Logistics Project A

International Transportation Plan (ITP)

Windy May

Elizabete Baltina

Tatevik Tina Mitoyan

Halil Cemre Tozar

Xiaoshan Li (Ada)

Professor Dr. Harish Amar

November 9, 2016

Table of Contents

1. Introduction 3

2. International Logistics Infrastructure, Methods of Entry 4

3. Terms of Trade, Incoterms 6

4. Terms of Payment, Currency 7

5. International Commercial Documents 9

6. International Insurance Strategy and Policy 11

7. International Ocean Transportation 13

8. Packaging for Export, International Logistics Security, Customs Clearance 14

9. Logistics as a Competitive Advantage 17

10. Appendix 21

11. Works Cited 25

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Introduction

Infinity Furniture Import, a family owned business established in 2005 has been a reputable

furniture line for over a decade. Warehouse is Located in North Hollywood, CA and sold in most

surrounding areas within the states in furniture stores. Infinity Furniture Import is a direct

importer and distributor of classic and traditional furniture. Supplying only high-end quality

furniture to consumers and for those with the most exquisite taste. Infinity Furniture Import

requires a minimum purchase to open an official account with a desired buyer. Infinity furniture

Import also supply’s for design firms in the West Coast. Also, offering big container shipments

internationally. Infinity continues to thrive for exclusive buyers that have interest in carrying

only the best furniture lines and following current trends.

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International Logistics Infrastructure

International Logistics Infrastructure is a collective term that refers to all of the elements

in place (publicly or privately owned goods) to facilitate transportation, communication and

business exchanges. (Chapter 3: International Logistics Infrastructure- Slide 2)

Methods of Entry

Agent

An agent is typically a small firm or individual located in the importing country. The

agent will act as a representative of the exporter. He or she will not take title of the goods and

will earn a commission form the exporter. The principal is the party (company) being

represented by the agent. An agent will represent multiple companies manufacturing products

that complement the exporter’s products. (Chapter 4:Methods of Entry in Foreign Markets-Slide

14)

Distributor

A distributor is typically located in the importing country. The distributor will purchase

the goods from the exporter and therefore take title of them. It will then resell the goods for a

profit. In this relationship, there are two sets of invoices. One set of international invoices

between the exporter and the distributor. The distributor is therefore the importer. The second set

of invoices is between the distributor and its customer. The customer sees this as a domestic

transaction. A distributor may carry products from competitors in the same field. Oftentimes, it

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will also service products and carry replacement parts. (Chapter 4:Methods of Entry in Foreign

Markets-Slide 16)

Licensing

A company (the licensor) allows another firm (the licensee) to use its intellectual

property in exchange for a fee (royalty).The license can allow the use of a patented technology,

trademark, brand name or trade secret. The licensor retains ownership of the intellectual property

and the licensee must pay the licensor a fee every time it is used. All intellectual property is at

risk of being copied or “stolen” in countries where intellectual property is not well protected.

Having a licensing agreement does not increase that risk: companies intent on violating

intellectual property do it without access to the licensor.(Chapter 4:Methods of Entry in Foreign

Markets-Slide 27)

The process that Infinity uses begins with purchase though the exporter. The Exporter

normally has is a minimum purchase amount with the distributor to fulfill to began the process.

After successfully completing this process one or two times, then the trust is established and it

becomes an open account.

ITP – International Transportation Plan

International Transportation Plan is a comprehensive part of a strategic trade-related

business plan. It is critical to the plan as it defines the terms and conditions for trade, the mode of

transport to be used, and other related aspects of the contract. The paper highlights this aspect for

the company, Infinity Furniture Imports, which is based in North Hollywood, California.

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Terms and strategies to be negotiated in the international contract

The importer and the exporter need to mutually decide on the onus of responsibility for

following terms to avert disputes at later stages of the trade deal (Chapter 6: International Terms

of Trade – Slide 3).

● The domestic transportation of furniture in the exporting country i.e. pre-carriage of

goods

● The mode of transportation from exporting country to importing country, which in this

case, is U.S. It may be ocean or road transport depending on the location of exporting

country.

● The domestic transportation in importing country once goods reach, which is referred to

as on-carriage of goods.

● The insurance cover, risks and customs clearance responsibility must also be defined.

Trade Terms and Applicable Incoterms

Incoterms define the responsibilities of importer and exporter explicitly and specifies the

execution of shipping methods for international trade. Infinity Furniture Import, Inc. also

supplies furniture to bordering states in U.S. besides offering international as well as domestic

sales (Infinity Furniture Import, Inc., n.d.). Thus, the incoterm, which may be used by Infinity

Furniture Import, Inc., is FCA or free carrier incoterm, indicating the location at which the seller

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needs to deliver the goods (Chapter 6: International Terms of Trade – Slide 14). This term may

be used for any type of goods as well as for any type of transportation method. Some of the other

incoterms are mentioned below (Chapter 6: International Terms of Trade – Slide 4).

● The tasks to be done by importer/ exporter (Chapter 6: International Terms of Trade –

Slide 5).

● Specifically defines who makes the payment for what task (Chapter 6: International

Terms of Trade – Slide 5).

● The details of the point at which goods are transferred from exporter to importer (Chapter

6: International Terms of Trade – Slide 5).

● There are 11 incoterms out of which 7 can be used for any mode of transport, and the rest

4 are specifically for ocean transport (Chapter 6: International Terms of Trade – Slide 7).

Some of them include FOB, CIF, DAP, and EXW.

● The appropriate incoterms need to be determined by considering various factors, such as

type of product – its weight, size, and so on, and then mode of shipment, mutual trust

factor, and coordination among both parties to divide the tasks (Chapter 6: International

Terms of Trade – Slide 6).

Terms of Payment

Infinity chooses to deposit for goods purchased so they can process an order. At times

they will pay when the furniture is delivered or during delivery. hen speaking with David

Zadbeh,C.E.O of Infinity Furniture Import inc, he explained when he is working with a current

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export company or is going to work with a new one, he typically uses the same export so he

prefers cash in Advance, but also uses open account and letter of credit.

Letter of Credit as a Payment

A letter of credit is a document in which the importer’s bank essentially promises to pay

the exporter if the importer does not pay. The creditworthiness of the bank is substituted for that

of the importer, and the exporter is protected.Letters of credit are not paid until the exporter

supplies the importer with a specified set of documents, agreed in advance. The importer is

therefore also protected..(Chapter 7: International terms of Payment-Slide 11)

Cash in Advance

The exporter requests that the customer provide payment in advance, before shipment of

the goods can take place. This method is totally “risk free” to the exporter—no collections

worries, no foreign exchange fluctuations exposure, no cash-flow problem, and only nominal

fees to pay to banks.(Chapter 7: International terms of Payment-Slide 17)

Open Account

The exporter conducts international business in a manner similar to the way it conducts

business domestically. The exporter sends an invoice to the customer and expects the customer

to pay it promptly (or within a certain pre-arranged period).(Chapter 7: International terms of

Payment-Slide 18)

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Currency of Payment

Importers Currency

The exporter and the importer agree that the currency of the transaction will be the

currency of the importer's country.The exchange rate risk is nil for the importer; all of the risks

are borne by the exporter, and it has to determine how it will handle its transaction risks.In

addition, the possible convertibility problems of the currency are to be resolved by the exporter.

(Chapter 8: Managing Transaction risk – Slide 7).

American Dollar

The american dollar is the most popular form of currency and is most commonly used

world-wide. It is produced by the U.S. Treasury’s Bureau of Engraving and Printing located in

Washington D.C. and Texas.

International Commercial Documents and Insurance Policy

Commercial Documents are the Documents that are written down and discussed by the

buyer and seller and usually consist of following topics.

Request for a Quotation

Any primary step of connecting, through letters, telephone, fax or email usually leads to a

Request for Quotation. Infinity Furniture receives numerous requests and has a team to send out

the Quotations, normally to a higher, private or business oriented clientele, since the Furniture is

expensive and considered art.

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2. Quotation

Any requests for a Quotation are answered through a Infinity team, that will analyze the request

and try to Quote as efficient and attractive for the customer, so they can open an account.

3. Pro Forma Invoice

A formal document, that helps get permits or authorizations for international business. Infinity

Furniture uses this document to import their furniture, since it is made in China. Infinity

Furniture also has to give out a Pro Forma Invoice to buyers outside of the U.S.

4. Terms and Conditions of Sales

Terms and Conditions of Sales accompany the Quotations and Pro Forma Invoice often to give

extra information. It’s like a fine print that explains Terms and Conditions. In the case of Infinity

Furniture it is used to clarify where shipments are made from and how the process will take

place.

5. Purchase Order

Once the importer is satisfied with the documents above, he/ she will place an order. This

includes the number of items bought, the type and date of payment. For Infinity Furniture there is

2-3 options. A company they work with for a longer period of time will usually pay cash in

advance while new companies are more likely to pay through a letter of credit.

6. Order acceptance and confirmation

This Order acceptance and confirmation are a type of receipt. They usually are a form of contract

and also legally binding. Infinity Furniture representatives called this the confirmation receipt.

7. Sales Contract

The Sales Contract includes the Order by the Importer, the Order Confirmation by the Exporter

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which will be signed and returned and once this procedure is done the Contract of Sale is created.

So whenever Infinity Furniture receives and Order by phone, fax or e-mail, they reply with the

order confirmation that has to be signed and returned, and only then the Contract of Sale really

exists and is binding, which means Infinity starts the process of fulfilling the customer needs and

producing and shipping out the purchased furniture.

8. Commercial Invoice

The Commercial Invoice is the document that includes pretty much all of the information

needed. It provides explanations and the terms and conditions of the sales transaction. Infinity

Furniture uses the Commercial Invoice to make clear how much money will be paid for what

exact service or product. Infinity Furnitures Commercial Invoice includes the final destination of

the merchandise, the time, place and name of buyer and seller, as well as the time and origin of

shipment, names of shipper and receiver. It also provides detailed description of the merchandise

( name and quality) and the quantities in weights and measures plus the currency and country of

origin. All this is summed up in the Commercial Invoice of Infinity Furniture.

International Insurance Strategy and Policy

Infinity Furniture uses the Marine Cargo Policies, since its merchandise is shipped from

China through ocean shipments. It uses the Coverage A which is an all-risks policy. It means that

any loss or damage to the merchandise will be covered except for some specific cases like war or

civil disturbances. Another advantage of this Coverage A plan Infinity Furniture uses is that it

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includes identical policies in all countries. It is expensive, but it contains maximum coverage that

is pretty much possible in ocean shipments. There are still exceptions of things even Coverage A

won’t include improper packaging, unseaworthy vessels or the case of a nuclear war, but this

coverage is the only way to go for a high end company like Infinity Furniture because of its

sophisticated products, which could be damaged through loading and unloading or improper

stowing by the carrier. Coverage A is the only plan that covers these kinds of perils and as a

company that deals with high end merchandise Infinity Furniture can not take risks to leave

customers unsatisfied.

After comparing the different types of international insurances, strategies and policies, it

becomes clear why Infinity uses Coverage A. High end products like these need to be taken care

of wisely especially on longer ocean shipments, so the guarantee that all these possible perils are

covered, is a huge relief and necessity for a company like Infinity. They manage their risk with

transferring it to an insurance company, so that there is almost no chance of losing merchandise

or money. Infinity Furniture sees itself as a Firm with high to relative high exposure because of

the sophistication of each product, which also is a reason to choose the top Coverage possible.

In conclusion companies with high end products usually choose to insure as good as possible and

Coverage A is the maximum coverage available. Even though it costs more Infinity Furniture

believes that no other Coverage would satisfy their needs as a company.

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Transportation Plan

Safe transportation of goods is of prime concern to both the trading parties due to

unforeseen risks involved, which may lead to damage of goods and financial losses as well.

Hence, the traders ensure to opt for the most suitable form of transport according to their

product. In this transportation plan for Infinity Furniture Imports, since the goods are bulky and

huge in size, the ideal mode of transport should be ocean and land /multimodal. The various

modes of transport have been discussed below for better understanding (Chapter 3: International

Terms of Trade – Slide 7).

International Ocean Transportation

Depending on the exporting country’s location, the furniture goods may be transported

using ocean transportation. The amount of goods that may be transported, at a single time, may

be determined by the size of ship and available space, which is in turn dependent on many other

factors. Ocean transportation is time consuming as well; hence, trading parties need to consider

available time factor also prior to making a decision. Infinity Furniture Import uses Long Beach

Port to receive its shipments not only for wholesale in California, but also inland states such as

Texas.

International Land and Multimodal Transportation

If there is road connectivity between the importer and the exporter, then they may explore

using road transport or rail transport for shipping the goods. In case of furniture transport, there

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may be limitation of quantity that could be transported as road or rail transport has less space for

bulky and big sized goods.

International Air Transportation

Transportation by air, especially for goods, such as furniture is not considered feasible due

to the high cost factor. High transportation costs would lead to increase in expenses, which

traders do not encourage. Also, there are limitations to the quantity that can be transported in

comparison to other modes, such as ocean/ land transport. The only prime benefit of air transport

is the time factor, which is very less in comparison to other forms of transportation.

International Logistics Security

After working for many years at Infinity I was also able to grasp information about

International Logistics security through my Boss at the time and CEO of Infinity Furniture

Import. I wasn’t well aware of this information at the time of my employment but I was glad that

I was able to research about International Logistics Security as well while doing this project.

David Zadbeh previously told me that a common port used for Infinity Furniture Import

shipment is Long beach (LA areas). I mention this information because of the importance it has

to International Logistics security since traumatic events in the past have affected the delay in

shipments. However, a few organizations are designed and put together to prevent such disasters

from happening in the future. The international Maritime Organization in particular enhances

monitoring activities and communication systems which ensures the safety of shipments. David

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also told me he felt comfortable using the Long Beach port because of the safety and security.

However, in case of any disastrous events that would prevent containers from being shipped out

a refund or store credited is negotiation with client or exporter.

Customs Clearance

Having hands on experience in the furniture industry was quite rewarding since I was

able to grasp information about international logistics. I worked directly in the importer's

warehouse where everything took place after we’d receive the exporter's shipments. Customs

clearance provides documentation for the shipper that it is OK to ship the products. The balance

for the goods may even be fully paid for at this point and customs clearance is taken care of

thereafter. We wouldn’t directly work from the exporter's location (China) but their customs

clearance requirements are also known to be “ exports documentation” which persists of the

purchase order, sales invoice, packing list, bill of lading and so forth. I can however say, I would

often prepare sales invoices, packing lists, bill of lading from our importing warehouse office in

North Hollywood, CA. If shipped internationally the freight forwarder often times would handle

most documentation required to ship containers. In regards to the bill of lading the exporter

would usually send this documentation via email and we would provide the list for a purchase

order. Last but not least, Chamber of commerce certifies on documentation.

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Packaging for Export

The warehouse in Infinity Furniture Import is located in North Hollywood, CA where the

products were shipped to from the exporter in China. The packages would arrive on a pallete.

Afterward, we would unpack and check for any damaged items and also for deformation.

Products that were deformed we would automatically notify the exporter. We would ship back

the deformed products in replacement for another and the same with damaged goods. This

portion of the process was tedious but it had to be done. After the process of checking the goods,

we would then prepare to package for the goods. Very often we would obtain price estimates

from quite a few forwarder companies. We would then select the one with the best reviews as far

as reliability for the shipment of the goods. A method that my boss would often select was to

ship in containers. The quote we’d receive from forwarder companies often depended on the

overall package size, shape, weight, and volume. Containers are a priority to be palletized and

packages are covered with moisture- resistant- resistant material. What is nice that packaging

materials are designed and developed for export. Why are volume and weight reinforced? The

forwarding company system is thoroughly thought out to save money and ensure the safety of

the packaged good.

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Logistics as a Competitive Advantage for Infinity Import Furniture

Today, a company's advantage may only last a couple of months. Several years of

significant advantage that is based on a single competency is a nearly impossible goal.

Developing a sustainable competitive advantage through the company’s supply chain requires

the creation of value through a new focus. A supply chain must be viewed as a value chain in

which all participants are truly integrated and share a common vision of goals, processes and

information sharing. The main shared goal is to maximize value in the total supply chain

(Yarusso, 2010). Developing a competitive advantage can be more challenging on a global scale

than on a single region basis, but it definitely is a goal that is achievable through excellent

management. There are several areas that may be challenging and affect the smooth flow of

goods in a supply chain, and Infinity Import Furniture has set forth a plan to resolve any issues

should they arise:

● Communication - use International English as the default language, which

removes all ambiguities; if needed - hire a translator to reduce and eliminate the

possibility of misunderstandings. Regular communication to occur via e-mail,

except for time sensitive manners which shall be discussed via phone. It is critical

to have clear communication to avoid unnecessary delays.

● Metric system - to avoid potential confusion and erroneous conversions, use the

well-defined metric system when working with suppliers to calculate shipment’s

weight and volume.

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Strategies in specific areas:

● Terms of payment - due to variations within the company’s supply chain partners,

Infinity Import Furniture remains flexible to appeal to several suppliers. With that in

mind, the preferred term of payment is cash in advance, but the company also engages in

letter of credit and open account payments.

● Currency of payment - by using the importer’s currency - the American dollar, a hard and

very stable currency - the company avoids risk and also provides its suppliers with the

chance to compete on the basis of importer’s currency, which is very often the case.

● Incoterms Rule choice - Our company uses FCA (Free Carrier) when transporting goods

from the exporters, which is a relatively flexible Incoterms rule. Infinity Furniture Import

maintains its flexibility by choosing to work with companies that prefer this rule, because

the delivery of goods is either at the exporter’s place of business or the carrier’s place of

business. .Because our company is an importer and the incoterms used are chosen by the

exporter, we are more reliant on what they choose. ● Document preparation - Our company has developed an efficient and organized

document preparation system that ensures smooth transfer of goods, thus avoiding delays

and incurring unexpected costs, as well as making sure that the other party, i.e. the

exporter, has done their part of document preparation ahead of time.

● Packaging - due to the nature of our products, packaging cannot prevent all instances of

damaged or defective products, but it can prevent the majority of such occurrences.

Because returning damaged products is time consuming and tedious as well as

undesirable for our business operations, we pay close attention to how the exporters are

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choosing to package the product, and for transportation locally, we rely on forwarder

companies that are known for stellar handling of goods.x

A supply chain can create competitive advantage through seamless integration while

meeting business goals and requirements. Efficiency is key here: the ability to minimize

downtime and predict obstacles to delivery while maximizing uptime as shipments are delivered

to their destinations. Many factors that affect logistics processes, including sustainability,

processing, customs, security and technology, have changed in a matter of a few years, and it is

crucial to be prepared to react to and accommodate any changes that may arise (Kaye, Simon,

2011).

Our company directly relies on the efficiency, effectiveness and timeliness to remain

competitive in the marketplace. Proactive planning of procurement, improvements in lead-time

management and optimization of flow design are all crucial matters that our company’s supply

chain department is continuously working on improving. Within all U.S. businesses, as much as

80 percent of companies do not have a supply chain strategy. This includes our competitors and

companies in related industries. These core areas are addressed by Infinity Import Furniture:

● Service improvements - choosing carriers based on a combination of factors,

including transit time, cost, and service levels.

● Efficiency improvements - investing in technologically advanced, automated

supply chain processes to reduce time spent on repetitive activities

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● Cost reductions - increasing competitiveness by lowering costs through effective

planning, reducing transportation and labor costs, as well as aggregating

shipments.

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APPENDIX

Sample Commercial Invoice (actual invoice in confidential)

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Sample Packing List (actual copy is confidential)

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Sample Bill of Lading

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Works Cited

Kaye, Simon (June 7, 2011). Logistics Intelligence + Efficiency = Competitive Advantage. Retrieved from: http://www.gcimagazine.com/business/manufacturing/supplychain/123365238.html Byrne, Robert (February 2012). Use Transportation Planning for Competitive Advantage. Retrieved from: http://www.inboundlogistics.com/cms/article/use-transportation-planning-for-competitive-advantage/

Yarusso, Lowell & Sanderson, Ronald (July 31, 2010). 6 Keys to the Sustainable Supply Chain Advantage. Retrieved from: http://www.sdcexec.com/article/10269138/6-keys-to-the-sustainable-supply-chain-advantage Rjagodka ( n/a). Commercial Transaction Documents. Retrieved from: http://instruction2.mtsac.edu/rjagodka/Importing_Information/DOCUMENTATION_Guide.pdf Kavas, Serkan (March 30, 2015). The Five Biggest Problems of Global Logistics Retrieved from: http://www.morethanshipping.com/the-5-biggest-problems-of-global-logistics/ Rau, Raymond (March 20, 2013). What is Customs Clearance? Retrieved from: http://www.universalcargo.com/what-is-customs-clearance/

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