UK importers, how to deal with a strong USD and the effect on your margins!

Firstly, a Happy New Year to you all, I hope that 2016 is a healthy and prosperous year for you.

Now, time to get down to business. Sometimes, when things happen very gradually, you often don't notice, so I thought it was worth flagging up the exchange rate between the USD and Sterling as we've now dropped below the crucial USD 1.50 mark and have been below this level since 18th December 2015 (yesterday, the exchange rate was 1.4689). Just over a year ago, the USD was at 1.60 so there's an 8% cost hike if you're a UK importer and transact in USD.

This slide in the pound was no doubt triggered by the US Federal Reserve raising US interest rates in late 2015 and also the fairly weak outlook for our UK economy in 2016.

New York Times report on Fed raising rates

Our area of expertise is global logistics and one thing monitor every single day is the rate of exchange between Sterling and the USD - why, you may ask? Well, UK importers pay their freight costs to logistics providers/freight forwarders in Sterling and so it's really important that the costs are converted at a fair and correct rate of exchange. We manage the inbound freight models for many UK importers and use the published exchange rate as a benchmark to check that their freight costs have been correctly billed.

Freight rates are often charged in USD, so this means that if you import by air freight from the USA, your freight rates will be in USD, and even if you import by ocean freight from Asia, again your freight rates will be in USD. Why? Well the USD is a very stable currency and also one which everyone in the supply chain is familiar with.

Of course there are UK clearance and delivery charges which apply after arrival and they're set in Sterling but the lion's share of the cost is usually the freight rate from supplier to arrival UK port/airport.

To add to this, selling prices are often set in USD and so when the dollar strengthens against sterling, it has a big impact on importers in particular squeezing their often slim margins even further. Many importers have to set a USD median for them to work out selling prices and that is often set at USD 1.60 or sometimes USD 1.50 so when the dollar drops below 1.50 it's a real concern.

One thing which can certainly help to counteract the strengthening dollar is to take a close look at your inbound supply chain, and in particular your air and ocean freight costs (not to mention import duty costs) which is our area of expertise. 

Every time we take on a new customer, we always find that their freight costs can be improved (our average freight cost reduction since 2010 is around 35%). We do this by using our expertise, industry contacts and knowledge to not only deliver significant and sustainable savings, we also refresh their logistics model at the same time to make it far more responsive, customer-focused and compliant.

Some of our clients are in their 6th year with Straightforward Consultancy Ltd (SCL) after initially appointing us to carry out a Freight Review, and we're now totally managing this area for them every day, keeping them competitive and compliant.

If you're interested or need any help or guidance, just call or drop us an email, we'd be glad to help you too!

Kind Regards


Andy Cliff

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

UPS healthcare & life sciences international logistics report - truly surprising statistics!

Living in the world of logistics, I receive industry bulletins every day and my company, Straightforward Consultancy manages the freight models for many customers so I feel pretty connected to the real world, and I have lot of industry experience gained by working for companies such as DHL and Kuehne & Nagel, but this article caught my eye, and shocked me.

Here is a report conducted on the medical and life sciences sector by UPS and the headline is as follows:-

"Only 50% of healthcare and life science companies feel they are successfully managing logistics, warehousing and transport costs"

We have experience in the life sciences sector and took on a client in Liverpool in 2012 who imported perishable laboratory product by air freight from Asia, mixture of -20C, 2-8C and ambient. Their issues were that they were concerned about their air freight costs and they couldn't rely on their (valuable) product arriving in a 4 day window (otherwise it perished and was unusable). They also had several logistics providers across their Asia supplier base which complicated matters.

We made a really positive impact on this customer by putting in place a solid service level agreement (SLA) which mapped out every step in a timeline from date of pick up covering every day of the week through to UK Customs clearance and delivery on dedicated vehicles. The outcomes were dramatic - we shortened the transit times to as little as 72 hours, reduced their air freight costs by 60% and put in place a failsafe, monitoring each shipment and the forwarder's performance closely. From that point they never had any product delivered outside the 4 day window.

I think, that like a lot of companies, they wanted to make changes but were fearful of making things even worse, which is understandable.

But when I read this report I think to myself, how can this be, how can 50% of companies in this sector have so little control over their logistics, warehousing and transport costs - and do they also have equally low confidence in the reliability of their international logistics model?

I just find it to be remarkable, but if this rings a bell in your organization, please seek some outside expertise, you will provide a better service to your customers and become more competitive on your landed costs - and you will achieve that wonderful feeling - peace of mind. If you're not sure where to start, then contact us, we'd be happy to help you.

http://theloadstar.co.uk/weak-links-healthcare-life-science-supply-chains-revealed-new-ups-research/?utm_source=The+Loadstar+daily+email&utm_campaign=eabb2f99e8-Loadstar_19_November11_19_2015&utm_medium=email&utm_term=0_c4570e43d4-eabb2f99e8-125883633

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

You're importing from the USA - but are you aware of this?

Are you one of the thousands of UK importers who aren’t aware of this? Are you in finance, logistics or one of the directors? If so, read on - this article is well worth a few minutes of your time. 

As an importer, whether you import by ocean freight from China, air freight from the USA or use DHL Express / UPS for your small parcel shipments from Japan, you should know that you have legal responsibilities to HMRC / HM Customs under the Customs & Excise Management Act 1979.

So why should you be concerned?  You actually leave all that work to your freight forwarder / logistics provider / Customs broker, they charge you for their services and you take delivery of the shipments. You certainly don’t make any Customs declarations to HMRC so surely, if anyone makes a mistake, it’s certainly not your responsibility – right?

Actually, no.

When you use a freight forwarder, logistics provider or Customs clearance agent or Customs broker to carry out the Customs clearance for you, 99 % of the time, they’re acting as your Direct Representative, even if they haven’t always formalised that arrangement with you. So what does that mean? It means that although they declare the goods to Customs for Customs Clearance purposes and sign the Customs Entry / C88 (albeit electronically), they’re doing it on your behalf and you're actually liable for any mistakes or incorrect declarations on that entry.

All this might come as a surprise to you but it’s most definitely in your interest, from a legal, risk, commercial and financial perspective to find out exactly how this process is being managed right now as it raises some fundamental questions as below:-

1 – How are all the different products we import being classified for Customs purposes and who actually classified them?

2 – What duty rates are we paying and are they correct?

3 – Are we paying too much duty, in which case money is being wasted?

4 – Are we paying too little duty, in which case we leave the company exposed to fines and time-consuming Customs investigations?

5 – Are the correct values being declared to Customs?

6 – Are we as the importer keeping full and accurate records as required?

7 – As the importer, can we demonstrate to Customs that we have a robust Customs Compliance process?

8 – If we had a Customs inspection, would we be able to prepare for it and would Customs find us to be compliant?

If you read these questions and then start to feel uncomfortable, then you’re probably not alone – in our experience, very few importers take Customs Compliance seriously, mainly because with so many companies these days, they don’t have a dedicated department for logistics or shipping and the responsibility for logistics falls across several departments, so no one manages this area at all - and that is a real concern.

 If they ever do get a visit from their local Customs officer, they often find it to be a very unpleasant experience, as Customs will expect them to have kept detailed records of their import consignments and they’ll also take great interest in the Customs commodity codes, duty rates and the Customs Procedure Codes being used by their Customs agent.

If they discover any errors, you can be assured that they will start digging and if there are any errors in your declarations, compliance processes or procedures, they will most likely find them. This process is very unpleasant and worrying for importers as Customs can be relentless in their search of lost revenues connected to underpaid Customs duty and VAT, can levy fines and insist that underpaid duties going back 6 years are repaid. This can not only cause a lot of disruption to your business, it can mean you are presented with a large bill (and possibly a fine).

As an example, a healthcare company in Warrington we visited were importing from Asia and had been using an incorrect commodity code for many years. HMRC visited, then did the analysis of all the affected Customs entries and presented them with a bill for £ 45,000 which they consulted us upon. Although we tried to help, we told them that unfortunately, HMRC were correct and we couldn’t find any Customs rulings in the UK or EC to justify their use of that commodity code.  They struggled to pay this huge figure and I think they wish they had taken their Customs responsibilities seriously years earlier. 

So how do you fix this? In our opinion, it’s all about doing some basic research, finding out how everything works today, ensuring any grey areas are dealt with and then putting in place robust procedures. After that, just as importantly, carrying out compliance checks each month to ensure that the commodity codes and Customs procedures are being followed (and correcting any errors quickly). This way, when Customs do visit, you can demonstrate a really solid process and even if they don’t, you have complete peace of mind that you are paying the right amount of duty and you’re able to respond with confidence should a Customs visit or inspection raise its head.

Some of the main things you should be checking if you decide to carry this out yourself are:- 

1 - Correct tariff classification (which affects the duty rate payable)

2 - Value declaration (is the value on suppliers invoice correct)

3 - Correct currency code

4 - Declaration of marine insurance (dutiable)

5- Declaration of correct freight charges (dutiable)

6 - Correct/appropriate Customs regime (home use/IPR/OPR)

7 - Application of any duty concession which may be applicable

 (There are over 54 fields on a Customs C88 but these are the main ones).

HMRC have issued guidance to remind customers of their responsibilities in this area which are “IT 03 – What International Trade Records Should I Keep” and “IT04 – Recommended Management Checks For Importers”
 however they're not well-publicised and the wording inside may be confusing to the average UK importer (who has most likely never completed a Customs entry in their life!).

We carry out Customs Compliance work for almost all of our import customers so they know they're compliant, they're paying the right amount of duty, the correct tariff codes are being applied for the different products they import and they're taking advantage of any Customs duty reliefs which are available. The other big benefit is the obvious one - peace of mind, it's being managed, and if they get a Customs visit, we can show they carry out a solid compliance process to ensure any errors are picked up and corrected.

This was how we uncovered a £ 26,000 duty overpayment for a Warrington customer in 2012 who import from the USA. The mistake involved over 127 Customs entries and took several months but we succeeded and they not only appreciated the large refund, they now also enjoy duty rates 25% lower on all their current shipments which helps them be more competitive, all with HMRCs blessing!. We’d already reviewed their import air freight and ocean freight in 2011 and made significant impacts on their landed cost and transit times and we continue to manage their international logistics to this day.

As you will see from our website, Customs compliance is just one of the core services we provide to customers alongside our Freight Reviews, Freight Management and Consultancy.

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognise quality, innovation and performance in the field of international logistics. 

30 days is a long time in logistics!

If you import from Asia, and if you're concerned about keeping a lid on your landed freight costs, then now would be a good time to take a close look at what rates you are actually paying, as we've seem some historic lows in rate terms over the last few weeks in the freight indexes from Asia (USD 205 per 20 foot container from Shanghai to UK).

That sounds like an amazingly low freight cost, especially as your after arrival costs would probably be in the region of GBP 600-700 (depending on your location in the UK. However these low rates are now a distant memory, hence the title of this post, and rates are climbing sharply. 

As we approach the start of the Peak Season as it's called in logistics (typically August-November) when retailers in particular need their Christmas stock on the shelves from September onwards, volumes increase and in turn, so do freight rates.

Despite their investment in huge container ships which reduce their cost per container, the shipping lines can't make money at rates as low as USD 205 so they've instigated General Rate Increases (GRIs) from 1-July and they have had a dramatic effect, with rates bouncing by over 300 percent in 2 weeks (from USD 205 to USD 879!).

Last Friday they eased back a little, but this is the calm before the storm in my opinion as the shipping lines have announced further massive increases from August 1st of USD 1000/TEU/20 foot so even though some commentators are saying the rate increases won't stick, I'm not so sure as lines are also withdrawing capacity by either reducing the number of vessels in service or just cutting back their sailing schedules. Just take a look at the below report from Mike Wackett at Loadstar.

http://theloadstar.co.uk/ckyhe-follows-asia-europe-peak-season-capacity-cut-trend-but-2m-remains-firm/

Some customers, particularly large ones with +1000 TEU of volume may have done fixed term deals (say 6 months, 12 months) however the index was USD 1085/TEU on 2-Jan-15 so they may have regretted the decision to fix their rates especially as the rates have been generally weak since Chinese New Year. Other customers may be on a monthly rate update and many just pay whatever rate they're charged as they have no time to spare and have no way of knowing what the market is doing, quite understandable and very common.

Just in case you're unsure what a TEU is, it's a Twenty Foot Equivalent Unit, so a 20 foot container is 1 TEU and a 40 foot is 2 TEU so it's really a measure of volume in ocean freight terms used by lines, forwarders and customers.

Just imagine having a fixed rate of say USD 900-1000/TEU/20 foot and hearing that the market rates have fallen down as low as USD 205! I suppose that's a risk you take but maybe what I'd really suggest you do is to seek out some independent expert advice so that you can put some controls in place , keep your landed costs as low as possible and preserve your margins in these testing times.

Until the next time.

Andy Cliff
http://www.straightforwardconsultancy.co.uk/about-us.php

Importing from Asia to the UK? On top of your freight costs?

If you import from Asia, and if you're concerned about keeping a lid on your landed freight costs, then now would be a good time to take a close look at what rates you are actually paying as we've seem some historic lows in rate terms over the last few weeks in the freight indexes from Asia (USD 205 per 20 foot container from Shanghai to UK).

That sounds like an amazingly low freight cost, especially as your after arrival costs would probably be in the region of GBP 600-700 (depending on your location in the UK. However these rates are now a distant memory (30 days is a long time in logistics and freight forwarding) and as we approach the start of the Peak Season as it's called (say August-November) when retailers need their Christmas stock on the shelves from September onwards, volumes increase and in turn, freight rates.

The shipping lines can't make money at rates as low as USD 205 so they instigated General Rate Increases (GRIs) from 1-July and they had a dramatic effect, with rates bouncing by over 300 percent in 2 weeks (from USD 205 to USD 879!).

Last Friday they eased back a little, but this is the calm before the storm in my opinion as the lines have announced further massive increases from August 1st of USD 1000/TEU/20 foot so even though some commentators are saying the rate increases will fail, I am not so sure as lines are also withdrawing capacity by reducing the number of vessels in service or just reducing the sailing schedules.

Some customers, particularly large ones with +1000 TEU of volume may have done fixed term deals (say 6 months, 12 months) however the index was USD 1085/TEU on 2-Jan-15 so they may have regretted the decision to fix their rates especially as the rates have been generally weak since Chinese New Year.

Just imagine having a fixed rate of say USD 900-1000/TEU/20 foot and hearing that the market rates have fallen down as low as USD 205! I suppose that's a risk you take but maybe what you really need is to seek some independent expert advice so that you can keep your landed costs as low as possible and preserve your margins in these testing times.

At Straightforward Consultancy (SCL), we're managing the freight portfolios of many customers and securing better deals and service than they could on their own which is why we're so highly rated by our customers. Just check out our website testimonials or case studies to see why we would be a real asset to your team.

It'd be great to hear from you and as we say on our website, a consultation costs nothing and you're bound to learn something!

Until the next time.

Andy Cliff
Director

Straightforward Consultancy Ltd – logistics simplified
4, Beckett Drive
Winwick Park
Warrington
Cheshire
WA2 8XJ

Tel : 07934 443492
Email : andy@straightforwardconsultancy.co.uk
Web : www.straightforwardconsultancy.co.uk
Blog : http://straightforwardconsultancy.blogspot.co.uk/
Twitter: @AndyCliffSCL
Linkedin: https://www.linkedin.com/in/andycliffscl

Skype: andy.cliff1@skype.com

Importers - is your freight forwarder / logistics provider behaving like your energy supplier?

Good afternoon All

As you may know, if you import product from overseas, you will employ the services of a freight forwarder / logistics provider and they will transport your product from your supplier in Asia or North America (the most common origins for companies who source product from overseas) all the way to your door, also taking care of Customs procedures on your behalf.

All of the world's freight markets are different and the freight prices which customers pay will vary according to many factors, but one of the primary drivers of freight rates is basic supply and demand. If we take ocean freight as an example (and the vast majority of global freight traffic moves this way) the rates are often driven by the amount of capacity on that shipping lane or route, and the amount of traffic moving. As an example, the North American market (also known as the Transatlantic trade lane) generally has less capacity, due to smaller vessels, and this means that rates are pretty stable, with some minor seasonal variations.

The market which is extremely volatile is the Asia-Europe market, also the world's largest trade lane, where we can see huge swings in freight costs, driven by two main factors.

1. Spikes in activity/demand connected with two main periods, the first of which is Chinese New Year (early Feb) where Chinese factories close for around 1 week and there is a rush to ship products before the big shutdown. The second is a longer period of increased activity linked to our pre-Christmas trading here in Europe and this runs from August until mid-November. With good reason, you may ask "Why does it start in August?" Well, it can take around 6 weeks to get goods from origin in China all the way to the store and we all know how early we see Christmas displays in our stores!

2. The second main factor is capacity, or how much supply/space there is compared to the amount of demand (container volume). Recently shipping lines have been employing larger and larger vessels (also known as ULCVs (Ultra Large Container Vessels) to reduce their lift cost (cost per container) however this has coincided with generally weak volumes on the Asia-Europe trade lane which has in turn led to significant rate volatility.

The reason why I titled my post "Is your logistics provider behaving like your energy provider?" is because here in the UK, there has been a lot of criticism of the Big-6 energy providers who fail to pass on cost reductions to consumers when the market is soft, but are swift to increase prices when costs rise.

In the freight world, you, the customer are at the end of the chain and rely on your freight forwarder to charge you a competitive freight rate, however what often happens is that your rates don't follow the market down - they only seem to go up!

Add to this the fact that it's often difficult and time consuming for you to find out whether you are paying a fair price and with many customers short of logistics expertise in house, they pay whatever they're charged. We've seen this so many times over the last 5 years and we think it's related to the flatter structures within small-medium sized companies and the fact they find this area complicated and confusing (quite understandable!).

And now back to Asia...from early May, ocean freight rates have been falling, from a high of around USD 861 per 20ft container / TEU (Shanghai-UK) to as low as USD 205 per 20ft container on 19-Jun. Rates have been changing on a weekly basis and as we live in this world every day - and we know how the freight markets work - we have been negotiating rates and ensuring that our customers benefit from the market falls.

And where are we today? Well, we've hit the bottom and as a result, the shipping lines have announced eye-watering rate increases (USD 1100 per 20 foot/TEU) from 1-July and as we're now leading into the start of Peak Season 2015, the only way now is up.

Last Friday, a week before the huge increase, rates from Shanghai to Europe more than doubled, reaching USD 548 per 20 foot so regardless of what rates you have been paying, now is the time to take a really close look at this area and find a way to keep a lid on your freight costs as we run to the end of 2015.

If you would like some advice or would like to know more about how we could help you and take away workload and headaches associated with your supply chain, just drop me a line at andy@straightforwardconsultancy.co.uk.

Also please do take a look at our highly complimentary testimonials and case studies, they show how we've helped customers to reduce freight costs by an average of 35%, reduce their Customs duty burden, improve service levels and have the assurance that their freight and Customs areas are being professionally managed in a cost effective way. 

Kind Regards


Andy Cliff
Straightforward Consultancy Ltd – logistics simplified

http://www.straightforwardconsultancy.co.uk/testimonials.php

Freight forwarders websites and sales processes are dated and unsuited to changing needs of customers

How is that freight forwarders perform so poorly in this area? I have a theory, which is that freight forwarders really want to secure regular business, and one- off spot quotation requests are often seen as a poor return on their time and effort, but it doesn't excuse many of their websites which are dated and often fail to convey a compelling sales message or any real differentiation from their competitors even when they may have a strong USP.

Please read the below article from Loadstar which is a real eye-opener and would make a freight forwarding sales & marketing director hang their head in shame!

http://theloadstar.co.uk/forwarders-poor-online-sales-presence-means-losing-out-on-ad-hoc-freight-sales/

Kind Regards


Andy CliffStraightforward Consultancy Ltd – logistics simplified