International Trade Operation
International Trade Operation
The world has been characterized by major changes ever since. These changes include businesses going global – including their operations and business transactions. Also, there have now been major changes in the business’s international trade operation. International trade has been defined by (2001) as “sales with which cross juridical borders” (p. 71). To control trade between countries has been and will always be a relevant focus of state policy and a determinant of international equality. In fact the principles of international trade operation under the World Trade Organization (WTO) can be outlined as follows: (1) non-discrimination international trade measures; (2) transparency in the specifications and the obligations trade measures; (3) tariff-only protection for the domestic manufacturers; (4) stability and predictability in trading conditions; and (5) fair competition.
This paper will be covering the issue of international trade operation. The modern role of the international freight forwarder will be identified and critically examined in this paper including the variety of activities that the forwarder is engaged to, as well as the forwarder’s necessitated extent of expertise. The term “hub and spoke” will also be explored and its importance in international operations. There will also be some examples provided of hub and spoke operations in international transport.
Traditional Freight Forwarding Role
It must be noted that freight forwarders have played a venerable role in intermediating between cargo owners – shipper, exported, importer, etc. - and operating carriers – trucker, railway operator, shipping line, etc. – through organizing the physical movement of goods between the specified points in origin and destination at the cargo owner’s request for which a fee would be charged. This means, the role of the freight forwarder is an agent that acts in behalf of the client by organizing the movement of cargo for a fee that is in accordance to the specific instructions set out by the client in the first place. In this specific role, the freight forwarder is only accountable for facilitating the means of transport and has no custody over the cargo.
As an agent, the freight forwarder performs a selection of functions that on average covers two phases of operation namely: pre-shipment and shipment. In the pre-shipment phase, the freight forwarder is a source of shipping information concerning to freight charges, port charges, consular fees, any special documentation fees and forwarding commission, which consequently allows the client to settle the final price quotation of the product, in addition to concluding the contract with the buyer. As for the shipment phase, the freight forwarder functions as an agent that secures shipping space, preparing documentation, paying statutory taxes and dues and arranging transport contracts with ocean carrier and land transport operators.
Modern Role of the Freight Forwarder
Nowadays, many forwarders have broadened considerably the extent of services and have advanced from the lowly status if paper-pushing agent to one of carrier. This shift in the forwarder’s status has expanded their business horizon significantly. As carrier, the forwarder will issue multimodal transport document that verifies a door-to-door transport contract which accepts carrier liability and presents custody of the goods as well as an undertaking to deliver the goods in agreement with the contractual terms and conditions. Moreover, the forwarder also makes his won contractual agreements with his subcontractors of individual modal services instead of acting under the instructions of the client’s agency mandate. It must be noted that as a contracting carrier, the forwarder has become a principal in the relationship with the client.
In addition, the freight forwarder also offers value added services – an extension of the original service provided for the transportation of goods – depending in the requirements of the customers. They include: pick and pack, returns processing, export packing, climate control, credit processing, bar code processing, cross dock, labeling and ticketing, customs bonded, kit assembly, subassembly, built to order, facility management, recall services, documentation fulfillment, transportation management, network design and logistics needs analysis.
To illustrate, let us consider the case of an export movement wherein the point of cargo transfer is the producer’s port of export. The range and extent of services necessitated as a freight forwarder will more or less include the following, as specified by an exporter in the agency mandate: (1) to book arrangements for inland support cargo transfer for the movement from the plant gate to the export port; (2) prepare documentation and paying statutory bills and taxes such as customs; at the time of shipment, the freight forwarder reviews or checks the letter of credit, commercial invoice, packing list and other documents in relation to the shipment, and (3) accelerate all the documentation to the client or the paying bank, whichever the client favors in order to facilitate client payment from the buyer.
“Hub and Spoke”
The term “hub and spoke” derives its name from a bicycle wheel, which constitutes of a number of spokes protruding outward from a central hub. In the theoretical view, a location is selected to be a hub and the passageways or courses that lead from the points of origin and destination are considered spokes. This model “hub and spoke” also called the spoke-hub paradigm is significantly important in the international trading operations, specifically in the industries of transport and freight. Due to the flexibility, as well as the relative inflexibility of the “hub and spoke” model, it necessitates that the items (for freight) or the people (for transport) being distributed must be routed through a central hub before reaching their destination.
, founder of FedEx, established the hub and spoke model in the mid 1970s for overnight package delivery. created his company’s hub at Memphis International Airport in Memphis, Tennessee. Almost immediately after, other firm such as UPS and Airborne had practically no choice but to developed their own hub and spoke model as well given the natural superiority of this system for speedy delivery of the packages. In addition to FedEx, Delta Air Lines established the hub and spoke model in the industry of passenger transportation at its hub in Atlanta, Georgia to compete with Eastern Airlines. This model of “hub and spoke” is primarily relevant to big organizations with international offshore offices as it makes communication faster, secure and un-interruptible.
In conclusion, the freight forwarder plays a critical role in businesses especially in the international trade operation. In fact, the freight forwarder basically functions as an agent that facilitates the organization of the movement of goods between particular points of origins and the particular points of destination for a fee in accordance to the client’s specific instructions.
In addition, the “hub and spoke” operations are also considerably important when talking about the industry of freight as it makes communication faster, secure and un-interruptible especially in very big organizations. The hub and spoke model works like the bicycle wheel wherein it has a hub with protruding spokes – the hub is considered as the location whereas the spokes are the passageways that lead from the points of origin.
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