The New Logistics Manager

Francisco is the new logistics manager at Prep&Paint Anything, LLC. (P&P), a U.S. manufacturing company based in the state of Utah, (U.S.A). It provides abrasive surface preparation and spray-painting equipment. The company recently started selling equipment in Portugal.

An International Customer Complains

To date, P&P's only customer in Portugal is Frangos. Frangos' president, Mauricio Santos, complained that products have not been delivered on time. Mauricio was told in January that it would take four weeks to have all the ordered products delivered to Portugal, but it is now March and he has only received some of the equipment. He also noted that he had ordered electric motors that were urgently needed for a client, but they have not yet arrived, despite his flagging the order to the previous logistics manager. Mauricio has also been waiting on P&P to send a signed statement certifying the country of origin of the products and that the products were in accordance with the invoice. Mauricio advised Francisco that if P&P did not fix its problems immediately, Frangos would begin using a California-based company that had recently approached him.

Francisco (the manager) Investigates

Francisco began investigating what type of equipment was being shipped and where the bottleneck was. He reviewed the purchase order and saw that Frangos had ordered storage and blast cabinets, vacuum equipment and a few smaller items including the electric motors. With this information, he would determine how the products were sent from the warehouse and then try to track the exact location of the products on their way to Portugal.

Status of Loading and Transport from P&P

In March, P&P started to use the budget U.S. carrier Cheapy Logistics (Cheapy) to transport larger products from the warehouse to the shipping port in Long Beach, California. The owners of Cheapy and P&P were good friends. The companies had negotiated a new two-year agreement in early March. Francisco searched through emails and files but couldn't find the contract from Cheapy. He had no idea what the carrier was supposed to do. He contacted Cheapy to get further details about the services it offered P&P but was unable to reach anyone there.

Francisco then went to the warehouse to speak with Will, the shipping manager, about the products shipped to Frangos - particularly the electric motors. He was surprised when Will told him, "We thought that the electric motors could go with the rest of the equipment, so we packed them in the ocean container, too. You know, it might save us some money. We ran out of filling material, but don't worrywe packed it in a way that nothing will happen to them." Francisco knew that some of the larger equipment had protruding parts, so he became concerned the smaller items would be damaged en route.

Francisco also realised that the blasting cabinet that Frangos had ordered was still in the warehouse. Will said the light box component had to be removed from the top of the blast cabinet in order to meet the ocean container height regulations, and his staff needed the company's engineer to help make the modification before the shipment could proceed. Frangos was also waiting on the vacuum equipment, which was found next to the blasting cabinet in the warehouse. Will and his staff had never sent vacuum equipment by sea, and they needed a forty-foot container with an open top. Someone had ordered a hard top container instead. If the open-top container was not used, the container could not be loaded by crane onto the cargo ship. Francisco thought to himself, "How did we not know this before?"

After Francisco finished speaking with Will, he went back to the office and received a call from Jedd at Cheapy. Jedd advised that there was a verbal contract between Cheapy and P&P; a written contract was still being prepared. He also said Cheapy was experiencing a shortage of truck drivers and could not come for another four to five days to take containers to the port. Jedd added that Francisco would be very fortunate to find a company able to assist in trucking, as finding new truck drivers to replace those retiring had become a nationwide problem. Francisco had to find a solution to this, as he needed to get equipment moved not only internationally, but in the U.S. as well.

... CORRECTIVE ACTION

Francisco called the freight forwarders that P&P used, "Full-Service Express" (FSE), which offered a full range of services, such as export packing and containerization. To save costs, P&P did not use FSE's U.S. pick-up service or any other packaged services. It used FSE as shipping agents and customs brokers to arrange the export customs clearance and to pay the export duties. Francisco was used to working with freight forwarders who offered door-to-door service, so this would be an adjustment. However, FSE did offer satellite tracking, so Francisco used his smartphone to track P&P's latest shipment to Frangos through the mobile application. To Francisco's disappointment, the latest shipment was in Portugal, but delayed due to customs clearance issues.

At the seaport in Lisbon, Portugal, goods are unloaded from the ship and then inspected by customs and stored. The consignee has four days to provide the required documents needed for customs clearance and then remove the goods from the storage area. Mauricio has been waiting for a missing document from P&P to be able to provide the complete set of documents to Portugal customs. The demurrage charges have been accumulating for the past two weeks.

Mauricio knew that the sales agreement with P&P stated that Frangos was responsible for charges once the shipment arrived in Portugal, but as he believed the missing documentation was P&P's fault, he wanted P&P to pay for the demurrage. As a part of the sales contract between P&P and Frangos, they negotiated the following shipping delivery terms: "CFR, Port of Lisbon, Portugal, Incoterms 2020." Frangos had a solid relationship with its own freight forwarders, located in Portugal, and were able to negotiate favourable freight rates. Keeping this in mind, P&P had already offered Frangos a reduced price for the equipment that it shipped.

Francisco called Mauricio to explain the situation, and that he would be getting all the outstanding equipment shipped, just as soon as possible. He prepared the signed statement - which certified the country of origin - and sent it by email to Mauricio, hoping the Portuguese customs authorities would accept it while waiting for the original document to arrive by courier in three days. Francisco also offered to pay for the extra demurrage incurred. Mauricio was still not happy with the service offered by P&P. So, Mauricio told Francisco he would not be purchasing equipment from P&P again.

Question :MODE - DOMESTIC: Discuss which shipping mode(s) would be most cost-effective for P&P in shipping within (inside) the USA. answer this question according to the above Case Study