Master of Business Administration- MBA Semester 4

“Supply Chain Management” Specialization

SC0006 – Global Logistics and Supply Chain Management- 4 Credits

(Book ID: B1661)

Assignment (60 Marks)

Q1. Write a note on any three trade blocks.

Answer. In general terms, regional trade blocks are associations of nations at a governmental level to
promote trade within the block and defend its members against global competition. Defense against
global competition is obtained through established tariffs on goods produced by member states, import
quotas, government subsidies, onerous bureaucratic import processes, and technical and other non-
tariff barriers. Since trade is not an isolated activity, member states within regional blocks also
cooperate in economic, political, security, climatic, and other issues affecting the region. In terms of
their size and trade value, there are four major trade blocks and a larger number of blocks of regional
importance.

1. ASEAN (Association of Southeast Asian nations)

Established on August 8, 1967, in Bangkok/Thailand.

Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar,

Philippines, Singapore, Thailand, and Vietnam.

Goals: Accelerate economic growth, social progress and cultural development in the region and Promote
regional peace and stability and adhere to United Nations Charter. Important Indicators for 2011:
Population 604.8 million; GDP US$2.178 trillion; and Total Trade US$2.388 trillion. ASEAN Economic
Community (AEC): Learn more about ASEAN Leaders' vision to transform ASEAN into a single market and
production base that is highly competitive and fully integrated into the global economy by 2015.

2. EU (European Union)

Founded in 1951 by six neighboring states as the European Coal and Steel Community (ECSC).

Over time evolved into the European Economic Community, then the European Community and,

in 1992, was finally transformed into the European Union. Regional block with the largest number of
members states. These include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland,
Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom.
Goals: Evolved from a regional free-trade association of states into a union of political, economic and
executive connections. Population estimated at 503.6 million (January 2012 est., Eurostat).

GDP (PPP) estimated at US$15.7 trillion (2012 est., CIA World Factbook 5 February 2013).

3. NAFTA (North American free Trade Agreement)

Agreement signed on 1 January 1994.

Members: Canada, Mexico, and the United States of America.

Goals: Eliminate trade barriers among member states, promote conditions for free trade, increase
investment opportunities, and protect intellectual property rights.Population of over 453.1 million (July
2012 est., The CIA Factbook, 5 February 2013).

GDP (PPP) US$17.8 trillion (July 2012 est., The CIA Factbook, 5 February 2013).

Q2. Explain the three basic types of cargo.

Answer. Cargo (or freight) is goods or produce transported, generally for commercial gain, by ship or
aircraft, although the term is now extended to intermodal train, van or truck. In modern times,
containers are used in most long-haul cargo transport using marine, road, air and other means.

The types of cargo can be classified into 3 groups:

1. General Cargo

Is the stuff that does not need any special handling of cargo delivery. General goods cargo of furniture,
garment, sprat parts.

2. Special Cargo

Is a cargo of goods that require special handling in the delivery of goods because the goods are easily
damaged or rotten. Special items divided into 5 cargo consisting of:

1) Live animal - Live tropical fish, Day old chick, Live dogs, live bird, live crabs

2) Perishable goods – Vegetables and fruits, Human blood, Flowers, Vaccines, Fresh fish, Newspaper

3) Valuable goods – Gold, Platinum, Bank note, traveler check-stamp, Diamond, Jewellery, Valuables
worth over USD 1000.

4) Human remains – cremated, Uncremated

5) Strongly smelling goods - durian fruit, Eucalyptus oil, Garlic, chili

3. Dangerous Goods
Goods that require special handling in shipment because the item can easily explode or berserk part of
the aircraft. Dangerous goods cargo goods consisting of 9 parts namely:

1. Explosive (inflammable goods)

2. Gasses (goods in the form of gas)

3. Flammable liquids (kerosene, gasoline)

4. Flammable solids (solids combustible such as coal)

5. Oxidizing substance (items easily oxidized)

6. Poison (toxic form of goods).

7. Radio Active Material (items that contain radioactive)

8. Corrosive (objects that can cause corrosion).

9. Miscellaneous dangerous goods (other goods that can be hazardous to aircraft

Q3. Describe intermodal movements in detail.

Answer. Intermodalism generally has been defined in somewhat narrower terms by different segments
of the freight transportation industry. For example, for the international seaborne shipping industry,
intermodalism implies cargo transport in standard shipping containers. However, for the domestic
surface-borne trade, intermodalism would pertain to the transport of highway trailers on railroad flat
cars. These differences in characterization of intermodal freight transportation call for a broader and
comprehensive definition of the concept of intermodalism, in order to capture different aspects of the
intermodal freight transportation system in the context of freight modeling and forecasting, and to
assist with better freight planning and policy analysis.

The section begins with a brief overview of the types and characteristics of intermodal freight
transportation. This is followed by the pertinent discussion on the importance of considering intermodal
freight in the freight planning process for the analysis of current and future transportation issues,
policies, programs, and initiatives. From the perspective of incorporating intermodal freight into the
freight modeling and planning process, a discussion on the extent to which various elements of
intermodal freight transportation are captured in existing freight data sources is then presented, which
is followed by discussions of the implications of data constraints/limitations on the development of
intermodal freight models, as well as innovative approaches to model intermodal freight demand,
within the constraints of existing data sources. The section is categorized into the following sections for
the discussion of intermodal freight considerations, including drayage, in freight modeling:

1. Types of intermodal freight transportation;

2. Characteristics of intermodal freight transportation; and

3. Intermodal freight data sources.

The following sections describe the different types of direct transfer intermodal freight movements,
based on the modes involved in the shipment (for international shipments, the modes involved relate to
that part of the shipment occurring in the United States):

Sea-Truck – Sea-truck intermodal involves the shipment of goods in containers which are transported on
trucks to/from seaports from/to their points of O-D for international exports/imports. The containers
are directly transferred between oceangoing vessels (containerships) and trucks at marine container
terminals.

Sea-Rail – Sea-rail intermodal involves the shipment of goods in containers on oceangoing vessels
(containerships), which are transported by rail on the surface leg line-haul movement. The modal
transfer process for the exchange of containers between containerships and railroad flat cars depends
on the location of intermodal rail yards. In the case of on-dock intermodal yards (rail yards located on or
adjacent to marine container terminals), there is a direct transfer of goods between containerships and
railroad flat cars (without the use of any other mode), while in the case of off-dock intermodal yards,
there is an additional leg of the container movement on trucks, which provides the link between the sea
and rail modes.

Truck-Rail – Truck-rail intermodal involves the shipment of trailers on railroad flat cars, the trailers being
transported by trucks between points of O-D and intermodal ramps. This type of intermodal freight
transportation also is referred to as Trailer on Flat Car (TOFC) or piggyback.

Q4. Write a note on ocean liner conferences.

Answer. Ocean Liner Conferences

A good place to start this review is to explore the institution of liner conferences. Liner conferences are
organizations of vessel operators who serve similar markets. They form cartels to both regulate (some
say, eliminate) competition among themselves and protect "their" market from outsiders. Today
conferences in the American trades exist to facilitate cooperative relationships between carriers with
the intent of reducing wasteful practices. Participation in conferences does not mean that members do
not compete. Indeed, intense competition exists between conference members as they seek cargo.

Why does the U.S. government allow antitrust immunity in the maritime industry and not in other
industries? Actually, the U.S. government does allow cartels in other industries. The examples known to
most readers are professional football and baseball leagues. Competition among various team owners is
strictly controlled. Ownership is profitable and it is almost impossible to establish a successful,
competing league. Ocean liner service is another area where cartels, despite their disadvantages, are
probably necessary. At present, the conference system in the United States is on the decline. The U.S.
government has passed laws that have greatly weakened the power of conferences. Still, it has to be
recognized that conferences do exist and that they remain popular outside the trades serving the United
States. Virtually all governments accept the principles of liner conferences as a necessary stabilizing
element. So stabilizing, in fact, that some developing nations charge that the conference system makes
it difficult for developing nations to break into the international markets.

The rule still is not widely applied and there is considerable disagreement as to how it should be
enforced and which nations can vote on amendments. The code presently applies only to liner
conference traffic, but many developing nations want the code extended "to include multimodal
transport, consortia, intermediaries such as freight forwarders and NVOCCs, and possibly non-liner
cargo.

Conferences have encountered some difficulties with other governments. A typical example was the
Transatlantic Agreement (TAA), which became operational in 1993. It was an agreement by which the
major shipping companies wanted to gain tighter control of seriously loss-making shipping on the North
Atlantic. They tried to achieve this by determining rates, capacity supply, and conditions of freight by
mutual arrangement. Shippers, who were having difficulties securing loading capacity and could no
longer negotiate terms with individual shipping companies, soon responded. In 1994, the TAA was
banned by the European Commission on the basis of allegations of rate manipulation criticism of its
capacity management, and the fact that cartel agreements also held for pre-and on-carriage over land.
Also in 1994, the European Commission imposed fines on a group of 14 shipping companies—European
and Asian members of the Far Eastern Freight Conference (FEFC)—for illegitimate price fixing and
discriminatory practices. Apparently, the European Commission still allows conferences to fix rates, but
disallows collective exemptions from the rules of free competition for land transport.

The increasing significance of the global market has led to a growing concern about ocean shipping
conferences. According to a recent survey conducted by Cottrill, shippers, buoyed by growing trade
volumes and weakened barriers, are pressing for more flexible shipping services.(1) Many carriers, on
the other hand, report the conference system is still needed to stabilize rates, control capacity, and
maintain adequate profit levels for the ocean carrier industry.

Governments are also becoming increasingly concerned about the fairness of the conference system.
Shippers and intermediaries are complaining to government officials about unfair rate-setting practices,
the refusal of conferences to negotiate rates, and the prohibition of individual service contracts under
the conference system. Transportation officials, particularly in the U.S. and the European Union, are
putting pressure on conferences to voluntarily reform anticompetitive practices. Before examining these
specific questions, it is important to consider the evolution of the ocean shipping conference system and
its role in international transportation.

Q5. Explain the different methods/terms of payments.

Answer. A payment is the transfer of money from one party (such as a person or company) to another.
A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal
obligation. The simplest and oldest form of payment is barter, the exchange of one good or service for
another. In the modern world, common means of payment by an individual include money, cheque,
debit, credit, or bank transfer, and in trade such payments are frequently preceded by an invoice or
result in a receipt. However, there are no arbitrary limits on the form a payment can take and thus in
complex transactions between businesses, payments may take the form of stock or other more
complicated arrangements.

Payment Methods

There are two types of payment methods; exchanging and provisioning.

Exchanging is to change coin, money and banknote in terms of the price.

Provisioning is to transfer money from one account to another. In this method, a third party must be
involved. Credit card, debit card, money transfers, and recurring cash or ACH (Automated Clearing
House) disbursements are all electronic payments methods. Electronic payments technologies are
magnetic stripe card, smartcard, contactless card and mobile handset. Mobile handset based payments
are called mobile payments.

To carry on this topic it is logically now to speak about the methods of payment in cash. There are
different methods:

1. By cheque that is a special printed form that is filled in and signed by a person, the drawer of a
cheque asking the bank, the drawee, to pay a sum of money to someone, the payee. Cheques are
payable in the country of origin and it is practicable to use them in home trade in order to avoid wasting
time. There are different kinds of cheques used:

- Blank cheque: a cheque that is signed but without the amount of money written in, this is added later
by the person to whom the cheque is paid when the amount is known;

- Crossed cheque: a cheque that has two lines drawn across it to show that it can only be paid into bank
account and not exchanged for cash;

- Open cheque: a cheque that does not have two lines drawn across it and can therefore be exchanged
for cash at the bank where it was issued;

- Stale cheque: a cheque that is not presented to a bank for payment within six months of being written;
it will not be exchanged for money by the bank and will be returned, marked ‘out of date';

- Stopped cheque: a cheque that the person who signed it has asked a bank not to pay; if such a cheque
is paid, the bank must bear the loss;

2. By telegraphic or telex transfers or post (mail) remittance which is made from the Buyers' bank
account to the Sellers' in accordance with the Buyers' letter of instruction. Actually this method of cash
payment may sometimes take several months, which is naturally very disadvantageous to the Sellers.
3. By bank cables or electronic transfers which is relatively quick way of sending money to someone
abroad. The sender's bank cables the money (i.e. sends an instruction for it to be paid) to the bank of
the receiver. The money should be paid in the receiver's currency at the rate of exchange. The sum of
money can either be credited to the receiver's account or paid in cash against the identification.

4. By letter of credit (L/C) (or just by credit) – a letter from one bank to another, by which the third
party, usually a customer, is able to obtain money. There are different types of L/C:

- circular – a L/C which is addressed to all branches, correspondents & agents to the issuing bank

- direct – a L/C which is the issuing bank addresses to one particular branch (as opposed to a circular)

- confirmed– a L/C to which the paying bank has added its guarantee that payment will be made against
presentation of certain documents

- unconfirmed – a L/C which the issuing bank gives no promise that it will accept bills drawn upon it

- documentary– a L/C to which a number of other documents such as Bill of Lading, an Insurance
Certificate etc. have been joined by the exporter to obtain payment from the bank

- traveler's– a document issued by a bank to a traveler whereby the traveler may receive money up to a
stated amount from all the bank's agents abroad, when the traveler's L/C is used up it should be sent
back to the issuing bank

- revolving– a L/C under which its value is constantly made up to a given limit after payment for each
shipment, which saves the charges on multiply L/C

Q6. Briefly explain the important functions involved in an international distribution channel.

Answer. Distribution channels move products and services from businesses to consumers and to other
businesses. Also known as marketing channels, channels of distribution consist of a set of
interdependent organizations—such as wholesalers, retailers, and sales agents—involved in making a
product or service available for use or consumption. Distribution channels are just one component of
the overall concept of distribution networks, which are the real, tangible systems of interconnected
sources and destinations through which products pass on their way to final consumers. The path
through which goods and services travel from the vendor to the consumer or payments for those
products travel from the consumer to the vendor. A distribution channel can be as short as a direct
transaction from the vendor to the consumer, or may include several interconnected intermediaries
along the way such as wholesalers, distributors, agents and retailers. Each intermediary receives the
item at one pricing point and movies it to the next higher pricing point until it reaches the final buyer.
Coffee does not reach the consumer before first going through a channel involving the farmer, exporter,
importer, distributor and the retailer. Also called the ‘channel of distribution’.
In short, distribution describes all the logistics involved in delivering a company's products or services to
the right place, at the right time, for the lowest cost. In the unending efforts to realize these goals, the
channels of distribution selected by a business play a vital role in this process. Well-chosen channels
constitute a significant competitive advantage, while poorly conceived or chosen channels can doom
even a superior product or service to failure in the market.

Functions of a Distribution Channel

 The primary function of a distribution channel is to bridge the gap between production and
consumption.
 A close study of the market is extremely essential. A sound marketing plan depends upon
thorough market study.
 The distribution channel is also responsible for promoting the product. Awareness regarding
products and other offers should be created among the consumers.
 Creating contacts or prospective buyers and maintaining liaison with existing ones.
 Understanding the customer's needs and adjusting the offer accordingly.
 Negotiate price and other offers related to the product as per the customer demand.
 Storage and distribution of goods
 Catering to the financial requirements for the smooth working of the distribution chain.
 Risk taking for example by stock holding

Three Levels of the Distribution Channel :

In level (1) there are no intermediaries involved, the manufacturer is selling directly to the customer.
This is called the 'direct-marketing' channel. Examples of direct marketing channel can be seen at factory
outlet stores. Various hotels prefer direct-marketing, they market their services directly to their
customers without taking the help of any retail intermediary (travel agent).

Levels (2) and (3) are examples of 'indirect-marketing' channels. In level (2) one intermediary or retailer
is used. A Retailer sells goods/services directly to the end users. Retailer buys products from
manufacturers or wholesalers.

In level (3) along with retailer a second member is added to the distribution chain. He is the wholesaler.
A wholesaler buys and stores products in bulk from manufacturers. He sells these products in smaller
quantities to retailers.