Supply Chain Insurance May Help Manage Supply Chain Risk

supply chain insurance

Reading Spend Matters blog article Call Your Broker: Have You Purchased Supply Risk Insurance Yet? we were introduced to an interesting concept - Supply Chain Insurance.

Marsh, the world’s leading insurance broker and risk advisor, will be offering the product. According to Marsh’s website:

“As businesses in nearly all industry sectors take advantage of globalization to reduce costs and achieve efficiencies, their supply chains have become the lifeblood of many of their production, manufacturing and distribution activities,” said Robert Howe, Leader of Marsh’s Global Property Practice. “While the economic benefits of such supply networks are clear, the risks have become more acute and a supply chain interruption can have potentially devastating effects on a business. Our new program approaches business interruption on a broad basis to help companies address a wide range of potential disruptions.”

You may ask, “how would an insurance company decide on a premium for a supply chain risk?” Apparently there is some science involved as you would expect from such a large insurance organization.

For businesses interested in the program, the first step in obtaining the coverage is to have Marsh’s Risk Consulting Practice conduct a comprehensive supply chain risk assessment. Lexington Insurance Company will then use the assessment to underwrite the risk.

Has anyone yet contacted Marsh about this? We’d love to hear your feedback.

July 27, 2008 | Filed Under Sourcing Trends | 2 Comments

Data Seizure from Abroad, is your data protected?

The New York Times recently reported on laptop and data seizures by US Customs and Homeland Security in the name of protecting the security and borders of the United States of America. In the article the Times called for this agency to stop the seizures for Americans returning from international travel abroad. “There have been widespread reports of the government searching — and often seizing — laptops, BlackBerrys, iPhones and other portable electronic devices at airports. It is not clear how often these searches occur, and the government will not say.

The Association of Corporate Travel Executives says that of 100 people who responded to a survey it conducted this year, 7 said they had had a laptop or other electronic device seized.” –New York Times What does this mean to you? Often times the information that this agency is seeking may require them to sort and review through confidential business contracts, contacts and other sensitive documents.

Traveling abroad for business could inevitably cause you to have to release information relative to intellectual property and business transactions at the border. There are reports that US Customs may retain your laptop and data or even erase it as indicated in a similar article from the Washington Post.

What are your options?

I firmly believe and understand that there are necessary measures to ensure the security of the United States and its citizens. Any advice provided here is not to subvert these measures, but instead is provided to change the methods in which you utilize technology to secure your sensitive information.

•Remotely store your information online – services like xdrive.com and Google Docs can provide a means in which to store and save sensitive data. GoToMyPC.com allows you to remotely control (like Remote Desktop) your home computer.

•VPN – Many corporations have invested in virtual private networks that allow you to access the company’s local network from abroad. Storing your data at your company’s network may be the most secure place.

•Biometric authentication – Many laptops today include fingerprint scanners that allow you to access key applications on your computer. While this won’t prevent Customs from accessing your data, minimally, it will allow you to be present when the data is being accessed.

•Install a Linux partition – Windows XP by default does not display partitions created by the Linux operating system. Creating a dual boot laptop with Windows and Linux could allow you to simply keep those without advanced technical knowledge away from your files. While this is not preventing anyone from accessing the data, it does keep the non-technical savvy people away without looking suspicious. Dual boot computers are very common today with the advancement and ease of use of the Linux operating system.

•Delete History and Cookies – deleting your cookies, clearing cache and history are some basic ways to keep others from seeing where you visit on the internet.

While there are encryption methods available to secure your data from prying eyes, this is not a recommended method. Those that secure information with software like PGP (Pretty Good Privacy) may be identified as an individual trying to hide something. Additionally, there are reports that US Customs has asked that travelers provide passwords to access their electronic devices.

July 22, 2008 | Filed Under Customs | 2 Comments

Incoterms Definitions - the basics to the advanced

Incoterms Definitions

Incoterms (International Commercial Terms) are a series of international sales terms widely used throughout the world. They define monetary transaction and role responsibilities for both sides of the international trading buyer and seller transaction. The purpose of standardized incoterms is to determine export and import clearance responsibilities, who is owning the risk for the condition of the products at each stage in the transport process, and who is responsible for paying for what.

Here is the shortlist of Incoterms and definitions from the International Chamber of Commerce that you should be familiar with:

EXW “Ex Works”

The seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises.

FCA “Free Carrier”

The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller’s premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading. This term may be used irrespective of the mode of transport, including multimodal transport.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.

FAS “Free Alongside Ship”

The seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or damage of the goods from that moment. The FAS term requires the seller to clear the goods for export.

FOB “Free on Board”

The seller delivers when the goods pass the ship’s call at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. Many people use either FOB or CIF and aren’t sure of the exact differences. SourceJuice wrote an article To FOB of CIF That is The Question which may be of assistance.

CFR “Cost and Freight”

The seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export.

CIF “Cost Insurance and Freight”

The seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.

However, with CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have protection of greater coverage, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

The CIF term requires the seller to clear the goods for export. This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used.

CIP “Carriage and Insurance paid to…”

The seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been delivered. However, in CIP the seller also has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage.

Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transportation by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller to clear the goods for export.

CPT “Carriage paid to…”

‘Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes.

If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier, The CPT term requires the seller to clear the goods for export.

DAF “Delivered at Frontier”

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country. The term “frontier” may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.

However, if the parties wish the seller to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading, this should be made clear by adding explicit wording to this effect in the contract of sale.

DES “Delivered Ex Ship”

means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. If the parties wish the seller to bear the costs and risks of discharging the goods, then the DEQ term should be used.

This term can be used only when the goods are to be delivered by see or Inland waterway or multimodal transport on a vessel in the port of destination.

DEQ “Delivered Ex Quay”

The seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination. The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). The DEQ term requires the buyer to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.

If the parties wish to include in the seller’s obligations all or part of the costs payable upon import of the goods this should be made cear by adding explicit wording to this effect in the contract of sale.

This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. However if the parties wish to include in the seller’s obligations the risks and costs of the handling of the goods from the quay to another place (warehouse, terminal, transport station, etc.) in or outside the port, the DDU or DDP terms should be used.

DDU “Delivered Duty Unpaid”

The seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any “duty” (which term includes the responsibility for and the risks of the carrying out of customs formalities, and the payment of formalities, customs dudes, taxes and other charges) for import in the country of destination. Such “duty” has to be borne by the buyer as well as any costs and risks caused by his failure to clear the goods for import in time. However, if the parties wish the seller to carry out customs formalities and bear the costs and risks resulting there from as well as some of the costs payable upon import of the goods should be made clear by adding explicit wording to this effect in the contract of sale.

DDP “Delivered Duty Paid”

The seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any “duty” (which term includes the responsibility for and the risks of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

Whilst the EXW term represents the minimum obligation for the seller, DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import licence. However, if the parties wish to exclude from the seller’s obligations some of the costs payable upon import of the goods (such as value-added tax : VAT), this should be made cear by adding explicit wording to this effect in the contract of sale. If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used.

To help you find the appropriate Incoterm for your situation, have a look at BusinessLink’s interactive guide.

July 15, 2008 | Filed Under Landed cost | 2 Comments

VAT Rebates Coming Back for Textiles and Garments

While not announced yet by China, The South China Morning Post today has an article stating that VAT Rebates are coming back for textile and garment exports. This is a bit of a surprise move and is welcome news to those in the China textile and garment industries and for buyers seeking relief from higher prices.

For those unfamiliar with VAT rebates and their place within China sourcing, please have a look at this SourceJuice article Reminder: Understand VAT Rebates to Bargain More Effectively.

According to the article:

Various industry sources and tax experts say the mainland is finalizing a plan to raise VAT rebates on textiles and garments as much as 4 percentage points to 15 per cent. Generally, exporters are paying a value-added tax of about 17 per cent.

The plan also would increase rebates on viscose fiber - a key raw material in making fabric - as much as 1- percentage points to 15 per cent.

The plan signals a rescue of the country’s pillar industry, which is undergoing an unprecedented consolidation exacerbated by a United States-led global economic slowdown, a sinking US dollar and sourcing costs of raw materials, labour and crude oil.

When the VAT rebate returns, be sure to get the discount on your next purchase order!