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AIR FREIGHT TRANSPORT MANAGEMENT“Fresh produce”
Arab Academy for Science & Technology & Maritime Transport
Institute Of International Transport & Logistics
By: Adel Abou Heneidy
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Overview:• TACT• IATA traffic conference areas• Coding• Acceptance of cargo• Methods of paying FRT charges• Advanced arrangements• Cargo loading priorities• Airlines’ timetable• Parcel’s dimensions• Types of rates• AWB (Airway Bill)• Shipping instructions• Calculation of air freight charges• Breakeven points• ULD (Unit Load Device)• Tracking• Dangerous goods & fresh produce• Shipping fresh produce by air• Cold Supply Chain
Grading Policy:
- Interaction & assignments ……20%
- Mid-term exam………………..30%
- Case study…………………….10%
- Final exam…………………….30%
TOTAL: 100%
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TACT : The Air Cargo TariffTACT : The Air Cargo Tariff
Rates worldwide(except north America)
RULES
Rates North America
Updated every 4 months
Updated every 2 months
Updated every 2 months
International Air Transport Association
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IATA traffic conference areas
IATA area 1 :
All of the north & south American continent and the adjacent islands.
IATA area 2 :
All Europe ( including the European part of the Russian Federation) ,
and the adjacent islands.
Africa & middle East.
IATA area 3 :
All of Asia and the adjacent islands; except the portion included
in IATA area 2 ( from middle east).
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AIRLINES’ CODING
Prefix number
Egyptair : MS - 077
Lufthansa : LH - 020
Emirates : EK - 176
British : BA - 125
AIRLINES’ CODING
Prefix number
Egyptair : MS - 077
Lufthansa : LH - 020
Emirates : EK - 176
British : BA - 125
AIRPORTS’ CODES
Cairo : CAI London : LHR
Dubai : DXB NEW YORK : JFK
Sanaa : SAH MILANO : MIL
AIRPORTS’ CODES
Cairo : CAI London : LHR
Dubai : DXB NEW YORK : JFK
Sanaa : SAH MILANO : MIL
CODINGCODING
Countries’ codes
Egypt …. EG
Italy……. IT
USA…… US
Yemen…YE
Countries’ codes
Egypt …. EG
Italy……. IT
USA…… US
Yemen…YE
Currencies’ codes
Egyptian Pound... EGP
US $………………. USD
Yemeni Rial………YER
Currencies’ codes
Egyptian Pound... EGP
US $………………. USD
Yemeni Rial………YER
IATA AIRPORTS CODING.doc
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• Write down the 3-letters IATA codes for the following airports:
Abu Simbel, Egypt
Baltimore, MD, USA
Berlin, Germany Schoenefeld
Berlin, Germany Tegel
Berlin, Germany Tempelhof
IATA AIRPORTS CODING.doc
ABS
BWI
SXF
TXL
THF
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• Complete:: 1) India is located in IATA area …………
2) Egypt is located in IATA area ……..& Germany in IATA area …….. 3) Both ……… & ……… are located in IATA area 1. 4) We can find the published air freight rate between CAI / JFK in the …………….. TACT book. 5) We can find the published air freight rate between AMS / FRA in the …………….. TACT book. 6) We can find the published air freight rate between DXB / ORD in the …………….. TACT book. 7) IATA stands for……………………………………………… 8) The code of the currency of KSA is…………………………
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Acceptance of goods
Packing : Cargo must be in very good condition
Marking : * Full style of both shipper & consignee.
* Number of package ( 1/10 , 2/10 , …….).
* Labels ( this side up, fragile , urgent…..).
Payment : Prepaid : PP OR Collect : CC
The Collect charges are not accepted in the following cases:
1) Human remains.
2) Live animals.
3) Perishables.
4) Used personal effects which can not be sold.
5) Resale of goods is less than the charges to be collected.
6) Country regulations which do not permit Collect .
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Advanced arrangements
The following commodities need advanced arrangements :
Valuable cargo / Live animals / Human remains & ashes / Perishables /
Dangerous goods / shipment of unusual shape & size.
** Advance arrangements are made by 1st carrier.
Cargo loading priorities :
1) Aircraft on ground AOG 2) Diplomatic pouches DIP
3) Valuable cargo VAL 4) Live animals AVI
5) Perishables PER 6) Human remains HUM
7) Restricted items RRA
8) News materials ,which any delay will cause loss of its value.
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Information by countries
It is in section 7 in TACT RULES book
Section 7-2 : Charges collect
For example EGYPT (EG)
Charges collect accepted : Yes
Charge collect fees : 5 %
Minimum charge : EGP 35
Section 7-3 : Import / Transit / Export regulations
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• How much you are going to pay for the airline to receive documents of your shipment arrived to CAI on CC basis with FRT charges of EUR 550 ?
Solution:
Collection charges = EUR 550 x 5% = EUR 27.50
Total to be paid = 550 + 27.50 = EUR 577.50
• How much you are going to pay for the airline to receive documents of your shipment arrived to CAI on CC basis with FRT charges of USD 50 ?
Solution:
Collection charges = USD 50 x 5% = $ 2.5 (which is less than EGP 35)
Total to be paid = $ 50 + EGP 35
• How much you are going to pay for the airline to receive documents of your shipment arrived to CAI on PP basis with FRT charges of EUR 4200 ?
Solution: Total to be paid = 0
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AirlineTimetable
RFS: Road Feeder surface
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Aircraft Dimensions
Boeing 737
76 88 101 106
25 254 254 254 254
35 254 254 254 243
45 254 254 254 243
55 254 254 254 243
66 254 243 243 243
76 254 243 241 218
86 254 50 50 50
H
W
Rear Hold
114
86 144
W
H Forward Hold
Examples:
L xW x H = 235 x 70 x 80 cm…
= 220 X 102 x 75 cm… X
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Airbus A300F
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TYPES OF AF RATESTYPES OF AF RATES
General cargo rate (GCR)
Specific commodity rate (SCR)
Class rates (CCR)
• Valuable cargo S
• Newspapers,books, periodicals…. R
•Live animals S
•Human remains S
•Baggage shipped as cargo R
R …. Reduction rate
S ….. Surcharge rate
Special rates for some commodities
Min……………
N ( - 45 kgs )…..
+ 45…………….
+ 100…………..
+250……………
Rates differs from originto origin & for
destination to another.
Rates differs from originto origin & for
destination to another.
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General Cargo Rate (GCR) • General cargo rates apply to the carriage of
commodities that have not been allocated a specific commodity rate or commodity classification rate. General cargo rates consist of minimum rate (M), normal rate (N), and lower charge in higher weight (Q).
CAI / FRA EGP / KGM…… 143N……. 10.1045…... 7.60100…. 7.10250…. 6.60
CAI / NYC EGP / KGM…… 170N……. 11.1045…... 10.50100…. 9.70300…. 8.50500…. 8.00
N…. - 45 Kg
45… + 45 Kg
100.. + 100 Kg
300.. + 300 Kg
500.. + 500 Kg
How many KGs are covered by M ?
M value / N value
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Example: GCR & Specific commodity rates
From : CAIRO EG CAI
Egyptian Pound EGP KGS
To : FRANKFURT DE M… 143
N… 10.10
45… 7.60
100.. 7.10
250.. 6.60
0006 100.. 4.80
0006 500.. 4.30
MS 0007 250.. 4.00
MS 0007 500.. 3.50
2199 500.. 5.50
2199 1000.. 5.00
0006…Food stuffs.
0007…Fruits & vegetables.
2199…Yarn ,textiles.
Specific commodity
MS…Egypt Air
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• Using rates shown in the previous slide, calculate the FRT
charges for the following air shipments from CAI / FRA: 1) 200 Kg of strawberry on LH.
2) 200 Kg of strawberry on MS.
3) 350 Kg of strawberry on MS.
4) 200Kg of tomato paste on KL.
Solutions:
1) 200 x 7.10 = EGP 1420
2) 200 x 7.10 = EGP 1420
3) 350 x 4.00 = EGP 1400
4) 200 x 4.80 = EGP 960
Solutions:
1) 200 x 7.10 = EGP 1420
2) 200 x 7.10 = EGP 1420
3) 350 x 4.00 = EGP 1400
4) 200 x 4.80 = EGP 960
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Break even point = Higher weight x
Example: if chargeable weight is 420 kgs
and + 300 = EGP 6
+ 500 = EGP 5
Then break even point = 500 x
As 420 > upgrade the chargeable weight to be 500 kgs and apply
rate of + 500 Like that, the shipper will pay = 500 x 5 = EGP 2500 Instead of = 420 x 6 = EGP 2520
Rate of higher weight
Rate of lower weight
6
5 416
Break even point
= KGs
416
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Solved example 1
• Calculate the FRT charges for following shipment:
Chargeable weight is 320 kgs + 250 = EGP 6.70 + 500 = EGP 6.50
Air freight calculations.xls
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Specific Commodity Rate (SCR)
• Specific commodity rates are usually lower than general cargo rates and are published for particular commodities from a specified point of origin to a specified destination point.
They are subject to a minimum weight restriction. • When the class rate or the general cargo rate
applicable to the consignment is lower than the Specific Commodity Rate, this lower rate can be applied.
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Commodity Classification Rate (CCR or Class Rate)
• Commodity classification rates, also known as class rates, are published for particular commodities from a specified point of origin to a specified destination point and are usually shown in Surcharged (S) or Reduced (R). Class Rates take precedence over General Cargo Rates regardless of comparisons.
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Published materials (R)
• Newspapers, Magazines, Periodicals, Books, Catalogues, Braille-Type Equipment and Talking Books for the Blind , 50% of normal GCR shall apply to the above commodities and the minimum charge will be either the minimum charge for the specified sector or the amount you get by multiplying such discounted rate per kg by the minimum chargeable weight, whichever is higher.
Class rates are not applicable to the carriage of calendars, price tags and posters.
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Baggage Shipped as Cargo (R)
• For carriage of baggage shipped as cargo (excluding machinery, jewelry, cameras, merchandise and salesman samples), 50% of normal GCR will apply, and such baggage is subject to a minimum charge for 10 kg.
• The baggage must be delivered to the carrier no later than the passenger's departure date, and the passenger or his agent is responsible for customs clearance.
• Airport of destination, must be as shown in passenger’s ticket.
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IATA AREAS – Class Rates
Example of IATA AREAS Class Rate.doc
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Example: Class rate from CAI to FRA
Both CAI & FRA are within IATA area 2
Live animals : Rate will be 175 % of normal GCR
N…. EGP 10.10 / kg
N175…EGP 17.68 / kg ( Rounded to 17.70 )
Valuable cargo : Rate will be 200 % of normal GCR
N…. EGP 10.10 / kg
N200…EGP 20.20 / kg .
Newspapers : Rate will be 50 % of normal GCR
N…. EGP 10.10 / kg
N50… EGP 5.05 / kg ( Rounded to 5.10 )
S
S
R
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• Calculate the FRT charges for a horse of weight of 160 Kg needed to be shipped by air from CAI / FRA.
SOLUTION:
Live animal within IATA area 2……………150 N
N….. EGP 10.10 per Kg.
150 N = 10.10 x 150 % = 15.15 = 15.20 per Kg
FRT charges = 15.20 x 160 = EGP 2432
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• Calculate the FRT charges for a small domestic dog of weight of 8.5 Kg needed to be shipped by air from CAI / JED.
SOLUTION: not allowed !
According the RULES section # 7.3.2, the only types of dogs allowed to be imported into KSA are:
Watch (Guard) dogs
Hunting dogs
Guide dogs for the blind
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• Calculate the FRT charges for a shipment of spare parts of weight of 150 Kg needed to be shipped by air from CAI / DAM on MS on collect basis.
SOLUTION: not accepted !
According the RULES section # 7.2.2, collect shipment to DAM
is not allowed on MS.
You can use RJ via Amman.
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The Basic Facts about Calculation of air cargo
• Air cargo shipments are subject to the rates applying on the day of issue of the airwaybill.
• Rates generally apply from the departure airport to the destination airport and not vice versa. Rates therefore are not direction-bound and their amount is subject to the law of demand and supply.
• The cargo is established pursuant to the international air cargo tariff
( The Air Cargo Tariff = TACT ) and includes the following tariff group: • Minimum cargo charges (so-called minimum charges which must be charged) • • • • • • General cargo rates (so-called General Cargo Rates)N-Rates (normal rates) • • • up to 45.00 kg Q-rates (Quantity Rates) as from 45.00 kg • • • Special rates (specific rates or. SCR = S pecific C ommodity R ates • • • are exceptional rates applying to specific goods on certain routes • • • Goods class rates ( C lass R ates = CR ) for specific goods • • • (live animals, valuable shipments, newspapers, etc.).
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The Basic Facts about Calculation of air cargo {Continued}
• Minimum cargo charges (so-called minimum charges which must be charged)
• General cargo rates (so-called General Cargo Rates)• N-Rates (normal rates) –up to 45.00 kg • Q-rates (Quantity Rates) as from 45.00 kg • Special rates (specific rates or. SCR = S pecific C ommodity R ates
are exceptional rates applying to specific goods on certain routes • Goods class rates ( C lass R ates = CR ) for specific goods (live animals, valuable shipments: S , newspapers: R).
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Establishing the cargo weight
• For air cargo the weight is rounded up to the next full half and full kilo. e.g: 33,20 = 33,50 / 33,60 = 34.00 / 525,50 = 525,50
If one consignment consists of several packing units (colli), the weight is first added up and then rounded!
• Bulkiness in air cargo is 1 : 6 ( 1 m³ stands for a cargo volume of 167.00 kg )
• Volume (bulk) weight is calculated according to the formula: Volume weight = length x width x height (cm) x number of colli 6000 • As a final step the actual and the calculated weights are compared
and the higher weight is used to calculate the cargo.
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Calculation of chargeable weight(Solved example # 2 a )
• Calculate the chargeable weight for the following air shipment:
a) Automotive spare parts packed as follows:
1 carton of 25 Kg, and 75 x 60 x 40 cm, plus
10 cartons of 10 Kg, and 50 x 30 x 25 cm each, plus
5 cartons of 15 Kg, and 50 x 30 x 30 cm each.
Air freight calculations.xls
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Calculation of chargeable weight(Solved example # 2 b )
• Calculate the chargeable weight for the following air shipment:
b)
Air condition parts: 10 cartons of 10 Kg, and 50 x 30 x 25 cm each. plus,
Chemicals: 5 cartons of 15 Kg, and 50 x 30 x 30 cm each.
plus,
Handy crafts: 17 cartons of 13 Kg, and 86 x 45 x 33 cm each.
Air freight calculations.xls
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Rate construction
• So far only published direct rates have been mentioned: "Airport of Departure to Airport of Destination“
• However, rates to all airports worldwide are not published at every departure airport. Therefore such rates must either be combined with "ADD-ON" amounts or to be constructed with "unpublished rates" !
• The idea of an ADD-On amount-construction is to "add on" a domestic rate to the point of destination to a published rate into the country of destination. The ADD-ON amount can, however, also be "added" in the country of departure.
Conversion of rates(Section 5.8)
• Example 1: Construct a rate in CZK from A to C via B, where: Sector rate from A to B……..CZK 31.00 Sector rate from B to C……..EUR 4.10 (a) USD / CZK = 20.44810 (b) USD / EUR = 0.72506 (c) Rounding off unit for CZK is 0.10
__________________________________________________Solution:rate from A to B……..CZK 31.00rate from B to C in CZK = __________ = CZK 115.628
Total rate from A to C = CZK 146.628 = CZK 146.60
a b
c
X
Conversion of rates(Section 5.8)
• Example 2: Construct a rate in CZK from A to E via B, C, D where: Sector rate from A to B……..CZK 31.00 Sector rate from B to C……..EUR 4.10 (a) Sector rate from C to D……..CHF 16.70 (a) Sector rate from D to E……..EUR 5.99 (a)
USD / CZK = 20.44810 (b) USD / CHF = 1.20569 (c) USD / EUR = 0.72506 (c) Rounding off unit for CZK is 0.10__________________________________________________
Solution:rate from A to B……..CZK 31.00rate from B to C in CZK = CZK 115.628rate from C to D in CZK = CZK 283.226rate from D to E in CZK = CZK 168.929
Total rate from A to E = CZK 598.782 = CZK 598.80
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Disbursement Fees (DBC)
• Disbursements are amounts collected at the destination for the provision of services that are incurred at the origin which are incidental to the air carriage of the consignment, including surface transportation, storage and customs clearance charges.
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Valuation Charge
• When the shipper's "declared value for carriage" on the Air Waybill is more than USD 20.00 (or its equivalent) per kilogram , a valuation charge of 0.5% of the shipper's declared value for carriage EXCEEDING USD 20.00 per kilogram (Gross Weight) will be charged.
Valuation charge = ( Declared value – $ 20 x Gross weight ) x 0.005
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Valuation Charge (examples)
• Calculate the valuation charge for each of the following air shipments:
G.Weight
(Kg)
Volume weight
(Kg)
Chargeable weight
(Kg)
D.V.C
100 90 100 USD20,000
900 1260 1260 USD10,000
1000 400 1000 EGP 200,000
a) [ 20000 – 20 x 100 ] x 0.005 = USD 90
b) [ 10000 – 20 x 900 ] x 0.005 = - USD 40 ???c) [ (200000 / 5.70) – 20 x 1000 ] x 0.005 = USD 75.44 = USD 75.45
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•It is not negotiable document
are always consigned to a particular company or person
* In case of FOB terms it will
on collect basis (payable at destination)
* In case of C&F or CIF basis it will prepaid
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AWB B/L
Not negotiable Negotiable
AWB shall be issued after the complete consignment
has been received
B/L shall be issued after the complete consignment has been boarded onto vessel
The shipper is responsible for issuing AWB
The vessel company is responsible for issuing B/L
Payable to a specified person
Payable to bearer
AWB vs B/L
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AWB - Check Digit Number
• Check Digit Number : A single digit of the air waybill number used to ensure that the air waybill number is correctly entered into a computer system.
• Example:
AWB # 020 – 2114 1643 2114 1643 7
0
0
2
3
Pls, check the following AWBs:
077 – 3208 9901
077 – 3203 080?
077 – 3203 0806
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Rate Class in AWB
One or more of the following codes shall be inserted as appropriate:
M - Minimum Charge
N - Normal under 45 kg
Q - Quantity over 45 kg rate
C - Specific Commodity Rate
R - Class Rate (Reduction)
S - Class Rate (Surcharge)
U - Pivot Weight And Applicable Pivot Weight Charge
E - Weight in excess of pivot weight and applicable rate
X - Unit Load Device (as an additional line entry with one of the above)
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The significance of AWB:
Contract of carriage / Proof of receipt of cargo / Freight bill / Guide to carriers’ staff in handling , dispatching, …• Certificate of insurance ( if requested by shipper) : If the shipper does not declare the value for carriage ; in case of loss of cargo the maximum compensation to be paid by carrier is $ 20 / kg. But, if he declares the value for carriage , he will pay extra charges called valuation charge. In case of loss of cargo , the carrier will pay the total declared value.The valuation charge is calculated as follows: Valuation charge = ( Declared value – $ 20 x Gross weight ) x 0.005
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Example Example
Shipper : ABC company 15 Ahmed Orabi st. –Mohandeseen – Cairo –Egypt Tel # 3448782Consignee: XYZ company 15 street # 46 – DUS-Germany Tel # 5864875Commodity : Air condition spare parts.Number of parcels : 15 Dimensions of parcel : 90 x 80 x 70 cmGross weight per parcel : 60 kgs Freight charges : PrepaidDeclared value for carriage : USD 75000 {in case of non declaration NVD }Declared value for customs : NCV { no customs value }Handling information: Notify Mr. John Roger Tel # 5864879 upon arrival
48
Calculations :
Gross weight = 60 kgs x 15 parcel = 900 kgs
Volume weight = 90 x 80 x 70 cm x 15 parcels
Chargeable weight = 1260 kgs
Rate CAI / DUS = EGP 6.60 / kg
Total freight charges = 6.60 x 1260 = EGP 8316Valuation charge = ( Declared value – $ 20 x Gross weight ) X 0.005 = ( 75000 – 20 x 900 ) X 0.005 = $ 285 [ equal to EGP 1322 ]Due carrier = EGP 71
Total prepaid = 8316 + 1322 + 71 = EGP 9709
6000= 1260 kgs
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Solved example 3• A shipment consists of:
40 parcels of 4 Kg , and 30 X 20 X 10 cm each
90 parcels of 3 Kg , and 0.5 X 0.4 X 0.2 m each
60 parcels of 15 Kg , and 75 X 50 X 24 cm each
1) Calculate the total air freight charges if the shipment will be
dispatched from CAI / FRA with rate of = EGP 6.60 / kg ( +250)
2) Calculate valuation charge if the declared value is $ 50000.
Solution:
• Calculate the gross & volume weights for each type of parcels.
• Determine the chargeable weight for each type.
• Calculate total chargeable weight.
• Calculate total freight charges.
• Calculate valuation charge
Air freight calculations.xls
50
AIRWAY Bill (AWB)(Summary)
Air Waybill.doc• AWB is issued usually in set of 12 copies.
Copy 1: original for carrier
Copy 2: original for consignee
Copy 3: original for shipper
• If the AWB indicates that transhipment will take place, transhipment is allowed even if L/C prohibits transhipment, provided that the entire carriage is covered by one & same AWB.
• Date of shipment in AWB (discuss)
• Split shipment (discuss)
• MAWB & HAWB
• Clean versus foul AWB
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This example shows :
* A minimum charge.
* A declared value for customs.
* Chargeable weight equals to
gross weight.
52
This example shows :
* Q rate.
* Chargeable weight greater than
gross weight.
53
This example shows :
* A class rate : S
based on M200.
* A declared value for carriage,
and valuation charge.
* Chargeable weight equals to
gross weight ( rounded).
* TRC : transit charge.
54
This example shows :
* A mixed shipment rating.
* C : commodity rate.
Q : quantity rate.
R : class rate (reduction 33 % )
* AWA : AWB charges ( Agent)
* SUA : transportation (agent)
* DBC : disbursement fees resulting
from the two other charges
(Carrier).
55
Example
• Calculate the total charges for the following AWB:
( you are allowed to make necessary changes if any)
CAI / NYC EGP / KGM…… 170N……. 11.1045…... 10.50100…. 9.70300…. 8.50500…. 8.00
AWB # 077 – 3203 0808
Terms of sale: FOB CAI-EG
Airport of destination: JFK – New York – US
AWB charges: Prepaid (PP)
Number of parcels: 60 of 15 Kg , and 75 X 50 X 24 cm each.
Declared value for carriage: EGP 114,000
Other charges = EGP 71
* USD 1 = EGP 5.70
56
Solution• The given AWB is wrong. The correct one is 077 – 3203 0806
• As the terms of sale is FCA origin, the Freight charges must be collect
• Gross weight = 60 x 15 Kg = 900 Kg
• Volume weight = (75 X 50 X 24 x 60)
6000= 900 Kg
• Chargeable weight = 900
• Freight charges = 900 x EGP 8 = EGP 7200
• Valuation charges = [(114000 / 5.70) – ($ 20 X 900) ] x 0.005 = $10
= $ 10 x 5.7 = EGP 57
• Total charges = 7200 + 57 +71 = EGP 7328
57
Terms of salePricing your product is a matter of:• What the product is• How much ( or how many)• How far the product is being moved at your expense
Damaged or lost : who is responsible?
58
• EXW - Ex Works Title and risk pass to buyer including payment of all transportation
and insurance cost from the seller's door. Used for any mode of transportation.
Works means Factory, Mill, Warehouse,…
A term of sale in which for the quoted price, the seller merely makes the goods available to the buyer at the seller's "named place" of business. This trade term places the greatest responsibility on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included.
• FCA - Free Carrier Title and risk pass to buyer including transportation and insurance cost
when the seller delivers goods cleared for export to the carrier.Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the Buyer's obligation to receive the Seller's arriving vehicle unloaded.
59
• FAS - Free Alongside Ship Title and risk pass to buyer including payment of all transportation
and insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation.
The export clearance obligation rests with the seller.
• FOB - Free On Board Title and risk pass to buyer including payment of all transportation
and insurance cost once delivered on board the ship by the seller. Used for sea or inland waterway transportation.
60
• CFR - Cost and Freight Title, risk and insurance cost pass to buyer when delivered on board the ship
by seller who pays the transportation cost to the destination port. Used for
sea or inland waterway transportation.
• CIF - Cost, Insurance and Freight Title and risk pass to buyer when delivered on board the ship by
seller who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation.
61
• CPT - Carriage Paid To
Title, risk and insurance cost pass to buyer when delivered to carrier by seller who pays transportation cost to destination. Used for any mode of transportation.
• CIP - Carriage and Insurance Paid To Title and risk pass to buyer when delivered to carrier by seller who pays
transportation and insurance cost to destination. Used for any mode of transportation.
62
• DAF - Delivered at Frontier
Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller. Used for any mode of transportation.
• DES - Delivered Ex Ship
Title, risk, responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.
63
• DEQ - Delivered Ex Quay (Duty Paid) Title and risk pass to buyer when delivered on board the ship at the
destination point by the seller who delivers goods on dock at destination point cleared for import. Used for sea or inland waterway transportation. DDU - Delivered Duty Unpaid -- Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Used for any mode of transportation. Buyer is obligated for import clearance.
• DDU - Delivered Duty Unpaid Seller fulfills his obligation when goods have been made available at the
named place in the country of importation
64
• DDP - Delivered Duty Paid
Title and risk pass to buyer when seller delivers goods to named destination point cleared for import. Used for any
mode of transportation.
INCOTERMS 2000.pdf
65
Solved example• Choose the correct FRT payment method for each of the
following term of sale:
1- EX- Work
2- CIF
3- DDU
4- FCA
a- PP
b- CC
Answers
EX- Work…..CC
2- CIF……….PP
3- DDU……...PP
4- FCA……..CC
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Czech Airlines Delta Air LogisticsDragonair East Line Airlines Egyptair Emirates SkyCargo
TRACK & TRACETRACK & TRACE
www.redberry.com
AIR TRACK
077 67259790
AWB 67259790CAI – JFKPieces: 15Weight: 900 kgsFLT # MS 778Arrived: 22:30 hDate: 20/07/02
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Shipping terms
• FLT : Full Liner Terms
• LIFO: Liner In Free Out
• FILO: Free In Liner Out
• FIFO: Free In Free Out {FIOS}
You have to differentiate between terms of sale, terms of payment, and shipping terms:
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• Packaging:– Requires simple lightweight packing– Unlike sea freight, no need for solid packing to
protect against weather, careless handling and salt water
– All packages must be labeled with:• Airline name• Flight number• Air waybill number• Destination code• Total number of pieces
in the shipment
69
Ratios to be considered upon packing
• You have to maximize the following ratios:
1) Net weight : Gross weight
2) Gross weight : Chargeable weight
3) Net weight : Chargeable weight
70
Unit Load Device (ULD)• Unit Load Devices, or ULDs, are pallets and
containers used to load luggage, freight, and mail on wide-body aircraft and specific narrow-body aircraft.
• They allow large quantities of cargo to be bundled into large units. Since this leads to fewer units to load, it saves ground crews time and effort, and helps prevent delayed flights.
• Each ULD is manifested separately so that its contents can be tracked.
http://en.wikipedia.org/wiki/Unit_Load_Device
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TYPE: 10 FT CONTAINER
CODE: AQ6 , AMA, AQA , AMG
BASE DIMENSIONS: 318 X 244 CM
HEIGHT: 244 CM
VOLUME: 17 CBM
INTERNAL DIMESIONS: 300 X 228 X 238 CM
LOADABLE IN: B747-200 COMBI
B747- 400 COMBI
B747- 200 SF
B747- 200 F
Unit Load Device
72
TYPE: 20-FT PALLET
CODE: P7E , PGE
BASE DIMENSIONS: 606 X 244 CM
INTERNAL DIMESIONS: 592 X 230 CM
LOADABLE IN: B747-200 COMBI
B747- 400 COMBI
B747- 200 SF
B747- 200 F
Unit Load Device
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TYPE: A320 / A321 CONTAINER
CODE: AKH
BASE DIMENSIONS: 156 X 153 CM
HEIGHT: 114 CM
VOLUME: 3.5 CBM
LOADABLE IN: A320 – 200
A321 - 100
74
Iatacode AKH
Also known as AVB
Top length 2438mm 96.0"
Bottom length 1562mm 61.5"
Width 1534mm 60.4"
Height 1143mm 45.0"
Internal volume 3.6 m3
MGW 1588 KG
LD 3
75
Pallet
Volume
Cubic Meter
Dimensions
L x W (cm) Remarks
LD 8 6.9 153 x 244 cm FQA
LD 11 7.2 153 x 318 cm FLA / PLA
LD 7 10.6
11.6
224 x 318 cm244 x 318 cm
PAG / P1P
PMC
• If you have a fresh produce packed in cartons of 60 x 40 x 20 cm
palletized on Euro pallet (120 x 100 x 16 cm) needed to be dispatched by air
using PMC- ULD. How many cartons could be fit on this ULD ?
** Disregard the weight.
76
Solution• Maximum height = Volume / (LxW)
= 11.6 / ( 2.44 x 3.18) = 1.495 m = 150 cm
PMC- ULD
318
244
120
120
100 100 100
1
23
77
Solution (Continued)
• Number of cartons per layer on the Euro pallet = 5• Number of layers per each Euro pallet =
( 150 – 16) / (20) = 6.7 6 Layers only
So, maximum number of cartons could be loaded on PMC = 6 Euro pallets x 6 layers x 5 cartons = 180 cartons
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Bulk Unitization charge (BUC)
• BUC is the rate charged by carrier to shipper or freight forwarder on the basis of ULD.
• The charge for the consignment shall consist of a flat minimum (pivot – U) charge for a specified pivot weight above which an additional charge (over-pivot rate) per kilo or pound will apply.
• The chargeable weight of the consignments in ULD will be charged at the actual gross weight excluding the tare weight of the ULD.
* Restricted Items for BUC Use: Dangerous goods, live animals, human remains, and valuables
79
This example shows :
* A consolidated shipment inside
a ULD.
* L : lb {USA}.
* U : pivot rate of ULD.
* The chargeable weight of ULD
is greater than gross weight of
cargo .
* ULD tare weight : no charge.
80
Solved example• If you have a fresh produce packed in 540 cartons of 60 x 40 x 20 cm each, palletized on Euro pallet (120 x 100 x 16 cm)
needed to be dispatched by air using PMC- ULDs.
Calculate the freight charges if : - Net weight per carton = 4.75 Kg - Gross weight per carton = 5 Kg - Pivot weight of ULD = 2200 Kg - Tare weight of ULD = 210 Kg. - Freight rate = EGP 4.10 per Kg. Also, calculate the three packing ratios, and discuss.
81
SolutionFrom previous example, we can dispatch 180 cartons on each ULD
No. of ULDs = 540 / 180 = 3 ULDs Total chargeable weight (Pivot) = 2200 x 3 = 6600 Kg Total gross weight of the shipment = 540 x 5 = 2700 Kg
Since the Pivot weight is greater than gross weight Therefore, you will be charged as per pivot weight.
Fright charges = 6600 x 4.10 = EGP 27060 Packing ratios: Net : Gross = 4.75 / 5 = 95 % Gross : Chargeable = 2700 / 6600 = 40.9 % Net : chargeable = (540 x 4.75) / 6600 = 38.9 %
DISCUSS !
82
Dangerous Goods
83
Hazardous Substance
• Any material with one or more of the following intrinsic hazardous properties:
explosiveness, flammability, oxidizing capacity, corrosiveness, toxicity ; and poses a threat to human health and/or the environment.
Dangerous goods • Dangerous goods are substances which pose risk to health, safety, property or the environment during operation and/or transportation. All of these substances are divided in classes in accordance to the specific chemical characteristics resulting in a degree of danger.
84
UN classification
of dangerous goods
Class 1 Explosives
Class 2 Gases
Class 3 Flammable Liquid Class 4 Flammable Solid
Class 5 Oxidizing substances and Organic Peroxides
Class 6 Poisonous (toxic) and infectious substances
Class 7 Radioactive material Class 8 Corrosives Class 9 Miscellaneous dangerous goods
Such as:
DRY ICE
85
Identification of Dangerous Goods by PSN and UN Number
Within each of the 9 hazard classes dangerous goods are uniquely identified by two pieces of information:
• A 4 - digit number known as the UN Number which is preceded by the letters UN; and
• The corresponding Proper Shipping Name (PSN).
For example, kerosene is identified in the IMDG Code by its PSN Kerosene and the corresponding UN Number UN 1223.
Together the UN Number and PSN uniquely :Identify dangerous goods from each other; Enable rapid and precise identification during transport ensuring the correct handling, stowage, segregation, etc; and In the event of an emergency, ensure the correct measures are taken.
86
• Using UN NumbersUsing UN Numbers Using a four-digit number to identify dangerous goods enhances safety by:• Overcoming language barriers - the four-digit number is easily understood in all languages;
• Avoiding confusing similar names - e.g. TITANIUM POWDER, WETTED UN 1352 which is a flammable solid in class 4.1 and has very different transport requirements to TITANIUM POWDER, DRY UN 2546 which is spontaneously combustible in class 4.2.
• Using Proper Shipping Name (PSN)• The PSN is the accepted name which must be used for transport purposes on documentation / labelling, etc. • No alternatives or variations are permitted unless specifically stated • The PSN is that part of the name, which appears in the Dangerous Goods List or the Alphabetical Index in boldl letters only• Any text in lower case is only descriptive and is not part of the PSN
87
Material Safety Data Sheet (MSDS )
• It is a compilation of information – provided by the manufacturer - required under the OSHA Communication Standard on the identity of hazardous chemicals, health, and physical hazards, exposure limits, and precautions.
• OSHA requires manufacturers and importers of hazardous chemicals to distribute Material Safety Data Sheets with information concerning reasonably foreseeable health and toxicity concerns arising from their use.
• Users of these chemicals are required to ensure that these MSDSs are received with chemicals they purchase, and that they are used and available in the workplace.
• A Material Safety Data Sheet must be provided with the initial shipment of a hazardous chemical, and with the first shipment after a Material Safety Data Sheet is updated.
88
CONTENT OF A MATERIAL SAFETY DATA SHEET • The identity (product name) used on the label, and chemical and common name(s) of
ingredients which have been determined to be health hazards, and which comprise 1% or greater of the composition, except carcinogens shall be listed if the concentrations are 0.1% or greater; and,
• The chemical and common name(s) of all ingredients which have been determined to present a physical hazard when present in the mixture;
• Relevant physical and chemical characteristics of the hazardous chemical (such as vapor pressure, flash point);
• Relevant physical hazards, including the potential for fire, explosion, and reactivity;
• Relevant health hazards, including signs and symptoms of exposure, and any medical conditions generally recognized as being aggravated by exposure to the chemical;
• The primary route(s) of entry into the body;
• The OSHA permissible exposure limit and ACGIH Threshold Limit Value. Additional applicable exposure limits may be listed;
89
• Whether the hazardous chemical is listed in the National Toxicology Program (NTP) Annual Report on Carcinogens (latest edition) or has been found to be a potential carcinogen in the International Agency for Research on Cancer (IARC) Monographs (latest editions), or by OSHA;
• Precautions for safe handling and use, including appropriate hygienic practices, protective measures during repair and maintenance of contaminated equipment, and procedures for clean-up of spills and leaks;
• Appropriate control measures, such as engineering controls, work practices, or personal protective equipment;
• Emergency and first aid procedures;
• The date of preparation of the Material Safety Data Sheet or the last change to it; and,
• The name, address and telephone number of the chemical manufacturer, importer, employer or other responsible party preparing or distributing the Material Safety Data Sheet, who can provide additional information on the hazardous chemical and appropriate emergency procedures, if necessary.
CONTENT OF A MATERIAL SAFETY DATA SHEET
90
Segregation of dangerous goods
• Segregation means keeping incompatible goods apart from one another in a room, using a barrier or intervening space.
Chemicals must be segregated when either stored or shipped to ensure they do not mix in case of spillage.
NA Separation or segregation is not applicable to the two Classes, and they may be stored in the same area.
SG The two Classes of chemicals must be segregated (i.e., kept apart) from each other by a distance of at least three metres.
FS The two Classes must be fire separated.
PR The two Classes are prohibited in the same are storage area. As well, they must not be stored in adjoining areas which are attached to each other. The two Classes must be stored in separate areas at least ten metres apart.
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PACKING GROUPS
• Packing is the essential component in the safe transport of dangerous goods.
• According to the degree of hazard of the dangerous goods; we have three packing groups:
Group I ……………….great dangerGroup II……………….medium dangerGroup III………………minor danger
92
93
Labeling of dangerous goods
• Hazard Labels: 1) Primary hazards labels
2) Secondary hazards labels • Handling Labels
Labeling is of great importance
for safe handling and transport
of dangerous goods.
94
95
Primary hazard labels have “class number”Secondary hazard labels do NOT have “class number”
96
Handling labels
97
98
99
Shipping with Dry Ice
• Dry ice (Carbon Dioxide, Solid) is used as a refrigerant and is considered a dangerous good.
• However, a Shipper's Declaration of Dangerous Goods is not required when dry ice is used to cool a non-dangerous good.
• Following are guidelines that apply to shipments of dry ice; however, it is the shipper's responsibility to comply with all IATA Dangerous Goods Regulations when shipping dry ice or any other dangerous good.
100
• Packaging
Dry ice must be in packaging designed and constructed to permit the release of carbon dioxide gas and to prevent a build up of pressure that could rupture the packaging.
The outside packaging must be marked with the following information: • Name of the shipper and consignee • The name of the contents being cooled • The words "Dry Ice" or "Carbon Dioxide Solid" • The UN number for Carbon Dioxide Solid (UN1845) • The net weight of the dry ice within the pieces • A Class 9 Miscellaneous Dangerous Goods Label affixed on the same
surface of the package near the proper shipping name and adjacent to the shipper's or consignee's address appearing on the package.
101
• Air Waybill Documentation
For shipments of dry ice cooling a non-dangerous good, you must include specific information on the air waybill in the "Nature and Quantity of Goods" or "Content" section and in the following order:
• The name of the contents being cooled • The proper shipping name (Dry Ice or Carbon Dioxide, Solid) • The class ( 9 ) • The UN number (UN1845) • The number of pieces • The net weight of dry ice per piece
• Example: Diagnostic Specimens, Dry Ice, 9, UN1845, 1 piece at 2 Kg
For shipments of dry ice cooling a dangerous good, the shipper must comply with all IATA Dangerous Goods Regulations listed for both the dry ice and the dangerous good.
102
Dry ice in baggage
• Passengers may bring dry ice in quantities not exceeding 2.5 kg per person, when used to pack perishables that are themselves not dangerous goods articles or substances, provided the package permits the release of carbon dioxide gas.
• The dry ice may be in carry-on baggage, or with the approval
of the operator, in checked baggage.
• When carried in checked baggage, each package must be marked – “DRY ICE” or “Carbon Dioxide Solid” and with the net weight of dry ice or an indication that the net weight is 2.5 kg or less.
103
Letter of Credit particulars• L/C is a binding document that a buyer can request from his bank in order to
guarantee that the payment for goods will be transferred to the seller.
• Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods.
• In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the delivery of goods within a given time frame.
• It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.
In summary, an L/C is: - A formal document of payment - Opened by a party wishing to import - Communicated through banking channels - Paid by the opening bank within a specified timeframe upon presentation of stipulated documentation
104
• Sight Draft That is payable as soon as the required documents have been
presented.
• A time Draft Is not payable until the lapse of a particular time period stated on the
draft.
105
• Confirmed Letter of Credit A letter of credit, issued by a foreign bank, which has been
verified and guaranteed by a domestic bank in the event of default by the foreign bank or buyer.
• Commercial Letter of Credit A commercial letter of credit assures the seller that the bank will
provide payment for any goods or merchandise shipped to the bank's customer, assuming the seller provides any required documentation of the transaction and its shipment of the purchased goods.
Typically the documents requested in a Letter of Credit are the following:
• Commercial invoice • Transport document such as a Bill of lading or Airway
bill, • Insurance document; • Inspection Certificate • Certificate of Origin
But there could be others too.
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• Irrevocable Letter of Credit An irrevocable letter of credit includes a guarantee by the
issuing bank that if all of the terms and conditions set forth in the letter are satisfied by the beneficiary, the letter of credit will be honored.
• Revocable Letter of Credit An revocable letter of credit may be cancelled or modified after
its date of issue, by the issuing bank.
• Standby Letter of Credit In the event that the bank's customer defaults on a payment to
the beneficiary, and the beneficiary documents proof of its loss consistent with any terms set forth in the letter, a standby letter of credit may be used by the beneficiary to secure payment from the issuing bank.
107
• Transferable Letter of Credit
In transferable L/C, the first beneficiary (exporter) may request
paying the whole or part of the credit to one or more beneficiaries.
This L/C is expressly designated “ Transferable” by the issuing bank
on instructions of the applicant.
** If the words, “ transmissible” , “ assignable” , “ divisible” ,
or “fractionable” are used, L/C is not transferable.
• Non - Transferable Letter of Credit In which, the beneficiary can not transfer the credit to other beneficiary.
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Back-to-Back Credit
• It is a new credit opened on the basis of an already existing, non transferable credit.
• It is used by traders to make payment to the ultimate supplier. A trader receives a documentary credit from the buyer and then opens another documentary credit in favour of the ultimate supplier.
• The first documentary credit is used as collateral for the second credit. The second credit makes price adjustments from which comes the trader's profit.
TraderSupplier Buyer 1st L /C of $ 50000 2nd L /C of $ 45000
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Red Clause Credit
A red clause credit has a special clause (red clause) that authorizes the confirming bank to make advances to the beneficiary (seller) prior to the presentation of the shipping documents.
In this credit the buyer, in essence, extends financing to the seller and incurs ultimate risk for all sums advanced under the credit.
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• Latest Negotiation date Is the last day of the period of time allowed by L / C for the
presentation of documents to the bank.
** In case the L/C does not stipulate the latest negotiation date, it is
within 21 days after date of issuance the transport documents, but
on or before L/C expiry date.
** B/L (AWB) which is presented to the bank later than the agreed time limit or 21 days later than the date of issuance of B/L is called Stale B/L (AWB)
• Expiry date Is the last day of validity of the L/C for payment. In case the validity of a L/C is stated in a period of time, for
example (this L/C is valid for three months) without specifying the date from which the time is to run, its validity starts from issuance date of L/C.
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• Latest date of shipment
Is the last day of the period of time allowed by L/C for shipment, or
dispatching.
Remark: In case the expiry date and/or latest negotiation date falls on a day on which the bank is closed for reason not beyond the bank’s control these two dates ( if any) are extended to the succeeding first day on which the bank is opened. Such extension, whoever, does not extend the latest date of shipment.
112
Sample L/C
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3 Most Common Reasons
why Letters of Credit Fail 1) Time Lines:
The letter of credit should have an expiration date that gives sufficient time to the seller to get all the tasks specified and the documents required in the LC. If the letter of credit expires, the seller is left with no protection.
Most LC s fail because Sellers/Exporters/Beneficiaries were unable to perform within the specified time frame in the LC.
Three dates are of importance in an LC:a) The date by when shipment should have occurred. The date on B/L.b) The date by when documents have to be presented to the Bank.c) The expiry date of the LC itself.
• A good source to give you an idea of the timelines would be your freight forwarding agent. As a seller check with your freight forwarding agent to see if you would be in a position to comply.
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2) Discrepancy within the Letter of Credit:
Letters of credit could also have discrepancies. Even a discrepancy as small as a missing period or comma can render the document invalid. Thus, the earlier in the process the letter of credit is examined, the more time is available to identify and fix the problem. This is another common reason why LCs fail.
3) Compliance with the Documents and Conditions within the Letter of Credit:
Letters of credit are about documents and not facts; the inability to produce a given document at the right time will nullify the letter of credit. As a Seller/Exporter/Beneficiary you should try and run the compliance issues with the various department or individuals involved within your organization to see if compliance would be a problem. And if so, have the LC amended before shipping the goods.
3 Most Common Reasonswhy Letters of Credit Fail
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Mid-Term Revision1) Complete:
a) TACT stands for………………………………………..
b) The main types of Air Freight rates are:
- General Cargo rate (GCR)
- Specific commodity rate (SCR)
- Class cargo rates (CCR) : S & R
c) FRA is located in IATA area # ……………………….
d) For AWB # 020 – 3203 0806, 020 is ………………...
e) For perishables, MAWB (for liners) must shows the FRT charges
……………………..
The Air Cargo Tariff
2prefix number of Egypt Air
prepaid
116
2) How much you are going to pay for the airline to receive documents of your shipment arrived to CAI on CC basis with FRT charges of USD 50 ?
3) Complete: a) The check digit of AWB 077- 3266240… b) The sales term DDU stands for……………, but the shipping term LIFO stands for…………….. c) The dry ice is considered as a dangerous good with class … d) ULD stands for…………………, and the pivot weight of a ULD is…………………………………… e) If the AWB shows “NCV” it means……………… f) In case of CIF shipment, FRT charges must be…………
Solution:
Collection charges = USD 50 x 5% = $ 2.5 (which is less than EGP 35)
Total to be paid = $ 50 + EGP 35
5delivered duty unpaid
liner in-free out9
unit load devicethe minimum weight to be charged for an ULD
No customs valueprepaid
117
4) Using rates shown : a) calculate the FRT charges
for an air shipment from CAI / FRA: 350 Kg of strawberry on Egypt Air. b) Calculate the FRT charges
for a horse of weight of 160 Kg needed to be
shipped by air from CAI / FRA.
From : CAIRO EG CAI
Egyptian Pound EGP KGS
To : FRANKFURT DE M… 143
N… 10.10
45… 7.60
100.. 7.10
250.. 6.60
0006 100.. 4.80
0006 500.. 4.30
MS 0007 250.. 4.00
MS 0007 500.. 3.50
2199 500.. 5.50
2199 1000.. 5.00
Solution:a) 350 Kg x EGP 4 = EGP 1400 b) Both CAI & FRA are within IATA area 2Live animals : Rate will be 175 % of normal GCRN…. EGP 10.10 / kgN175…EGP 17.68 / kg ( Rounded to 17.70 )FRT charges = 160 Kg x 17.70 = EGP 2832
Solution:a) 350 Kg x EGP 4 = EGP 1400 b) Both CAI & FRA are within IATA area 2Live animals : Rate will be 175 % of normal GCRN…. EGP 10.10 / kgN175…EGP 17.68 / kg ( Rounded to 17.70 )FRT charges = 160 Kg x 17.70 = EGP 2832
118
5) A shipment of air condition spare parts consists of: 40 parcels of 4 Kg , and 30 X 20 X 10 cm each 90 parcels of 3 Kg , and 0.5 X 0.4 X 0.2 m each 60 parcels of 15 Kg , and 75 X 50 X 24 cm each
a) Calculate the total air freight charges if the shipment will be dispatched from CAI / FRA with rate of = EGP 6.60 / kg ( +250) b) Calculate valuation charge if the declared value for carriage is $ 50000.
Solution:* 40 parcels: G.Wt = 40 x 4 = 160 Kg Volume Wt. = (30 x 20 x 10 x 40) / 6000 = 40 Kg* 90 parcels: G.Wt = 90 x 3 = 270 Kg Volume Wt. = (50 x 40 x 20 x 90 ) / 6000 = 600 Kg* 60 parcels: G.Wt = 60 x 15 = 900 Kg Volume Wt. = (75 x 50 x 24 x 60) / 6000 = 900 Kg
a) FRT charges = 6.60 x (160 + 600 + 900) = EGP 10956b) Valuation charge = ( 50000 – $20 x 1330) x 0.005 = USD 117
119
6) State three main differences between AWB & B/L
AWB B/L
Not negotiable Negotiable
AWB shall be issued after the complete consignment has been
received
B/L shall be issued after the complete consignment has been boarded onto
vessel
Contains FRT charges Does not contain FRT charges
7) Mention the main restricted dates in L/C:
- Latest date of shipping
- Latest Negotiation date
- Expiry date
-
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SAP AG 1998 CPSAP_e February ‘98 /13
Highest level of customer responsiveness at lowest cost
INFORMATION FLOW
Supply Chain Optimization
CASH FLOW
TransferTransfer TransferTransfer TransferTransfer TransferTransfer
ConsumerSupplier Manufacturing Distribution Retail Outlet
The Chain from Original Supply toFinal Consumption
121
What makes SCM difficult?
1) Global optimization
* Supply chain is a complex network.
* Different facilities in the supply chain with different
interests.
* The supply chain is a dynamic system.
* System variation over time
"Managing continual change."
122
2) Managing uncertainty Supply chain is designed and operated in uncertain
environments, such as:
* Matching supply and demand
Months before demand is realized, manufacturers have to
commit themselves to specific production levels.
These advance commitments imply huge financial and
supply risks.
.
What makes SCM difficult?
123
* Forecasting does not solve the problem
It is impossible to predict the precise demand for a specific item, even with the most advanced forecast techniques.
“ Forecasts are always wrong”.
* Demand is not the only source of uncertainty As supply chain becomes larger and more geographically diverse,
natural and man-made disasters can have tremendous impact.
What makes SCM difficult?
Changing the Focus
Customer
End-User
Grower
Customer
End-User
Customer
End-User FOCUS
FOCUS
FOCUS
Old Way New Way
Grower Grower
125
• Increasing more complex– Language– Culture– Currency fluctuations– Political– Transportation costs– Local capabilities– Finance and economics– Environmental
Global Supply Chains
To be minimized
126
Estimate transportation costs based on:
Truck Load (TL)
Less Truck load (LTL)
Internal & external fleet.
Commodity class.
*** Transportation cost function is not always linear
with distance.
Transportation rates
127
1- Determine the Longitude & latitude for each city. * Longitudes west of the meridian have negative value. * Latitudes south of the equator have negative value. 2- use the following formula to estimate the straight distance between a & b in Miles:
Mileage estimation between two cities 1 & 2
Transportation problems.xls
128
Optimal distribution strategy
The given table shows the capacity in tons of three farms (F) of a certain fresh produce, demand (d) in tons of three distributors (D), and cost of transportation from each supplier to manufacturers in US$ per ton.
Determine your transportation plan to minimize total transportation cost.
D1 D2 D3 Capacity
F1 2 3 7 20F2 1 6 4 10F3 5 2 4 15
d 15 15 15 45
D1 D2 D3
F1 15 5 0 20
F2 0 0 10 10
F3 0 10 5 15
15 15 15
125
129
Solving transportation problemsusing Excel spreadsheet
• The ABC retailer has sales points in 5 Midwestern cities. They order their fresh produce from the XYZ distributor, which has warehouses in 6 cities. The shipping costs (in dollars per ton) are given below:
130
• The demand for each sales point and the tons available at each warehouse are:
Tons Tons
Transportation problems.xls
131
Assignment
• The manager of a distribution system between farms
(A, B and C) and distributors
(W, X, Y and Z) wishes to minimize
the global transport costs between a
set of origins (farms) and
destinations (distributors).
Consider the cost of transportation
between farms and distributors
are as shown in the table ( $/ unit).
W X Y Z Capacity
(Tons)
A 20 40 70 50 500
B 100 60 90 80 1500
C 10 110 30 200 900
D 700 600 1000 500 2900
Transportation problems.xls
Example 1: Trans-shipping
ARNOLD
WASHBURN
ZROX
HEWES
75 Tons75 Tons
50 Tons50 Tons
60 Tons60 Tons
40 Tons40 Tons
0.030.03
Farm 1Farm 1
Farm 2Farm 2
R 2R 2
R 1R 1
OSTOST
HANHAN
R 3R 3
CAICAIa/pa/p
90 Tons90 Tons
0.900.90
110.050.05
0. 620. 62
0. 700. 70
0. 800. 80
0. 550. 55
0. 680. 68
0. 620. 62
Capacity to OST: 80000 Kg
Capacity to HAN: 90000 Kg
Example 1: Trans-shipping
ARNOLD
WASHBURN
ZROX
HEWES
TakeTake 75 75 TonsTons
50 Tons50 Tons
60 Tons60 Tons
40 Tons40 Tons
0.030.03
Farm 1Farm 1
Farm 2Farm 2
R 2R 2
R 1R 1
OSTOST
HANHAN
R 3R 3
CAICAIa/pa/p
TakeTake 75 75 Tons Tons onlyonly
0.050.05
1. 521. 52
1. 701. 70
1. 701. 70
1. 551. 55
1. 681. 68
1. 521. 52
Solution:
Transportation problems.xls
Example 2: Trans-shipping
WASHBURN
ZROX
HEWES
Farm 3Farm 3
Farm 2Farm 2
R 3R 3
R 1R 1
OSTOST
HANHAN
R 5R 5
CAICAIa/pa/p
ALYALYa/pa/p
Farm 1Farm 1
Farm 4Farm 4
CDGCDG
R 2R 2
R 4R 4
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Example 2: Trans-shippingCAI ALY Supply (Tons)
F1 30 40 500
F2 20 60 700
F3 50 35 900
F4 70 55 600
Capacity 2000 1500
OST CDG HAN Supply (Tons)
CAI 900 1000 1000 1700
ALY 1000 800 950 1000
Capacity 1900 1000 1000
R1 R2 R3 R4 R5 Supply (Tons)
OST 500 400 500 550 470 1900
CDG 900 840 875 690 780 1000
HAN 600 680 550 700 575 1000
Demand 400 300 700 700 600
Transportation problems.xls
Costs are in $/Ton
136
Case StudyAn Egyptian grower has three farms F1,F2, and F3 in different locations within Egypt, which can supply the same kind of fresh produce, but with different capacities. If this product must be exported to Europe by air, calculate the minimum selling price per Kg of product of plantation cost of $ 655 per ton, and minimum profit margin is 20% of total costs, given that:
1) Capacities of farms & Egyptian Airports
CAI ALY Capacity (Tons)
F1 ? ? 150
F2 ? ? 100
F3 ? ? 150
Available space (Tons)
300 100
2) Available ULD to be used from both airportsThickness of ULD = 2 cm
Max. height from ground = 162 cm
Chargeable weight per ULD = 2.2 tons
PMC- ULD
318 cm
244
137
3) Available packaging unitization in the farms:
CAI ALY
Cost per truck from F1 ( $) 330 250
Cost per truck from F2 ($) 400 280
Cost per truck from F3 ($) 310 350
The fresh produce packed in cartons of 60 x 40 x 20 cm , 7 Kg each, and palletized on Euro pallet (120 x 100 x 16 cm). If the one empty carton costs $ 2, and each pallet costs $ 11.5 , and customs clearance costs $ 50 per ton.
4) Available refrigerated trucks from the farms to airports:
The inner dimensions of the truck’s container are 12.50 x 2.25 x 2 m, and Max. payload of the truck is 30 tons.
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5) Air freight rates ( $/ ULD) from Egyptian airports to European destinations:
6) On-Forwarding cost ($/ton) from European airports to retailers :
.
OST CDG HAN Supply (Tons)
CAI 1980 2200 2200 300
ALY 1800 2000 2000 100
Capacity 200 70 130
R1 R2 R3 Supply (Tons)
OST 500 400 500 200
CDG 900 840 875 70
HAN 600 680 550 130
Demand 100 150 150
Transportation problems.xls
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INHERENT RISKS IN Agro-Commodities SUPPLY CHAIN
140
Air Transport in cold chain logistics
• Perishable agro-commodities are very sensitive to post harvest facility & care, handling,…etc
• Specific requirements applicable to perishable goods; responsibilities of shippers and operators; types of perishables; special knowledge, documentation, labeling, packaging, claims……...
• Air Freight allows products to be transported quickly over long distance.
• Cold Chain Logistics can make all the difference !
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• What is Export Cold Chain Logistics? Is the seamless movement of perishable food: * Temperature and /or environment controls. * From supplier to customer to consumer. * Accounting for all functions.
• 5 habits of highly successful exporters: - Know the product - Plan the logistics chain - Know your partners - Get the basis right - Know the market
Clod Chain Logistics
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The Export Logistics Cold Chain(Air transport)
Grower/ Producer
Cargo Terminal(Cold)
Packer /Processorand cold stores
Transport
Transport
TransportAir
Transport
Retailer Consumer
Farm
Refrigerated truck
Refrigerated truck
CAI A/P
Distributor(Client)
Transport
Refrigerated truck
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Don’t break the chain !!• In case of Air transport of perishables, the cold chain is
broken during one of the following processes:
1- Unloading from refrigerated truck at the airport cold store. 2- Moving the ULD on tarmac. 3- Waiting loading to the aircraft. 4- Loading the aircraft. 5- In flight. 6- Unloading the aircraft at destination. 7- Moving the ULD to terminal. 8- Breaking down point in the terminal.
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Quiz• Suppose that you are planning for some fresh produce exports during the Q1 of
2008, based on the historical recorded data of previous periods, as follows:
Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007
A/F rate ($ /Kg) 0.85 0.90 1.00 0.95 0.97
Demand (tons) 540 600 635 670 650
Calculate:
1) The required BUDGET for Q1 2008
2) Minimum selling rate (delivery to client in Paris) if your profit margin is at least is 20% of the cost, given that:
- The fresh produce packed in cartons of 60 x 40 x 20 cm , 7 Kg each, and palletized on Euro pallet (120 x 100 x 16 cm). If the one empty carton costs $ 2, and each pallet costs $ 11.5 , and customs clearance costs $ 50 per ton.
- Plantation cost per ton is $ 600.
- The permissible height above the unitized Euro pallet is 160 cm
- The TL rate of reefer truck (30 tons – 22 pallets) from the farm to CAI a/p is USD 200 / truck.
- Forecast for Q1 2008 applying 3-periods Weighted Moving Average method, given that:
Ct-1= 0.5 , Ct-2= 0.3 , Ct-3= 0.2
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If OST is the a/p of destination, and the shipments have to be sent to some clients in Paris. If
the shipments will be sent directly to customers from OST, most shipments will be LTL. However, if you locate a D.C in Paris, you can ship TL from OST to Paris, and distribute by local cartage (LTL) to customers in that area.
Assume the following:
OST to customer LTL = $ 100/ ton
OST to D.C TL = $ 50/ ton
Inventory-carrying cost in the D.C = $ 10/ton
D.C to customer LTL = $ 20/ton
Is it more economical to establish the D.C in Paris? If yes what will be the saving during
Q1 2008?
Quiz ( continued)
146
ForecastingForecasting & &
Its TechniquesIts Techniques • Why Forecast?• Common Principles of Forecasting• Forecasting Steps• An Overview of forecasting techniques
This part has been added according to the request of the students !
147
• forecasting –• act of making predictions about:
- Occurrence of particular events in the future
- Value of particular variable at future date
"If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me. "
William Shakespeare
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BUT !• "It is far better to foresee even
without certainty than not to foresee at all. "
--Henri Poincare in The Foundations of Science, page 129.
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Why Forecast?1) Uncontrollable external events Example: those that originate with the national economy, governments,
customers’ demand,…..2) Controllable internal events such as: marketing or manufacturing decisions within the firm.
Role of Forecasting:• Scheduling: Forecasts the level of product’s demand• Acquiring resources: Lead time* to acquire raw materials, etc.• Determining resource requirements: Long term planning.
*Lead time: it is a time lag between the time “about to happen event” and the “actual occurrence of the event”.
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Forecasting in management
• Personnel management• Resource management, e.g: logistics operations
• Finance management
• Organizational management
Forecasting is used in various domains of management, such as:
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Common Principles of Forecasting
• Forecasts are rarely perfect (Forecast is always wrong)
• Forecasts are more accurate for grouped data than for individual items
• Forecast are more accurate for shorter
than longer time periodsI see that you willget an A this semester.
152
Forecasting Steps
• What needs to be forecast?– time horizon required
• What data is available?
• Select and test the forecasting model
• Generate the forecast
• Monitor forecast accuracy over time :(error)
153
An Overview of Forecasting Techniques
• Quantitative (time series methods): Sufficient quantitative information are available.
It depends on accumulated data. Used to formulate Strategy, long-range plans, etc.
• Qualitative (subjective): Little or no quantitative information are available, but sufficient qualitative knowledge exists.
Predicting the impact of gasoline price if and when it hits $ 3.00 per gallon.
• Some combination of the two
Note: only time series methods will be discussed in details in this course.
154
Subjective Forecasting Methods (Retail Sales)
• Sales Force Composites--Getting info from the frontlines.
• Customer Surveys--Getting the info straight from the horse’s mouth.
• Jury of Executive Opinions--Let the experts meet and come to a consensus
• Delphi Method--Survey the experts anonymously
155
Sales Force Composites• Get estimates of future sales from individual sales
associates
• Add individual estimates to get total for region or product
• Possible problems -may be in the interest of sales force to bias forecasts downward if paid on commission or if quotas are involved
156
Customer Surveys• where estimates of future sales come directly
from customers-”do you plan to buy a car in the next month?”
-”how much are you looking to spend?”• Possible problem -
– Generally, this method is more accurate for corporate or industrial buyers than for the general population….
– Why?!– Members of the general population often do not
have a clue what ACTUAL purchases they might make soon.
157
Jury of Executive Opinions
• combine subjective predictions of those knowledgeable in field…the list of experts depends on the topic.
e.g., who is going to win the next presidential U.S election and why?
You are the experts.
• Possible problem -– strong personalities may dominate group
158
Delphi Method
• Select participants.• Participants submit individual forecasts.• Results are summarized, presented back to
the participants.• They submit new revised forecasts, taking
into account information from others.• Repeat until no significant changes result.
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Delphi Method
• Advantages -– Requires little quantitative background– Widely used, not time consuming– Not dominated by strong personalities
• Disadvantage -– May not reach consensus if you have people who
are firm in their opinions– There may be some question as to who is an
authority in the field
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When Can One Do Quantitative Forecasting?
1. Information about the past is available.2. This information is available in the form of
numerical data3. Assumption of continuity: It can be assumed that
some aspects of the past pattern will continue into the future.
• Continuity assumption is also needed for qualitative forecasting
– Forecasts generated through mathematical modeling
161
Quantitative Methods
• Time Series Models:– Assumes the future will follow same patterns as the
past.
• Causal Models:– Explores cause-and-effect relationships– Uses leading indicators to predict the future
162
Time Series Data Composition
• Data = historic pattern + random variation
• Historic pattern to be forecasted:
– Level (long-term average)
– Trend
– Seasonality
– Cycle
• Random Variation cannot be predicted
163
Time Series Patterns
164
Time Series Models
• Naive:– The forecast is equal or near to the actual value observed during the
last period – good for level patterns
• Simple Mean:– The average of all available data - good for level patterns example: 12,13,14,15
• Central Moving Average:– For a number of applications it is advantageous to avoid the shifting
induced by using only 'past' data. Hence a central moving average can be computed, using both 'past' and 'future' data. The 'future' data in this case are not predictions, but merely data obtained after the time at which the average is to be computed.
– Each new forecast drops the oldest data point & adds a new observation
Mean = 54/4 = 13.5
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Naive forecasts: NF1 and NF2 • NF1. (“The value tomorrow will be the same as
today”). Example: Number of required trucks today was 20. Forecast NF1 for
tomorow: 20.
• NF2. (“The value tomorow will be less (greater) by …10% ”).
Example: Average or required trucks this month is 20 trucks. Forecast
NF2 for the next month: will be 25 trucks (increase of 25%).
166
Time Series Models (continued)
• Weighted Moving Average:
• All weights must add to 100% or 1.00
e.g. Ct .5, Ct-1 .3, Ct-2 .2 (weights add to 1.0)
• Allows emphasizing one period over others; above indicates more weight on recent data (Ct=.5)
• Differs from the simple moving average that weighs all periods equally - more responsive to trends
tt1t ACF
167
Time Series Models (continued)• Exponential Smoothing:
• Most frequently used time series method because of ease of use and minimal amount of data needed
• Need just three pieces of data to start:– Last period’s forecast (Ft)
– Last periods actual value (At)
– Select value of smoothing coefficient between 0 and 1.0
• If no last period forecast is available, average the last few periods or use naive method
• Higher values (e.g. .7 or .8) may place too much weight on last period’s random variation
tt1t Fα1αAF
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Time Series Problem• Determine forecast for periods
Jul & Aug
• 2-period moving average
• 4-period moving average
• 2-period weighted moving average
with t-1 weighted 0.6 and t-2 weighted
0.4
• Exponential smoothing with alpha
=0.2.
• Actual demand for Jul found to be 375
Period Forecasted Actual
Jan 300
Feb 315
Mar 290
Apr 345
May 320
Jun 370 360
Jul 370 375
Aug
Arab Academy.xls
169
Period $$• 1999 1,000,000• 2000 1,200,000• 2001 1,350,000• 2002 1,250,000
• Forecast 2003 = .40 (1,250,000) + .30 (1,350,000) + .20 (1,200,000) + .10 (1,000,000)
• Forecast = $1,245,000
Example4-year Weighted Moving Average forecast
(WMA)
Discuss !
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Causal Models
• Often, leading indicators can help to predict changes in future demand
• Causal models establish a cause-and-effect relationship between independent and dependent variables
• A common tool of causal modeling is linear regression:
bxaY
171
Linear Regression
XXX
YXXYb
2
• Identify dependent (y) and independent (x) variables
• Solve for the slope of the line
• Solve for the y intercept
• Develop your equation for
the trend line Y=a + bX
XbYa
22 XnX
YXnXYb
172
Linear Regression Problem: A maker of golf shirts has been tracking the relationship between sales and advertising dollars.
Use linear regression to find out what sales might be if the company invested $53,000 in advertising next year.
22 XnX
YXnXYb
Sales $ (Y)
Adv.$ (X)
XY X^2 Y^2
1 130 32 4160 1024 16900
2 151 52 7852 2704 22801
3 150 50 7500 2500 22500
4 158 55 8690 3025 24964
5 153.85 53
Tot 589 189 28202 9253 87165
Avg 147.25 47.25
153.85531.1592.9Y
1.15X92.9bXaY
92.9a
47.251.15147.25XbYa
1.1547.2549253
147.2547.25428202b
2
Investing $ 53000 might generate sales of $ 153,085
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How Good the trend line Fits?• Correlation coefficient (r) measures the direction and strength of the linear
relationship between two variables.
• It has a value between –1 and +1
• The closer the r value is to 1.0 the better the regression line fits the data points.
.96400.982R
.982058987,1654*(189)-4(9253)
589189282024r
YYn*XXn
YXXYnr
22
22
2222
•The coefficient of determination, R , measures the percentage of variation in the dependent variable that is explained by the regression or trend line. It has a value between zero and one, with a high value indicating a good fit.
2
2
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Forecast Accuracy• Error - difference between actual value and predicted value
• Mean Absolute Deviation (MAD)
– Average absolute error
• Mean Squared Error (MSE)
– Average of squared error
• Mean Absolute Percent Error (MAPE)
– Average absolute percent error
175
MAD, MSE, and MAPE
MAD = Actual forecast
n
MSE = Actual forecast)
-1
2
n
(
MAPE = Actual forecas
t
n
/ Actual)*100
176
Example
Period Actual Forecast (A-F) |A-F| (A-F)^2 (|A-F|/Actual)*1001 217 215 2 2 4 0.922 213 216 -3 3 9 1.413 216 215 1 1 1 0.464 210 214 -4 4 16 1.905 213 211 2 2 4 0.946 219 214 5 5 25 2.287 216 217 -1 1 1 0.468 212 216 -4 4 16 1.89
-2 22 76 10.26
MAD= 2.75MSE= 10.86
MAPE= 1.28
177
Selecting the Right Forecasting Model
• The amount & type of available data– Some methods require more data than others
• Degree of accuracy required– Increasing accuracy means more data
• Length of forecast horizon– Different models for 3 month vs. 10 years
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Exercise• Write down the common principles of forecasting?
• List the different types of forecasting techniques.
• What is the main differences between “ Weighted Moving Average” than “ exponential Smoothing” methods?
• The given table shows the actual values of sales ($) for some product during the period from Jan till Sep 2007.
Forecast the value of sales ($) in Oct 2007 applying 3-periods Weighted Moving Average method, given that:
Ct-1= 0.5 , Ct-2= 0.3 , Ct-3= 0.2
Month Actual ($)
Jan 300,000
Feb 315,000
Mar 290,000
Apr 345,000
May 320,000
Jun 360,000
Jul 375,000
Aug 300,000
Sep 325,000
