Global Logistics Management II
Ă˘â‚¬Ĺ“On-time Delivery ChallengesĂ˘â‚¬Âť
CASE Ă˘â‚¬â€ś BACKGROUND INFORMATION
A New Logistics Manager
Marcelo is the new logistics manager at BelAir LLC, a U.S. manufacturing company based in the state of Georgia (U.S.A). It provides abrasive surface preparation and spray painting equipment. The company recently started selling equipment in Sri Lanka.
An International Customer Complains
To date, BelAirĂ˘â‚¬â„˘s only customer in Sri Lanka is SnapGear. SnapGearĂ˘â‚¬â„˘s president, Dhruv Kumar, complained that products have not been delivered on time. Dhruv was told in January that it would take four weeks to have all the ordered products delivered to Sri Lanka, but it is now March and he has only received some of the equipment. He also noted that he had ordered electric motors that were urgently needed for a client, but they have not yet arrived, despite his flagging the order to the previous logistics manager. Dhruv has also been waiting on BelAir to send a signed statement certifying the country of origin of the products and that the products were in accordance with the invoice. Dhruv advised Marcelo that if BelAir did not fix its problems immediately, SnapGear would begin using a Miami-based company that had recently approached him.
Marcelo the Manager Investigates
Marcelo began investigating what type of equipment was being shipped and where the bottleneck was. He reviewed the purchase order and saw that SnapGear had ordered storage and blast cabinets, vacuum equipment and a few smaller items including the electric motors. With this information, he would determine how the products were sent from the warehouse and then try to track the exact location of the products on their way to Sri Lanka.
Status of Loading and Transport from BelAir (in Georgia)
In March, BelAir started to use the budget U.S. carrier Tempo Logistics to transport larger products from the warehouse to the shipping port in Charleston, South Carolina. The owners of Tempo and BelAir were good friends. The companies had negotiated a new two-year agreement in early March. Marcelo searched through emails and files, but couldnĂ˘â‚¬â„˘t find the contract from Tempo Logistics. He had no idea what the carrier was supposed to do. He contacted Tempo to get further details about the services it offered BelAir, but was unable to reach anyone there.
Marcelo then went to the warehouse to speak with Gary, the shipping manager, about the products shipped to SnapGear Ă˘â‚¬â€ś particularly the electric motors. He was surprised when Gary told him, Ă˘â‚¬Ĺ“We thought that the electric motors could go with the rest of the equipment, so we packed them in the ocean container, too. You know, it might save us some money. We ran out of filling material, but donĂ˘â‚¬â„˘t worryĂ˘â‚¬â€ťwe packed it in a way that nothing will happen to them.Ă˘â‚¬Âť Marcelo knew that some of the larger equipment had protruding parts, so he became concerned the smaller items would be damaged en route.
Marcelo also realised that the blasting cabinet that SnapGear had ordered was still in the warehouse. Gary said the light box component had to be removed from the top of the blast cabinet in order to meet the ocean container height regulations, and his staff needed the companyĂ˘â‚¬â„˘s engineer to help make the modification before the shipment could proceed. SnapGear was also waiting on the vacuum equipment, which was found next to the blasting cabinet in the warehouse. Gary and his staff had never sent vacuum equipment by sea, and they needed a forty-foot container with an open top. Someone had ordered a hard top container instead. If the open-top container was not used, the container could not be loaded by crane onto the cargo ship. Marcelo thought to himself, Ă˘â‚¬Ĺ“How did we not know this before?Ă˘â‚¬Âť
After Marcelo finished speaking with Gary, he went back to the office and received a call from Bryan at Tempo Logistics. Bryan advised that there was a verbal contract between Tempo and BelAir; a written contract was still being prepared. He also said Tempo was experiencing a shortage of truck drivers and could not come for another four to five days to take containers to the port. Bryan added that Marcelo would be very fortunate to find a company able to assist in trucking, as finding new truck drivers to replace those retiring had become a nationwide problem. Marcelo had to find a solution to this, as he needed to get equipment moved not only internationally, but in the U.S. as well.
CASE Ă˘â‚¬â€ś CORRECTIVE ACTION
Marcelo called the freight forwarders that BelAir used, ABC Global Express, which offered a full range of services, such as export packing and containerization. To save costs, BelAir did not use ABCĂ˘â‚¬â„˘s U.S. pick-up service or any other packaged services. It used ABC as shipping agents and customs brokers to arrange the export customs clearance and to pay the export duties. Marcelo was used to working with freight forwarders who offered door-to-door service, so this would be an adjustment. However, ABC did offer satellite tracking, so Marcelo used his smartphone to track BelAirĂ˘â‚¬â„˘s latest shipment to SnapGear through the mobile application. To MarceloĂ˘â‚¬â„˘s disappointment, the latest shipment was in Sri Lanka, but delayed due to customs clearance issues.
At the seaport in Colombo, Sri Lanka, goods are unloaded from the ship and then inspected by customs and stored. The consignee has four days to provide the required documents needed for customs clearance and then remove the goods from the storage area. Dhruv has been waiting for a missing document from BelAir to be able to provide the complete set of documents to Sri Lankan customs. The demurrage charges have been accumulating for the past two weeks.
Dhruv knew that the sales agreement with BelAir stated that SnapGear was responsible for charges once the shipment arrived in Sri Lanka, but as he believed the missing documentation was BelAirĂ˘â‚¬â„˘s fault, he wanted BelAir to pay for the demurrage. As a part of the sales contract between BelAir and SnapGear, they negotiated the following shipping delivery terms: Ă˘â‚¬Ĺ“CFR, Port of Colombo, Sri Lanka, IncotermsĂ‚Â® 2020.Ă˘â‚¬Âť SnapGear had a solid relationship with its own freight forwarders, located in Sri Lanka, and were able to negotiate favourable freight rates. Keeping this in mind, BelAir had already offered SnapGear a reduced price for the equipment that it shipped.
Marcelo called Dhruv to explain the situation, and that he would be getting all the outstanding equipment shipped, just as soon as possible. He prepared the signed statement Ă˘â‚¬â€ś which certified the country of origin Ă˘â‚¬â€ś and sent it by email to Dhruv, hoping the Sri Lankan customs authorities would accept it while waiting for the original document to arrive by courier in three days. Marcelo also offered to pay for the extra demurrage incurred. Dhruv was still not happy with the service offered by BelAir. He told Marcelo he would not be purchasing equipment from BelAir again.
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1. FREIGHT FORWARDERS: Explain how (in what ways) making arrangements with full-service freight forwarders is a good choice for BelAir?