How Logistics affect the International Trade

Logistics?!…

What is Logistics? And how Logistics affect International Trade?

First of all let’s see the definition of Logistics, Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements. (Council of Supply Chain Management Professionals)

And in order to plan, implement, and control the flow and storage of goods in efficient and effective way, Logistics needs some activities to do that, Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning and management of third-party logistics services providers.

So, Logistics is a part of Supply Chain but it considers the backbone of Supply Chain, we can say that supply chain = suppliers + Logistics + customers. That is because one of the most important roles of logistics management is the Eight Rights 8R’s. It is about getting:

1-the Right product

2-to the Right customer

3-In the Right quantity

4-in the Right condition

5-At the Right place

 6-At the Right time

7-At the Right cost

8-With the Right documentation

We can see that one of the 8R’s is “Right Cost”, so why Logistics is responsible to get the suitable cost?  Because Logistics affects in determining the final price of the product by about 50% of the product selling price.

In the International Trade, it is very important to show if the selling price includes the delivery cost or not, and the traders using ICC’s INCOTERMS to determine the delivery terms.

And as we know the ICC issued many editions of INCOTERMS in order to be updated to match the global market requirements, the current edition is INCOTERMS 2010.

Currently, ICC is preparing the draft for the new edition will come on January 1^St, 2020.

Incoterms 2020 will see significant changes that will affect importers and exporters across the globe. Let’s discuss the main changes that are reportedly being deliberated.

What changes to expect for Incoterms 2020?

1. Incoterms to disappear

As it stands, the committee is likely to eliminate FAS, DDP, and EXW from Incoterms 2020.

The DDP Incoterm and the EXW Incoterm are often considered to be more applicable to domestic trade and they appear to go against the European Union’s new customs code.

As for the FAS Incoterm, the justification stems from the fact that it’s very seldom used and similar to the FCA Incoterm, which allows for goods delivery at the dock.

2. Incoterms to split

DDP Incoterm to give way to DTP and DPP

As mentioned, DDP is likely to disappear due to inconsistencies with payments of customs expenses. But instead of eliminating it completely, the committee is looking at instead creating two Incoterms: DTP and DPP.

As it currently stands, DDP Incoterm stipulates that all customs duties at the destination must be borne by the seller, regardless of where the goods are being delivered to (buyer’s address, warehouse, terminal, etc). With the new changes, the seller will still be responsible for customs duties, but there will be a clearer distinction with regards to the final delivery location.

DTP Incoterm (Delivered at Terminal Paid): Seller is responsible for all transport-related costs including customs duties when goods are delivered to a terminal (be it port, airport, transport center, etc) at the destination.

DPP Incoterm (Delivered at Place Paid): Seller is responsible for all transport-related costs including customs duties when goods are delivered to any other places that are not a transport terminal. E.g., buyer’s address.

Expansion of FCA

The FCA Incoterm is one of the most versatile Incoterms. In fact, it’s estimated that four out of ten international trade operations are carried out under FCA.

One of the main advantages FCA offers is its flexibility with delivery location. This may be the seller’s address, a warehouse, a seaport, an airport, etc. Plus, it can be applied to all modes of transportation, which makes it perfect for multimodal transport.

But this could soon change and we may see the FCA Incoterm unfolding into two: one for land transportation and another for the sea.

3. New Incoterms

CNI: New member of the Incoterm family

The next Incoterms edition will welcome a new family member: CNI or Cost and Insurance. The CNI Incoterm is meant to fill the gap separating the FCA Incoterm and the CFR and CIF Incoterms.

As with all other C Incoterms, CNI will be an ‘arrival’ Incoterm, meaning that risks and responsibilities are transferred from seller to buyer at the departure port. But this new Incoterm will allow the exporter to bear responsibility for cargo insurance, while the buyer takes charge of the risk of transportation.

4. Other changes in Incoterms 2020

The most notable revisions of the next Incoterms edition are undoubtedly the new Incoterms or changes to existing ones. But that’s not all. Here’s a quick look at some other changes.

-China and Australia involved for the first time

The ICC’s drafting committee get together frequently to address different issues and problems that its 150 member countries raise. Any concerns are first brought to a national level before it reaches the ICC international headquarters in Paris for discussion.

Most of the members of the drafting committee are Europeans. And for the first time, the drafting of Incoterms will include representatives from China and Australia. Together with France, UK, Germany, Turkey, and the US, they’re responsible for revising draft after draft of the Incoterms 2020 before coming to a final and definitive version,

-A more practical and simplified edition of the Incoterms

Incoterms 2020 will be easier to understand. Or at least, that’s what the ICC intends to achieve in the new edition – to reduce Grey areas and eliminate misunderstandings. The committee is well aware of the seriousness and potential consequences caused by misinterpretations of Incoterms and aims to facilitate the understanding of these transport terms with Incoterms 2020.

Finally, It’s still about a year to go before we can expect to see a finalized version of Incoterms 2020, and perhaps another few years more to measure its results. But it may be safe to say that with the new changes the ICC is deliberating, we can expect to see quite a change in the way international transactions are carried outcome 2020.

Disclaimer: There has been no official confirmation by the ICC regarding these possible changes. This post was put together based on several online sources.

---

Mr.Hytham Abaza

Business Development Manager – ATEB Group