In: Operations Management
CASE BACKGROUND
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.
QUESTIONS
1. Identify, evaluate, and then describe six challenges faced by Marcelo with the shipping of products to SnapGear in Sri Lanka.
2. Explain clearly two ways that the truck driver shortage may affect BelAir and freight-forwarding companies generally?
1. The six challenges faced by Marcelo with the shipping of products to SnapGear in Sri Lanka are:
a) There was no contract available from Temp to evaluate the terms of the contract to investigate where the equipment was. They only had verbal contract. Hence, no clear terms of contract was available.
b) Electric motors too was packed with the big equipment to be shipped through ocean containers which might damage the small electric motors en route.
c) Both the blasting cabinet and the vacuum equipment was not even packed. It was lying in the warehouse unattended.
d) The blasting cabinet required to remove the light box component on the top and the staff required the Engineer’s help to do this. The staff were not trained adequately.
e) They needed a forty-foot container with an open top to ship the blasting cabinet and vacuum equipment. However, someone had order a hard top container.
f) Tempo was experiencing shortage of truck drivers hence they could not make it for another five days to take the containers to the shipping port. They need assistance in trucking the equipment as it was difficult to find truck drivers. Now, Marcello’s challenge is to find solution to this shortage of truck drivers to ship the equipment to U.S as well.
2. Truck driver shortage have a great impact on the shipping and freight forwarding business in the following ways-
a. Delayed shipping results in delayed delivery which increases the demand and creates scarcity. This increases the prices of the products.
b. Since additional and inefficient means of transportation is sought as a substitute, it increases the transportation cost considerably.
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