978-0134519258 Chapter 14 Solution Manual

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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.