Outbound logistics is the outflow of goods from the company to its clients. It involves the movement of goods from the end of the production line to the client/end-user. Succinctly put, it’s a process of transporting, storing and distributing goods to the customers.
As the process is an integral part of a supply chain and plays a crucial role in developing customer relationships, having the right distribution channels, inventory management system and delivery options are important.
Inbound logistics refers to the inflow of raw materials from suppliers to manufacturing facilities. It includes the process of storing the material that flows into the company and distribution of that material to the respective manufacturing facilities.
It is the first stage in the value chain and also involves optimising the movement of the goods from the supplier’s point of origin to the manufacturing facility or in some cases the warehouse. The centre point of inbound logistics is thus the transportation and storage of incoming goods.
As far as inbound logistics is concerned, while signing contracts between a seller and buyer it’s important to have clarity over who will be held responsible in case of cargo damage.
A shipper or an exporter is the party that takes up the responsibility of packing goods and shipping them from one place to another. The flow of goods in case of a shipper is outward.,
They are also in charge of making sure that all the licenses necessary for shipping goods as well as other documents required for customs clearance are obtained.
A consignee or an importer is the entity that receives the goods sent by the shipper or exporter. He is the receiver and in most cases the owner of the goods once they reach the destination. It can be a company or an individual.
Unless specifically stated so, the ‘consignee’ mentioned on the Bill of Lading is legally required to be physically present to receive the shipment.
A trade agreement refers to a contract between two or more states regarding their trade relations. It's a pact specifying a wide range of taxes, tariffs, trade restrictions etc. and could be bilateral or multilateral.
It exists when the countries involved come to a consensus on terms of trade with each other. All the duties and tariffs imposed by a country on imports and exports are determined by this agreement and hence, are directly related to international trade. The idea behind a trade agreement is to clearly outline what is agreed upon between the signatories and the consequences of deviating from the agreement.
BAF stands for Bunker Adjustment Factor. It refers to a change in carrier’s rates to accommodate the price of oil.
FFA stands for Forward Freight Agreement and is a financial forward contract (a non-standardized contract between two entities to buy or sell an asset at a specified time in the future at a price agreed on at the time of conclusion of the contract) that allows charterers, speculators and ship owners to protect themselves against the fluctuations in freight rates.
By this agreement, the owner of the contract gets the right to buy and sell the price of freight for future dates.
Political risk arises when countries change their trade policies or impose trade barrier that directly or indirectly affects the ability of two or more parties to carry out their trade.
Commercial risks usually arise due to a lack of knowledge regarding carrying out trade. Some of the factors that contribute to commercial risk include lack of understanding of foreign markets, the inability of the shipper to come up with a product that suits the requirements of a foreign market, inability to deal with unforeseen situations that may arise while the goods are in transit, etc.
Intransit cargo risks
Most of the goods are shipped by sea. While in transit the goods are prone to risks such as storms, theft, collisions, fire, rough sea, leakage, explosion, containers falling off the carrier etc. To minimise the damage arising out of in-transit cargo risk, apt knowledge of marine insurance is a must.
Credit risk may arise as a result of the inability of the buyer to make the payments on time. At times, circumstances may arise where the buyer may make the payment but the seller may not receive it. Getting credit risk insurance is one way an exporter as well the bank financing the exporter can minimise this risk.
Foreign exchange fluctuations risks
Foreign exchange risk is the risk of fluctuations in currency value. It is typically related to the appreciation of the domestic currency of the concerned country relative to a foreign currency.
Freight charges or freight rate is the price that the shipper pays to the carrier for shipping his goods from the source location to the agreed-upon destination point. It is calculated based on the type of transportation mode (road freight, air freight or sea freight), the nature of the cargo ( containerized cargo, loose cargo, hazardous, reefer, etc) weight/ volume of the cargo, and the distance involved.
|The term cargo generally refers to goods transported by ship or sea.||The term freight is usually used in the context of goods transport by train or truck.|
|We have cargo planes and cargo ships. Mailmay also be called cargo.||The terms freight truck and freight trains are commonly used. However, this is not always the case, as the term “air freight” is acceptable usage too.|
|Used specifically for the goods only, “cargo” is not used to include the payment or the money being charged for the transport of goods.||“Freight” is also the term used for the payment when certain goods are transported.|
|Any product that is being transported can be called a cargo.||Freight can also mean a cargo being transported via truck, train, plane, or ship.|
|Large cargo containers are usually used in transporting the goods called cargo. Cargo can be transported on pallets, in cargo handling nets, or by other means.||Freight can denote many things. It may mean the product, merchandise, the amount payable, or the money charged.|
|The mailing services offered of parcels may also be known as cargo.Any item for consumption that is being transported can be referred to as cargo.||Mail cannot be considered freight, as it is only used to describe commercial goods.|
|Cargo being transported may be referred to as freight if referring to both the goods and the money charged for their transport.|
Main modes of transportation in the freight shipping industry as follows:
Ocean shipping is the most widely used mode for moving large volumes of cargo. While it is a very cost-efficient alternative to air shipping, it is rather a slow one.
It's a preferred method for shippers moving hazardous, liquid and/or heavyweight goods. For ocean shipping, cargo is stacked in containers which are then loaded onto vessels.
Air is the fastest and the most expensive mode of transport as compared to other modes of transport. It is a preferred option for shippers moving high value and perishable goods. While there are specialised flights for moving cargo, the maximum amount of cargo moves in the bellies of passenger flights.
Over-the-road transportation is the most extensively used mode of transport. There are two key types of over-the-road transportation:
Intermodal and Multimodal
Quite often transportation routes are complicated and long. This is where the multimodal and intermodal modes of transportation step in. It suggests a combination of rail, road, ocean and air for a single shipment.
Each mode of transportation has its drawbacks and advantages which are determined by the needs of the shipper.
|3PL Logistics||4PL Logistics|
|In a 3PL model, an enterprise maintains management oversight but outsources operations of transportation and logistics to a provider who may subcontract out some or all of the execution.||In a 4PL model, an enterprise outsources management of logistics activities as well as the execution across the supply chain.|
|Additional services may be performed such as crating, boxing and packaging to add value to the supply chain.||The 4PL provider typically offers more strategic insight and management over the enterprise's supply chain. A manufacturer will use a 4PL to essentially outsource its entire logistics operations.|
|In a farm-to-grocery store example, a 3PL may be responsible for packing the eggs in cartons in addition to moving the eggs from the farm to the grocery store.||In a farm-to-grocery store example, the 4PL may manage the communication with the farmer to produce more eggs as the grocery store's inventory decreases.|