I N D U S T R Y   R O U N D U P

 C O M P A N Y   C O R N E R

Door to Door – For Less
A case study on how to reduce freight costs
on shipments from the Far East

	With footnotes from ED, host of EDucation seminars available exclusively from Universal Logistics

Part Two

Read Part One

In the last issue of Route, we saw how ABC Electronics changed the terms of sale for a product purchased from China from CIF (Toronto, Canada) to FCA (Yantian, China). After comparing CIF and FCA pricing from their supplier, it was quickly determined that ABC could reduce shipping costs by 30 per cent by taking control of their freight.

In this issue we are going to look at the steps involved when ABC Electronics purchase their product from overseas, and the physical movement of their shipment from origin to destination.

ABC Electronics places their next purchase order with XYZ Manufacturing for 5,000 units, but this time they have placed the order on an FCA (Yantian, China) basis.

As the purchase order is placed with their supplier, ABC gives a copy of the order to Universal Logistics, who takes care of everything from this point on.

We begin by contacting our agent in Hong Kong and requesting that they start monitoring the progress of the purchase order.

Any issues discovered (such as a delay in production, an incomplete order or other unforeseen problem) are relayed to Universal. If any changes are necessary, Universal will liaise with ABC Electronics, review options and implement new plans.

As the production nears completion, Universal’s local agent works with XYZ Manufacturing to ensure that all shipping documentation is in order and that any export requirements are met.

Ed’s Footnote:
Over 800 documents are used in international transportation. Even a single transaction can require over 40 different documents. It’s also important to know that certain government departments still require original documentation for entry. Send a copy when an original is mandatory and your shipment will be delayed. Working closely with your logistics provider is the best way to ensure that you satisfy regulations in both the country of origin and the country of destination.

Once the product is ready for shipment and the export documentation is in order, it is time for the physical movement of the product under FCA (Yantian, China) terms.


Ed’s Footnote:
FCA (Yantian, China) means XYZ Manufacturing transports the shipment to a terminal in Yantian, China, where ABC Electronics takes responsibility of the freight.

Under this arrangement, XYZ pays the freight costs and export licenses to get the freight from their premises to a terminal in Yantian, China. XYZ also bears full risk of loss and/or damages until the goods have been delivered to the terminal in Yantian.

ABC’s responsibilities are to arrange the ocean freight, insurance and customs clearance for the shipment, as well as transportation from the terminal in Yantian to ABC’s premises in Toronto.

Universal’s agent selects a local terminal in Yantian and instructs XYZ to deliver to that location. (Universal’s agent can also arrange to collect the freight direct from XYZ’s door, with the charges for this service going to XYZ).

After arriving in Yantian, the freight is transferred by truck to Hong Kong to be consolidated with other shipments originating in China and destined to Toronto. This consolidation opportunity, involving shipments that are classified LCL (less than container load), offers the greatest savings in overall transportation costs. The shipments are carefully pieced together to maximize a full 40’ container, which is transferred by truck to the container terminal in Hong Kong, typically two days prior to the scheduled sailing date. On arrival at the terminal, the 24,000 kg box container goes through a series of lifts and placements in order to position the container according to the Master Load Plan of the original vessel.

This particular vessel started its voyage in Singapore and made stops at Laem Chabang and Shekoe before arriving in Hong Kong. At each birth, the vessel unloads specific containers and takes on additional containers. Fully loaded, the vessel can carry a total of 8,063 TEU containers (twenty foot equivalent units). There is one more port of call in Kaohsiung before the vessel makes the long voyage across the Pacific to Vancouver.

With calm seas expected, transit from Hong Kong to Vancouver (5,545 nautical miles) is 11 days. After being unloaded in the Port of Vancouver and loaded on to a rail car, the container is shipped to Toronto, a 4,350 km trip. In Toronto, the container is transferred to a truck and driven to a warehouse, where the container is unloaded and ABC’s shipment is prepared for delivery.

Here’s what is involved with the typical ocean shipment arriving in Canada:

• 12 different physical moves
• 8 separate placement procedures
• 9 individual groundings
• 9 different types of lifts
• several temperature and humidity changes
• traveled a distance of between 6,000 to 15,000 km
• in transit for 20 to 45 days (or more) from the time of loading into the container to the time of receipt by the purchaser
• modes of transportation involved: Truck – Rail – Marine

During transit, ABC Electronics receives, by email or fax, multiple en Route Updates, the automatic notification system set up by Universal to keep clients informed of shipment status. This electronic tracking information is also available 24/7 via Inside Trac, one of many interactive features on the Universal web site.

Next Issue: Arrival at first port of call in Canada; Customs clearance procedures and
transport from port to door.

Read Part Three

The latest fuel fallout

The rising price of fuel continues to impact transport activity across the globe.

Airlines have increased fuel surcharges to unprecedented levels to cope. Others have been forced out of business – five U.S. airlines went bankrupt in the first two weeks of April alone. There is concern that this trend will continue as passenger numbers fall in response to the increased price of flying.

As noted in the Winter edition of Route, cargo ships are an attractive alternative to air transport, assuming slower transit times are acceptable. However, higher fuel costs have impacted ocean cargo as fuel surcharges continue to rise.

American truckers are facing double trouble – record oil prices coupled with falling volumes.

For more information on changes necessitated by fuel surcharge increases, contact David Lychek, Manager – Ocean & Air Services.

Ocean exporters face shipping crunch

North American exporters are struggling to secure ocean transportation and deliver products on time because space on export vessels is at a premium.

The weak U.S. dollar has led to a record demand for U.S. goods. Coupled with this, the downturn in the U.S. economy has reduced the demand for foreign products. Ocean carriers have reacted by reducing inbound capacity, exacerbating the export space problem. Competition for space has led many American shippers to utilize Canadian ports for export, thus reducing the capacity for Canadian cargo.

Advance planning – 4 to 6 weeks for Asia-bound cargo, for example – has become essential.

Shippers may have to consider other ports and carriers, as well as other modes of transportation – such as truck or rail – to move cargo to a port or location where containers are in surplus.

The trend is showing no signs of slowing down – U.S. exports grew 15% in 2007 and are up by a similar number this year.

Ian Zaninelli, Vice President – Orient Overseas Container Line, says, “Carriers must deal with the problem by being fair and allocating space to all industries.”

For more information, contact David Lychek, Manager – Ocean & Air Services.

New GPS system increases efficiency, safety

The world’s first e-tagged container sailed on a Chinese vessel from Shanghai to Savannah on March 10, 2008.

The doorbell-sized e-tags, installed on the latch of a 20 foot equivalent unit (TEU), records information on every procedure in the transport process: delivery / off-loading time, real-time TEU conditions, and the time / location of opening (legal or illegal).

Information is transmitted through a wireless regional web network to a web site for monitoring – for example, if a container is opened illegally en route, an alert will appear on the web site.

This new system has been touted as a way to “significantly improve the safety and efficiency of container transportation,” according to industry experts. This system could also go a long way in preventing stowaway and smuggling cases.

Plans are already in place to install the e-tags (developed by Bao, cost approximately $7 U.S.) on 10,000 TEU between China and the U.S.

For more information, contact David Lychek, Manager – Ocean & Air Services.

The real story on Cargo Insurance – Part Two

Here’s proof that the General Average Claim can hit close to home.

The MSC Sabrina ran aground in the St Lawrence River near Trois-Rivières, Quebec on March 9, 2008. General Average was subsequently declared.

Once declared, all parties with a stake in the voyage – including clients of Universal Logistics, who had two containers on board – became responsible for sharing the cost of the salvage on a proportional basis. This could translate to thousands of dollars for the shipper.

Compare that to the cost of basic cargo insurance, which covers all General Average Claims, at a rate of roughly $50 per shipment.

Plus if cargo is not insured, a cash deposit must be presented before goods are released. Insurance coverage will exempt you from this requirement, regardless of fault.

For more information on cargo insurance, contact David Lychek, Manager – Ocean & Air Services.

Enhanced Partners in Protection program

On June 30, 2008, Canada introduced an enhanced Partners in Protection (PIP) program to improve border security, combat organized crime and terrorism, and move toward achieving mutual recognition between Canada's PIP program and the United States' Customs - Trade Partnership Against Terrorism (C-TPAT) program.

Full harmonization between the two programs is the long-term goal, however, at this time separate applications are required for each country.

CBSA's PIP process includes the following steps:

1. Applicants complete a security profile.
2. CBSA reviews the security profile to verify completion, identify areas of concern, determine if the company is likely to meet the minimum-security requirements and perform a risk assessment of the company.
3. Regional CBSA intelligence officer schedules a site validation to confirm the information provided in the security profile and prepare an assessment report.
4. If the report concludes that the applicant meets or exceeds the requirements, a Memorandum of Understanding (MOU) will be provided for signature, thereby granting membership in the program.

Companies approved under the previous PIP system will be required to re-apply under the new minimum security requirements by December 31, 2008. Members who re-apply before the deadline will retain their membership and benefits (e.g. membership in the FAST program) until site validation is completed and their application is approved or denied.

The new security profile has not yet been released, but is expected shortly.

For more information contact Brian Rowe, General Manager – Customs Consulting Services.

Earning by learning – Universal Logistics EDucation seminars

Did you know that Universal offers EDucation seminars?

You can choose from Freight 101 and Voluntary Customs Compliance Made Easy, created exclusively by Universal Logistics to help companies reduce freight costs, manage transit times and avoid penalties for non compliance.

Seminars are available at a group rate of $199 (add $50/person for groups of more than three) or at the offices of Universal Logistics for just $99 (add $30/person for groups of more than three).

To register, contact Kitt Jacques by email or phone (905-882-4880).

Get SMART about Freight

Reduce freight costs and better manage transit times with a free SMART Freight Review.

This review involves an assessment of selected transactions covering a specific period of time or trade lane, followed by recommendations on how to improve your freight operations.

To order your free SMART Freight Review, contact us today or call our office (905-882-4880).

Things to know before you go on vacation

Leaving Canada for vacation/business? Then "I Declare – A guide for residents of Canada returning to Canada", issued by the CBSA, is a must read. This publication outlines import restrictions, your personal duty/tax-free exemptions, documentation requirements and much more.

Failure to produce the required documents could result in your goods being seized or forfeited to Customs. Plus many goods (e.g. meat, fresh fruit, plants, animals, certain vehicles) cannot be imported under any circumstance.

When travelling by air, there are very strict regulations on carry-on baggage. Any non-conforming items will be immediately confiscated. The following information from Transport Canada deals with liquids/gels in carry-on bags (e.g. lotions, hair gel, etc):

“Liquids, gels and aerosols in containers with a capacity of 100 ml / 100 grams (3.4 oz.) or less are permitted through pre-board security screening as long as they fit comfortably in one (1) clear, closed and re-sealable plastic bag with a capacity of no more than 1 litre (1 quart). Please note that bags stretched beyond their capacity are not permitted. One bag per person.”

Passengers may bring aboard baby formula, baby food, milk and juice if a child aged 2 years and under is accompanying them. These items are exempt from the size restrictions and are not required to be placed in a plastic bag. However, passengers must declare all such items to screening authorities. These passengers may be subject to additional screening.

For the full list of permitted items, refer to Transport Canada's "Tips for Travelers":

The following chart outlines your duty/tax-free exemptions. Note: all personal exemptions must be with you.

Trade and volume statistics

• Canada further diversified its merchandise trade portfolio with increased exports to companies other than the U.S., due in part to the strengthened markets in the U.K., Norway and China.
• Halifax port traffic has declined since the first quarter of 2007. Boston traffic has increased.
• China’s exports to the U.S. dropped by 5%, while imports of American goods jumped by 33%. Government officials say China’s trade surplus should bounce back now that winter weather has ended.
• Germany’s January exports increased by 9% from the same month in 2007. German exporter Anton Borner predicts Germany will stay on par with China as a leading merchandise exporter, with exports increasing by 5% this year.
• In the last year, the Euro has risen 18% against the dollar. Many exporters are moving production outside of Europe, where they can take advantage of the weak dollar.
• European exports to Russia and the Middle East have increased due to high demand for the sophisticated machinery and equipment European countries specialize in.
• U.S. purchases of Canadian exports have dropped to below 80%, down by 1.3% since last year. While they are still the premier buyer of Canadian goods, this drop is the lowest since the NAFTA was signed in 1992.

2008/09 CBSA Compliance Verification Priorities

John Gillan, Director General, CBSA Toronto, announced the CBSA's national priorities for upcoming Compliance Verification Reviews (audits) at the CSCB Annual Conference on June 12.

The following imported commodities are under review for 2008/09:

Juice products
Large household appliances
Sport fishing equipment
Swimming pools
Air conditioners
Ski apparel
Video/DVD recording apparatus
Gas turbine parts
Ore, bulk
Light duty automobile goods

Many companies importing these products can expect to receive a Notification of Verification Assessment letter from the CBSA.

To review your compliance in these areas contact Brian Rowe, General Manager – Customs Consulting Services.

Enforcement of AMPS (Administrative Monetary Penalty System) has led to more than 87,000 penalties and over $68 million in fines – proof that there’s never been a better time to ensure compliance by taking advantage of our Voluntary Compliance Made Easy seminar.

Overall, carrier infractions are decreasing steadily while importer infractions are moving in the opposite direction – a result of more specific targeting by the CBSA.

For more information contact Brian Rowe, General Manager – Customs Consulting Services.

Canada strengthens drug enforcement

Canada’s National Anti-Drug Strategy is investing $8.9 million in the RCMP over two years to prevent illicit drug use, treat those with illicit drug dependencies, and combat the production and distribution of illicit drugs.

Key elements of this initiative include:

• Provide additional dedicated personnel to better detect, investigate, disrupt, dismantle and prosecute criminal organizations.
• Improve law enforcement’s ability to combat marijuana and synthetic drug production.
• Enhance Canada’s compliance with the Controlled Drugs and Substances Act.
• Better inhibit the cross-border movement of precursor chemicals and illicit drugs.
• Help stem and seize the flow of illicit drug-related proceeds of crime.
• Make it easier to conduct joint investigations with law enforcement partners in the U.S.
• Ensure strong and adequate penalties for serious drug crimes.

For more information, visit the National Anti Drug Strategy web page: www.nationalantidrugstrategy.gc.ca/nr-cp/doc2008_03_14.html

The latest on Canada's pending Free Trade Agreements

The Department of Foreign Affairs and International Trade (DFAIT) have announced the following free trade updates.

European Free Trade Association (EFTA)

This agreement, which includes Iceland, Liechtenstein, Norway and Switzerland, was signed on January 26, 2008 and represents Canada's first Free Trade Agreement in 6 years. It is a first with European countries.

Canadian companies will be able to take advantage of European value chains; exporters will benefit from reduced / eliminated tariffs; and importers will enjoy more affordable access to goods from EFTA countries.

The Canada-EFTA free trade agreement will:

• Eliminate tariffs in all non-agricultural sectors including aluminum and cosmetics, prefabricated buildings, coldwater shrimp and apparel products.
• Eliminate or reduce tariffs on selected Canadian agricultural and agri-food products such as durum wheat, frozen french fries, beer and Canadian crude canola oil.
• Provide duty-free access to Canadian and EFTA markets for most industrial goods, fish and other marine products.
• Provision subsidies, anti-dumping, state-trading enterprises and public procurement in line with World Trade Organization rules.

Peru

Officials concluded free trade negotiations on January 26, 2008. Peru will provide greater market access for a range of Canadian agricultural products, paper products / machinery and equipment. Canadian financial institutions have identified Peru as a priority market, particularly in the banking sector.

Other provisions include:

• Peru will immediately eliminate tariffs on 94% of current Canadian exports, with the remaining tariffs eliminated over a five to 10-year period.
• When the agreement is implemented, immediate duty-free access will also be granted for wheat, barley, lentils, peas, selected boneless beef cuts, and paper products and machinery and equipment.
• Canada will immediately eliminate 97% of its tariffs on Peruvian exports, with the remaining Canadian tariffs to be eliminated over a three or seven-year period.
• Enhanced market access for service sectors of interest to Canada, including mining, energy and professional services.
• Comprehensive disciplines for the financial services sector, including banking, insurance and securities.

Panama

Exploratory discussions began in May for a free trade agreement with Panama. From 2005 to 2007, Canadian merchandise exports to Panama grew by 43.7%.

In 2007, bilateral merchandise trade between Canada and Panama totaled $115.1 million, with Canadian exports accounting for $86.4 million and imports totaling $28.7 million.

In the same year, Canada's top exports to Panama included pharmaceutical products, machinery, electrical and electronic equipment, malt and barley, vegetables, and meats. Imports from Panama included mineral fuels, fruit and nuts, fish and seafood, spices, coffees and teas, fats and oil products, and wood products.

Korea

Canada and Korea met earlier this year for a thirteenth round of negotiations in Ottawa. Progress was achieved in several areas, particularly in goods market access issues. However, some issues still require resolution.

Canada is seeking comprehensive tariff elimination for all its commercially significant exports, and is working to address Canadian stakeholder concerns in respect of Korean non-tariff measures.

For a full list of Canada's negotiations and agreements visit the DFAIT web site.

Duty-free goods need NAFTA too

We all know that a valid NAFTA Certificate will provide duty-free access for goods traded within North America - but what about goods that are already duty-free without the Certificate? Many importers do not request Certificates for these goods as there isn't any perceivable benefit for the extra time, costs and administration involved.

However, what if Customs reclassify these imports during a Verification Review a couple of years down the road? Your time limit to add NAFTA benefits to imported goods is only one year so if they are reclassified beyond that period (Customs have 4 years to do so) then you'll have no alternative than to pay the applicable duty, and no recourse to claim it back. Keep in mind that during a Customs Verification a full fiscal period's imports will be under scrutiny and depending on the classification change Customs legislation may require that you go back a full 4 years to assess duty – an outcome which could have been completely avoided (at least the duty payable part) if a Certificate had been used at time of import.

When deciding for which goods to create/obtain a NAFTA Certificate, the normal duty provisions of your product should be reviewed but shouldn't be the deciding factor. Is your item actually named in the Customs Tariff or does it fall under a general "catch all" which may be subject to interpretation? Do you have a ruling in place? Have your tariffs been reviewed for accuracy? There are exceptions, for example printed paper goods (books, magazines, advertising, etc), computer software, etc are unconditionally duty-free.

To discuss how this may affect you and to take this reasoning and apply it to all imported goods where "preferential status" may be obtained for other trade agreements Canada has in place, contact Darren Lair, Customs Consulting Services.

New hours of customs operation at head office

Our Customs Operations hours have been extended to 5 a.m. to meet same day release and delivery deadlines for high value courier shipments.

	Chris Cartan, Manager – Customs Operations

AT YOUR SERVICE

Meet Chris Cartan, Manager – Customs Operations. Chris is responsible for customs operations at all Universal Logistics customs offices – Toronto, Fort Erie, Niagara Falls and Windsor.

He helped introduce the expanded hours for our Head Office customs operation (see above) and is a great source of information on customs compliance for all modes of transportation.