index? How can it be used?
The Logistics Performance Index (LPI) was created in recognition of the importance of logistics in
global trade. The LPI measures a country’s performance across six logistical dimensions:
Efficiency of the clearance process (i.e., speed, simplicity, and predictability of
formalities) by border control agencies, including customs;
Quality of trade- and transport-related infrastructure (e.g., ports, railroads, roads, and
information technology);
The LPI is a potentially valuable international logistics tool because the data can be analyzed from
PART III
CASE SOLUTIONS
CASE 14-1: Nürnberg Augsburg Maschinenwerke (N.A.M.)
Question 1: Assume that you are Weiss. How many viable alternatives do you have to consider
regarding the initial shipment of 25 buses?
The answer to this question can vary depending on how students define “viable alternatives.” If we take
a broad perspective and just focus on the primary cities, Bremerhaven does not appear to be an option
because there is no scheduled liner service in the desired time frame. That leaves us with Prague to
Santos through Hamburg and Prague to Santos through Rotterdam. Several of the vessel departure
dates for both alternatives are not feasible. For example, the 18-day transit time from Hamburg
eliminates both the October 31 and November 3 departures; likewise, the 17-day transit time from
Rotterdam eliminates the November 2 departure. And although the October 27 departure from
Hamburg or the October 28 departure from Rotterdam should get the buses to Santos by November 15,
neither departure leaves much room for potential transit delays (e.g., a late season hurricane). As such,
it appears that Weiss has but two viable alternatives: the October 24 departure from Hamburg and the
October 23 departure from Rotterdam.
Question 2: Which of the routing alternatives would you recommend to meet the initial 90-day
deadline for the 25-bus shipment? Train or waterway? To which port(s)? What would it cost?
If one assumes that rail transport is used from Prague to either Hamburg or Rotterdam, then the total
transportation costs of the two alternatives are virtually identical. Although rail costs to Rotterdam are
€300 higher than to Hamburg, the shipping costs from Rotterdam are €300 lower than from Hamburg
(based on €6000 x .95). Because the total transportation costs are essentially the same, the decision
likely needs to be based on service considerations. The initial shipment is extremely important. It might
be suggested that Prague to Hamburg by rail and Hamburg to Santos by ocean vessel is the preferred
alternative. Our rationale is that the provided transit times with Hamburg are definitive—that is, 3 days
by rail and 18 days by water. With Rotterdam, by contrast, the rail transit time is either 4 or 5 days,
although water transportation is 17 days.
Question 3: What additional information would be helpful for answering Question 2?
A variety of other information would be helpful for answering Question 2. For example, the case offers
no insight about port congestion issues and how this congestion might impact the timeliness of
shipment loadings. There also is no information about port performance in terms of loss and damage
metrics. In addition, although the case indicates that rail transit time from Prague is either four or five
days, it might be helpful to know what percentage of shipments is completed in four days. Students are
likely to come up with more suggestions.
Question 4: How important, in fact, are the transport costs for the initial shipment of 25 buses?
Clearly, with ocean shipping costs of either €5700 or €6000 per bus, transportation costs cannot be
ignored. Having said this, the initial shipment holds the key to the remainder of the order (another 199
buses) and appears to be instrumental in securing another order for 568 buses (for a total of 767 more
buses). As such, N.A.M might be somewhat flexible with respect to transportation costs for the initial
shipment. Suppose, for example, that N.A.M. can earn a profit of €5000 per bus (such profit on a
€120000 bus is by no means exorbitant). A profit of €5000 x 767 buses yields a total profit of
€3,835,000. Because of such a large upside with respect to additional orders, N.A.M. might focus on
achieving the specified metrics for the initial shipment without being overly concerned with
transportation costs.
Question 5: What kinds of customer service support must be provided for this initial shipment of 25
buses? Who is responsible?
Although a number of different constituencies is involved in the initial shipment (e.g., railroads, dock
workers, ocean carrier, etc.), the particular customers—the public transit authorities—are buying
product from N.A.M. Because of this, N.A.M. should be the responsible party with respect to customer
service support. There are myriad customer service support options that might be provided. Real-time
shipment tracking should be an option so that the customers can know, at any time, the location of the
shipment. N.A.M. might also provide regular updates of shipment progress; perhaps N.A.M. could
email or fax important progress points (e.g., the shipment has left Prague; the shipment has arrived in
Hamburg, etc.) to the customers. Because successful performance on the initial shipment is crucial to
securing future business, N.A.M. might have one of its managers actually accompany the shipment.
Question 6: The Brazilian buyer wants the buses delivered at Santos. Weiss looks up the International
Chamber of Commerce’s Incoterms and finds three categories of “delivered” terms:
DAT (Delivered at Terminal). In this type of transaction, the seller clears the goods for export and
bears all risks and costs associated with delivering the goods and unloading them at the terminal at
the named port or place of destination. The buyer is responsible for all costs and risks from this
point forward including clearing the goods for import at the named country of destination.
DAP (Delivered at Place). The seller clears the goods for export and bears all risks and costs
associated with delivering goods to the named place of destination not unloaded. The buyer is
responsible for all costs and risks associated with unloading the goods and clearing customs to
import goods into the named country of destination.
DDP (Delivered Duty Paid). The seller bears all risks and costs associated with delivering the
goods to the named place of destination ready for unloading and clearing for import.
How should he choose? Why?
Again, given the importance of the initial shipment, it would appear that the more control that N.A.M.
has over the process, the better. Although the DDP option is likely the costliest option, it also affords
N.A.M. more control later into the shipment process. Moreover, a willingness by N.A.M. to take on the
additional costs associated with DDP might be viewed in a positive fashion by the customers.
Question 7: Would you make the same routing recommendation for the second, larger (199 buses)
component of the order, after the initial 90-day deadline is met? Why or why not?
Time pressures do not appear to be as critical for the larger component of the order, so this might argue
for use of water transportation between Prague and Hamburg. The rationale would be that even though
water transportation is slower, it saves money (€48 per bus) over rail shipments. Alternatively, given
that the selling price per bus is likely to be around €120000, trading off three days of transit time in
exchange for a savings of €48 might not be such a good idea.
Question 8: How important, if at all, is it for N.A.M. to ship via water to show its support of the
European Union’s Motorways of the Seas concept?
This question may generate a variety of opinions from students. For example, some students might
argue that Question 7’s answer also applies to Question 8. Having said this, the case doesn’t delve too
deeply into potential environmental considerations associated with water transportation, so a pure cost–
benefit analysis (such as Question 7) might be insufficient. Furthermore, because the European Union
(EU) continues to be a contentious issue for many Europeans, the answer to Question 8 might depend
upon one’s view of the EU. Thus, someone who is supportive of the EU might lean toward supporting
the Motorways of the Seas concept, while someone not supportive of the EU might lean against
supporting the Motorways of the Seas concept.
