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Exercise 1: Answer the questions
1. What are some of the advantages and disadvantages of air transport?
Advantages Disadvantages
- High speed delivery - High freight rates
- Cheap insurance because goods are - Restrictions on weight and size
at risk for shorter periods - Delays due to bad weather
- World-wide transport operations - Transshipment to other forms of
transport essential
2. Why do some buyers prefer FOB terms?
FOB shipping is one of the more favorable Incoterms for the importer/buyer because:
FOB balances risk and control. The Incoterm EXW would provide the importer
with the most control – it has to arrange every aspect of the shipment – but it also
adds considerable risk and responsibilities to the importer, so much so that the
seller isn’t even responsible for loading goods onto the cargo. Further to this,
under EXW the supplier has no obligation to clear goods through export customs,
or even unload them off their own trucks, which is another significant advantage to
FOB for importers.
FOB includes customs clearance. Under FOB, suppliers are responsible for
clearing goods through customs at export, including export clearance documents at
the port or terminal, which could save an importer considerable hassle,
complications, and even money.
FOB is cost-effective. Under FOB, the importer can control the shipping process
from the time the vessel leaves the port in the seller’s country but does not need to
figure out the logistics of getting the goods from the seller’s warehouse to the port
– something that can be particularly difficult if the importer is not familiar with the
seller’s country.
3. Discuss the transport options open to importers in your country.
There are 3 main methods of Transportation in Vietnam, including Sea Freight, Air
Freight and Overland (by Truck or Rail).
Sea Freight:
- With huge competitive advantages like large transport scope, high transport capacity,
and low cost, Sea Freight has become a go-to option for many businesses in Vietnam
these days.
- In Vietnam, Sea Freight is the most used transportation mode thanks to its great
advantages. According to the Representative of Vietnam Maritime Administration,
ocean transport has performed more than 90% of international shipping in Vietnam,
playing a pivotal role in Vietnam transport.
- Furthermore, with a long coastline of 3,260 km and the well-evaluated system of
international sea ports, Vietnam has successfully handled 107 million tons of export
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cargo and 121 million tons of import cargo in 2018, according to Vietnam Seaports
Association.
- For the downsides, this mode takes more time to reach the destination compared to
other methods, making it less attractive to suppliers of time-sensitive products.
Air Freight:
- Compared to sea freight, shipping by air is not really a favorable option for most
people due to its too high price in Vietnam.
- Nevertheless, due to a variety of benefits of this mode of transport which the other
ones cannot compete such as great speed, high level of security or reduced costs of
warehousing, packaging as well as the government’s tax reduction policies which will
strongly promote the growth of air cargo; in years to come, Vietnam air cargo is
anticipated to have a lot of opportunities to develop.
Overland (By Truck/ Rail):
- In the aspect of international shipping, Road freight is not used as much as sea or air
freight are in Vietnam. Instead, this method is mostly used in transporting goods to
ports of export. However, if the distance is less than 1,000km across borders, it would
be better to take advantage of road shipping due to its competitive prices.
- In the latest report of Vietnam logistics in 2019, Vietnam has 154 national highways
with the total length of 24,866 km. This road system has been newly built, repaired
and maintained regularly, which increases the efficiency of national transport as well
as global transport.
- Concerning railway network, despite the fact that this type of transport has the
national route (Hanoi-Ho Chi Minh route), which is called Thong Nhat, it is not much
used since it is considered relatively backward and weak.
Exercise 2: Which mode of transport?
CARGO Transport Mode Reasons
Regular deliveries of 10,000t Seaway Because goods transported
scrap metal by sea includes scrap metal
(Darwin to Kobe)
2500 day -old chicks Airway Airway transport mode is
(Antwerp to Algiers) more appropriate for long
distance and speed, in this
case chicks are live animals
so transported by airway
mode is recommended.
50 air-conditioning units Seaway Because goods transported
(Milan to New Delhi) by sea includes bulk goods
Materials for training course Airway More safe and quick to be
(London to Maputo) transported by airway, for
important documentation.
Low weight so free to by
transported by airway.
1200t beef Airway Beef is easily deteriorated
(Auckland to Nairobi) and perishable good so air
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transportation is
recommended.
3 diesel locomotives Seaway Locomotives are bulk
(Marseilles to Gabon) consignments so transported
by air is much more
expensive due to high freight
rates. Moreover, there are
weight limits for air.
2 kg platinum Airway More secure for valuable
(London to Riyadh) goods. Fewer intermediate
handling.
E. Extension activities
The purpose of this report is to examine up-to-date ways of transporting with reference to
cargoes coming by air.
Over the next 15 years, as the world GDP grows, there will be a demand for higher value
goods. As per Boeing’s 2016 – 2017 world air cargo forecast, there will be a proportionate
growth in the value per ton of total traded goods around the world. To meet the demand for
growth, world air cargo traffic is forecasted to grow an average of 4.2 percent per year.
Airfreight is a critical mode of transport. It serves markets and supply chains that demand
speed. One of the greatest examples goes back to 1997 when Apple began innovating on the
nitty gritty details of supply-chain management. Almost immediately upon Steve Jobs’ return.
At the time, most computer manufacturers transported products by sea, a far cheaper option
than air freight. Steve Jobs took advantage of the benefit of air freight and used an innovative
strategy. He paid $50 million to buy up all the available holiday air freight space to ensure
that the company’s new, translucent blue iMacs would be widely available during the
Christmas season giving them a massive competitive advantage over their rivals. – “It was an
‘Oh s—’ moment,” recalls former HP supply chain chief Mike Fawkes.” Other industries such
as the automotive and retail industries also utilize air freight to achieve ‘just-in-time’ (JIT)
inventory replenishment. JIT option allows stores, and production lines to place order
fulfillment based on demand as, and when required. It provides greater flexibility and reduces
inventory and storage costs. Also, perishable goods such as foods, flowers, and some
pharmaceuticals also take advantage of shorter transit time. Another positive for air freight is
that there’s less handling of cargo overall, so the likelihood of damage or theft is less likely
when utilizing air.
But air freight also has its own disadvantages such as being one of the most expensive due to
the requirement of speed and the fuel that is used. It also has its size and weight limitations.
Regulatory bodies limit what can and cannot be transported by air, and as such, oddly shaped
or very large items may be more suitable for other modes of transport. While ocean freight is
a preferred mode of transport for the movement of high volume and heavy cargo such as
minerals, metals, ores, steel coils, etc. which would be impossible to move by air freight.
Additionally, businesses are placing more of an emphasis on the environmental impact on
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shipping. An air freight service emits a higher amount of polluting gases with less space
capacity compared to sea freight services which are considered a much greener transportation
mode with a higher carrying capacity.
