In international trade, it is important to maintain the competitive advantage of sourcing goods globally. Your business needs to get your goods to the right place at the right time, consistently and efficiently. This is why it’s important to consider the potential risks of international distribution.
Transportation costs must be controlled, and goods delivered promptly and in good condition. No matter what you’re transporting or what borders you have to cross, you can build a competitive advantage and maintain your profit margins as long as you plan properly.
When goods are in transit, they are most vulnerable to risk threats. The larger and more valuable the shipment, the bigger the risk—and solutions are much harder to implement when the issue is halfway around the globe.
Understanding the types of risks your business could face is the first step. Then, develop a strategic risk management plan to protect goods in transit and your bottom line. A well-developed strategy and due diligence can help you manage many of the kinds of risks that come with international distribution:
- The shipment that was expected two weeks ago has disappeared
- The container slipped from the crane’s rigging and cracked open on the dock
- The full container load has been pilfered to two-thirds of its value
- Thousands of bags of rice are wet and moldy
- The charter vessel has not been heard from
- The shipment was refused entry into its destination country
Threats to Cargo
Some typical methods used by cargo thieves:
- Theft at warehouses and distribution centres – basic break-ins, identity theft and hacking online databases
- Theft from trailers – at rest stops and while vehicles are in motion. Thieves have been known to jump trains looking for high value cargo.
- Theft of trailers – in distribution centres, storage or drop yards and rest stops
- Hijacking/piracy – encounters that can end in violence. Using deception (eg: dressing up as police officers) to intercept trucks, forcing the driver to another location or loading the cargo into another vehicle.
The dollar value of lost and damaged cargo is unknown as carriers tend not to report damage and will absorb losses to preserve reputations and avoid insurance cost increases.
Thieves target high-value items such as electronics, pharmaceuticals and clothing, however, as a crime of opportunity, any product will do. Organized thieves will gather information and monitor the shipping activities in industrial parks and manufacturing or distribution facilities, waiting for an opportune moment to steal cargo.
Organized thieves are aware of electronic surveillance and the use of GPS trackers. Law enforcement agencies are finding that thieves are using GPS jammers and removing cargo to their own trailers or warehouses, thus preventing tracing by trucking companies. At secured warehouse locations, the thieves will break the product down for resale on the black market. Preparing stolen goods for resale may entail changing the packaging, re-labeling the boxes, and even creating falsified bills of lading or customs paperwork to facilitate moving the stolen cargo out of the country.
Another concern is the use of insider information or help from the organization’s employees. FreightWatch International suggests that some cargo theft gangs will conspire with employees at the facility or have a gang member hired at the targeted warehouse in order to obtain necessary information on alarms, cameras and other security measures in place, as well as cargo deliveries.
The most serious concern is the escalation of violence. FreightWatch suggests that violence is escalating in developing countries. Countries with political instability, corrupt governments and law enforcement agencies, and high levels of poverty, are prone to cargo theft along with a wide range of other crimes and various levels of violence.
It is clear that supply chain/logistics planners must be aware of these risks when determining the movement of cargo.
Want to learn more about how to use appropriate procedures to prepare goods for shipping in order to minimize risks? Check out the FITTskills International Distribution online workshop!
The big risks of international shipping
- Loss and damage to cargo
- Unexpected additional costs, e.g. storage
- Delays or disruption of supply chain
- Personal injury or death
- Increased insurance premiums
- Increased prices of goods for consumers
7 risk management strategies
1. Exercise due diligence when engaging a carrier
- Determine how long the carrier has been in business
- Check their equipment or distribution centre – well maintained and secure
- Determine their business model – their own fleet or contract owner-operators
- Make sure their personnel are trained and qualified
- Check the carrier’s track record
- Consult with other customers for their experiences working with the carrier
- Check drivers’ training and accident record
- Understand the freight claim rate
- If using a freight forwarder, find out who they use as a carrier
- Review the relationships with carriers or freight forwarders that have been developed, ensuring that service levels are being maintained
2. Understand what documentation is required
To move your goods internationally and be in compliance with regulations, you need to understand exactly what documentation is needed. Your documents will need to include all the relevant information. If your documents are unclear or inaccurate, your shipments could be subject to significant delays. Protect your business, profits and time by maintaining rigorous records.
Many transportation services are paperless. For example, railway quotes, booking and documentation is all conducted online. In Canada, the U.S. and most of Europe, customs documentation is digital. However, this is not true for all countries. Be sure to check with consulates and agents for the procedures for customs and documentation submissions in other jurisdictions.
Focus on accuracy, detailed descriptions and complete documentation on shipping documents:
- Bills of lading
- Waybills, title documents
- Bills of sales
- Customs documents (including any taxation information)
- Health and safety certificates
- Import permits
- Certificates of origin
3. Ensure the contracts are clear
The contract for the sale of the goods will provide the terms of the delivery of the goods. Incoterms® rules will impact how the goods are delivered, where the sellers and buyers assume responsibility for the goods, as well as what they are each responsible for.
Since the cost of transporting goods is typically not included in the contract for the sale of goods, a contract with a third party for the international delivery and transportation of goods is necessary. This contract is between the shipper and the carrier, and it determines the rights and obligations of all the parties involved in transporting the goods. The shipper can be the seller, the buyer or a freight forwarder. The contract is generally a bill of lading or waybill.
Ensure the terms and conditions of the transportation contract are clear and that each party understands their rights and obligations under the contract. Seek legal advice if necessary, e.g. negotiating charter vessel contracts.
4. Communicate clearly and in timely manner
Good communications are an important part of risk management. Making sure that detailed information is provided in a timely manner can help reduce extra costs:
- Prevent unplanned storage or transportation costs by making sure that the carrier has specific details on the port terminal to deliver cargo
- Communicate the right information to the emergency response personnel when transporting hazardous or dangerous goods so that proper action can be taken to mitigate incidents or to report unsafe conditions
- Tell the importer when the cargo will be at the border to ensure that customs documentation is filed at the correct time
- Make sure the insurance company has the transportation vessel name, registration number and other pertinent details so that risks to cargo are covered
Providing important information in a timely manner can be complicated in international trade due to time zones and the international dateline. It’s important to keep stakeholders informed with accurate information. Changes to bills of lading/waybills (e.g. the number of containers and their descriptions) or any special requirements must be communicated to the appropriate stakeholders to ensure cargo is handled correctly.
Failure to communicate changes to all stakeholders and document changes properly could result in:
- Damaged cargo
- Loss of insurance coverage
- Payment disputes or no payment
Language and culture differences can also impact communications. Not all industry terminology, abbreviations and jargon will be understood in another country. If foreign language documents are required, make sure to have translation personnel with experience in the shipping industry to ensure that terms and conditions of shipments are clearly communicated. Often organizations will hire agents with specific business and language skills to expedite business affairs in other countries.
5. Trained and qualified personnel
It is important that the personnel managing and handling cargo have the training necessary to ensure the safe transportation of cargo. If using a freight forwarder to deal with customs, ensure they have personnel who are qualified customs brokers.
It is in the best interest of all stakeholders to ensure that those individuals hired to drive trucks, to captain ships, to operate shipping container cranes, and to manage customs processes are properly trained and qualified.
6. Implement and maintain security practices
In general, thieves will target small, high-value cargo that is easy to identify and transport. There are many security practices that your business can implement to prevent theft:
- Conduct thorough background checks on new employees and new contractors
- Plain containers without logos and company names are useful in concealing the type of product that could be inside
- Account for all products leaving the warehouse, and ensure that all truckloads, containers and cartons are properly sealed with seal numbers on documentation
- Use discretion about shipment storage sites, delivery and pick-up dates and times
- Keep the time, place and dates of deliveries confidential – it impedes the ability of criminals to plan thefts
- Follow pick-up and delivery protocols to ensure that legitimate drivers are accessing warehouses
- Keep time in transit short. Transportation by air is the fastest, safest and most convenient method for transporting goods internationally
- Use direct routes or single-trip deliveries when possible
- Avoid long periods of time where containers are sitting unattended
- If containers need storing, ensure they are in locked and monitored distribution centres or drop yards
- Avoid high crime or high risk areas when possible. Plan longer routes if necessary
7. Take advantage of technology
Technological solutions ranging from tamper-resistant seals and packaging to satellite tracking technologies:
- combinations of locking crossbars threaded through door lock rods and door handle with steel cables
- electronic locks for container doors that lock from the inside of the container preventing thieves from accessing and breaking off a lock
- locks and electronic steering and engine systems that prevent thieves from driving off with the truck and cargo
- plastic or metal pins or tags that thread through container locks or door handles or metal numbered tape placed over openings, which will brake if the container door opens, indicating tampering
- reusable seals that electronically record the number of times they open and close providing a record of the number of stops a vehicle makes and how often the container opens.
Trackers and locators:
barcoding, RFID tags and GPS trackers allow for cargo and vehicle monitoring
- systems where customers get online confirmation of shipping status and estimated delivery times
barcoding and RFID tags enable the scanning of shipments or automatically tracking at each stage of the shipping process
- GPS systems along with online Electronic Data Interchange (EDI) and on-board communication systems attached to vehicles and containers enables carriers to track their movements and provide accurate estimated delivery times.
The loss of goods, theft, and damage can erase any competitive advantage gained by international trade. Plan, prepare and implement strategies to manage risk and increase security for your shipments.