Logistics and Transportation: Choosing the right route from point A to point B
Logistics is certainly one of the major issues that most companies face on a daily basis. Indeed, its impact on the cost of a food product is enormous. Evaluation of the level of risk, choice of the most suitable means of transport, optimization of packaging, selection of expert partners; a precise analysis is necessary before concluding a sale. Every aspect that is not properly analyzed can result in unnecessary costs that will jeopardize the profitability of a sale and, by extension, that of the company.
Managing risk and expectations
In any business relationship, a contract is essential. Exports are no exception, and every sales contract should ideally be negotiated under an Incoterm®, a standardized term that defines the rights and duties of buyers and sellers in a transaction. In short, an Incoterm® defines who pays for what, who assumes the risk, and when ownership is transferred.
In a situation where goods are lost, for example, who assumes the loss? Does the seller return the product or does the buyer re-purchase it? These questions must be addressed in advance in order to clearly define the rules of the game and to avoid an avoidable disagreement.
What impact does an Incoterm® have on the cost price, you may ask? If a company chooses an Incoterm® in which it takes the whole responsibility on a product, and this, until the final delivery to the customer, it must thus take into account the transport and brokerage costs, as well as the rights and taxes. It would therefore not be unreasonable for this company to establish a higher selling price. Conversely, if the buyer takes all the risks, under a different Incoterm®, he could expect a consequently lower price.
Land, air or sea transport: what to choose?
The means of transportation selected can also have a significant impact on the selling price. The choice must be made according to various criteria, notably the nature of the product, its life span and the destination.
Naturally, the longer the transit time, the less expensive it is. Let’s take the concrete example of a shipment from Quebec to Florida. Some might be tempted to choose ground shipping. However, air transport could be optimal for a product with a short shelf life or for an emergency delivery, even if it is more expensive. Indeed, if it avoids losses or late penalty fees charged by a customer, the expense may be worth it to avoid melting the profit margin.
Once the proper means of transportation has been selected, it is important to remember that the packaging must be designed to accommodate it. For example, a box filled to capacity is a wise choice for air freight, since airlines base their pricing on volume weight or actual weight, whichever is greater. To avoid paying for empty space, it is therefore important that the packaging be very well adapted to its contents. This aspect has less impact in the case of road transport, for example, where products are invoiced by the pallet, by the linear foot or according to the product category (product class). Without neglecting the optimization of packaging, it is important to focus on the best choice for a given situation.
What about getting through customs?
The inscriptions that must be found on the packaging are also very important. Indeed, depending on the country of destination, it is essential to adapt both its labeling and its marking; two very different aspects. If the labeling refers to the table of nutritional values, the list of ingredients and tutti quanti, the marking refers rather to the country of origin of the products. The requirements concerning the country of origin, as well as all other customs formalities, vary greatly depending on the country of destination. Hence the importance of associating with qualified partners with proven expertise in their respective fields. A customs broker, a freight forwarder and a customs consultant are all allies that it pays to have around. Their contribution could be invaluable and the return on investment will certainly be worth its weight in gold.