He said, ‘We calculate logistics costs by looking not only at the freight costs but peripheral costs such as bunker fees, security costs and canal/corridor fees.
‘We also take into account the cost of duties, tariffs and other fees, even if the supplier is selling their product under DDP terms. It’s extremely important to ensure proper product classifications when sourcing overseas. ‘
‘Companies need to do their own due diligence to not only understand the costs but protect themselves from incorrectly classifying products and paying the wrong charges.
‘Freight mode decisions are typically made based on the value of the product and shipping costs.
‘For example, it makes sense to ship some high-cost electronic parts by air despite its higher cost because of the total size and value of the product. The offsetting inventory and potential obsolescence costs come into play there. But typically most consumer products will be shipped from overseas suppliers via ocean containers while some raw materials will be shipped as bulk freight because the cost of the material is lower and it is less time-sensitive.’
He told Purchasing Com that an often overlooked area in the freight mode decisions is the review of packaging process and materials.
‘Depending on the product shipped and transportation mode chosen, product packaging must be given consideration for protection against damage, spoilage and corrosion. The wrong packaging can negatively impact the cost savings potential of a global sourcing model.’