Đề tài Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance

INTRODUCTION Freight forwarding plays an important role in international trade. International trade refers to the transferring of goods’ possession right. Freight forwarding is responsible for putting this transferring into practice. After the open-door policy, Vietnam’s export turnover has continuously increased through years. In 2000, export turnover of Vietnam was USD 30 billions, in 2003; this number is 60 USD billions. The highly development of export and import activities stimulates the development of freight forwarding. At present, freight forwarding services of Vietnam is rather diversified. Many kinds of services are provided which meet the demand of the society. However, in fact, freight forwarding industry of Vietnam still has many insufficiencies, in which the serious problem is the quality of services. The main reason is inappropriate method of business operation. We need to have an advanced method of freight forwarding in order to reduce the cost as much as possible. In this case, logistics is an effective way, which is needed to apply in freight forwarding enterprises in Vietnam. I chose the topic “Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance” for my field study report. Through the time of field study in Haiphong port, I conducted research on logistics in these following sectors: The overview of logistics and freight forwarding The current situation of logistics service in Haiphong port The recommendations for the logistics service in Haiphong port. I hope that my field study report about logistics in Haiphong port will bring out the meaning of this new service in Vietnam, and will help the port to improve their logistics services in the near future. LIST OF ABBREVIATIONS EDI: Electronic Data Interchange ADSL: Asymmetric Digital Suberibers Lines LCL: Less than container load FCL: Full container load PL: Provider of logistics VIFFAS: Vietnam Freight Forwarding Association CHAPTER 1: OVERVIEW OF FORWARDING AND LOGISTICS Freight forwarding Definition. Freight forwarding is the process of moving cargo from one place to a destination, according to the demand of customers. An international freight forwarder is an agent for the exporter in moving cargo to an overseas destination. Freight forwarders assist exporters in preparing price quotations by advising on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and their handling fees. They recommend the packing methods that will protect the merchandise during transit or can arrange to have the merchandise packed at the port or containerized. If the exporter prefers, freight forwarders can reserve the necessary space on a vessel, aircraft, train, or truck. The cost for their services is a legitimate export cost that should be included in the price charged to the customer. Typical services of freight forwarding Since Vietnam opened the door to develop economy, especially with the entry in WTO in 2007, local and foreign shippers have concerns over just how competitive the country will be, given huge challenges to its freight forwarding industry. Therefore, freight forwarding service has been highly developing. A freight forwarder can offer a variety of services. Advising on the best routes and relative shipping or airline. Booking the necessary space with shipping or airline. Arranging with the exporter for the packing and marketing of the goods. Consolidating shipment from different exporters. Handling customs clearance abroad. Arranging marine insurance for the shipment. Preparing the export documentation. Translating correspondence in foreign language Scrutinizing and advertising on ability to comply with letter of credit. Once the order is ready for shipment, freight forwarders review all documents to ensure that everything is in order. This is of particular importance with letter of credit payment terms. They may also prepare the bill of lading and any special required documentation. After shipment, they can route the documents to the seller, the buyer, or to a paying bank. Freight forwarders can also make arrangements with customs brokers overseas to ensure that the goods comply with customs export documentation regulations. A customs broker is an individual or company that is licensed to transact customs business on behalf of others. Customs business is limited to those activities involving transactions related to the entry and admissibility of merchandise; its classification and valuation; the payment of duties, taxes, or other charges assessed or collected; or the refund, rebate, or drawback thereof. According to its size, number of branches overseas, a freight forwarder will offer all or some of these services. Logistics. Definition. Logistics refers to the management of the physical flow of products from the point of original as raw materials to end users as finished product. Logistics wed production activities to the activities needed of transportation, storage, and distribution. According to definition of Logistics, the process is described in the below chart: Raw materials→Raw materials →Manufacturing→Finished goods→Market Supply point Storage Logistics flow. Logistics deals with geography, time and value. Moving from source to destination, freight and transportation connects buyer to seller and make the final delivery. In this process, there are number of stages involved. Freight and transportation alone encompasses many modes including truck, sea, rail, and air, all with varying issues, costs and levels of service. The flow chart below illustrates the process, which involves the input of these services providers in the movement of a particular product from the point it leaves the plant to end consumer in a retail outlet. Figure 1.1 Logistics flow
(Source: Hausman, Warren H. 2004 . “Supply Chain Performance Measures.” In Corey Billington, Terry Harrison, Hau Lee, and John Neale, eds., The Practice of Supply Chain Management.) Businesses and organizations address their logistics requirements by assigning staff to perform logistics activities by outsourcing one or several functions to third – party providers. In house logistics department usually manned by full- time logisticians who perform logistics- related functions. Their positions include purchasing managers, transportation managers, custom brokers, shippers and receivers. In the absence of outsourcing options, companies have dealt with moving and storing of goods in a disparate ways. Although outsourcing of logistics services is a fairly emerging trend, there are a large number of firms that maintain their own in- house logistics or distribution departments. This is largely prevalent in the manufacturing, commodity sectors, wholesaling and retailing. Fundamental elements of logistics Logistics includes such fundamental elements: Transportation: This is the most important element of logistics. In order to reduce the cost of logistics, it is necessary to reduce the cost of transportation from the manufacturing places to different markets. Transporting process must be done smoothly to make the delivery of goods or supply required materials on time, minimize the inventory cost. Marketing: Logistics includes making plans, implementing it and controlling the delivery of goods from the point of original as raw materials to end users as finished products. Therefore, it is clear that all the services focus on customers and meet the demand of customers. Effective marketing strategies help managers to have good customer services, deliver right products to right places and right customers. Distribution: An effective distribution channel can reduce the cost of logistics. It is necessary for managers to combine two factors: right place and right time to create an optimal distribution channel. Management: It also plays an important role in logistics. Lack of management factor, logistics services cannot meet the requirements of the customers as well as the objectives of the firms. Therefore, logisticians must have expertise or thorough understanding about transport modals, transport cost, and warehouse. Beside such important elements above, logistics also include following elements, which is not less important: Warehouses, factories Technical document Supporting and supervising equipment Human resources and staff training Benefits from improved logistics 1.2.4.1. Reduces the cost for consumer and producer Logistics is “the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point of origin to point of consumption for the purpose of conforming to customers’ requirement”. So, logistics reduces the cost of transferring goods between markets and of course it will reduce the prices paid by consumers . On the consumers’ side, this effect can be seen most clearly by examining the price of goods at the port relatived to the price of goods inland. Producers will not ship goods inland unless the prices they receive, net of shipping, is at least as high as prices at the port. This means that inland consumers bear the full burden of shipping costs for goods that is not produced locally. This burden can be substantial. A similar logic applies to exports. International markets will not pay more for goods produced in inland regions, and so the ex- factory or ex- farm prices are reduced by the full inland logistics costs of access to the port. 1.2.4.2. Insurance against regional price fluctuations. When agricultural output varies because of unpredictable weather, one region may experience drought and food shortages while another enjoys sufficient rainfall and ample harvests. If the regions are separated by poor logistics and transport systems, consumers in the shortfall region face very high prices for food, while producers in the surplus region face a market glut. Regional variations in agricultural prices are especially pronounced within country like Vietnam, in which interior regions are poorly connected or inaccessible. Good internal logistics facilitates surplus commodity shipments from surplus to shortfall regions, smoothing prices variations between them and providing a kind of insurance against shortage and glut. Better market access appears to dampen price volatility for a broad range of products. Validity in goods prices between city pairs riser with the distance between the cities, and is especially large for city pairs across national borders. Essentially, arbitrage is necessary to narrow price differentials across locations, and this is much harder to achieve when logistics are poor. 1.2.4.3. Reduced inventory costs. Better transport and logistics system not only lower the costs of delivery, but also make the timing of delivery more reliable. Producers cannot manufacture goods without the inputs they need, and retailers cannot sell goods they do not have in stock, so if delivery times are uncertain, firms must hold large inventories of goods. The first reason for long and uncertain delivery times is poor infrastructure – roads may be impassable, and railways nonexistent, or roads may cause damage to trucks that involve high costs and long delays. Another reason is peak load congestion – a severe problem in areas where population and manufacturing intensity have grown faster than infrastructure capacity. In Ho Chi Minh City, for example, the government bans trucks heavier than 2 tons in the inner city between 6 a.m. and 6 p.m. to combat growing traffic congestion, and thus manufacturers must hold large inventories all day rather than delivery midday shipments, and trucks sit idle during the day. This contrasts with modern just- in - time techniques, in which deliveries are continuous, and the transport capital stock is in constant use. Leaner production techniques require a substantial flow of information. Manufacturing firms can only run with small inventories of inputs if they are certain where and when the next shipment will arrive. In turn, this requires sophisticated electronic data interchange. 1.2.4.4. More developed markets. Well-developed logistics increase consumers’ choice and producers’ sources of supply, and bring more markets within producers’ reach. According to the statistics of International Exhibition Logistics Associates, 40% of trade growth in East Asia arises from offering new product lines and extending exports of existing product lines to new trading partners. Products diversification benefits both agricultural- and industrial- based economies, since for both specialization in narrow range of products can be dangerous because of prices volatility. According to the Global Competitiveness Report 2005-2006 (World Economic Forum), most of the differences in trade levels between small and large economies can be attributed to differences in the range of goods that are traded, and that much of the growth in imports that results from lowering trade costs come through expansions in the set of products available. The welfare benefits from expended product variety can dwarf those from standard calculations of the gains from trade. Better logistics allow variety expansion in several ways. First, they may directly lower the fixed cost of expansion. There are significant scale advantages to providing transport hubs, warehousing, and logistics services that many firms can share. Second, by lowering the marginal costs of serving markets, it is possible to increase sales and spread entry costs over more units. The diversification argument also applies across markets, as reliance on single export destinations leaves firms subject to significant business cycle risks. CHAPTER 2: HAIPHONG PORT AND LOGISTICS SERVICES 2.1. Overview of Haiphong port 2.1.1. Establishment and development Haiphong ports was founded in 1876, with original name is Ben Sau Kho. Over 121 years of existence and development, port of Haiphong has always played the most important role of the “Border gate” interface in the North of Vietnam. Import and export cargoes to and from North of Laos and South of China, have been transferred via Haiphong Port to the markets of many countries and vice versa. Haiphong port has the biggest cargoes throughput among the ports in the North of Vietnam. The port is equipped with modern facilities and equipments and has safe, sufficient infrastructure which meets all international modes of transport and trade. The estimated cargo throughput of Haiphong Port in the 2005- 2010 period is from 12.000.000 tons to 18.000.000 ton per year. The Head Quater is at number 8A Tran Phu Street, Ngo Quyen district, Haiphong city. 2.1.2. Scope of business activities In Haiphong port, handling operation areas are located based on the infrastructure advantages such as railway, high way, and inland waterway. These areas are installed and equipped with modern and advanced handling equipments which are suitable to every kind of cargoes, meeting the demand for different models of transport. Main services of Haiphong port: Cargo handling, forwarding and logistics. Ship towage and assistance International container transshipment Forwarding and transporting agent Transporting containers from Haiphong to Laocai and vice versa by railway Bagging, packing, and transporting cargoes by sea, highway, and inland waterways. Ship agent and marine brokerage 2.1.3. Organizational structure Haiphong port is operated like a big state-owned company. The leader of Haiphong port is General Director who is responsible for all activities in the Haiphong port. There are four Deputy General Directors who support General Director in four sectors: business, operation, engineering, and port rehabilitation project. Separating to the General Director and Deputy General Directors are functional departments. For example, Business department, Accounting department, Technical department, Agent shipping and brokerage department, Human resources department, etc. Besides these functional departments, Haiphong port has five enterprises which mostly responsible for cargo handling services. They are: Hoang Dieu, Le Thanh Tong, Chua Ve and Bach Dang Stevedoring Enterprise. Each functional department is controlled by a manager. 2.1.4. Situation of business activities Haiphong port continuously improves its methods of providing services to customers, increases handling productivity, cuts short procedures of cargo delivery and receipt as well as applies advanced methods of management in order to enhance the quality of services, minimize cost and time for customers. Therefore, Haiphong port’s throughput has increased through years. Table 2.1 Haiphong port throughput from 2001-2006  2001  2002  2003  2004  2005  2006   Export throughput  1,336,393  1,365,476  1,757,845  1,792,446  2,349,119  2,925,092   Import throughput  4,357,606  5,266,554  5,401,516  5,365,624  5,196,931  5,198,669   Domestic thoughput  2,881,513  3,669,293  3,358,601  3,325,623  2,965,007  3,127,601   (Source:Annual report of Haiphong port’s business department -unit:billion tons)
Haiphong port throughput from 2001- 1006 From 2004, Haiphong port faced some difficulties and more fierce competition due to the appearance of several ports in the North of Vietnam, such as Transivina, Greenport, Quangninh port. Although these ports are smaller than Haiphong port, market share of Haiphong port has reduced. Haiphong port also suffers several damaged due to natural calamities through the year of 2007. Table 2.2 Market share of Haiphong port from 2001- 2006 (turnover 1000 tons) Year  2001  2002  2003  2004  2005  2006   Turnover  8575  10314  10518  10486  10512  11000   Market share  79.3%  75.35%  68.84%  58.87%  54.29%  53.11%   (Source: Annual report of Haiphong port’s business department-2007 ) Haiphong port ensures to provide all clients with services of high quality through the effective application, maintenance and operation of the Quality Management system acclaimed the standards of ISO 9001- 2000. At the same time, the port continuously improves and upgrades the infrastructure and invests in modern facilities to enhance the quality of services to meet all requirements of clients with the motto: “Productivity- Quality- Safety- Effectiveness” Fully exploiting the advanced equipment, Haiphong port try to offer a wider range of services to its customers. Besides the every effort of Haiphong port, the development of Vietnam in the stage 2001- 2006 brings Haiphong port more opportunities to push forward its services, especially forwarding services. Handling cargoes and forwarding are traditional services of Haiphong port, while logistics is a new service applied in freight forwarding; However, this type of service has been continuously developing in Haiphong port. 2.2. Freight forwarding and logistics services in Haiphong port. 2.2.1. Advanced condition of Haiphong port for logistics applicability in freight forwarding. 2.2.1.1. Geography. Haiphong port embraces a lot of advanced condition for logistics applicability. Firstly, it is the geographical condition. Haiphong port has always plays an important role of the “Border Gate” interface in the North of the country. It locates on the International maritime road. From Haiphong port, we can easily and conveniently transport or have cargoes transported to other ports on the world by sea rout, or to main economic zones by sea rout or to main economic zones of Vietnam or to the South of China by inland waterway, railway and national highways with the short