Value Chain, Transportation Modes and INCOTERMS in International Trade
Value Chain
Value Chain Definition: A set of sequential and interrelated activities that a company carries out to design, produce, market, deliver and support its product. The aim is to create value for the customer and generate a sustainable competitive advantage.
Mapping
Porter:
- Support activities: infrastructure, human resources, R&D, and procurement.
- Primary activities: operations, inbound and outbound logistics, marketing and sales, and service.
Margin = total sales value − expenses from primary and support activities.
Projects: green coffee and mapping of quinoa, sacha inchi, Brazil nuts, camu camu, cacao, and aguaymanto.
Connection to packaging: In Porter’s framework, packaging falls under Operations. External logistics includes shipping and transportation. Marketing (branding and presentation) relies on the packaging and label.
Documentation and Transit
Invoice, B/L, phytosanitary certificate, transit, and clearance at destination.
Transportation in International Business
Approximately 80% of global trade volume is transported by sea (UNCTAD, United Nations Conference on Trade and Development).
Logistics costs: transportation 40–60%, storage 15–25%, inventory 10–20%. A poor transportation decision can wipe out profit margins (the Peloton case).
Risks
Geopolitical, climate-related, health-related, digital, and social.
Case Studies
Red Sea, Ever Given/Suez, ship-whale collisions, El Niño/Panama, COVID-19, and NotPetya/Maersk.
Conclusion: These cases demonstrate that, in the event of delays or diversions, proper packaging protects the cargo and reduces spoilage of perishable goods, while packaging and labeling facilitate identification and traceability.
Modes of Transportation
1. Maritime Transport
Characteristics: Cheap, slow, and suitable for large volumes.
Document: B/L (negotiable and document of title).
Framework: UNCLOS (United Nations Convention on the Law of the Sea), IMO (International Maritime Organization), BIMCO (Baltic and International Maritime Council), MTC (Ministry of Transport and Communications, Peru); Hague-Visby, Hamburg, and Rotterdam Rules.
2. Air Transport
Characteristics: Fast, safe, and expensive per kilogram.
Document: AWB (Air Waybill), non-negotiable.
Framework: ICAO (International Civil Aviation Organization), DGAC (Dirección General de Aeronáutica Civil), and IATA (International Air Transport Association).
3. Road Transport
Characteristics: Regional and cross-border transport.
Document: International Consignment Note (non-negotiable).
Framework: ALADI (Asociación Latinoamericana de Integración), CAN 837 (Comunidad Andina, Decision 837, regulates the international transport of goods by road), CAN 617 (Comunidad Andina, Decision 617, regulates community customs transit among member countries).
4. Multimodal Transport
Characteristics: Uses two or more modes of transport under one contract and one document.
Document: Multimodal Transport Document.
Framework: UNCTAD, CAN 331 (regulates international multimodal transport of goods), CAN 393 (updates the rules for international multimodal transport and the registration of multimodal transport operators).
B/L: receipt, title, and evidence of contract.
Volumetric weight = (L × W × H in cm) ÷ 6,000. The higher of the actual weight and the volumetric weight is charged.
Maritime zones: 12 miles (territorial waters), 24 miles (contiguous zone), 200 miles (EEZ); beyond that is the high seas. Flags of convenience exist because the law of the flag applies on the high seas.
OTM (Multimodal Transport Operator) assumes end-to-end responsibility.
Routes from Peru:
- U.S. West Coast: 12–18 days
- U.S. East Coast: 15–20 days
- Europe: 25–32 days (via Panama)
- East Asia: 23–40 days
- Southeast Asia and India: 35–50 days (Strait of Malacca)
INCOTERMS
EXW: The seller makes the goods available at their premises; the buyer assumes almost everything.
FCA: The seller delivers the goods to the agreed carrier.
CPT: The seller pays for transportation, but the risk transfers earlier to the buyer.
CIP: Like CPT, but the seller also provides insurance.
DAP: The seller delivers to the destination, without unloading.
DPU: The seller delivers and unloads at the destination.
DDP: The seller assumes costs, risks, and formalities, including import duties and taxes.
FAS: The seller places the goods alongside the vessel.
FOB: The seller loads the goods on board the vessel.
CFR: The seller pays sea freight; the risk transfers when the goods are on board.
CIF: Like CFR, but the seller also provides insurance.
Key Points for Your Exam
- EXW: Minimum seller responsibility.
- DDP: Maximum seller responsibility.
- CIF and CIP: Include insurance.
- DPU: The seller unloads the goods.
- FOB, CFR, and CIF: Risk transfers to the buyer when the goods are on board the vessel.