Global Logistics
1.What is Global Logistics
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Global logistics is the process of managing the flow of goods from the place where they are
made(one part of globe) to the place where they are consumed(other part of globe)
Global logistics connects critical components of the supply chain from a product’s point of origin
to its point of consumption—to ensure timely and efficient distribution of goods from producers
to consumers.
It is technically the process of managing goods through an international supply chain, from its
production to other parts of the world through intermodal transport system, transport via
ocean, air, rail, and truck
It refers to the international commodity trading or exchange activities. It aims to overcome the
space and time distance between production and consumption.
2. ROLE OF GLOBAL LOGISTICS
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Global operations of business increase the complexity of logistics.
Speed and Efficiency in the movement of goods is focused more.
Internet has made easy to do business across the globe
The world has become global village in real sense
Globalization helped in doing business beyond the national boundary
Cargo movements needs to be done physically using available means of transport
Physical movement of cargo, intermediaries, freight forwarders, custom house is indespensible.
Ensuring just-in-time factors: The process of economic globalization has made goods and their
movements richer and more demanding. Ask strict management, set new requirements for
freight forwarding services.
Ensure the goal of controlling inventories to a minimum.
3. Global integrated logistics strategic options
The need to maintain or increase the profits and sales many firms into global marketing, international
trade is growing more rapidly, worldwide than domestic markets. global operating strategies centre
around four elements technology, manufacturing, marketing, and integrated logistics. In developing
logistics as a strategic weapon four options are available to a global company.
1. The first and most common option is to develop a proprietary system Businesses spend a lot of
money on logistics for certain markets. This method provides tight integrated logistics control,
lower total integrated logistics costs, and permits the corporation to invest in local
distribution facilities to boost the local economy. A proprietary system has a significant
financial outlay, nationalization risk, demanding management requirements, and worse
economies of scale than intermediaries.
2. A second strategic option is to use third parties. Using this option reduces the dollar
investment, increases responsiveness to changing customer needs, and allows more flexibility
in evaluating new integrated logistics technology. However, third parties usually provide only
fixed services, generate high per unit variable costs, and allow for little participation in the
local economy.
3. General trading companies (GTCs) are a third option. GTCs are common in Japan
and South Korea. They assist in marketing and trade financing, and handle overseas
product logistics requirements such as packaging, warehousing, transportation, and customer
service. GTCs assume the roles of brokers, shippers, and financial intermediaries.
GTCs provide access to many global markets through established integrated logistics
systems. Their primary disadvantage is size. GTCs are usually very large organizations and
unfortunately are sometimes unaware of the needs of smaller companies
4. The last option, the export trading company (ETC)( an independent company that provides
support services for firms engaged in exporting.), is a modification of GTCs.ETCs
normally take title to the goods; arrange for financing, documentation, and shipping;
and sell the goods through their own distributors or outlets. They can offer lower inte-grated
logistics costs and better service than other options.
Which option is best for a company depends on a number of factors. A large, protected market with
high logistics costs suggests a proprietary system if the exporting or importing company has a global
strategy. To penetrate smaller, free trade markets without a large investment in a logistics system, a
GTC or ETC is recommended. The third party option may suit companies just beginning global
distribution and lacking knowledge of distribution operations.
4. GLOBAL LOGISTICS CHALLENGES
5. Operational Factors of Global Logistics
The major areas of logistical expertise required in cross-border cargo movement are:
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Mode of transportation
Cargo insurance
Packaging
Shipping documentation for customs clearance.
1. Transportation
Transportation mode plays a vital role in the movement of cargo within or between countries.
Normally, cargo is moved using three modes of transportation, e.g. road, sea and air, depending on the
cost, urgency and the destination. However, for cross-border cargo movement mostly sea and air
modes of transportation are preferred, as most of the countries are connected well by air and sea.
For selection of the transportation mode, logistical managers should have the following con­siderations:
1. Location of market(Location of a market is the most important factor in deciding the
transportation mode.)
2. Cost of transportation(The third important factor is the cost of transportation in international
travel. The cost of travel is directly proportional to the speed of travel.)
3. Speed of cargo movement(The second important factor is speed, when the cargo is required
urgently or in the shortest delivery time)
4. Reliability of mode
2. Insurance
Shippers insure goods to protect against loss or damage to cargo during transit via air or sea. The
carriers take responsibility for transit loss or damage during domestic cargo movement. However, in
sea transportation, the carriers do not take such responsibility because of the high degree of risk
involved due to unavoidable perils during sea journey. The purpose of marine insurance is to pro­tect
sea cargo against loss or damage in transit. The coverage in marine insurance is much broader as
compared to domestic cargo insurance. Marine insurance is of two types:
1. Open blanket coverage(a specified period for the estimated total value of the cargo)
2. Special coverage (one-time policy and commands relatively high pre­mium charge)
3. Packaging
For overseas shipment, packaging is more critical than for domestic shipment, because of the nature
and number of hazards the packaging has to face or undergo during its journey to the destination.,
logistical packaging has to comply with the shipping regulations of the country of origin and
destination. Some of the problems in overseas shipments that need to be taken care of by shippers are
given below:
1. Weight. The weight of the packaging will add to the gross weight of the consignment and freight
will be charged on the gross weight
2. Transit Damage/Breakage For holding material in place during travel, it is advised to employ the
unitizing or palletizing procedures along with shrink-wrapping. On the packaging, proper
labelling for safe handling must be printed in the proper locations.
3. Pilferage and Theft. Packaging alone is not the solution to prevent thefts and pilferage. The
effective way to reduce these is prompt pickup and delivery.
4. Containerization. Today, the majority of exporters are resorting to container shipment in
international trade. It is increasingly becoming the popular method of shipment of domestic and
exports cargo
4. Intermediaries
The role of intermediaries is crucial and pervasive in cross-border trade. Intermediaries are basically
logistical service providers having expertise in customs clearance, export/import documentation and
cargo movement from the place of shipment to the destination.
1. Freight Forwarder. Freight forwarding is the planning and coordinating of the movement of
commodities across international borders, on behalf of shippers The role of the freight
forwarder is to forward freight locally or internation­ally. Freight forwarders represent shippers,
both in ocean and air shipment, as the procedure and documentation required are the same.
2. Custom-House Broker. The counterpart of the freight forwarder in the import of shipment is
called custom-house broker. He is licensed to do similar task of freight forwarder, but for the
importers. His main responsibility is clearing of the importer’s shipment through customs.
5. Documentation
To move cargo, documentation is necessary either in paper or digital form. The traditional way is to
pursue the documentation in paper form. However, the system at customs is gearing up for digital
movement of shipping documents in the near future, using EDI.
1. Export Licence. An export licence is a permit allowing goods to be exported.
2. Commercial Invoice. Commercial invoice is required for collecting payments from purchasers..
3. Certificate of Origin. It is a document prepared by the exporter to identify or declare that the
goods originated in a certain country.
4. Inspection Certificate. This is a document certifying that the merchandise was in good
condition prior to shipment. It may be issued by an inspection agency assigned for the job by
the government.
5. Insurance Certificate. It is a negotiable document issued to provide insurance coverage for a
specific shipment.
6. Packing List. This document lists the number of pieces, contents, weight and measurement of
each item in the consignment.
7. Dock Receipt. It is a proof of delivery of goods received at the dock or warehouse of a shipping
company.
8. Air Waybill. It is basically a receipt of goods issued to the shipper by the air carrier company.
The original may be produced by the consignee for collecting the goods from the airport of
destination.
9. Bill of Lading. A bill of lading is prepared by the ocean carrier for receipt of goods meant for sea
transportation.
6. Free Trade Zone
Free trade zones facilitate transactions and smooth physical flow of goods. These zones are earmarked
by the various countries that do not require customs formalities for inward and outward movement of
goods.
6. Strategic Issues in Global Logistics
The process of managing the flow of inventory and information across the global supply chain is
more complex than managing logistics operations within the country. This is because of the
diver­sity in markets in terms of the following:
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Customer needs
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Economic and regulatory environment
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Logistical infrastructure
The dominant factors need to be identified during the planning stage and proper strategies
evolved to overcome the barriers
1. Internal Issues
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Logistics Planning. For companies with global operations, logistics network planning is
crucial for gaining competitiveness. The formulation of a logistics network strategy will
also depend on factors such as unit value of the product, markets and competition. For
example, when a firm decides on developing new markets and relocating facilities, the
sourcing of raw materials becomes important as far as the delivery time frame, logistics
cost and reliability are concerned. There­fore, the formulation of logistics strategy
should take into consideration the location of production facilities, sourcing of raw
materials and components, and the product-market characteristics.
Inventory: “Make-to-Order” or “Make-to-Stocks.” A major shift in inventory planning is
“make-to-order” to deliver the products directly to the customer to reduce inventory
levels. The strategy adopted here is to concentrate the world's output in one or a few
plants that are focused on meeting the demands of numerous markets. The variations in
the needs of the individual customer or local markets are fulfilled through a strategy
based on rationalization of product design.
Product Variables. The unit value of the product decides the reach of the logistical
system. For products like soft drinks, the distribution is mostly restricted within 200
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kilometres of the bottling plant.. However, in the case of high-value products, the
logistical reach is wider and the transportation cost as a percentage of the total cost of
the product is insignificant
Flexibility Global players always emphasize the use of economies of scale as a costsaving strategy. However, this approach has a degree of rigidity that makes it difficult to
adapt to a changing market and picky clients. The logistics system connected to the
aforementioned plan likewise becomes rigid in its ability to adapt to the shifting
distribution requirements. For instance, in order to cut inventory-related expenses, the
focus has switched from freight consolidation with few dispatch schedules to frequent
and small consignments.
2. External Issues
Short Lead Time. In the global markets, the emphasis is on responsiveness with a lean supply chain. In
these cases, the consumers depend on the product manufacturer's ability to make the product in the
shortest amount of time possible, shortening the performance cycle and improving customer service
while simultaneously lowering overall inventory levels. However, in case of inflexibility in
manufacturing system, the supplier needs to keep some buffer stocks to maintain the desired level of
customer service, sacrificing the benefits of lean inventory.
Transit Time Extensions and Delays. The freight cost is directly proportional to the speed of
transportation mode. Air transportation may be obviously costlier than sea transportation, but
inventory carrying cost over a longer period of sea journey will offset its benefits due to low freight
charges. Moreover, this will pose constrains to the basis logistics principle of postponement. The
documentation and customs clearance may further add to the cost of in-transit inventory shipped
through slow speed transportation modes.
7.Global integrated Logistics management
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Global integrated logistics activities differ from domestic integrated logistics. The following
deserve special attention: (1) transportation, (2) warehouse management, (3) packaging, (4)
inventory management, (5) material handling, and (6) information systems
1. GLOBAL TRANSPORTATION: Global transportation is defined as exporting and importing products or
services beyond the boundaries of a country.
 Global Ocean Freight: High-density, lower-valued products normally move by ocean carrier.
Water carriers haul large quantities of bulk commodities at relatively low prices.
 Global Airfreight: Air freight is one of the best methods for efficient and time-sensitive modes
of transport of cargo from one place to another. To break the definition down, air freight is the
transportation of goods with the use of aircraft or any other means through the air. There are
lots of companies that choose to opt for air freight services because they can provide the best
means of getting a product from one place to another in the shortest amount of time
 Global Intermodalism: Ocean freight shipments usually involve intermodal transportation, as do
air shipments. Since both modes provide service that is fundamentally terminal to terminal, it
cannot be any other way. Intermodalism is defined as two or more modes of transportation
combining to transport a shipment. The most common intermodal combinations involve rail,
motor, barge, and ocean freight transportation
2. WAREHOUSE MANAGEMENT: Global warehousing serves the same purposes as its domestic
counterparts; that is, receiving, transferring, picking, and shipping.However, rapid movement of
products through the warehouse receives more emphasis than in domestic warehousing. The global
warehouse mirrors a distribution center, with little long-term storage. Third-party warehousing is
also quite common globally.
3. PACKAGING: Protective packaging takes on special importance in global logistics. The product is in
transit longer, is handled more, and is more susceptible to adverse weather. Packaging
requirements add substantial costs to global integrated logistics. Packing adds material and labor
costs
4. INVENTORY MANAGEMENT: Inventory is the life of integrated logistics. Without it, there is nothing
to do in physical supply--nothing to store, nothing to carry, and nothing to package. Inventory
management on a global scale becomes even more difficult and more important
5. MATERIAL HANDLING: Material handling systems vary globally. Product throughput in warehouses
and plants tends to be much slower in manual systems.
6. INFORMATION SYSTEMS While developed countries have very sophisticated integrated logistics
information systems, not all countries do. Many third world countries use pencil and paper.