Unit X:Export Distribution Channels

DISTRIBUTION
Involves all the activities concerned with the transfer of
goods from the manufacturers to the consumers.
Its aim is to ensure the availability of products to people
who want these items whenever and wherever they want to
acquire them
COMMERCIAL
DISTRIBUTION

Deals with trade contracts

and the choice of wholesale
and retail channels that
involve finding good
markets and demand
stimulation
COMMERCIAL DISTRIBUTION

This is often referred to as the marketing channel of

distribution, or simply, the marketing and trade channels

This export distribution set-up appears complicated when compared

with the commercial distribution system in the domestic market
because the former involves a variety of middlemen and
intermediaries before the goods reach the end-consumer
 Deals with the problem
of space and time,
specifically how to
PHYSICAL effect the transport and
storage of goods
DISTRIBUTION • It answers the
question: “how
should orders be
handled?”
INDIRECT

Exporter-producer in home country

Export merchant or agent

Importer/wholesaler

Retailer
DIRECT

Exporter-producer in home
country

Retailer/resident buying office

AS THE DIAGRAM ILLUSTRATES, ANY EXPORTER-
PRODUCER OR TRADER CAN REACH THE
BUYER THROUGH EITHER IN TWO WAYS:
Direct exporting refers to the sale in the foreign market by the
manufacturer himself. A manufacturer does not use any middlemen in the
channel between the home country and overseas market. Following figure
shows direct exporting channels.
 DIRECT EXPORTER SALES
•Developing a firm’s own sales force, and offering products
directly to the retailers without resorting to intermediaries.

•Through this method, you may gain a lot of firsthand

experience in exporting and get the highest return on profit
• The only disadvantage of this method is the high risk
and cost involved
 INDIRECT EXPORTER SALES THROUGH
INTERMEDIARIES
•Means relying on imports and commission agents both
here and abroad who, in turn, distribute or serve major
buyers directly.
•Indirect exporting refers to the transfer of the selling
responsibility to other organization by the manufacturer. 
• In indirect exporting, the manufacturer utilizes the services of
various types of independent marketing middlemen. 
 INDIRECT EXPORTER SALES THROUGH
INTERMEDIARIES
This type demands a lot of flexibility on the part of
the exporter and is considered low cost and low risk
• However, it provides very little or insignificant
experience in the market as well as low returns
TRADE CHANNELS AND
COMMON DISTRIBUTION
FUNCTIONS
Specific trade channels possess
certain characteristics which
can guide you with the right
approach in marketing and
selling your products
Trade Channel Characteristics
Department Stores Large number of styles but low volume
Moderate to reasonable prices
Do not provide specific design direction, but rely on
manufacturers for actual design

Discount Stores Few styles/high volume

Low price
Provide design of a successful product to be copied
Shorter lead time compared with that given by
department stores

Specialty Stores Few styles/low volume

High price per style
Provide design
Shorter lead time
 Trade Channel Characteristics
Mall-order Companies Many styles/low volume
Moderate to high prices
Frequent reorders
Develop their own design
Designs run for about two years
Average lead time

Wholesalers/Distributions Few styles/high volume

Low to moderate prices
Provide design of a successful product to be copied
Short lead time
COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel

Producer-Exporter Manufactures the goods

Sells and promotes the goods
Packs the goods
Weighs and inspects the goods
Arranges for the transportation
Delivers the goods to agreed destination
Receives payment for the goods
COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel

Agent Does not keep stock

Is not responsible for the payment
Works on the basis of a sole agency
Puts the buyer and seller together
Receives commission
 COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel
Importer/Wholesaler Buys at his/her own risk
Keeps stock
Will not disclose the names of his/her clients
Might handle other competing products
Might be willing to pay some promotional expenses
Sets his/her own profit margin
May work on the basis of exclusivity
Gives credit
Delivers goods to retailers
 COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel
Retailer Buys from wholesalers or purchases from associations
Buys from agents-importers
May import directly through his/her own purchasing department
Keep stock
May insist on exclusive contracts
Promotes the items
Stores and displays the items
Can be a powerful marketer if the product interests him/her
Sells to end-consumers
 COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel

Special Wholesaler May work regionally

Does not cover the whole country
Often specializes in food and household products for
specific industries like hotels, restaurants, etc.
Does not always insist on an exclusive contract
COMMON DISTRIBUTION FUNCTIONS OF THE DIFFERENT TRADE CHANNELS

Distribution Function
Channel

Consumer Ultimately buys and processes the goods

May store the goods
Consumes the goods
Pays in cash or credit
Includes industries, hotels, airlines, etc.
Given the features and functions of the different channels,
your choice will most likely depend not only on the nature
of these marketing channels but more on the ff. factors:

1. Type and nature of the product

2. Market segments you are aiming at
3. Available quantities
4. Delivery and payment terms
 Several choices in transporting the goods
are available: by sea, by rail, or by air
• Presently, ocean freight is the most
SHIPPING THE widely-used form of shipment in
GOODS international trade, being the cheapest
mode of transportation for delivering
large quantities of goods over long
distances
 ORGANIZATION OF OCEAN TRANSPORT (TYPES)
Conference line vessels
These ships belong to a line which is a member of a shipping
conference
Conferences are groups of shipping lines bound together for the
purpose of adopting common rules and regulations
They charge uniform freight rates for particular routes
 ORGANIZATION OF OCEAN TRANSPORT (TYPES)

Non-conference vessels
These ships are operated by shipping companies that offer scheduled
services but quote freight rates independently from one another
ORGANIZATION OF OCEAN TRANSPORT (TYPES)

Tramp ships
These ships do not follow regular routes but travel where
cargoes are available
 ORGANIZATION OF OCEAN TRANSPORT (TYPES)
Charter ships
These ships can be hired to transport products for a particular
purpose or time
The most commonly-used type of shipping is via the
conference line vessels
OCEAN FREIGHT RATES

Mostly depend on the nature of goods shipped,

the weight or volume of the goods, and the
destination
To some extent, they depend on the type of
shipping vessel used
MAIN COMPONENT OF FREIGHT COSTS

Basic rate per cubic meter or metric ton

Surcharges such as currency adjustment factor, bunker adjustment
factor, container service charge, port congestion surcharge, war risks,
arbitrary charge, etc.
SEA FREIGHT RATES PER KG

With the exception of particularly heavy goods, most LCL is

priced per volume of goods, and not by weight.
For most products, use these rules of thumb for which
selecting the most cost-effective mode:
Shipments weighing more than 500 kg becomes uneconomic
to go by air freight.
Ocean freight is around $2-$4/kg, and a China-US shipment
will take around 30-40 days or more.
SEA FREIGHT RATES PER KG

At about $5-8 per kilo, a China-US shipment

between 150 kg and 500 kg can economically go air
freight and will take around 8-10 days.
Express air freight is a few days quicker, but more
expensive.
Packages that are lighter than 150 kg can
economically go by courier (express freight).
CONTAINERIZATIO
N
FREIGHT CONTAINER
Is an article of transport equipment which is single, rigid,
non-disposable cargo box, ventilated, insulated, reefer, flat
rock, vehicle rack, or open top with or without bogies and
attached not less than twenty (20) feet in length, and
having a closure or permanently hinged door that allows
ready access to the cargo
FREIGHT CONTAINER

Containers have partitions, fitting, and fastenings

able to withstand without permanent distortion all
the stresses that may be applied in normal service of
continuous transportation
TYPES:

Full Container Load (FCL)

Implies that the shipper
will have a container at
his/her disposal and that
he/she will normally
have enough cargo with
which to fill the
container
LESS CONTAINER
LOAD (LCL)
This implies goods in any
quantity intended for
carriage in a container,
but the goods are
delivered to the carrier for
containerization
AIR TRANSPORT
A good choice for goods
which are highly
perishable and valuable
•These goods have a high
ratio of price to weight,
which means they are light
but expensive
 Advantages:
1. Speedy delivery of goods
AIR TRANSPORT 2. Less risk of pilferage and damage
(greater security)
3. Less need for costly productive
packaging (materials are lighter)
 Based on the actual
weight in kilograms or
AIR volumetric weight
TRANSPORTATION (dimensions) in
kilograms whichever is
FREIGHT RATES higher is the chargeable
weight
AIR TRANSPORTATION FREIGHT RATES

Express air freight is typically handled by one company (like DHL, UPS or
FedEx) that manages the entire shipment lifecycle, with shipping from door to
door in under five days. These express air freight shipments are usually smaller
(less than one cubic meter and 200 kilograms) than air freight.
In a typical season, international air cargo rates can range from approximately
$2.50-$5.00 per kilogram, depending on the type of cargo you’re shipping and
available space. However, costs have risen sharply since February 2020 as a
result of sever disruptions in ocean freight and high consumer demand. 
Currently, air cargo rates range from $4.00-$8.00 per kilogram.
SW#2
EXPLAIN YOUR ANSWER (MINIMUM OF 3 SENTENCES)

1. In what ways is exporting a better way of entering

international markets than setting up wholly owned
subsidiaries abroad.
2. What are the risks and benefits associated with
exporting? Give 1 risk and 1 benefits.