Selecting the Right Incoterm & Transport ModeTannia LiuNov. 28, 07Procurement Entrance Seminar, Shanghai Nov. 20071Agenda21Incoterms IntroductionTransport Modes2Agenda21Incoterm IntrodcutionTransport Modes3The Purpose and Scope of Incotermn Incoterm: A set of international rules for the interpretation of trade terms. Defined by International Chamber of Commerce, first published in 1936 n The purpose of Incoterm is to avoid/reduce uncertainties, misunderstanding, dispute and litigation. Save money and time.n The scope of Incoterm is limited to the rights and obligations of the parties to the contract of sales with respect the delivery of goods sold. (Not include intangibles, such as computer software).n Amendments and additions were later made several times in order to bring the rules in line with current international trade practices The rule for each term in Incoterm is not always the same.4Incoterm - The Meaning for BuyernIt is related to (not to replace) the contract of sale. It is not contract of carriage, insurance and financing.nIt defines the obligations of:l Seller places the goods at the disposal of the buyer or hand them over for carriage or delivery them at destination.l Risk distribution between parties.l Who to clear goods at customs.l Whose responsibility for goods packing.l Buyers obligation to take deliveryl To provide proof that the respective obligations have been duly fulfilled.nAny extra rights and obligations out of Incoterm standard definition will need to be identified in contract. For example: higher insurance coverage.nIt dose not dealt with some important points:l Transfer of goods ownership.l Consequences of breaches.l Exemptions from liability in certain situations.5Frequently Used Incoterms (Based on Incoterm 2000)Sellers Risk Sellers CostBuyers costBuyers RiskCost: Mainly for freight cost. Risk: any unexpected cost, damage or loss.only for water shipment 6Agenda21Incoterm IntroductionTransport Modes7What are Raw Material Procurement Missions?Right productRight quantityRight qualityProper lead timeReasonable priceDelivered SafelyTransportModeDeliveryPackingWhat dose it mean for supply chain management?Selection of8Packaging Type 1M3 IBC Drum &Bottle 1M3 SUS/Teflon Tote Package deliveryBulk delivery Flexi-bag (in box container) Tank Truck Tank Container9Comparison of Package Delivery and Bulk DeliveryRemark: Flexi-bag is for non-dangerous goods only.Bulk delivery is recommended for large volumes efficient, safe, environmentally friendly10Transport modePrimary Role Primary Product Characteristics AdvantagesDisadvantages Road Move shipments of varying sizes and weights in local, regional, and national market areas, short distance. High value Low volume Accessibility Fast Flexible in delivery volume and route Limited capacity per delivery High cost Rail Move large volume of domestic delivery, long distances Low value High volume High capacity per delivery Low cost Lead time is longer than road transportation Peak season capacity limitationSea & inland Water Move large volume of delivery, long distances. Low value High volume bulk goods Containerized goods High capacity per shipment Low cost International capabilities Long lead time Peak season capacity limitationAir Move small shipments of international freight, long distances Urgent shipments High value Small volume Fast Flexibility High cost Low capacity Strict goods category selectionTransport Mode and the Comparison11Case Study Assumption :Cost calculation:Most economic way for distributionShort distance: Tank truck by road Long distance: Flexi-bag (non-DG) or tank container (DG) by inter-modal12Back-up13Characteristic of Different Packing14