AIR FREIGHT TRANSPORT MANAGEMENT
“Fresh produce”
Arab Academy for Science & Technology & Maritime Transport
Institute Of International Transport & Logistics
By: Adel Abou Heneidy
1
Overview:
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TACT
IATA traffic conference areas
Coding
Acceptance of cargo
Methods of paying FRT charges
Advanced arrangements
Cargo loading priorities
Airlines’ timetable
Parcel’s dimensions
Types of rates
AWB (Airway Bill)
Shipping instructions
Calculation of air freight charges
Breakeven points
ULD (Unit Load Device)
Tracking
Dangerous goods & fresh produce
Shipping fresh produce by air
Cold Supply Chain
Grading Policy:
- Interaction & assignments ……20%
- Mid-term exam………………..30%
- Case study…………………….10%
- Final exam…………………….30%
TOTAL: 100%
2
TACT : The Air Cargo Tariff
RULES
Updated every 4 months
Rates worldwide
(except north America)
Updated every 2 months
Rates North America
Updated every 2 months
tact.indp@iata.org
International Air Transport Association
3
IATA traffic conference areas
IATA area 1 :
All of the north & south American continent and the adjacent islands.
IATA area 2 :
All Europe ( including the European part of the Russian Federation) ,
and the adjacent islands.
Africa & middle East.
IATA area 3 :
All of Asia and the adjacent islands; except the portion included
in IATA area 2 ( from middle east).
4
5
CODING
Countries’ codes
AIRPORTS’ CODES
Cairo : CAI
London : LHR
Dubai : DXB
NEW YORK : JFK
Sanaa : SAH
Egypt …. EG
MILANO : MIL
IATA AIRPORTS CODING.doc
Italy……. IT
USA…… US
Yemen…YE
Currencies’ codes
Egyptian Pound... EGP
US $………………. USD
Yemeni Rial………YER
AIRLINES’ CODING
Prefix number
Egyptair : MS - 077
Lufthansa : LH - 020
Emirates : EK - 176
6
British
: BA - 125
• Write down the 3-letters IATA
codes for the following
airports:
Abu Simbel, Egypt
Baltimore, MD, USA
Berlin, Germany Schoenefeld
Berlin, Germany Tegel
Berlin, Germany Tempelhof
ABS
BWI
SXF
TXL
THF
IATA AIRPORTS CODING.doc
7
• Complete::
1) India is located in IATA area …………
2) Egypt is located in IATA area ……..& Germany in IATA area ……..
3) Both ……… & ……… are located in IATA area 1.
4) We can find the published air freight rate between CAI / JFK in the
…………….. TACT book.
5) We can find the published air freight rate between AMS / FRA in the
…………….. TACT book.
6) We can find the published air freight rate between DXB / ORD in the
…………….. TACT book.
7) IATA stands for………………………………………………
8) The code of the currency of KSA is…………………………
8
Acceptance of goods
Packing : Cargo must be in very good condition
Marking : * Full style of both shipper & consignee.
* Number of package ( 1/10 , 2/10 , …….).
* Labels ( this side up, fragile , urgent…..).
Payment : Prepaid : PP
OR
Collect : CC
The Collect charges are not accepted in the following cases:
1) Human remains.
2) Live animals.
3) Perishables.
4) Used personal effects which can not be sold.
5) Resale of goods is less than the charges to be collected.
6) Country regulations which do not permit Collect .
9
Advanced arrangements
The following commodities need advanced arrangements :
Valuable cargo / Live animals / Human remains & ashes / Perishables /
Dangerous goods / shipment of unusual shape & size.
** Advance arrangements are made by 1st carrier.
Cargo loading priorities :
1) Aircraft on ground AOG
3) Valuable cargo
VAL
5) Perishables
PER
7) Restricted items
RRA
2) Diplomatic pouches
4) Live animals
6) Human remains
DIP
AVI
HUM
8) News materials ,which any delay will cause loss of its value.
10
Information by countries
It is in section 7 in TACT RULES book
Section 7-2 : Charges collect
For example EGYPT (EG)
Charges collect accepted : Yes
Charge collect fees : 5 %
Minimum charge : EGP 35
Section 7-3 : Import / Transit / Export regulations
11
•
How much you are going to pay for the airline to receive documents of your shipment
arrived to CAI on CC basis with FRT charges of EUR 550 ?
Solution:
Collection charges = EUR 550 x 5% = EUR 27.50
Total to be paid = 550 + 27.50 = EUR 577.50
•
How much you are going to pay for the airline to receive documents of your shipment
arrived to CAI on CC basis with FRT charges of USD 50 ?
Solution:
Collection charges = USD 50 x 5% = $ 2.5 (which is less than EGP 35)
Total to be paid = $ 50 + EGP 35
•
How much you are going to pay for the airline to receive documents of your shipment
arrived to CAI on PP basis with FRT charges of EUR 4200 ?
Solution: Total to be paid = 0
12
Airline
Timetable
RFS: Road Feeder surface
13
Aircraft Dimensions
W
W
76
H
88
Boeing 737
101
114
106
H
86 144
Forward Hold
25
254
254
254
254
35
254
254
254
243
45
254
254
254
243
Examples:
55
254
254
254
243
L xW x H = 235 x 70 x 80 cm…
66
254
243
243
243
76
254
243
241
218
86
254
50
50
50
= 220 X 102 x 75 cm…
X
Rear Hold
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Airbus A300F
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Min……………
TYPES OF AF RATES
N ( - 45 kgs )…..
+ 45…………….
General cargo rate (GCR)
+ 100…………..
+250……………
Specific commodity rate (SCR)
Special rates for some commodities
• Valuable cargo
Class rates (CCR)
S
• Newspapers,books, periodicals…. R
•Live animals
S
•Human remains S
Rates differs from origin
to origin & for
destination to another.
•Baggage shipped as cargo
R
R …. Reduction rate
S ….. Surcharge rate
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General Cargo Rate (GCR)
• General cargo rates apply to the carriage of
commodities that have not been allocated a
specific commodity rate or commodity
classification rate. General cargo rates consist of
minimum rate (M), normal rate (N), and lower
charge in higher weight (Q).
CAI / FRA
CAI / NYC
EGP / KG
M…… 143
N……. 10.10
45…... 7.60
100…. 7.10
250…. 6.60
EGP / KG
M…… 170
N……. 11.10
45…... 10.50
100…. 9.70
300…. 8.50
500…. 8.00
N…. - 45 Kg
45… + 45 Kg
100.. + 100 Kg
How many KGs are
covered by M ?
M value / N value
300.. + 300 Kg
500.. + 500 Kg
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Example:
GCR & Specific commodity rates
From : CAIRO
EG
CAI
Egyptian Pound EGP KGS
To : FRANKFURT
DE
M… 143
N…
10.10
Specific commodity
45… 7.60
100.. 7.10
0006…Food stuffs.
250.. 6.60
0007…Fruits & vegetables.
0006
100..
4.80
2199…Yarn ,textiles.
0006
500..
4.30
MS
0007
250.. 4.00
MS
0007
500.. 3.50
2199
500.. 5.50
2199
1000.. 5.00
MS…Egypt Air
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• Using rates shown in the previous slide, calculate the FRT
charges for the following air shipments from CAI / FRA:
1) 200 Kg of strawberry on LH.
2) 200 Kg of strawberry on MS.
3) 350 Kg of strawberry on MS.
4) 200Kg of tomato paste on KL.
Solutions:
1) 200 x 7.10 = EGP 1420
2) 200 x 7.10 = EGP 1420
3) 350 x 4.00 = EGP 1400
4) 200 x 4.80 = EGP 960
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Break even point
Rate of higher weight
Break even point = Higher weight x
Rate of lower weight
Example: if chargeable weight is 420 kgs
and + 300 = EGP 6
+ 500 = EGP 5
Then break even point = 500 x
As 420 > 416
rate of + 500
5
6
=
416
KGs
upgrade the chargeable weight to be 500 kgs and apply
Like that, the shipper will pay = 500 x 5 = EGP 2500
Instead of = 420 x 6 = EGP 2520
20
Solved example 1
• Calculate the FRT charges for following shipment:
Chargeable weight is 320 kgs
+ 250 = EGP 6.70
+ 500 = EGP 6.50
Air freight calculations.xls
21
Specific Commodity Rate (SCR)
• Specific commodity rates are usually lower than
general cargo rates and are published for
particular commodities from a specified point of
origin to a specified destination point.
They are subject to a minimum weight
restriction.
• When the class rate or the general cargo rate
applicable to the consignment is lower than the
Specific Commodity Rate, this lower rate can be
applied.
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Commodity Classification Rate
(CCR or Class Rate)
• Commodity classification rates, also
known as class rates, are published for
particular commodities from a specified
point of origin to a specified destination
point and are usually shown in
Surcharged (S) or Reduced (R). Class
Rates take precedence over General
Cargo Rates regardless of
comparisons.
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Published materials
(R)
• Newspapers, Magazines, Periodicals,
Books, Catalogues, Braille-Type
Equipment and Talking Books for the Blind
, 50% of normal GCR shall apply to the
above commodities and the minimum
charge will be either the minimum charge
for the specified sector or the amount you
get by multiplying such discounted rate per
kg by the minimum chargeable weight,
whichever is higher.
Class rates are not applicable to the carriage of calendars, price
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tags and posters.
Baggage Shipped as Cargo
(R)
• For carriage of baggage shipped as cargo (excluding
machinery, jewelry, cameras, merchandise and
salesman samples), 50% of normal GCR will apply,
and such baggage is subject to a minimum charge for
10 kg.
•
The baggage must be delivered to the carrier no
later than the passenger's departure date, and the
passenger or his agent is responsible for customs
clearance.
• Airport of destination, must be as shown in
passenger’s ticket.
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IATA AREAS – Class Rates
Example of IATA AREAS Class Rate.doc
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Example: Class rate from CAI to FRA
Both CAI & FRA are within IATA area 2
Live animals : Rate will be 175 % of normal GCR
S
N….
EGP 10.10 / kg
N175…EGP 17.68 / kg ( Rounded to 17.70 )
Valuable cargo : Rate will be 200 % of normal GCR
N….
S
EGP 10.10 / kg
N200…EGP 20.20 / kg .
Newspapers : Rate will be 50 % of normal GCR
N….
R
EGP 10.10 / kg
N50… EGP 5.05 / kg ( Rounded to 5.10 )
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• Calculate the FRT charges for a horse of weight of 160 Kg
needed to be shipped by air from CAI / FRA.
SOLUTION:
Live animal within IATA area 2……………150 N
N….. EGP 10.10 per Kg.
150 N = 10.10 x 150 % = 15.15 = 15.20 per Kg
FRT charges = 15.20 x 160 = EGP 2432
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• Calculate the FRT charges for a small domestic dog of weight
of 8.5 Kg needed to be shipped by air from CAI / JED.
SOLUTION: not allowed !
According the RULES section # 7.3.2, the only types of dogs
allowed to be imported into KSA are:
Watch (Guard) dogs
Hunting dogs
Guide dogs for the blind
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• Calculate the FRT charges for a shipment of spare parts of
weight of 150 Kg needed to be shipped by air from CAI /
DAM on MS on collect basis.
SOLUTION: not accepted !
According the RULES section # 7.2.2, collect shipment to DAM
is not allowed on MS.
You can use RJ via Amman.
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The Basic Facts about Calculation of
air cargo
• Air cargo shipments are subject to the rates applying on the
day of issue of the airwaybill.
• Rates generally apply from the departure airport to the
destination airport and not vice versa. Rates therefore are not
direction-bound and their amount is subject to the law of
demand and supply.
• The cargo is established pursuant to the international air cargo
tariff
( The Air Cargo Tariff = TACT ) and includes the following
tariff group:
• Minimum cargo charges (so-called minimum charges which
must be charged)
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The Basic Facts about Calculation of
air cargo {Continued}
• Minimum cargo charges (so-called minimum charges which
must be charged)
• General cargo rates (so-called General Cargo Rates)
• N-Rates (normal rates) –up to 45.00 kg
• Q-rates (Quantity Rates) as from 45.00 kg
• Special rates (specific rates or. SCR = S pecific C ommodity R ates
are exceptional rates applying to specific goods on certain routes
• Goods class rates ( C lass R ates = CR ) for specific goods
(live animals, valuable shipments: S , newspapers: R).
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Establishing the cargo weight
• For air cargo the weight is rounded up to the next full half and full
kilo.
e.g: 33,20 = 33,50 /
33,60 = 34.00
/ 525,50 = 525,50
If one consignment consists of several packing units (colli), the
weight is first added up and then rounded!
• Bulkiness in air cargo is 1 : 6
( 1 m³ stands for a cargo volume of 167.00 kg )
• Volume (bulk) weight is calculated according to the formula:
Volume weight = length x width x height (cm) x number of colli
6000
• As a final step the actual and the calculated weights are compared
and the higher weight is used to calculate the cargo.
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Calculation of chargeable weight
(Solved example # 2 a )
• Calculate the chargeable weight for the following air shipment:
a) Automotive spare parts packed as follows:
1 carton of 25 Kg, and 75 x 60 x 40 cm, plus
10 cartons of 10 Kg, and 50 x 30 x 25 cm each, plus
5 cartons of 15 Kg, and 50 x 30 x 30 cm each.
Air freight calculations.xls
34
Calculation of chargeable weight
(Solved example # 2 b )
• Calculate the chargeable weight for the following air shipment:
b)
Air condition parts: 10 cartons of 10 Kg, and 50 x 30 x 25 cm each.
plus,
Chemicals: 5 cartons of 15 Kg, and 50 x 30 x 30 cm each.
plus,
Handy crafts: 17 cartons of 13 Kg, and 86 x 45 x 33 cm each.
Air freight calculations.xls
35
Rate construction
• So far only published direct rates have been mentioned:
"Airport of Departure to Airport of Destination“
• However, rates to all airports worldwide are not published at
every departure airport. Therefore such rates must either be
combined with "ADD-ON" amounts or to be constructed with
"unpublished rates" !
• The idea of an ADD-On amount-construction is to "add on"
a domestic rate to the point of destination to a published rate
into the country of destination.
The ADD-ON amount can, however, also be "added" in the
country of departure.
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Conversion of rates
(Section 5.8)
•
Example 1:
Construct a rate in CZK from A to C via B, where:
Sector rate from A to B……..CZK 31.00
Sector rate from B to C……..EUR 4.10 (a)
USD / CZK = 20.44810 (b)
USD / EUR = 0.72506 (c)
Rounding off unit for CZK is 0.10
__________________________________________________
Solution:
rate from A to B……..CZK 31.00
a X b = CZK 115.628
rate from B to C in CZK = __________
c
Total rate from A to C = CZK 146.628
= CZK 146.60
Conversion of rates
(Section 5.8)
•
Example 2:
Construct a rate in CZK from A to E via B, C, D where:
Sector rate from A to B……..CZK 31.00
Sector rate from B to C……..EUR 4.10 (a)
Sector rate from C to D……..CHF 16.70 (a)
Sector rate from D to E……..EUR 5.99 (a)
USD / CZK = 20.44810 (b)
USD / CHF = 1.20569 (c)
USD / EUR = 0.72506 (c)
Rounding off unit for CZK is 0.10
__________________________________________________
Solution:
rate from A to B……..CZK 31.00
rate from B to C in CZK = CZK 115.628
rate from C to D in CZK = CZK 283.226
rate from D to E in CZK = CZK 168.929
Total rate from A to E = CZK 598.782
= CZK 598.80
Disbursement Fees (DBC)
• Disbursements are amounts collected at
the destination for the provision of services
that are incurred at the origin which are
incidental to the air carriage of the
consignment, including surface
transportation, storage and customs
clearance charges.
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Valuation Charge
• When the shipper's "declared value for
carriage" on the Air Waybill is more than
USD 20.00 (or its equivalent) per kilogram
, a valuation charge of 0.5% of the
shipper's declared value for carriage
EXCEEDING USD 20.00 per kilogram
(Gross Weight) will be charged.
Valuation charge = ( Declared value – $ 20 x Gross weight ) x 0.005
40
Valuation Charge (examples)
• Calculate the valuation charge for each of the following air shipments:
G.Weight
(Kg)
Volume weight
(Kg)
Chargeable weight
(Kg)
D.V.C
100
90
100
USD20,000
900
1260
1260
USD10,000
1000
400
1000
EGP 200,000
a) [ 20000 – 20 x 100 ] x 0.005 = USD 90
b) [ 10000 – 20 x 900 ] x 0.005 = - USD 40 ???
c) [ (200000 / 5.70) – 20 x 1000 ] x 0.005 = USD 75.44 = USD 75.45
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•It is not negotiable document
are always consigned to a particular company or person
* In case of FOB terms it will
on collect basis (payable at destination)
* In case of C&F or CIF basis it will prepaid
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AWB vs B/L
AWB
B/L
Not negotiable
Negotiable
AWB shall be issued after B/L shall be issued after the
the complete consignment complete consignment has
has been received
been boarded onto vessel
The shipper is responsible
for issuing AWB
The vessel company is
responsible for issuing B/L
Payable to a specified
person
Payable to bearer
43
AWB - Check Digit Number
• Check Digit Number : A single digit of the air
waybill number used to ensure that the air waybill
number is correctly entered into a computer system.
• Example:
AWB # 020 – 2114 1643
2114 1643
7
Pls, check the following AWBs:
077 – 3208 9901
077 – 3203 080?
077 – 3203 0806
0
0
2
3
44
Rate Class in AWB
One or more of the following codes shall be inserted as appropriate:
M - Minimum Charge
N - Normal under 45 kg
Q - Quantity over 45 kg rate
C - Specific Commodity Rate
R - Class Rate (Reduction)
S - Class Rate (Surcharge)
U - Pivot Weight And Applicable Pivot Weight Charge
E - Weight in excess of pivot weight and applicable rate
X - Unit Load Device (as an additional line entry with one of the above)
45
The significance of AWB:
Contract of carriage / Proof of receipt of cargo / Freight bill / Guide to carriers’ staff
in handling , dispatching, …
• Certificate of insurance ( if requested by shipper) :
If the shipper does not declare the value for carriage ; in case of loss of cargo
the maximum compensation to be paid by carrier is $ 20 / kg.
But, if he declares the value for carriage , he will pay extra charges called
valuation charge. In case of loss of cargo , the carrier will pay the total declared
value.The valuation charge is calculated as follows:
Valuation charge = ( Declared value – $ 20 x Gross weight ) x 0.005
46
Example
Shipper : ABC company
15 Ahmed Orabi st. –Mohandeseen – Cairo –Egypt
Tel # 3448782
Consignee: XYZ company
15 street # 46 – DUS-Germany
Tel # 5864875
Commodity : Air condition spare parts.
Number of parcels : 15
Dimensions of parcel : 90 x 80 x 70 cm
Gross weight per parcel : 60 kgs
Freight charges : Prepaid
Declared value for carriage : USD 75000
{in case of non declaration NVD }
Declared value for customs : NCV
{ no customs value }
Handling information: Notify Mr. John Roger Tel # 5864879 upon arrival
47
Calculations :
Gross weight = 60 kgs x 15 parcel = 900 kgs
Volume weight = 90 x 80 x 70 cm x 15 parcels
= 1260 kgs
6000
Chargeable weight = 1260 kgs
Rate CAI / DUS = EGP 6.60 / kg
Total freight charges = 6.60 x 1260 = EGP 8316
Valuation charge = ( Declared value – $ 20 x Gross weight ) X 0.005
= ( 75000
–
20 x 900 )
X 0.005
= $ 285 [ equal to EGP 1322 ]
Due carrier = EGP 71
Total prepaid =
8316 + 1322 + 71 = EGP 9709
48
Solved example 3
• A shipment consists of:
40 parcels of 4 Kg , and 30 X 20 X 10 cm each
90 parcels of 3 Kg , and 0.5 X 0.4 X 0.2 m each
60 parcels of 15 Kg , and 75 X 50 X 24 cm each
1) Calculate the total air freight charges if the shipment will be
dispatched from CAI / FRA with rate of = EGP 6.60 / kg ( +250)
2) Calculate valuation charge if the declared value is $ 50000.
Solution:
• Calculate the gross & volume weights for each type of parcels.
• Determine the chargeable weight for each type.
• Calculate total chargeable weight.
• Calculate total freight charges.
• Calculate valuation charge
Air freight calculations.xls
49
AIRWAY Bill (AWB)
(Summary)
Air Waybill.doc
• AWB is issued usually in set of 12 copies.
Copy 1: original for carrier
Copy 2: original for consignee
Copy 3: original for shipper
• If the AWB indicates that transhipment will take place, transhipment is allowed
even if L/C prohibits transhipment, provided that the entire carriage is covered by
one & same AWB.
• Date of shipment in AWB (discuss)
• Split shipment (discuss)
• MAWB & HAWB
• Clean versus foul AWB
50
This example shows :
* A minimum charge.
* A declared value for customs.
* Chargeable weight equals to
gross weight.
51
This example shows :
* Q rate.
* Chargeable weight greater than
gross weight.
52
This example shows :
* A class rate : S
based on M200.
* A declared value for carriage,
and valuation charge.
* Chargeable weight equals to
gross weight ( rounded).
* TRC : transit charge.
53
This example shows :
* A mixed shipment rating.
* C : commodity rate.
Q : quantity rate.
R : class rate (reduction 33 % )
* AWA : AWB charges ( Agent)
* SUA : transportation (agent)
* DBC : disbursement fees resulting
from the two other charges
(Carrier).
54
Example
• Calculate the total charges for the following AWB:
( you are allowed to make necessary changes if any)
AWB # 077 – 3203 0808
Terms of sale: FOB CAI-EG
Airport of destination: JFK – New York – US
AWB charges: Prepaid (PP)
Number of parcels: 60 of 15 Kg , and 75 X 50 X 24 cm each.
CAI / NYC
EGP / KG
M…… 170
N……. 11.10
45…... 10.50
100…. 9.70
300…. 8.50
500…. 8.00
Declared value for carriage: EGP 114,000
Other charges = EGP 71
* USD 1 = EGP 5.70
55
Solution
• The given AWB is wrong. The correct one is 077 – 3203 0806
• As the terms of sale is FCA origin, the Freight charges must be collect
• Gross weight = 60 x 15 Kg = 900 Kg
• Volume weight = (75 X 50 X 24
x 60)
6000
• Chargeable
= 900 Kg
weight = 900
• Freight charges = 900 x EGP 8 = EGP 7200
• Valuation charges = [(114000 / 5.70) – ($ 20 X 900) ] x 0.005 = $10
= $ 10 x 5.7 = EGP 57
• Total charges = 7200 + 57 +71 = EGP 7328
56
Terms of sale
Pricing your product is a matter of:
• What the product is
• How much ( or how many)
• How far the product is being moved at your expense
Damaged or lost : who is responsible?
57
• EXW - Ex Works
Title and risk pass to buyer including payment of all transportation
and insurance cost from the seller's door. Used for any mode of
transportation.
Works means Factory, Mill, Warehouse,…
A term of sale in which for the quoted price, the seller merely makes the
goods available to the buyer at the seller's "named place" of business.
This trade term places the greatest responsibility on the buyer and minimum
obligations on the seller. The Ex Works term is often used when making an
initial quotation for the sale of goods without any costs included.
• FCA - Free Carrier
Title and risk pass to buyer including transportation and insurance cost
when the seller delivers goods cleared for export to the carrier.Seller is
obligated to load the goods on the Buyer's collecting vehicle; it is the
Buyer's obligation to receive the Seller's arriving vehicle unloaded.
58
• FAS - Free Alongside Ship
Title and risk pass to buyer including payment of all transportation
and insurance cost once delivered alongside ship by the seller.
Used for sea or inland waterway transportation.
The export clearance obligation rests with the seller.
• FOB - Free On Board
Title and risk pass to buyer including payment of all transportation
and insurance cost once delivered on board the ship by the seller.
Used for sea or inland waterway transportation.
59
• CFR - Cost and Freight
Title, risk and insurance cost pass to buyer when delivered on board the ship
by seller who pays the transportation cost to the destination port. Used for
sea or inland waterway transportation.
• CIF - Cost, Insurance and Freight
Title and risk pass to buyer when delivered on board the ship by
seller who pays transportation and insurance cost to destination
port. Used for sea or inland waterway transportation.
60
• CPT - Carriage Paid To
Title, risk and insurance cost pass to buyer when delivered to carrier
by seller who pays transportation cost to destination. Used for any
mode of transportation.
• CIP - Carriage and Insurance Paid To
Title and risk pass to buyer when delivered to carrier by seller who pays
transportation and insurance cost to destination. Used for any mode of
transportation.
61
• DAF - Delivered at Frontier
Title, risk and responsibility for import clearance pass to buyer when
delivered to named border point by seller. Used for any mode of
transportation.
• DES - Delivered Ex Ship
Title, risk, responsibility for vessel discharge and import clearance
pass to buyer when seller delivers goods on board the ship to
destination port. Used for sea or inland waterway transportation.
62
• DEQ - Delivered Ex Quay (Duty Paid)
Title and risk pass to buyer when delivered on board the ship at the
destination point by the seller who delivers goods on dock at
destination point cleared for import. Used for sea or inland waterway
transportation. DDU - Delivered Duty Unpaid -- Title, risk and
responsibility of import clearance pass to buyer when seller delivers
goods to named destination point. Used for any mode of
transportation. Buyer is obligated for import clearance.
• DDU - Delivered Duty Unpaid
Seller fulfills his obligation when goods have been made available at the
named place in the country of importation
63
• DDP - Delivered Duty Paid
Title and risk pass to buyer when seller delivers goods to
named destination point cleared for import. Used for any
mode of transportation.
INCOTERMS 2000.pdf
64
Solved example
• Choose the correct FRT payment method for each of the
following term of sale:
Answers
1- EX- Work
2- CIF
3- DDU
4- FCA
a- PP
b- CC
EX- Work…..CC
2- CIF……….PP
3- DDU……...PP
4- FCA……..CC
65
TRACK & TRACE
www.redberry.com
AWB 67259790
CAI – JFK
Pieces: 15
Weight: 900 kgs
FLT # MS 778
Arrived: 22:30 h
Date: 20/07/02
AIR TRACK
Czech Airlines
Delta Air Logistics
Dragonair
East Line Airlines
Egyptair
Emirates SkyCargo
077
67259790
66
Shipping terms
You have to differentiate between terms of sale, terms of
payment, and shipping terms:
•
•
•
•
FLT : Full Liner Terms
LIFO: Liner In Free Out
FILO: Free In Liner Out
FIFO: Free In Free Out {FIOS}
67
• Packaging:
– Requires simple lightweight packing
– Unlike sea freight, no need for solid packing to
protect against weather, careless handling and salt
water
– All packages must be labeled with:
•
•
•
•
•
Airline name
Flight number
Air waybill number
Destination code
Total number of pieces
in the shipment
68
Ratios to be considered upon packing
• You have to maximize the following ratios:
1) Net weight : Gross weight
2) Gross weight : Chargeable weight
3) Net weight : Chargeable weight
69
Unit Load Device (ULD)
• Unit Load Devices, or ULDs, are pallets and
containers used to load luggage, freight, and mail on
wide-body aircraft and specific narrow-body aircraft.
• They allow large quantities of cargo to be bundled
into large units. Since this leads to fewer units to
load, it saves ground crews time and effort, and helps
prevent delayed flights.
• Each ULD is manifested separately so that its
contents can be tracked.
http://en.wikipedia.org/wiki/Unit_Load_Device
70
Unit Load Device
TYPE: 10 FT CONTAINER
CODE: AQ6 , AMA, AQA , AMG
BASE DIMENSIONS: 318 X 244 CM
HEIGHT: 244 CM
VOLUME: 17 CBM
INTERNAL DIMESIONS: 300 X 228 X 238 CM
LOADABLE IN: B747-200 COMBI
B747- 400 COMBI
B747- 200 SF
B747- 200 F
71
Unit Load Device
TYPE: 20-FT PALLET
CODE: P7E , PGE
BASE DIMENSIONS: 606 X 244 CM
INTERNAL DIMESIONS: 592 X 230 CM
LOADABLE IN: B747-200 COMBI
B747- 400 COMBI
B747- 200 SF
B747- 200 F
72
TYPE: A320 / A321 CONTAINER
CODE: AKH
BASE DIMENSIONS: 156 X 153 CM
HEIGHT: 114 CM
VOLUME: 3.5 CBM
LOADABLE IN: A320 – 200
A321 - 100
73
LD 3
Iatacode
AKH
Also known as
AVB
Top length
2438mm
96.0"
Bottom length
1562mm
61.5"
Width
1534mm
60.4"
Height
1143mm
45.0"
Internal volume
3.6
m3
MGW
1588
KG
74
Pallet
Volume
Cubic Meter
Dimensions
L x W (cm)
Remarks
LD 8
6.9
153 x 244 cm
FQA
LD 11
7.2
153 x 318 cm
FLA / PLA
LD 7
10.6
11.6
224 x 318 cm
244 x 318 cm
PAG / P1P
PMC
• If you have a fresh produce packed in cartons of 60 x 40 x 20 cm
palletized on Euro pallet (120 x 100 x 16 cm) needed to be dispatched by air
using PMC- ULD. How many cartons could be fit on this ULD ?
** Disregard the weight.
75
Solution
• Maximum height = Volume / (LxW)
= 11.6 / ( 2.44 x 3.18) = 1.495 m = 150 cm
318
244
1
PMC- ULD
100
120
100
100
3
2
120
76
Solution
(Continued)
• Number of cartons per layer on the Euro pallet = 5
• Number of layers per each Euro pallet =
6 Layers only
( 150 – 16) / (20) = 6.7
So, maximum number of cartons could be loaded on PMC =
6 Euro pallets x 6 layers x 5 cartons = 180 cartons
77
Bulk Unitization charge (BUC)
• BUC is the rate charged by carrier to shipper or freight
forwarder on the basis of ULD.
•
The charge for the consignment shall consist of a flat
minimum (pivot – U) charge for a specified pivot weight
above which an additional charge (over-pivot rate) per kilo or
pound will apply.
• The chargeable weight of the consignments in ULD will be
charged at the actual gross weight excluding the tare weight of
the ULD.
* Restricted Items for BUC Use: Dangerous goods, live animals,
human remains, and valuables
78
This example shows :
* A consolidated shipment inside
a ULD.
* L : lb {USA}.
* U : pivot rate of ULD.
* The chargeable weight of ULD
is greater than gross weight of
cargo .
* ULD tare weight : no charge.
79
Solved example
• If you have a fresh produce packed in 540 cartons of
60 x 40 x 20 cm each, palletized on Euro pallet (120 x 100 x 16 cm)
needed to be dispatched by air using PMC- ULDs.
Calculate the freight charges if :
- Net weight per carton = 4.75 Kg
- Gross weight per carton = 5 Kg
- Pivot weight of ULD = 2200 Kg
- Tare weight of ULD = 210 Kg.
- Freight rate = EGP 4.10 per Kg.
Also, calculate the three packing ratios, and discuss.
80
Solution
From previous example, we can dispatch 180 cartons on each ULD
No. of ULDs = 540 / 180 = 3 ULDs
Total chargeable weight (Pivot) = 2200 x 3 = 6600 Kg
Total gross weight of the shipment = 540 x 5 = 2700 Kg
Since the Pivot weight is greater than gross weight
Therefore, you will be charged as per pivot weight.
Fright charges = 6600 x 4.10 = EGP 27060
Packing ratios:
Net : Gross = 4.75 / 5 = 95 %
Gross : Chargeable = 2700 / 6600 = 40.9 %
Net : chargeable = (540 x 4.75) / 6600 = 38.9 %
DISCUSS !
81
Dangerous Goods
82
Hazardous Substance
• Any material with one or more of the following intrinsic
hazardous properties:
explosiveness, flammability, oxidizing capacity, corrosiveness,
toxicity ; and poses a threat to human health and/or the
environment.
Dangerous goods
• Dangerous goods are substances which pose risk to health,
safety, property or the environment during operation and/or
transportation.
All of these substances are divided in classes in accordance
to the specific chemical characteristics resulting in a degree
of danger.
83
Class 1 Explosives
UN
classification
of
dangerous goods
Class 2 Gases
Class 3 Flammable Liquid
Class 4 Flammable Solid
Class 5 Oxidizing substances and Organic Peroxides
Such as:
DRY ICE
Class 6 Poisonous (toxic) and infectious substances
Class 7 Radioactive material
Class 8 Corrosives
Class 9 Miscellaneous dangerous goods
84
Identification of Dangerous Goods
by PSN and UN Number
Within each of the 9 hazard classes dangerous goods are uniquely identified by two pieces
of information:
• A 4 - digit number known as the UN Number which is preceded by the letters
UN; and
• The corresponding Proper Shipping Name (PSN).
For example, kerosene is identified in the IMDG Code by its PSN Kerosene and the
corresponding UN Number UN 1223.
Together the UN Number and PSN uniquely :
Identify dangerous goods from each other;
Enable rapid and precise identification during transport ensuring the correct handling,
stowage, segregation, etc; and
In the event of an emergency, ensure the correct measures are taken.
85
• Using UN Numbers
Using a four-digit number to identify dangerous goods enhances safety by:
• Overcoming language barriers - the four-digit number is easily
understood in all languages;
• Avoiding confusing similar names - e.g. TITANIUM POWDER,
WETTED UN 1352 which is a flammable solid in class 4.1 and has very
different transport requirements to TITANIUM POWDER, DRY UN 2546
which is spontaneously combustible in class 4.2.
• Using Proper Shipping Name (PSN)
• The PSN is the accepted name which must be used for transport purposes on
documentation / labelling, etc.
• No alternatives or variations are permitted unless specifically stated
• The PSN is that part of the name, which appears in the Dangerous Goods List or the
Alphabetical Index in boldl letters only
• Any text in lower case is only descriptive and is not part of the PSN
86
Material Safety Data Sheet
(MSDS )
• It is a compilation of information – provided by the manufacturer - required
under the OSHA Communication Standard on the identity of hazardous
chemicals, health, and physical hazards, exposure limits, and precautions.
• OSHA requires manufacturers and importers of hazardous chemicals to
distribute Material Safety Data Sheets with information concerning
reasonably foreseeable health and toxicity concerns arising from their use.
• Users of these chemicals are required to ensure that these MSDSs are
received with chemicals they purchase, and that they are used and available
in the workplace.
• A Material Safety Data Sheet must be provided with the initial shipment of
a hazardous chemical, and with the first shipment after a Material Safety
Data Sheet is updated.
87
CONTENT OF A MATERIAL SAFETY DATA SHEET
•
The identity (product name) used on the label, and chemical and common name(s) of
ingredients which have been determined to be health hazards, and which comprise 1% or
greater of the composition, except carcinogens shall be listed if the concentrations are 0.1% or
greater; and,
•
The chemical and common name(s) of all ingredients which have been determined to present
a physical hazard when present in the mixture;
•
Relevant physical and chemical characteristics of the hazardous chemical (such as vapor
pressure, flash point);
•
Relevant physical hazards, including the potential for fire, explosion, and reactivity;
•
Relevant health hazards, including signs and symptoms of exposure, and any medical
conditions generally recognized as being aggravated by exposure to the chemical;
•
The primary route(s) of entry into the body;
•
The OSHA permissible exposure limit and ACGIH Threshold Limit Value. Additional
applicable exposure limits may be listed;
88
CONTENT OF A MATERIAL SAFETY DATA SHEET
•
Whether the hazardous chemical is listed in the National Toxicology Program (NTP) Annual Report on
Carcinogens (latest edition) or has been found to be a potential carcinogen in the International Agency for
Research on Cancer (IARC) Monographs (latest editions), or by OSHA;
•
Precautions for safe handling and use, including appropriate hygienic practices, protective measures during
repair and maintenance of contaminated equipment, and procedures for clean-up of spills and leaks;
•
Appropriate control measures, such as engineering controls, work practices, or personal protective
equipment;
•
Emergency and first aid procedures;
•
The date of preparation of the Material Safety Data Sheet or the last change to it; and,
•
The name, address and telephone number of the chemical manufacturer, importer, employer or other
responsible party preparing or distributing the Material Safety Data Sheet, who can provide additional
information on the hazardous chemical and appropriate emergency procedures, if necessary.
89
Segregation of dangerous goods
•
Segregation means keeping incompatible goods apart from one another in a room,
using a barrier or intervening space.
Chemicals must be segregated when either stored or shipped to ensure they do not
mix in case of spillage.
NA
Separation or segregation is not applicable to
the two Classes, and they may be stored in
the same area.
SG
The two Classes of chemicals must be
segregated (i.e., kept apart) from each other by
a distance of at least three metres.
FS
The two Classes must be fire separated.
PR
The two Classes are prohibited in the same
are storage area.
As well, they must not be stored in
adjoining areas which are attached to each other.
The two Classes must be stored in separate
areas at least ten metres apart.
90
PACKING GROUPS
• Packing is the essential component in the safe transport of
dangerous goods.
• According to the degree of hazard of the dangerous goods; we
have three packing groups:
Group I ……………….great danger
Group II……………….medium danger
Group III………………minor danger
91
92
Labeling of dangerous goods
Labeling is of great importance
for safe handling and transport
of dangerous goods.
• Hazard Labels:
1) Primary hazards labels
2) Secondary hazards labels
• Handling Labels
93
94
Primary hazard labels have “class number”
Secondary hazard labels do NOT have “class number”
95
Handling labels
96
97
98
Shipping with Dry Ice
• Dry ice (Carbon Dioxide, Solid) is used as a refrigerant and
is considered a dangerous good.
• However, a Shipper's Declaration of Dangerous Goods is not
required when dry ice is used to cool a non-dangerous good.
• Following are guidelines that apply to shipments of dry ice;
however, it is the shipper's responsibility to comply with all
IATA Dangerous Goods Regulations when shipping dry ice or
any other dangerous good.
99
• Packaging
Dry ice must be in packaging designed and constructed to permit the
release of carbon dioxide gas and to prevent a build up of pressure that
could rupture the packaging.
•
•
•
•
•
•
The outside packaging must be marked with the following information:
Name of the shipper and consignee
The name of the contents being cooled
The words "Dry Ice" or "Carbon Dioxide Solid"
The UN number for Carbon Dioxide Solid (UN1845)
The net weight of the dry ice within the pieces
A Class 9 Miscellaneous Dangerous Goods Label affixed on the same
surface of the package near the proper shipping name and adjacent to the
shipper's or consignee's address appearing on the package.
100
• Air Waybill Documentation
For shipments of dry ice cooling a non-dangerous good, you must include specific
information on the air waybill in the "Nature and Quantity of Goods" or "Content"
section and in the following order:
•
•
•
•
•
•
The name of the contents being cooled
The proper shipping name (Dry Ice or Carbon Dioxide, Solid)
The class ( 9 )
The UN number (UN1845)
The number of pieces
The net weight of dry ice per piece
•
Example: Diagnostic Specimens, Dry Ice, 9, UN1845, 1 piece at 2 Kg
For shipments of dry ice cooling a dangerous good, the shipper must
comply with all IATA Dangerous Goods Regulations listed for both the dry
ice and the dangerous good.
101
Dry ice in baggage
• Passengers may bring dry ice in quantities not exceeding
2.5 kg per person, when used to pack perishables that are
themselves not dangerous goods articles or substances,
provided the package permits the release of carbon dioxide
gas.
• The dry ice may be in carry-on baggage, or with the approval
of the operator, in checked baggage.
• When carried in checked baggage, each package must be
marked – “DRY ICE” or “Carbon Dioxide Solid” and with
the net weight of dry ice or an indication that the net weight is
2.5 kg or less.
102
Letter of Credit particulars
•
L/C is a binding document that a buyer can request from his bank in order to
guarantee that the payment for goods will be transferred to the seller.
•
Basically, a letter of credit gives the seller reassurance that he will receive the
payment for the goods.
•
In order for the payment to occur, the seller has to present the bank with the
necessary shipping documents confirming the delivery of goods within a given
time frame.
•
It is often used in international trade to eliminate risks such as unfamiliarity
with the foreign country, customs, or political instability.
In summary, an L/C is:
- A formal document of payment
- Opened by a party wishing to import
- Communicated through banking channels
- Paid by the opening bank within a specified timeframe upon presentation of stipulated
103
documentation
•
Sight Draft
That is payable as soon as the required documents have been
presented.
• A time Draft
Is not payable until the lapse of a particular time period stated on the
104
draft.
• Confirmed Letter of Credit
A letter of credit, issued by a foreign bank, which has been
verified and guaranteed by a domestic bank in the event of
default by the foreign bank or buyer.
• Commercial Letter of Credit
A commercial letter of credit assures the seller that the bank will
provide payment for any goods or merchandise shipped to the
bank's customer, assuming the seller provides any required
documentation of the transaction and its shipment of the
purchased goods.
•
•
•
•
•
Typically the documents requested in a Letter of Credit are the
following:
Commercial invoice
Transport document such as a Bill of lading or Airway bill,
Insurance document;
Inspection Certificate
Certificate of Origin
But there could be others too.
105
• Irrevocable Letter of Credit
An irrevocable letter of credit includes a guarantee by the
issuing bank that if all of the terms and conditions set forth in the
letter are satisfied by the beneficiary, the letter of credit will be
honored.
• Revocable Letter of Credit
An revocable letter of credit may be cancelled or modified after
its date of issue, by the issuing bank.
• Standby Letter of Credit
In the event that the bank's customer defaults on a payment to
the beneficiary, and the beneficiary documents proof of its loss
consistent with any terms set forth in the letter, a standby letter
of credit may be used by the beneficiary to secure payment from
the issuing bank.
106
• Transferable Letter of Credit
In transferable L/C, the first beneficiary (exporter) may request
paying the whole or part of the credit to one or more beneficiaries.
This L/C is expressly designated “ Transferable” by the issuing bank
on instructions of the applicant.
** If the words, “ transmissible” , “ assignable” , “ divisible” ,
or “fractionable” are used, L/C is not transferable.
• Non - Transferable Letter of Credit
In which, the beneficiary can not transfer the credit to other beneficiary.
107
Back-to-Back Credit
• It is a new credit opened on the basis of an already existing,
non transferable credit.
• It is used by traders to make payment to the ultimate supplier.
A trader receives a documentary credit from the buyer and then
opens another documentary credit in favour of the ultimate
supplier.
• The first documentary credit is used as collateral for the
second credit. The second credit makes price adjustments from
which comes the trader's profit.
Supplier
2nd L /C of $ 45000
1st L /C of $ 50000
Trader
Buyer
108
Red Clause Credit
A red clause credit has a special clause (red clause) that authorizes the
confirming bank to make advances to the beneficiary (seller) prior to the
presentation of the shipping documents.
In this credit the buyer, in essence, extends financing to the seller and
incurs ultimate risk for all sums advanced under the credit.
109
• Latest Negotiation date
Is the last day of the period of time allowed by L / C for the
presentation of documents to the bank.
** In case the L/C does not stipulate the latest negotiation date,
it is
within 21 days after date of issuance the transport
documents, but
on or before L/C expiry date.
** B/L (AWB) which is presented to the bank later than the agreed time
limit or 21 days later than the date of issuance of B/L is called
Stale B/L (AWB)
• Expiry date
Is the last day of validity of the L/C for payment.
In case the validity of a L/C is stated in a period of time, for
example (this L/C is valid for three months) without specifying
the date from which the time is to run, its validity starts from
issuance date of L/C.
110
• Latest date of shipment
Is the last day of the period of time allowed by L/C for shipment,
or
dispatching.
Remark:
In case the expiry date and/or latest negotiation date falls
on a day on which the bank is closed for reason not beyond
the bank’s control these two dates ( if any) are extended
to the succeeding first day on which the bank is opened.
Such extension, whoever, does not extend the latest date
of shipment.
111
Sample L/C
112
3 Most Common Reasons
why Letters of Credit Fail
1) Time Lines:
The letter of credit should have an expiration date that gives sufficient time to
the seller to get all the tasks specified and the documents required in the LC. If
the letter of credit expires, the seller is left with no protection.
Most LC s fail because Sellers/Exporters/Beneficiaries were unable to perform
within the specified time frame in the LC.
Three dates are of importance in an LC:
a) The date by when shipment should have occurred. The date on B/L.
b) The date by when documents have to be presented to the Bank.
c) The expiry date of the LC itself.
•
A good source to give you an idea of the timelines would be your freight
forwarding agent. As a seller check with your freight forwarding agent to see
if you would be in a position to comply.
113
3 Most Common Reasons
why Letters of Credit Fail
2) Discrepancy within the Letter of Credit:
Letters of credit could also have discrepancies. Even a discrepancy as small as
a missing period or comma can render the document invalid. Thus, the earlier
in the process the letter of credit is examined, the more time is available to
identify and fix the problem. This is another common reason why LCs fail.
3) Compliance with the Documents and Conditions within
the Letter of Credit:
Letters of credit are about documents and not facts; the inability to produce a
given document at the right time will nullify the letter of credit. As a
Seller/Exporter/Beneficiary you should try and run the compliance issues with
the various department or individuals involved within your organization to see
if compliance would be a problem. And if so, have the LC amended before
shipping the goods.
114
Mid-Term Revision
1) Complete:
The Air Cargo Tariff
a) TACT stands for………………………………………..
b) The main types of Air Freight rates are:
- General Cargo rate (GCR)
- Specific commodity rate (SCR)
- Class cargo rates (CCR) : S & R
2
c) FRA is located in IATA area # ……………………….
prefix number of Egypt Air
d) For AWB # 020 – 3203 0806, 020 is ………………...
e) For perishables, MAWB (for liners) must shows the FRT charges
prepaid
……………………..
115
2)
How much you are going to pay for the airline to receive documents of your
shipment arrived to CAI on CC basis with FRT charges of USD 50 ?
Solution:
Collection charges = USD 50 x 5% = $ 2.5 (which is less than EGP 35)
Total to be paid = $ 50 + EGP 35
3) Complete:
5
a) The check digit of AWB 077- 3266240…
delivered duty unpaid
b) The sales term DDU stands for……………,
liner in-free out
but the shipping term LIFO stands for……………..
9
c) The dry ice is considered as a dangerous good with class …
unit load device and the pivot weight of a ULD
d) ULD stands for…………………,
the minimum weight to be charged for an ULD
is……………………………………
No customs value
e) If the AWB shows “NCV” it means………………
prepaid
f) In case of CIF shipment, FRT charges must be…………
116
4) Using rates shown :
a) calculate the FRT charges
for an air shipment from
CAI / FRA: 350 Kg
of strawberry on
Egypt Air.
b) Calculate the FRT charges
for a horse of weight of
160 Kg needed to be
shipped by air from
CAI / FRA.
From : CAIRO
EG
CAI
Egyptian Pound EGP KGS
To : FRANKFURT
Solution:
a) 350 Kg x EGP 4 = EGP 1400
b) Both CAI & FRA are within IATA area 2
Live animals :
Rate will be 175 % of normal GCR
N…. EGP 10.10 / kg
N175…EGP 17.68 / kg ( Rounded to 17.70 )
FRT charges = 160 Kg x 17.70 = EGP 2832
DE
M… 143
N…
10.10
45… 7.60
100.. 7.10
250.. 6.60
0006
100..
4.80
0006
500..
4.30
MS
0007
250.. 4.00
MS
0007
500.. 3.50
2199
500.. 5.50
2199
1000.. 5.00
117
5) A shipment of air condition spare parts consists of:
40 parcels of 4 Kg , and 30 X 20 X 10 cm each
90 parcels of 3 Kg , and 0.5 X 0.4 X 0.2 m each
60 parcels of 15 Kg , and 75 X 50 X 24 cm each
a) Calculate the total air freight charges if the shipment will be
dispatched from CAI / FRA with rate of = EGP 6.60 / kg ( +250)
b) Calculate valuation charge if the declared value for carriage is $ 50000.
Solution:
* 40 parcels: G.Wt = 40 x 4 = 160 Kg
Volume Wt. = (30 x 20 x 10 x 40) / 6000 = 40 Kg
* 90 parcels: G.Wt = 90 x 3 = 270 Kg
Volume Wt. = (50 x 40 x 20 x 90 ) / 6000 = 600 Kg
* 60 parcels: G.Wt = 60 x 15 = 900 Kg
Volume Wt. = (75 x 50 x 24 x 60) / 6000 = 900 Kg
a) FRT charges = 6.60 x (160 + 600 + 900) = EGP 10956
b) Valuation charge = ( 50000 – $20 x 1330) x 0.005 = USD 117
118
6) State three main differences between AWB & B/L
AWB
B/L
Not negotiable
Negotiable
AWB shall be issued after the
complete consignment has been
received
B/L shall be issued after the complete
consignment has been boarded onto
vessel
Contains FRT charges
Does not contain FRT charges
7) Mention the main restricted dates in L/C:
- Latest
date of shipping
- Latest Negotiation date
- Expiry date
119
The Chain from Original Supply to
Final Consumption
INFORMATION FLOW
Transfer
Transfer
Supplier
Transfer
Transfer
Transfer
Transfer
Manufacturing
Distribution
Transfer
Transfer
Retail Outlet
Consumer
CASH FLOW
Supply Chain Optimization
Highest level of customer responsiveness at lowest cost
120
 SAP AG 1998 CPSAP_e February ‘98 /13
What makes SCM difficult?
1) Global optimization
* Supply chain is a complex network.
* Different facilities in the supply chain with different
interests.
* The supply chain is a dynamic system.
* System variation over time
"Managing continual change."
121
What makes SCM difficult?
2) Managing uncertainty
Supply chain is designed and operated in uncertain
environments, such as:
* Matching supply and demand
Months before demand is realized, manufacturers have to
commit themselves to specific production levels.
These advance commitments imply huge financial and
supply risks.
122
What makes SCM difficult?
* Forecasting does not solve the problem
It is impossible to predict the precise demand for a specific item, even
with the most advanced forecast techniques.
“ Forecasts are always wrong”.
* Demand is not the only source of uncertainty
As supply chain becomes larger and more geographically diverse,
natural and man-made disasters can have tremendous impact.
123
Changing the Focus
Old Way
FOCUS
New Way
Grower
Customer
End-User
Grower
FOCUS
Grower
Customer
End-User
Customer
FOCUS
End-User
Global Supply Chains
• Increasing more complex
–
–
–
–
–
–
–
–
Language
Culture
Currency fluctuations
Political
Transportation costs
Local capabilities
Finance and economics
Environmental
To be minimized
125
Transportation rates
Estimate transportation costs based on:
Truck Load (TL)
Less Truck load (LTL)
Internal & external fleet.
Commodity class.
*** Transportation cost function is not always linear
with distance.
126
Mileage estimation between
two cities 1 & 2
1- Determine the Longitude & latitude for each city.
* Longitudes west of the meridian have negative value.
* Latitudes south of the equator have negative value.
2- use the following formula to estimate the straight distance
between a & b in Miles:
Transportation problems.xls
127
Optimal distribution strategy
D1 D2 D3
F1
F2
F3
d
2 3 7
1 6 4
5 2 4
15 15 15
Capacity
20
10
15
45
D1
D2
D3
F1
15
5
0
20
F2
0
0
10
10
F3
0
10
5
15
15
15
15
125
The given table shows the capacity in tons of three farms (F) of
a certain fresh produce, demand (d) in tons of three distributors
(D), and cost of transportation from each supplier to
manufacturers in US$ per ton.
Determine your transportation plan to minimize total
transportation cost.
128
Solving transportation problems
using Excel spreadsheet
• The ABC retailer has sales points in 5 Midwestern cities. They
order their fresh produce from the XYZ distributor, which has
warehouses in 6 cities. The shipping costs (in dollars per ton)
are given below:
129
• The demand for each sales point and the tons
available at each warehouse are:
Tons
Tons
Transportation problems.xls
130
Assignment
• The manager of a distribution
system between farms
(A, B and C) and distributors
(W, X, Y and Z) wishes to minimize
the global transport costs between a
set of origins (farms) and
destinations (distributors).
Consider the cost of transportation
between farms and distributors
are as shown in the table ( $/ unit).
W
X
Y
Z
Capacity
(Tons)
A
20
40
70
50
500
B
100
60
90
80
1500
C
10
110
30
200
900
D
700
600
1000
500
2900
Transportation problems.xls
131
Example 1: Trans-shipping
ZROX
0. 62
75 Tons
0.90
0.05
90 Tons
Farm 2
R2
60 Tons
0. 62
0.03
CAI
a/p
50 Tons
0. 70
OST
Farm 1
ARNOLD
R1
HEWES
0. 68
1
HAN
WASH
BURN
0. 80
0. 55
Capacity to OST: 80000 Kg
Capacity to HAN: 90000 Kg
R3
40 Tons
Example 1: Trans-shipping
Solution:
ZROX
R1
1. 52
50 Tons
1. 68
Take 75
Tons
OST
Farm 1
ARNOLD
1. 52
0.03
0.05
Take 75 Farm 2
Tons only
R2
CAI
a/p
HEWES
60 Tons
1. 70
HAN
WASH
BURN
1. 70
1. 55
Transportation problems.xls
R3
40 Tons
Example 2: Trans-shipping
Farm 1
Farm 2
Farm 3
ZROX
R1
CAI
a/p
ALY
a/p
OST
CDG
HAN
Farm 4
WASH
BURN
R2
R3
HEWES
R4
R5
Example 2: Trans-shipping
CAI
ALY
Supply (Tons)
F1
30
40
500
F2
20
60
700
F3
50
35
900
F4
70
55
600
Capacity
2000
1500
OST
CDG
HAN
Supply (Tons)
CAI
900
1000
1000
1700
ALY
1000
800
950
1000
Capacity
1900
1000
1000
R1
R2
R3
R4
R5
Supply (Tons)
OST
500
400
500
550
470
1900
CDG
900
840
875
690
780
1000
HAN
600
680
550
700
575
1000
Demand
400
300
700
700
600
Costs are in $/Ton
Transportation
problems.xls
135
Case Study
An Egyptian grower has three farms F1,F2, and F3 in different locations within Egypt, which can
supply the same kind of fresh produce, but with different capacities. If this product must be exported to
Europe by air, calculate the minimum selling price per Kg of product of plantation cost of $ 655 per
ton, and minimum profit margin is 20% of total costs, given that:
1) Capacities of farms & Egyptian Airports
ALY
Capacity (Tons)
F1
?
?
150
F2
?
?
100
F3
?
?
150
Available space
(Tons)
300
100
2) Available ULD to be used from both airports
318 cm
244
CAI
PMC- ULD
Thickness of ULD = 2 cm
Max. height from ground = 162 cm
Chargeable weight per ULD = 2.2 tons
136
3) Available packaging unitization in the farms:
The fresh produce packed in cartons of 60 x 40 x 20 cm , 7 Kg each, and palletized on
Euro pallet (120 x 100 x 16 cm). If the one empty carton costs $ 2, and each pallet costs
$ 11.5 , and customs clearance costs $ 50 per ton.
4) Available refrigerated trucks from the farms to airports:
The inner dimensions of the truck’s container are 12.50 x 2.25 x 2 m, and
Max. payload of the truck is 30 tons.
CAI
ALY
Cost per truck from F1 ( $)
330
250
Cost per truck from F2 ($)
400
280
Cost per truck from F3 ($)
310
350
137
5) Air freight rates ( $/ ULD) from Egyptian airports to European destinations:
OST
CDG
HAN
Supply (Tons)
CAI
1980
2200
2200
300
ALY
1800
2000
2000
100
Capacity
200
70
130
6) On-Forwarding cost ($/ton) from European airports to retailers :
.
R1
R2
R3
Supply (Tons)
OST
500
400
500
200
CDG
900
840
875
70
HAN
600
680
550
130
Demand
100
150
150
Transportation problems.xls
138
INHERENT RISKS IN Agro-Commodities
SUPPLY CHAIN
139
Air Transport in cold chain logistics
• Perishable agro-commodities are very sensitive to post harvest facility & care,
handling,…etc
• Specific requirements applicable to perishable goods; responsibilities of shippers
and operators; types of perishables; special knowledge, documentation, labeling,
packaging, claims……...
• Air Freight allows products to be transported quickly over long
distance.
• Cold Chain Logistics can make all the difference !
140
Clod Chain Logistics
• What is Export Cold Chain Logistics?
Is the seamless movement of perishable food:
* Temperature and /or environment controls.
* From supplier to customer to consumer.
* Accounting for all functions.
• 5 habits of highly successful exporters:
- Know the product
- Plan the logistics chain
- Know your partners
- Get the basis right
- Know the market
141
Farm
Grower/ Producer
Air
Transport
Transport
Packer /Processor
and cold stores
CAI A/P
Refrigerated truck
Cargo Terminal
(Cold)
Refrigerated truck
Transport
Transport
Refrigerated truck
Distributor
(Client)
Transport
Retailer Consumer
The Export Logistics Cold Chain
(Air transport)
142
Don’t break the chain !!
• In case of Air transport of perishables, the cold chain is
broken during one of the following processes:
1- Unloading from refrigerated truck at the airport cold store.
2- Moving the ULD on tarmac.
3- Waiting loading to the aircraft.
4- Loading the aircraft.
5- In flight.
6- Unloading the aircraft at destination.
7- Moving the ULD to terminal.
8- Breaking down point in the terminal.
143
Quiz
•
Suppose that you are planning for some fresh produce exports during the Q1 of
2008, based on the historical recorded data of previous periods, as follows:
Q1 2003
Q1 2004
Q1 2005
Q1 2006
Q1 2007
A/F rate ($ /Kg)
0.85
0.90
1.00
0.95
0.97
Demand (tons)
540
600
635
670
650
Calculate:
1) The required BUDGET for Q1 2008
2) Minimum selling rate (delivery to client in Paris) if your profit margin is at least is 20% of
the cost, given that:
-
The fresh produce packed in cartons of 60 x 40 x 20 cm , 7 Kg each, and palletized on Euro pallet (120 x
100 x 16 cm). If the one empty carton costs $ 2, and each pallet costs $ 11.5 , and customs clearance costs $
50 per ton.
-
Plantation cost per ton is $ 600.
-
The permissible height above the unitized Euro pallet is 160 cm
-
The TL rate of reefer truck (30 tons – 22 pallets) from the farm to CAI a/p is USD 200 / truck.
-
Forecast for Q1 2008 applying 3-periods Weighted Moving Average method, given that:
Ct-1= 0.5 , Ct-2= 0.3 , Ct-3= 0.2
144
Quiz
( continued)
If OST is the a/p of destination, and the shipments have to be sent to some clients in Paris. If
the shipments will be sent directly to customers from OST, most shipments will be LTL.
However, if you locate a D.C in Paris, you can ship TL from OST to Paris, and distribute by
local cartage (LTL) to customers in that area.
Assume the following:
OST to customer LTL = $ 100/ ton
OST to D.C TL = $ 50/ ton
Inventory-carrying cost in the D.C = $ 10/ton
D.C to customer LTL = $ 20/ton
Is it more economical to establish the D.C in Paris? If yes what will be the saving during
Q1 2008?
145
Forecasting
&
Its Techniques
• Why Forecast?
• Common Principles of Forecasting
• Forecasting Steps
• An Overview of forecasting techniques
This part has been added according to the request of the students !
146
• forecasting –
• act of making predictions about:
- Occurrence of particular events in the future
- Value of particular variable at future date
"If you can look into the seeds of time, and
say which grain will grow and which will
not, speak then unto me. "
William Shakespeare
147
BUT !
• "It is far better to foresee even without
certainty than not to foresee at all. "
--Henri Poincare in The Foundations of
Science, page 129.
148
Why Forecast?
1)
2)
Uncontrollable external events
Example: those that originate with the national economy, governments,
customers’ demand,…..
Controllable internal events
such as: marketing or manufacturing decisions within the firm.
Role of Forecasting:
•
Scheduling: Forecasts the level of product’s demand
•
Acquiring resources: Lead time* to acquire raw materials, etc.
•
Determining resource requirements: Long term planning.
*Lead time: it is a time lag between the time “about to happen event” and the
“actual occurrence of the event”.
149
Forecasting in management
Forecasting is used in various domains
of management, such as:
•
•
•
•
Personnel management
Resource management, e.g: logistics operations
Finance management
Organizational management
150
Common Principles of Forecasting
• Forecasts are rarely perfect (Forecast is always wrong)
• Forecasts are more accurate for grouped data than for
individual items
• Forecast are more accurate for shorter
I see that you will
than longer time periods
get an A this semester.
151
Forecasting Steps
• What needs to be forecast?
– time horizon required
•
•
•
•
What data is available?
Select and test the forecasting model
Generate the forecast
Monitor forecast accuracy over time :(error)
152
An Overview of Forecasting
Techniques
• Quantitative (time series methods):
Sufficient quantitative information are available.
It depends on accumulated data.
Used to formulate Strategy, long-range plans, etc.
• Qualitative (subjective): Little or no quantitative information are
available, but sufficient qualitative knowledge exists.
Predicting the impact of gasoline price if and when it
hits $ 3.00 per gallon.
• Some
combination of the two
Note: only time series methods will be discussed in details in this course.
153
Subjective Forecasting Methods
(Retail Sales)
• Sales Force Composites--Getting info from the
frontlines.
• Customer Surveys--Getting the info straight from the
horse’s mouth.
• Jury of Executive Opinions--Let the experts meet and
come to a consensus
• Delphi Method--Survey the experts anonymously
154
Sales Force Composites
• Get estimates of future sales from individual sales
associates
• Add individual estimates to get total for region or
product
• Possible problems may be in the interest of sales force to bias forecasts
downward if paid on commission or if quotas are
involved
155
Customer Surveys
• where estimates of future sales come directly
from customers
-”do you plan to buy a car in the next month?”
-”how much are you looking to spend?”
• Possible problem – Generally, this method is more accurate for
corporate or industrial buyers than for the general
population….
– Why?!
– Members of the general population often do not
have a clue what ACTUAL purchases they might
156
make soon.
Jury of Executive Opinions
• combine subjective predictions of those
knowledgeable in field…the list of experts
depends on the topic.
e.g., who is going to win the next
presidential U.S election and why?
You are the experts.
• Possible problem – strong personalities may dominate group
157
Delphi Method
•
•
•
•
•
Select participants.
Participants submit individual forecasts.
Results are summarized, presented back to
the participants.
They submit new revised forecasts, taking
into account information from others.
Repeat until no significant changes result.
158
Delphi Method
• Advantages – Requires little quantitative background
– Widely used, not time consuming
– Not dominated by strong personalities
• Disadvantage – May not reach consensus if you have people who
are firm in their opinions
– There may be some question as to who is an
authority in the field
159
When Can One Do
Quantitative Forecasting?
1. Information about the past is available.
2. This information is available in the form of
numerical data
3. Assumption of continuity: It can be assumed that
some aspects of the past pattern will continue into
the future.
•
Continuity assumption is also needed for qualitative
forecasting
– Forecasts generated through mathematical modeling
160
Quantitative Methods
• Time Series Models:
– Assumes the future will follow same patterns as the
past.
• Causal Models:
– Explores cause-and-effect relationships
– Uses leading indicators to predict the future
161
Time Series Data Composition
• Data = historic pattern + random variation
• Historic pattern to be forecasted:
– Level (long-term average)
– Trend
– Seasonality
– Cycle
• Random Variation cannot be predicted
162
Time Series Patterns
163
Time Series Models
• Naive:
– The forecast is equal or near to the actual value observed during the
last period – good for level patterns
• Simple Mean:
– The average of all available data - good for level patterns
example: 12,13,14,15
• Central Moving Average:
Mean = 54/4 = 13.5
– For a number of applications it is advantageous to avoid the shifting
induced by using only 'past' data. Hence a central moving average
can be computed, using both 'past' and 'future' data. The 'future' data
in this case are not predictions, but merely data obtained after the
time at which the average is to be computed.
– Each new forecast drops the oldest data point & adds a new
observation
164
Naive forecasts: NF1 and NF2
• NF1. (“The value tomorrow will be the same as
today”).
Example: Number of required trucks today was 20. Forecast NF1 for
tomorow: 20.
• NF2. (“The value tomorow will be less (greater) by
…10% ”).
Example: Average or required trucks this month is 20 trucks. Forecast
NF2 for the next month: will be 25 trucks (increase of 25%).
165
Time Series Models (continued)
• Weighted Moving Average:
Ft 1   Ct A t
• All weights must add to 100% or 1.00
e.g. Ct .5, Ct-1 .3, Ct-2 .2 (weights add to 1.0)
• Allows emphasizing one period over others; above indicates
more weight on recent data (Ct=.5)
• Differs from the simple moving average that weighs all
periods equally - more responsive to trends
166
Time Series Models (continued)
• Exponential Smoothing:
Ft 1  αA t  1  α Ft
• Most frequently used time series method because of ease
of use and minimal amount of data needed
• Need just three pieces of data to start:
– Last period’s forecast (Ft)
– Last periods actual value (At)
– Select value of smoothing coefficient
between 0 and 1.0
• If no last period forecast is available, average the last few
periods or use naive method
• Higher values (e.g. .7 or .8) may place too much
weight on last period’s random variation

167
Time Series Problem
• Determine forecast for periods
Jul & Aug
• 2-period moving average
• 4-period moving average
• 2-period weighted moving average
with t-1 weighted 0.6 and t-2 weighted
0.4
• Exponential smoothing with alpha
=0.2.
• Actual demand for Jul found to be 375
Period
Forecasted
Actual
Jan
300
Feb
315
Mar
290
Apr
345
May
320
Jun
370
360
Jul
370
375
Aug
Arab Academy.xls
168
Example
4-year Weighted Moving Average forecast
(WMA)
•
•
•
•
Period
1999
2000
2001
2002
$$
1,000,000
1,200,000
1,350,000
1,250,000
Discuss !
• Forecast 2003 = .40 (1,250,000) + .30 (1,350,000) +
.20 (1,200,000) + .10 (1,000,000)
• Forecast = $1,245,000
169
Causal Models
• Often, leading indicators can help to predict changes
in future demand
• Causal models establish a cause-and-effect
relationship between independent and dependent
variables
• A common tool of causal modeling is linear
regression:
Y  a  bx
170
Linear Regression
b
 XY  X  Y 
 X 2  X  X 
• Identify dependent (y) and
independent (x) variables
• Solve for the slope of the
line
XY  n X Y
b

X
2
 nX
2
• Solve for the y intercept
a  Y  bX
• Develop your equation for
the trend line Y=a
+ bX
171
Linear Regression Problem: A maker of golf shirts has been
tracking the relationship between sales and advertising dollars.
Use linear regression to find out what sales might be if the
company invested $53,000 in advertising next year.
Sales $ Adv.$
(Y)
(X)
XY
X^2
XY  n X Y

b
 X  nX
Y^2
1
130
32
4160
1024 16900
2
151
52
7852
2704 22801
2
2
b
28202  447.25147.25
9253  447.25
2
 1.15
3
150
50
7500
2500 22500
a  Y  b X  147.25  1.1547.25
4
158
55
8690
3025 24964
a  92.9
5
153.85
53
Tot
589
189
Avg
147.25 47.25
Y  a  bX  92.9  1.15X
Y  92.9  1.1553  153.85
28202 9253 87165
Investing $ 53000 might
generate sales of $ 153,085
172
How Good the trend line Fits?
• Correlation coefficient (r) measures the direction and strength of the linear
relationship between two variables.
• It has a value between –1 and +1
• The closer the r value is to 1.0 the better the regression line fits the data
points.
r
r

n  XY    X  Y 



n  X 2   X  * n  Y 2  Y 
2
2
428202  189589
4(9253) - (189) * 487,165  589
2
2
 0.982
R 2  0.982  0.964
2
2
•The coefficient of determination, R , measures the percentage of variation in the dependent
variable that is explained by the regression or trend line. It has a value between zero and one,
with a high value indicating a good fit.
2
173
Forecast Accuracy
• Error - difference between actual value and predicted value
• Mean Absolute Deviation (MAD)
–
Average absolute error
• Mean Squared Error (MSE)
–
Average of squared error
• Mean Absolute Percent Error (MAPE)
–
Average absolute percent error
174
MAD, MSE, and MAPE
MAD
=
 Actual
 forecast
n
MSE
=
 ( Actual
 forecast)
2
n -1
MAPE =
 Actual
 forecas
t
n
/ Actual)*100
175
Example
Period
1
2
3
4
5
6
7
8
MAD=
MSE=
MAPE=
Actual
217
213
216
210
213
219
216
212
Forecast
215
216
215
214
211
214
217
216
(A-F)
2
-3
1
-4
2
5
-1
-4
-2
|A-F|
2
3
1
4
2
5
1
4
22
(A-F)^2
4
9
1
16
4
25
1
16
76
(|A-F|/Actual)*100
0.92
1.41
0.46
1.90
0.94
2.28
0.46
1.89
10.26
2.75
10.86
1.28
176
Selecting the Right Forecasting Model
• The amount & type of available data
– Some methods require more data than others
• Degree of accuracy required
– Increasing accuracy means more data
• Length of forecast horizon
– Different models for 3 month vs. 10 years
177
Exercise
•
Write down the common principles of forecasting?
•
List the different types of forecasting techniques.
•
What is the main differences between “ Weighted
Moving Average” than “ exponential Smoothing”
methods?
•
The given table shows the actual values of sales ($)
for some product during the period from Jan till
Sep 2007.
Forecast the value of sales ($) in Oct 2007 applying
3-periods Weighted Moving Average method,
given that:
Ct-1= 0.5 , Ct-2= 0.3 , Ct-3= 0.2
Month
Actual ($)
Jan
300,000
Feb
315,000
Mar
290,000
Apr
345,000
May
320,000
Jun
360,000
Jul
375,000
Aug
300,000
Sep
325,000
178