Question

You are the Supply Chain Director for a global company. You recently received questions from the following divisions:

• A new division in India want to order 50 tons of live lobster from Nova Scotia, and shipping it to Mumbai.
• A well-established business division in contract manufacturing in Indonesia, working closely with a network of 3PLs, need to ship 100,000 pairs of sports shoes from Jakarta to customers in New York.

You are required to provide recommendations and explanations on:

1. Mode of transportation, and
2. Incoterms

Answer 1

Mode of transportation:

In order to ship 100,00 pairs of shoes from Jakarta to new york, we can send the items through the ship. For eg.

There is a company named ABC export. The line of activity of this company is shoes. In the last 10-15 years, this company has sent more than 100000 pairs fo shoes. They have sent these pairs of shoes via means of either waterways or airways. Presently they got a contract to ship 100000 pairs of shoes from Jakarta to new york. As soon as the company got the contract, they will start the manufacturing of shoes. After the manufacturing, company will pack the items from the warehouse and will load into the trucks. After that, the truck will now unload the items at the destination in order to again load the item in the ship. Then the manager of the company will give the "bill of leading" to the captain of the ship after checking the items which were to be shipped. Now ship will take 4-5 days in reaching new york. When it reaches the destination the "bill of lading" will be given to the receiver. The customer will check all the items and will confirm the exportation of the items to the ABC company.

Incoterms:

Incoterms are also known as International commercial terms which are the guidelines provided by the International chamber of commerce. There are 11 incoterms rules defined which are as follows:

• FCA (Free Carrier): According to this rule, a letter of credit will be issued along with the bill of lading through the buyer's bank.
• FAS (Free Alongside Ship): According to it seller will export all the items at the given destination and all the risk and cost is assumed by the buyer's end.
• CIP (Carriage and Insurance Paid To): According to this incoterm 2020, the seller is also responsible for the insurance. The seller will be responsible for 110% of the value of the goods.
• DAP (Delivered at Place): According to it the buyer is responsible for the risk and cost related to the unloading of the items. The buyer will clear custom checking for import to the destination.
• CPT (Carriage Paid To): Seller is responsible for the transportation cost, shipment cost and is ready to take a risk until it does not reach the destination.
• DPU (Delivered at Place Unloaded): It was previously known as Delivered at Terminal (DAT).According to this incoterm, the buyer or seller can export and import the items other than the given destination.
• EXW (Ex Works): There is no obligation for the seller as it fulfills the order from the buyer. The buyer has the risk from pick up point to the destination.
• FOB (Free on Board): According to it the items which are loaded in the ship and onboard expenses are free at the time of shipping and also after unloading of the items.