Introduction to Supply Chain and Logistics
Supply chain and logistics are crucial components of any business that deals with the production and distribution of goods. Understanding these processes is essential for making informed decisions and optimising operations. This page aims to provide foundational knowledge on shipping processes, key terms, and best practices in logistics.
Incoterms
INCOTERMS (International Commercial Terms) are standard terms used in international trade contracts to define the responsibilities and obligations of buyers and sellers regarding the delivery of goods, risk transfer, and costs associated with transportation and insurance. Here are some commonly used INCOTERMS with explanations and examples:
EXW (Ex Works)
Explanation: The seller makes the goods available at their premises. The buyer is responsible for all transportation costs and risks from the seller’s location to the final destination.
- Example: A manufacturer in Kuala Lumpur sells machinery to a buyer in Thailand. The buyer arranges pickup from the factory and handles all subsequent transport and import duties.
FCA (Free Carrier)
Explanation: The seller delivers the goods to a carrier or another person nominated by the buyer at the seller’s premises or another named place. The risk transfers to the buyer once the goods are delivered to the carrier.
- Example: A Penang electronics company sells components to a buyer in Singapore. The seller delivers the goods to a freight forwarder in Penang, after which the buyer takes responsibility for the shipment.
CPT (Carriage Paid To)
Explanation: The seller pays for the carriage of the goods to the named place of destination. The risk transfers to the buyer once the goods have been handed over to the first carrier.
- Example: A Malaysian furniture exporter sells products to a retailer in Australia. The exporter pays for shipping to Sydney, but the buyer assumes risk once the goods are handed to the shipping company in Malaysia.
CIP (Carriage and Insurance Paid To)
Explanation: Similar to CPT, but the seller also pays for insurance against the buyer’s risk of loss or damage to the goods during transit.
- Example: A Johor-based clothing manufacturer ships garments to a retailer in Germany. The manufacturer covers transportation to Hamburg and insures the shipment, but the risk transfers to the buyer after the goods are handed over to the Malaysian shipping company.
DAP (Delivered At Place)
Explanation: The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
- Example: A Malaysian rubber product exporter sells to a company in Japan. The exporter arranges delivery to the buyer’s warehouse in Tokyo, bearing all transportation risks and costs until arrival.
DPU (Delivered at Place Unloaded)
Explanation: The seller delivers when the goods are unloaded at the named place of destination. The seller bears all risks and costs of transporting and unloading the goods there.
- Example: A Sabah-based palm oil producer ships oil to a factory in India. The producer is responsible for delivering and unloading the oil at the factory premises in Mumbai.
DDP (Delivered Duty Paid)
Explanation: The seller is responsible for delivering the goods to the named place in the buyer’s country, including all costs and risks, as well as duties, taxes, and customs formalities.
- Example: A Kuala Lumpur IT hardware supplier sells equipment to a business in the UK. The supplier handles all shipping, import duties, and delivers the goods to the buyer’s office in London.
FAS (Free Alongside Ship)
Explanation: The seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment. The risk transfers to the buyer once the goods are alongside the ship.
- Example: A Malaysian exporter of palm oil delivers the product alongside a vessel in Port Klang for shipment to China. The buyer assumes risk and cost once the oil is placed alongside the vessel.
FOB (Free On Board)
Explanation: The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. The risk transfers to the buyer once the goods are on board the ship.
- Example: A Malaysian seafood exporter delivers frozen fish on board a ship in Penang port for delivery to the USA. The buyer assumes all costs and risks from the moment the fish is on board the ship.
CFR (Cost and Freight)
Explanation: The seller pays for the cost and freight to bring the goods to the port of destination. The risk transfers to the buyer once the goods are on board the ship.
- Example: A Malaysian exporter of electrical goods ships products to a customer in Indonesia. The exporter pays for transport to Jakarta, but the buyer takes on risk once the goods are loaded on the ship in Malaysia.
CIF (Cost, Insurance, and Freight)
Explanation: Similar to CFR, but the seller also pays for insurance to protect against the buyer’s risk of loss or damage to the goods during transport.
- Example: A Penang electronics exporter ships components to a client in France. The exporter covers transportation and insurance to Marseille, but the buyer assumes risk once the goods are on board the ship in Penang.
Domestic Trade Incoterms
In Malaysia, the same Incoterms can be applied to domestic trade, but they are often adjusted to suit local trade practices:
EXW (Ex Works) for Domestic Trade
- Example: A manufacturer in Shah Alam sells goods to a buyer in Ipoh. The buyer arranges for pickup and transport from the manufacturer’s premises.
DAP (Delivered At Place) for Domestic Trade
- Example: A Kuala Lumpur supplier delivers construction materials directly to a project site in Johor Bahru, bearing all transport risks and costs until delivery.
By understanding these Incoterms, businesses can better navigate the complexities of global and domestic trade, ensuring clarity and efficiency in their supply chain operations.
These are the examples of INCOTERMS, and each term specifies different levels of responsibility, risk, and cost allocation between buyers and sellers in international trade transactions.
For tailored and precise information that fits your specific needs, we encourage you to reach out to our expert logistic consultants. Our team is ready to provide personalised solutions and in-depth insights to help you navigate your supply chain and logistics challenges. Contact us today to ensure you have the most accurate and up-to-date information to support your business goals.
Shipping Processes and Best Practices
Shipping is a critical element of logistics that involves multiple steps to ensure goods reach their destination safely and efficiently. Here are some best practices to consider:
Plan Ahead: Proper planning helps avoid delays and unexpected costs. This includes accurate forecasting of demand and inventory management.
Optimize Packaging: Efficient packaging not only protects the goods but also reduces shipping costs by maximizing space.
Choose the Right Carrier: Selecting a reliable carrier is crucial for timely and safe delivery. Evaluate carriers based on their service quality, cost, and reliability.
Shipping Details
When sending freight by sea or air, certain common information is required to ensure a smooth and successful shipment. Here are the key details typically needed for both sea and air freight:
- Sender Information:
- Company name
- Contact person
- Address
- Phone number
- Email address
- Tax identification number (if applicable)
- Receiver Information:
- Company name
- Contact person
- Address
- Phone number
- Email address
- Tax identification number (if applicable)
- Cargo Details:
- Description of goods (including dimensions, weight, quantity, and value)
- Packaging type (e.g., pallets, cartons, crates)
- Special handling instructions (if any, such as fragile or hazardous items)
- HS code (Harmonized System code for customs classification)
- Mode of Transport:
- Specify if it’s sea freight or air freight
- Preferred carrier or shipping line (if known)
- Incoterms (International Commercial Terms):
- Specify the agreed-upon Incoterms (e.g., EXW, FOB, CIF, DAP) that define the responsibilities and costs between the buyer and seller.
- Shipping Documents:
- Commercial invoice (including details of the buyer, seller, and transaction)
- Packing list (itemizing the contents of each package)
- Bill of lading (for sea freight) or air waybill (for air freight)
- Certificate of origin (if required for customs purposes)
- Export license or permits (if applicable)
- Marine Insurance Coverage:
- Specify if insurance coverage is required and provide details of the insurance provider and coverage amount.
- Customs Clearance:
- Provide any necessary customs documentation and clearance instructions.
- Declare the value of the goods for customs purposes.
- Delivery Instructions:
- Destination port or airport
- Delivery address (if different from the receiver’s address)
- Preferred delivery date and time
- Any special delivery requirements or restrictions
- Payment Terms:
- Specify the payment terms agreed upon (e.g., prepayment, letter of credit, payment upon delivery)
By providing comprehensive and accurate information for sea or air freight shipments, you help ensure that the logistics process runs smoothly, customs clearance is facilitated, and the goods reach their destination in a timely manner.
Export Documents:
- Commercial Invoice
- Detailed invoice from the seller to the buyer stating the price, quantity, and description of the goods.
- Packing List
- Detailed list of the contents of the shipment, including weight, dimensions, and packaging type.
- Bill of Lading (B/L) or Airway Bill (AWB)
- Document issued by the carrier providing details of the shipment and confirming receipt of goods for transportation.
- Certificate of Origin
- Document certifying the origin of the goods, often required to benefit from preferential tariffs.
- Export Permit
- Necessary for restricted or controlled goods, obtained from relevant authorities in Malaysia.
- Export Declaration (K2 Form)
- Mandatory form declaring the goods being exported.
- Insurance Certificate
- Document confirming the insurance coverage of the shipment.
- Letter of Credit
- Document issued by a bank guaranteeing payment to the seller upon fulfillment of specified conditions.
Import Documents:
- Commercial Invoice
- Detailed invoice from the seller to the buyer stating the price, quantity, and description of the goods.
- Packing List
- Detailed list of the contents of the shipment, including weight, dimensions, and packaging type.
- Bill of Lading (B/L) or Airway Bill (AWB)
- Document issued by the carrier providing details of the shipment and confirming receipt of goods for transportation.
- Certificate of Origin
- Document certifying the origin of the goods, often required to benefit from preferential tariffs.
- Import Permit
- Necessary for restricted or controlled goods, obtained from relevant authorities in Malaysia.
- Import Declaration (K1 Form)
- Mandatory form declaring the goods being imported.
- Customs Duties Payment Proof
- Evidence of payment of any applicable customs duties.
- Halal Certificate
- Required for food products, certifying compliance with Islamic dietary laws.
- Health and Sanitary Certificates
- Necessary for food, agricultural products, and live animals to ensure they meet health and safety standards.
- Phytosanitary Certificate
- Required for plant products, certifying that the shipment is free from pests and diseases.
- Fumigation Certificate
- Needed for certain goods like wooden products, certifying they have been fumigated to prevent pest infestations.
- Technical Standards Certificates
- Documentation proving compliance with technical standards, often required for electronic goods and machinery.
Additional Documents for Specific Goods:
- Dangerous Goods Declaration
- Required for hazardous materials, certifying proper handling and transportation.
- CITES Permit
- Needed for the trade of endangered species, both flora, and fauna.
- Radiation Certificate
- Required for goods that might emit radiation, ensuring they meet safety standards.
- Import/Export License
- Certain products like telecommunications equipment and automotive parts may require specific licenses.
It’s essential to consult with a logistics or customs expert to ensure you have all the necessary documents for your specific shipment. Requirements can vary based on the type of goods, their origin, and destination.
For tailored advice and assistance, feel free to contact our experienced consultants who can guide you through the documentation process and ensure compliance with all regulations
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