Question

CASE STUDY

New Logistics Manager

Marcelo is the new logistics manager at BelAir LLC, a U.S. manufacturing company based in the state of Georgia (U.S.A). It provides abrasive surface preparation and spray painting equipment. The company recently started selling equipment in Sri Lanka.

An International Customer Complains

To date, BelAir’s only customer in Sri Lanka is SnapGear. SnapGear’s president, Dhruv Kumar, complained that products have not been delivered on time. Dhruv was told in January that it would take four weeks to have all the ordered products delivered to Sri Lanka, but it is now March and he has only received some of the equipment. He also noted that he had ordered electric motors that were urgently needed for a client, but they have not yet arrived, despite his flagging the order to the previous logistics manager. Dhruv has also been waiting on BelAir to send a signed statement certifying the country of origin of the products and that the products were in accordance with the invoice. Dhruv advised Marcelo that if BelAir did not fix its problems immediately, SnapGear would begin using a Miami-based company that had recently approached him.

Marcelo Investigates

Marcelo began investigating what type of equipment was being shipped and where the bottleneck was. He reviewed the purchase order and saw that SnapGear had ordered storage and blast cabinets, vacuum equipment and a few smaller items including the electric motors. With this information, he would determine how the products were sent from the warehouse and then try to track the exact location of the products on their way to Sri Lanka.

Status of Loading and Transport from BelAir

In March, BelAir started to use the budget U.S. carrier Tempo Logistics to transport larger products from the warehouse to the shipping port in Charleston, South Carolina. The owners of Tempo and BelAir were good friends. The companies had negotiated a new two-year agreement in early March. Marcelo searched through emails and files, but couldn’t find the contract from Tempo Logistics. He had no idea what the carrier was supposed to do. He contacted Tempo to get further details about the services it offered BelAir, but was unable to reach anyone there. Marcelo then went to the warehouse to speak with Gary, the shipping manager, about the products shipped to SnapGear – particularly the electric motors. He was surprised when Gary told him, “We thought that the electric motors could go with the rest of the equipment, so we packed them in the ocean container, too. You know, it might save us some money. We ran out of filling material, but don’t worry—we packed it in a way that nothing will happen to them.” Marcelo knew that some of the larger equipment had protruding parts, so he became concerned the smaller items would be damaged en route. Marcelo also realised that the blasting cabinet that SnapGear had ordered was still in the warehouse. Gary said the light box component had to be removed from the top of the blast cabinet in order to meet the ocean container height regulations, and his staff needed the company’s engineer to help make the modification before the shipment could proceed. SnapGear was also waiting on the vacuum equipment, which was found next to the blasting cabinet in the warehouse. Gary and his staff had never sent vacuum equipment by sea, and they needed a forty-foot container with an open top. Someone had ordered a hard top container instead. If the open-top container was not used, the container could not be loaded by crane onto the cargo ship. Marcelo thought to himself, “How did we not know this before?” After Marcelo finished speaking with Gary, he went back to the office and received a call from Bryan at Tempo Logistics. Bryan advised that there was a verbal contract between Tempo and BelAir; a written contract was still being prepared. He also said Tempo was experiencing a shortage of truck drivers and could not come for another four to five days to take containers to the port. Bryan added that Marcelo would be very fortunate to find a company able to assist in trucking, as finding new truck drivers to replace those retiring had become a nationwide problem. Marcelo had to find a solution to this, as he needed to get equipment moved not only internationally, but in the U.S. as well.

CORRECTIVE ACTION

Marcelo called the freight forwarders that BelAir used, ABC Global Express, which offered a full range of services, such as export packing and containerization. To save costs, BelAir did not use ABC’s U.S. pick-up service or any other packaged services. It used ABC as shipping agents and customs brokers to arrange the export customs clearance and to pay the export duties. Marcelo was used to working with freight forwarders who offered door-to-door service, so this would be an adjustment. However, ABC did offer satellite tracking, so Marcelo used his smartphone to track BelAir’s latest shipment to SnapGear through the mobile application. To Marcelo’s disappointment, the latest shipment was in Sri Lanka, but delayed due to customs clearance issues. At the seaport in Colombo, Sri Lanka, goods are unloaded from the ship and then inspected by customs and stored. The consignee has four days to provide the required documents needed for customs clearance and then remove the goods from the storage area. Dhruv has been waiting for a missing document from BelAir to be able to provide the complete set of documents to Sri Lankan customs. The demurrage has been accumulating for the past two weeks. Dhruv knew that the sales agreement with BelAir stated that SnapGear was responsible for charges once the shipment arrived in Sri Lanka, but as he believed the missing documentation was BelAir’s fault, he wanted BelAir to pay for the demurrage. As a part of the sales contract between BelAir and SnapGear, they negotiated the following shipping delivery terms: “CFR, Port of Colombo, Sri Lanka, Incoterms® 2020.” SnapGear had a solid relationship with its own freight forwarders, located in Sri Lanka, and were able to negotiate favourable freight rates. Keeping this in mind, BelAir had already offered SnapGear a reduced price for the equipment that it shipped. Marcelo called Dhruv to explain the situation, and that he would be getting all the outstanding equipment shipped, just as soon as possible. He prepared the signed statement – which certified the country of origin – and sent it by email to Dhruv, hoping the Sri Lankan customs authorities would accept it while waiting for the original document to arrive by courier in three days. Marcelo also offered to pay for the extra demurrage incurred. Dhruv was still not happy with the service offered by BelAir. He told Marcelo he would not be purchasing equipment from BelAir again.

QUESTION

1. Discuss which shipping mode(s) would be most cost-effective for BelAir in shipping from the USA to Sri Lanka?

2. Discuss which shipping mode(s) would be most cost-effective for BelAir in shipping inside the USA

Answer 1

Findings of the Case study :

Introduction :

Marcelo is the New logistic manager of BelAir LLC located in U.S. which deals in providing abrasive surface painting eqipments.They have recently started selling in Sri Lanka.

Complaints of International Customers :

Belair LLC has been facing complaints from international customers regarding late delivery of the shipments.The committed time of delivery is not met most of the times which is creating problem for the clients .One of the clients SnapGear was expecting the delivery of the order in January but was not delivered the full order till march.This raised an alarm for Marcelo as the BelAir LLC will loose clients because of this poor service.

Investigation of Marcelo:

Marcelo investigated the matter about why there is so much delay in deliveries of orders and found out Following Discrepancy :

1. BelAir was using Tempo Logistics for transporting equipments from the warehouse to port.They dint had any written document and the services provided by them wee below standards without much accountability on there front.
2. When he investigated about a particular shipment of SnapGear he found out that only electric motors were shipped that too with larger equipments which can cause damage to motors.Also vacuum and blast equipments were not yet shipped because of some problems in loading of them.

Further findings :

BelAir LLC used freight forwarders ,ABC Global Express but they were not using there full services.They only used them as shipping agents ,customs brokers and satellite tracking. With satellite tracking Marcelo find out that the one shipment had reached to Sri Lanka but was stuck in custom clearance as some important documents were not sent to the SnapGear . Dhruv Kumar, President of Snapgear was not able to get those goods dispatched because of these missing documents.This all led to a customer dissatisfaction and SnapGear refused to order anything in future from BelAir LLC.

Question 1 : Which shipping mode(s) would be most cost-effective for BelAir in shipping from the USA to Sri Lanka ?

So now after understanding the problem we have to decide or suggest which mode of shipping is most cost effective for BelAir LLC.The Approach of BelAir LLC is not completely wrong. Being into the manufacturing business and dealing internationally the challenge of shipping the orders was always a task. Some changes if implied correctly by Marcelo will sort out things for the company.The most cost effective method for BelAir will be shipping through Ocean Freight or Ocean containers. It should be noted here that the items should be shipped in bulk which will help in reducing the overall costt.For long distances this is the most cost effective method.Following things should be kept in mind before choosing Shipping vendor:

• Shipment should be shipped on time (As per the policy of company )
• Having excellent customer support
• Offers custom clearance assistance
• Satellite tracking of Orders
• Delivers goods intact without damage
• Makes sure that the order is shipped to the exact location at right time.

Question 2 : Which shipping mode(s) would be most cost-effective for BelAir in shipping inside the USA ?

BelAir LLC has to rely on various factors while deciding the mode of shipping within USA as they can also use Air transport mode or Ocean freight or Railway mode depending on the order size and expected time of delivery.Available modes of transport for delivery within USA are as follows :

1. Railways : They can be used by BelAir as they have large carrying capacity at much cheaper prices.This mode can be used in all whether conditions which makes it more reliable and flexible.
2. Roadways : This is also a good mode of shipping as it is economical for short distances.The studies shows that it is cheaper by 25% compared to other modes.It is speedier than railways and gives door to door services to customers .
3. Airways :The most fastest mode of transport is Airways.It is very dependable service as it operates in special conditions like floods,earthquakes and wars.It enhances customer satisfaction with its on time deliveries and safe transport.
4. Water ways or Ocean Freights : The most cheaper mode is waterways as it carries fragile and bulky products with utmost care and safety.The shipments can be moved easily and loaded or unloaded easily.

In this scenario BelAir should not restrict themselves to one mode of shipping either they can select the mode depending on the customer requirements.The deciding factor for selection of mode should be:

• How far the order is to be shipped
• Customer requirements weather they want a express delivery or standard delivery and quoting price according to that.
• If it is a remote area then which mode is easily accessible over there.
• Nature of the order whether it is bulky or fragile goods or smaller in size.

Improvements for BelAir LLC :

• Bidding should be done for selection of vendor for transporting goods till port.The best bidder with efficient services should be selected.Proper written contract should be made for that.
• The documentation process should be completed while dispatching order from the port.The required documents should be sent well in advance to the client so that custom clearance is easily granted.
• All services of ABC Global services should be availed including packaging or pick up services in case required
• Proper monitoring should be done by Marcelo to avoid any kind of delay in shipment.
• If there is problem in loading of heavy items then proper containers should be made available well in advance at the time of shipping and in case special engineer services are required the person should be appointed for that immediately .