Wednesday, October 13, 2010

Recent Reading

Apologies for the lack of posts - I've been distracted by recent news, plus I'm starting a new contract tomorrow.  I've been focused recently on the various mortgage issues in the news and blogs.  Some of my favorites are Naked Capitalism, Marginal Revolution, and Credit Slips.  They all offer commentary and insights that aren't in the mainstream media (usually because the authors are experts who also have space to go into detail) and the first two have excellent comment sections.

Since the news broke about document issues for multiple servicers in foreclosure proceedings, I've been wondering how far it will extend.  According to Credit Slips, it's unlikely that someone who purchased a home out of foreclosure would be evicted or face financial consequences.  If they bought in good faith, the previous owner would have recourse against the servicer or title insurer. 

The issue that's still bothering me is cloudy titles.  It goes beyond foreclosures, potentially affecting pretty much every house with a mortgage purchased in the last fifteen years.  60% of mortgages in the US are recorded with MERS instead of the county register of deeds.  It's becoming apparent that there are flaws in the MERS system (JP Morgan Chase dropped MERS as a foreclosure agent), and those flaws may cloud the title of any house sold since the mid-nineties.  I'm not sure yet what's going to happen, but it could be a lot of revenue for local government.  The servicers may have to register a lot of notes with counties in a hurry.

Pretty much every time Yves posts about this on Naked Capitalism, someone comments that this is about deadbeat borrowers who would have lost their home anyway.  First, that's not entirely true - there are documented cases of foreclosures against inappropriate parties, specifically in Florida.  But this is about rule of law.  The consequences could go beyond the US and beyond the housing market.

It is vital that the notary system and affidavits are honest and trustworthy.  In international business you see notarized documents frequently.  (There are also "chamberized" documents, usually certificates of origin, where the document has been certified by a representative of the local chamber of commerce.  Your forwarder can help if you need this.)  And that's not even getting into documentary letters of credit. 

Friday, October 8, 2010

Being a good customer

One of the rules I try to live by is be a good customer.  A lot of that is simple: be polite, only hold people responsible for things they can control, treat people as I would want to be treated.  Those rules apply to working with your freight vendors, but a few more can help your relationship (and save money too).

I'm that customer who knows a lot about a forwarder's business.  I've been known to call a forwarder and ask for a cubic meter on a specific flight, or a specific sailing.  But I know the airline schedules, and I know in general how to look up sailing schedules.  I've been booking trucking for seven years now.  If you don't have that experience, the key to being a good customer is to give your vendor as much information as you can.  If you have a hard deadline, tell them.  If you don't have a deadline and are trying to do the move on the cheap, tell them that.

At the same time, don't set arbitrary deadlines.  Don't tell them it's urgent and then change your mind (or apologize and explain if the situation changes).  You need to trust each other in the relationship.

Finally, pay your bills on time (just like any other vendor).  

Tuesday, October 5, 2010

Houston Ship Channel

Sunday morning an electrical power structure was hit by a tug boat in the Houston Ship Channel.  The Coast Guard estimates that the channel may be open tonight, if not tomorrow.  The estimated cost of the three day shutdown (including waiting for upwards of four dozen vessels) is $1 billion.

Why the shutdown?  There are electrical lines blocking the passage to the bulk terminals and oil refineries (container ships load and unload at facilities on Galveston Bay, outside the channel).  Houston is the second-busiest port in the country after Long Beach.  The economic impact outside of jobs at the port and vessel delays may be on oil & gas futures, but that should be limited.  These refineries can be hit by hurricanes, causing bigger shutdowns than two days of incoming crude.

Friday, October 1, 2010

Customs Brokers and the HTS

Last week I mentioned that I'm studying for the Customs Broker Exam.  You might be wondering, what does a customs broker do?

This only applies to brokers registered with US CBP.  Other countries have different roles and rules.

In the US, a customs broker mainly files import entries and performs HTS classification.  A customs broker is responsible for knowing American law and following it.  Brokers are registered with ports (not exclusively ocean ports, every state has at least one port), and can also file remotely in other locations if they're registered for it.  A customs broker may work for directly for an importer or indirectly through a freight forwarder or as an independent. 

The importer of record can always file their own documents.  So why hire a customs broker?  First, it's complicated.  If you're not an expert it can be extremely time consuming, to the extent that it will probably cost less to pay a broker then spend your own time on it.  Second, there's legal liability associated with importing.  Using a broker doesn't absolve the importer of record from responsibility, but it does minimize risk.

You don't have to use a customs broker for your HTS classification.  In fact, my preference is to do that in house.  Your customs broker isn't going to be an expert in your product, and expert-level knowledge can be necessary.  Regardless who does the classification, the importer is liable for it.

You might be wondering - what's HTS?  HTS stands for harmonized tariff system.  Most countries have their own version of the harmonized tariff.  You may see US HTS, the common abbreviation for United States Harmonized Tariff System.  HTS usually refers to a ten digit code.  Every physical good that exists (or may exist) has an HTS.  The HTS is divided into sections and chapters.  Sections are broad categories (animals and animal products, plant and plant products, and so on), and chapters are more detailed.  Generally speaking, more processed or complicated products fit in higher chapters.  The classification process follows the general rules of interpretation.  You might also hear the term Schedule B.  Schedule B is another classification system, managed by Census instead of CBP.  Schedule B classifications are used for exports, HTS classifications can be used for imports and exports.  If you're both an importer and exporter, using HTS for everything saves the work of classifying something twice.

Why is the system harmonized?  The first six digits of a product's HTS are the same for every country that uses the HTS.  The last four digits vary.

This is one of the areas where I've done a lot of work - I did about 6000 unique classifications in the last fifteen months.  There's a learning curve to classification.  The best way to start is a class or training with someone experienced.  Once you've learned the process, start practicing.  Try to classify products you see around you, at work or home.  For example, I'm wearing a long-sleeve t-shirt right now.  What information do I need to classify?  I bought it at Target, according to the tag it's 100% cotton and made in Bangladesh.  It's a boy's large.

It's apparel, so I know I'm starting in Section XI Textiles and Textile Articles.  The shirt is complete (not a raw material), so it's an article.  T-shirt fabric is knitted, not woven, so we're looking at Chapter 61.  The code I land on is 6105.10.0030, a knitted cotton boy's shirt, not imported as part of a playsuit.  The HTS also shows a duty rate of 19.7%.  If it had been manufactured somewhere else (including Jordan or the Dominican Republic), it could have been duty free since it's covered under ten free trade agreements. 

What are some of the common pitfalls when classifying?  First, reading the tariff.  Always read the chapter notes before assuming you belong in that chapter.  Make sure you're in the right section, the tabs can confuse people.  Finally, record your thought process.  Don't just put the classification in your database, also put in a note with your logic.

Finally, chances are you're going to make mistakes at first.  With classification, that's normal.  The way to learn the tariff is familiarity and practice.

Tuesday, September 28, 2010

Trucking, Rail, and other options

In the US, most goods move by truck, rail, or some combination of the two.  It's the most economical option, but for a lot of destinations truck is the only option for final delivery.

LTL: Less than Truck Load - anything from one pallet up to half a truck
FTL: Full Truck Load
Multi-Modal: a shipment that moves one more than one mode of transportation

Rail movements are usually containers, bulk commodities, or sometimes cars.  The days of the boxcar are long gone, but rail moves a lot of freight.  Depending on the routing, your UPS ground package might go on the rail for a couple days.  We're used to containers being used for ocean freight, but there are also containers that are used exclusively for domestic freight.  They can be lifted off their chassis and set on a rail car.

A slight digression - did you know that an ocean container usually has three modes and at least 6 lifts between shipper load and delivery?  An empty container will be delivered by truck on a chassis (the chassis is usually rented from the rail yard), and returned by truck to the yard when it's full.  In the Twin Cities, that means either the BN yard in the Midway area of St. Paul or the CP yard in Northeast Minneapolis.  Once the container gets to the yard, it's lifted off the truck chassis and put on a rail car for its journey to the west coast.  Most of the Pacific ports don't have direct rail service, so the container will be unloaded at another yard and put on a truck chassis again.  From there it gos to the port where it's either consolidated with other containers for the vessel or loaded directly.  This process repeats when it reaches the destination port.

Rail can be booked directly or through a forwarder.  If it's an ocean container, your forwarder will take care of all parts of the booking.  Large shippers (companies like Weyerhauser and Cargill) book direct with the rail companies.  Smaller shippers can book through a forwarder or other broker.

What are your options for trucking?  It depends on how much you're shipping.  LTL is relatively consolidated but FTL is a very fragmented industry.  A lot of the drivers are owner-operators, a lot of the companies are small outfits.

If you want to move a couple pallets (I use the words pallet and skid interchangeably, as far as I can tell there isn't a difference), there are local, regional, and national companies that can take care of it.  Local courier services run dock trucks and they're usually good value.  Regional LTL companies tend to be less expensive than national companies, but their service areas are limited.  YRC and FedEx Freight are two of my favorite national LTL companies in terms of customer service and cost.  These companies also do residential deliveries (if you order furniture online, they're the carrier if it's too big for UPS).  They have trucks with lift gates and also offer different service levels.  Always check service options with customer service or on their website and specify what you want.

More than half a truck (12+ pallets or 26 feet), you're going to need a full truck.  Some companies run their own fleets (Walmart), but outside vendors are the norm.  This is a situation where a freight forwarder probably isn't going to save you money.  Find a truck broker you trust, it'll be worth the time to develop the relationship.  Truck brokers may have access to company-owned trucks, and they work with owner-operators.  They also track drivers' safety records and make sure they meet minimum insurance requirements.

Friday, September 24, 2010

Ocean Freight Options

If you've got time, ocean freight is always the most cost effective choice.  You probably think about containers when you think ocean freight, but there are more options in both time and cost.

Once again, let's start with vocabulary:
NVOCC: Non-vessel operating common carrier, just like it sounds.  An NVOCC can issue bills of lading, but doesn't operate its own vessels.
Carrier: The company that operates the vessels.  They may or may not own the vessel, and they may or may not issue your bills of lading.
Bill of lading (BOL): the primary transportation document.  I'll write about documents another time.
Dunnage: material used to brace freight in a container or on the vessel, usually wood.
LCL: Less than Container Load
FCL: Full Container Load
LTL: Less than Truck Load
Cut or Cutoff: Date and time when freight has to be turned in to the carrier to make a specific sailing
Flat Rack: a rack the size of a container base.  It has foldable or removable walls on the 8' sides and lugs to secure freight and lift the rack.

Ocean freight can range from a single crate to a vessel charter.  Speaking of crates, you're going to need to know about ISPM-15.  ISPM-15 is the international standard for wood packing materials (there are different rules for product made of wood, and if you're importing wood products you need to be aware of recent changes).  Essentially, wood packing material (skids, crates, or dunnage) needs to be either made of manufactured wood or from heat-treated or fumigated wood.  If you go with heat-treated or fumigated, the wood needs to display the supplier's ISPM-15 stamp.  Companies that do their own crating can register for ISPM-15 certification.

Back to freight types.  If you're shipping bulk commodities, bulk vessel charters are the way to go.  Bulk product is loaded loose into the hold.  Liquid carriers are essentially the same.  Wheat, metal ores, and oil ship this way - there's even been talk of shipping water from Alaska to the Middle East.  If you're shipping large products that aren't bulk commodities or shipping a lot of things at once, you can charter or part-charter every kind of vessel.

But chances are you aren't going to be chartering a vessel.  FCL is the most cost-effective option, and offers the shipper a little less risk.  When you book an entire container, you get all the volume within the container with one set of document expenses.  Your employees (usually) load it, so you know it was done correctly.  Plus you seal the container when it leaves your facility and it'll be sealed at destination unless Customs chooses to do a physical inspection.  (Seals are single use bolts with serial numbers on both pieces.)

If you don't need an entire container, you can book LCL.  With LCL, you share a container with other shippers.  LCL loads are built by consolidators on behalf of the carrier or directly by freight forwarders.  Before you book LCL, check your weight/volume and think about if LCL is the least expensive option.  Under 150# is going to be less expensive by deferred air, between 150# and 500# the least expensive option will vary by origin and destination.

Just like air freight, you can book through a freight forwarder or the carrier.  Shippers usually work with forwarders unless they do major volume (think Target or Walmart).

Let's go back to the motor from the air freight post.  If the motor is in Minneapolis and needs to be in Singapore in four weeks, do you have to air freight it?  No.

If you're shipping ocean freight to Singapore from the US, chances are it's going be exported through Long Beach.  The Minneapolis cut is going to be ~10 days before the Long Beach cut for the same vessel.  So you can truck to LA (2-3 day transit) for an earlier sailing.  It costs you a couple hundred dollars more than the Minneapolis cut, but it costs less than air freight.  You can do the same thing with container freight - truck your crates to Long Beach and have them loaded into a container by a packer.  Again, more expensive than a Minneapolis cut but less than air  freight.

If your freight doesn't fit in a container?  Break bulk freight is loaded loose, generally by crane.  If you can put the freight on a flat rack, the flat rack is a better choice.  Flat racks go on the top of container stacks, so you have a lot more vessel options.  Plus break bulk is going to be a lot more expensive because it's done at the port instead of a packer.

Finally, carriers are subject to only limited liability.  If your general insurance policy doesn't cover shipping loss or damage, you should consider insurance through the freight forwarder.  After all, accidents happen.

Wednesday, September 22, 2010

Air Freight Options

One area where companies can usually save money is air  freight.  The sourcing goal is usually to put everything on the water, but that doesn't always happen.  Demand changes or quality issues come up.  But there are many types of air freight, and picking the right service can improve the bottom line.  This post is focused on international air freight - unless you need same day service or are shipping from one coast to the other, truck freight usually gets the same results for domestic freight (over 150#) at less cost.

First, some vocabulary:
Carrier: the airline operating the plane.  It may be a passenger carrier like Delta, an all-cargo airline like Cargolux, or a small-parcel service like FedEx or DHL
PAX: industry term for passenger, in this context refers to passenger flights
TATL: Trans-Atlantic (pronounced tattle)
TPAC: Trans-Pacific (pronounced t-pac)
Freight Forwarder: a broker that works works with shippers and carriers, using volume to achieve lower prices.  Freight forwarders offer door to door service that includes every step of international shipping, including export and import clearance.  The small parcel carriers have freight forwarder divisions.
Courier: in international shipping, courier means a small parcel carrier like UPS or FedEx.  In local shipping, a courier is a local delivery service.
Consol: consolidated service offered by freight forwarders.  The forwarder has guaranteed space on popular cargo flights that it fills with freight from multiple shippers.  Depending on popularity, there may be weekly, twice-weekly, or daily consols.

Imagine you're a project manager for a multinational company.  You're doing a project in China, and you need a 500# motor from the US.  You need the motor to be onsite in four weeks.

Ideally, you'd have shipped it by ocean freight.  Unfortunately your vendor missed delivery.  So you have to ship it by air.  What do you do?  First, communicate with your forwarder.  Tell them exactly when you need delivery.  Freight forwarders and carriers offer multiple service levels, and if you have a couple weeks to play with you probably don't need the most expensive one.

The fastest and most expensive service is express service.  Express is usually the next available flight, with confirmed service on every leg.  Depending on where it's going, express service usually takes 2-4 days to get to the destination airport (be sure to add time for customs clearance).  Do you need express service for this motor?  Probably not. 

The other service option for air freight is deferred.  (Everyone has their own name for it, this is mine.)  Deferred service is slower than express, usually 5-7 business days.  Deferred service will either be a slower service from the carrier or a consol offered by the freight forwarder.  There are benefits and risks to either one - a consol may be slower, but you're less likely to get bumped (especially if you're a good customer, but that's a story for another day). 

What's the takeaway?  Make sure your forwarder or the employee booking the freight has good information about when it needs to get there.  That information could save you 25-50%.

Welcome / Introduction

Everything has to start somewhere, so here goes.  Who am I?  And why supply chain?

My name is Hillary Drake.  I'm a supply chain and international compliance professional based in St. Paul, MN.  I have an MBA from the Carlson School of Management, a BA from Macalester College, plus a professional certificate in international trade from Saint Paul College.  Professionally, I have done warehouse & distribution management, HTS classification, domestic and international logistics and international compliance.  As of September 2010, I'm looking for a new position in one of those fields or as a supply chain or operations analyst.

Why supply chain?  At the end of most days I see results.  I completed 100 classifications or I got a shipment where it needed to go on schedule and on budget.  I haven't found another area of business that offers that kind of immediate satisfaction.

And finally, what's the point of this blog?  I'm going to share some of what I've learned in international business, especially when it comes to HTS classification and international compliance.  I'm planning to take the Customs Broker Exam in April, so this should also be good practice for me.  Some of the posts I'm planning will be thought exercises for the exam.

I'm looking for permanent or contract work, as well as short-term consulting.  You can reach me through my LinkedIn profile or the comments section.