EXPORT IMPORT THEORY, PRACTICES, AND

PROCEDURES

Section 2 – Export Marketing & Strategy

LECTURERS FOR THE SUBJECT

Coordinator :
Cynthia Anna Wijayanti SE.,MMktg

Team Member :
Cynthia Anna Wijayanti SE., MMktg
Sylvia Samuel MIBL
TRADE EXPO INDONESIA 2017 at ICE BSD
GLOBAL PARTNER FOR SUSTAINABLE
RESOURCES
TRADE EXPO INDONESIA 2017 at ICE BSD
GLOBAL PARTNER FOR SUSTAINABLE
RESOURCES
TRADE EXPO INDONESIA 2018 at ICE BSD
CREATING PRODUCTS FOR GLOBAL
OPPORTUNITIES
TRADE EXPO INDONESIA 2018 at ICE BSD
CREATING PRODUCTS FOR GLOBAL
OPPORTUNITIES
TRADE EXPO INDONESIA 2018 at ICE BSD
CREATING PRODUCTS FOR GLOBAL
OPPORTUNITIES
TRADE EXPO INDONESIA 2019 at ICE BSD
MOVING FORWARD TO SERVE THE WORLD
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Chapter 6 – International Logistics, Risks & Insurance

At the end of the session, student is able to:

1. Understand the concept of International Logistics and the

Logistics Functions and the influences

2. Understand International Logistics Process

3. Understand Risks in Foreign Trade

4. Understand Marine and Aviation Insurance as well as the

Claims and Procedures
Learning Objectives

1. Understand the concept of International Logistics and the

Logistics Functions and the influences

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International Logistics
• Logistics is a total systems approach to management of the
distribution process that includes the cost-effective flow
and storage of materials or products and related
information from point of origin to point of use or
consumption.

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International Logistics
• International logistics allows countries to export products in which
they have a competitive advantage and import products that are either
unavailable at home or produced at a lower cost overseas, thus
allowing for efficient allocation of resources
 Increase economic growth and employment

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International Logistics
2 categories of business logistics:

1. Materials management: In the context of export-import

trade, logistics applies to the timely movement or flow of
materials/products from the sources of supply to the point
of manufacture, assembly, or distribution (inbound materials).
includes the acquisition of products, transportation,
inventory management, storage, and the handling of
materials for production, assembly, or distribution.

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International Logistics

2. Physical distribution: The second phase relates

to the movement of the firm’s product to consumers
(outbound materials).
 includes outbound transportation, inventory
management, and proper packaging to reduce
damage during transit and storage.

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International Logistics
• Various approaches of interdependence of functional activities
in logistics:
1. The systems approach
2. Total cost approach
3. The opportunity cost approach

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The Systems Approach
• Emphasis on maximizing the benefits of the corporate system
as a whole as opposed to that of individual units.

• The systems concept is based on the premise that the flow of

materials within and outside the firm should be considered
only in the context of their interaction (Czinkota, Ronkainen,
and Moffett, 1998)

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Total Cost Approach

• The approach is based on evaluation of the total cost

implications of various activities.

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The Opportunity Cost Approach
• This approach considers the trade-off in undertaking certain
logistic decisions

• For example, examining the benefits and costs of sourcing

components abroad versus buying from domestic sources.

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International Logistics
• External Influences on Logistics Functions:
A. Regulations
• Governments control or limit the export and import of certain commodities
through a host of devices, such as export controls, import tariffs, and
nontariff barriers.
B. Competition
• The proliferation of new products and services and short product life cycles
creates pressures on firms to reexamine their logistics systems. It requires
the need to reduce inventory, lower overall costs, and develop appropriate
logistics networks and delivery systems to retain and enhance their customer
base.
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International Logistics
• External Influences on Logistics Functions:
C. Technology
• Technology improvements, added to the deregulation of
transportation and communications, have transformed the
logistics industry.
• They have helped to increase logistics options, improve
performance, and decrease costs.
• Enable the overseas customers to track the date of shipment,
the location of the cargo on transit, and the expected date of
arrival
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Learning Objectives

2. Understand International Logistics Process

Copyright © 2014 Routledge 1-21

The International Logistics Process
• Step 1: Initial contact between buyer and supplier, conclude
the contract, production and cargo ready to be transported

• Step 2:A freight forwarder arranges for goods to be picked up

and delivered to a carrier. The freight forwarder selects the
transportation mode (airline, ship, truck, etc.) and the carrier,
as well as books the necessary space for the cargo.

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The International Logistics Process
• Step 3: The carrier loads the cargo and the merchandise is
transported to the customer. Unless otherwise stipulated in the
contract, the buyer is responsible for the cost of pre-shipment
inspection

• Step 4: The customs broker submits documents to customs to

obtain release of the merchandise

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The International Logistics Process
• Step 5: If the terms of sale provide for the seller to obtain
release of merchandise from customs and deliver to the
consignee, the forwarder picks up the merchandise from
customs and arranges for delivery to the consignee

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The International Logistics Functions
1. Labeling
• Labeling requirements are imposed in many countries to
ensure proper handling (e.g., “do not roll”; “keep frozen”) or
to identify shipments (e.g., “live animals”).

2. Packing
• Packed in strong containers, adequately sealed, and filled,
with the weight evenly distributed, on pallets if possible, to
ensure greater ease in handling, and containers should be
made of moisture-resistant material
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The International Logistics Functions
3. Traffic Management
• Traffic management is the control and management of
transportation services. Such functions include selection of
mode of transportation carriers, consolidation of small cargo,
documentation, and filing of loss and damage claims
 Delivery time, costs and government pressures are to be
considered

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The International Logistics Functions
4. Inventory and Storage
• Appropriate inventory planning and control will reduce the
number of storage facilities as well as carrying and freight
costs.

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Learning Objectives

3. Understand Risks in Foreign Trade

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The Risks in Foreign Trade
Political risks : Actions of legitimate government authorities to
confiscate cargo, war, revolution, terrorism, and strikes that
impede the conduct of international business

Foreign Credit risks : Non Payment or delays in payment for

imports

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The Risks in Foreign Trade
Transportation Risk : Loss (partial/total) or damage to shipment
during transit

Foreign exchange/transfer Risk: Depreciation of overseas

customer’s currency against the exporter’s currency before
payment or the no availability of foreign currency for payment
in the buyer’s country

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The Risks in Foreign Trade
Political risks can be managed by taking the following steps :

1. Monitoring Political Developments

Private firms offer monitoring assistance to assess the
likelihood of political instability in the short and medium term

2.Insuring Against Political Risks

Most industrialized nations provide insurance programs for
their export firms to cover losses due to political risks

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The Risks in Foreign Trade
Foreign Credit Risks can be managed by taking the following
steps :
1. Appropriate Credit Management
Appropriate credit management involves the review of credit
decisions based on current and reliable credit reports on
overseas customers

2.Requiring Letter of Credit and Other Conditions

3. Insuring Against Credit Risks (e.g in Indonesia using ASEI)

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Learning Objectives

4. Understand Marine and Aviation Insurance as well as the

Claims and Procedures

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Marine and Aviation Insurance
• The primary purpose of insurance in the context of foreign
trade is to reduce the financial burden of losses arising from
the movement of goods over long distances.

• In export trade, it is customary to arrange extended marine

insurance to cover not only the ocean voyage but also other
means of transport that are used to deliver the goods to the
overseas buyer

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Marine Insurance
• Marine policy is the most important type of insurance in the
field of international Trade because:
(1)ocean shipping remains the predominant form of transport
for large cargo
(2)marine insurance is the most traditional and highly
developed branch of insurance

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Marine Insurance
• The different types of marine insurance :
1. Marine Cargo Insurance : cargo insurance caters
specifically to the cargo of the ship and also to the belongings
of a ship voyagers.
2. Hull Insurance : carter to the torso and hull of the vessel
3. Liability Insurance : compensation for any liability
occurring on crashing or colliding or any other induced
attacks
4. Freight Insurance : offers and provides protections in
case the cargo is lost due to an accident involving the ship
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Aviation Insurance
Aviation and inland carriage, are largely based on principles of
marine insurance.

Practices and policies are also more standardized across

countries in the area of marine insurance than in insurance of
goods carried by land or air (Day and Griffin, 1993).

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Claims and Procedures

Claims

• Shippers can claim from carriers or insurers with respect to

loss or damage to their cargo. Shippers often attempt to
recover from carriers when they have a reasonable basis to
believe that the loss or damage was caused by the negligent
act or omission of the carriers that was easily preventable
through exercise of due diligence in the transportation and
handling of the cargo.

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Claims and Procedures

Claims

• Claims are generally valid for two years from the date of
arrival for air shipments and one year in the case of ocean
shipments

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Typical Steps in Claim Procedures
• Step 1 Preliminary notice of claim: The export-import firm
(insured) must file a preliminary claim by notifying the carrier
of a potential claim as soon as the loss is known or expected.

• Step 2 Formal notice of claim: The consignee must file a

formal claim with the carrier and the insurance company
once the damage or loss is ascertained.

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Typical Steps in Claim Procedures
• Step 3 Settlement of claim: If the claim is covered by the
policy and claims procedures are appropriately followed, the
insurance company will pay the insured.

• If the insurance company declines to approve payment, the

insured could pursue arbitration or other dispute settlement
procedures as provided in the insurance contract.

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