This project report selects two companies. One company acts as the seller and the other as buyer. This is to show in sequential form the steps in arranging the transport of goods from the point of origin to their destination (Regents Business School 2010, p. 2). This will likewise show how the decisions have been made to ensure the smooth flow of goods (Regents Business School 2010, p. 2).
2. 0 Selection and Rationale The selection of the two companies is based on the following seven criteria (Regents Business School 2010, p. 1) and their corresponding rationale where applicable: 2.1 Company from Own Country The selected company is Daimler AG which is based in Stuttgart, Germany (2009, p. 260). Daimler AG is the manufacturer and brand owner of the Mercedes Benz line of vehicles (2009, pp. 3-4). The reasons for this choice are: [a] Daimler AG fits the given criteria; [b] Germany is member of the European Union; and [c] Daimler AG has readily available information on its operations. 2. 2 Counterpart Company in Another Country The counterpart company choice is Mercedez-Benz Australia/Pacific Pty Ltd. which is the importer and wholesaler of Mercedes Benz vehicles (2010a).
It has revenues of AUD 2. 2 Billion in 2008 selling products in Australia, New Zealand, Fiji, New Caledonia, Papua New Guinea and Tahiti (2010b). The reasons for this selection are: [a] Australia is not a member of the EU; [b] Australia does not have a border with Germany; and [c] Mercedez-Benz Australia/Pacific Pty Ltd. can show a logistics and supply chain management principle in the transport of goods from Germany to Australia and from Australia to other countries. 2. 3 Product The Mercedes Benz line of vehicles and their spare parts are manufactured goods.
Automotive products are not liquids and cannot be classified as bulk commodities. 2. 4 D Term DDU Australia or Delivered Duty Unpaid Australia is selected due to the specialised nature of vehicle importation in Australia (International Chamber of Commerce 1999, p. 602; Government of Australia 1989a, p. 24, 27; Government of Australia 1989b, pp. 12-13, 15, 16-17, 19-22; Australian Government Department of Infrastructure, Transport, Regional Development and Local Government 2010). 2. 5 Documentary Collection or Documentary Credit
This is the usual practice of subsidiary companies in the method of payment for imports from the mother company based on the profit center approach of logistics and/or supply chain management within Daimler AG as a global operation (Lebreton 2007, p. 48). 2. 6 Period of Credit Since Mercedes-Benz Australia customers basically initiate the procurement of the vehicles first before Mercedez-Benz Australia/Pacific Pty Ltd. import these, the period of credit that Daimler AG allows its subsidiary covers the period from EXW Germany to DDU Australia (Mercedes-Benz Australia/Pacific Pty Ltd 2010c). 2.
7 Short-Term Finance Facility Daimler AG has its own bank, DaimlerChrysler Bank, which is the financial services arm of the Group (Daimler 2006). DaimlerChrysler Bank leases and finances most Mercedes-Benz acquisitions of its customers in Australia (Daimler 2006). Likewise, the same bank facilitates the financing of Daimler AG’s export of the vehicles to Australia from Germany (Daimler 2006). 3. 0 Export Shipping Management Mercedes-Benz vehicles used to be assembled in Australia but these are now fully imported mostly from Germany and 18 other countries with production facilities since 1965 (The Motor Report 2008, p.
2; Daimler AG 2009, p. 60, 65, 91, 256). By default, most deliveries will be coming from Germany at the Daimler AG Mercedes-Benz subsidiary marketing/assembly plant in Stuttgart or its neighbouring plants as the delivery point/s. Since Stuttgart is further inland, the product’s transport will entail multimodal transportation starting with land carriers from Baden-Wurttemberg to the seaports in Lower Saxony for pre-shipment inspection (See Figure 1; MapXL 2010; International Chamber of Commerce 1999, p. 603).
From the port of shipment at Bremerhaven Germany, the product will be loaded on a ship towards the port of destination in Melbourne Australia (See Figure 2; Weltkarte. com 2009; International Chamber of Commerce 1999, p. 603). From Melbourne’s warehouses after customs duty checking and inspection, the product will again be transported via land carrier towards Mulgrave in Victoria, Australia (See Figure 2; Weltkarte. com 2009; International Chamber of Commerce 1999, p. 603). 3. 1 Origins of the Order The origin of the order will come from Mercedes-Benz Australia/Pacific Pty Ltd.
in Mulgrave, Australia. Most likely, the Mercedes-Benz client will have only seen a product display at the showroom and/or test driven the vehicle there. When the client finalises the decision to buy, the Mercedes-Benz financial arm, DaimlerChrysler Bank, runs a financial capability check on the client and either approves or rejects the loan application. Once approved, Mercedes-Benz Australia/Pacific Pty Ltd. initiates the order for importation to the Daimler AG Mercedes-Benz subsidiary in Germany most likely through electronic data interchange or EDI.
3. 2 Quotation The quotation from the seller, Daimler AG, or its German-based Mercedes-Benz marketing subsidiary will most likely be referenced on an existing pricing template subject to changes. Foreign country subsidiaries like Mercedes-Benz Australia/Pacific Pty Ltd. will be usually notified of pricing changes via email through a Daimler AG German subsidiary memorandum. In the said memorandum, German custom duties, taxes and other charges will be incorporated into the memorandum.
In turn, the subsidiary will include custom duties, taxes and/or other charges from the Australian side into the price that the end-user client receives as a quote. 3. 3 Documentation The documentation will start with an end-user sales contract together with a financing agreement from DaimlerChrysler Bank. Once the end-user has paid DaimlerChrysler Bank the minimum equity or down payment that is required for the purchase, Mercedes-Benz Australia/Pacific Pty Ltd. places an importation order to the German Mercedes-Benz subsidiary of Daimler AG.
This importation order will be formalised through an inter-subsidiary sales contract where the Mercedes-Benz German subsidiary takes care of all necessary expenses and usual documentation at the German side and the Mercedes-Benz Australian subsidiary takes care of all necessary expenses and usual documentation at the Australian side. The DaimlerChrysler Bank serves as the global bank processing the documentary collection or documentary credit transactions between the exporter and the importer.
The ‘usual documentation’ refers to the standard international trade documentation as identified and described in the International Chamber of Commerce (1999) ICC INCOTERMS 2000. 3. 4 Transportation Transportation of the manufactured product involves four points. The first point will be at the premises of the Mercedes-Benz German subsidiary warehouse in Stuttgart Germany. Next, the second point will be at the Bremerhaven Germany port of shipment where German government authorities process the export for checking and inspection.
The third point will be at the Melbourne Australia port of destination where Australian government authorities process the import for checking and inspection including the application of all related custom duties, taxes, and/or compliance to importation regulations. 3. 5 Customs Australia has very specialised vehicle importation law and regulations (Government of Australia 1989a, p. 24, 27; Government of Australia 1989b, pp. 12-13, 15, 16-17, 19-22; Australian Government Department of Infrastructure, Transport, Regional Development and Local Government 2010).
Hence, unlike in any other countries, the custom duties as well as checking and inspection will involve more documentation and procedures unique to Australia. 3. 6 Freight Charges and Contracts of Carriage Daimler AG being one of the top companies in Germany will have maximised its service supplier contracts by the very nature of its bulk production, regular sales volume and bargaining power. It would have already negotiated the most favourable freight service contracts or contracts of carriage for its subsidiary companies within Germany for land carriers, internationally for marine carriers, and within Australia for land carriers.
Hence, Daimler will pay lower than usual freight charges. However, the end-user client will likely pay for the usual freight charges plus a premium as Mercedes-Benz subsidiaries are most likely to also make profits from freight charges. 3. 7 Marine and Land Insurance Since Mercedes-Benz products are luxury items, Daimler AG and its subsidiaries will most likely procure the most extended insurance cover under Clause A both for marine insurance and land insurance (International Chamber of Commerce 1999, p.
605). Likewise both German and Australian subsidiaries will likely procure insurance for the product from their side of the world whilst the German subsidiary would most likely pay for the marine insurance for economies of scale as Germany has volume exports all over the world. 3. 8 Involved Parties For the export and import activities, the main involved parties will only be three: [a] The Daimler AG Mercedes-Benz subsidiary in Germany; [b] Mercedez-Benz Australia/Pacific Pty Ltd.; and [c] DaimlerChrysler Bank as the Daimler AG financing subsidiary.
Other parties will include the German land carrier, the Germany-to-Australia marine carrier, and the Australian land carrier. 4. 0 Decision Points and Risk Management As Daimler AG already has established export-import procedures; suppliers; service-providers; a closed-loop supply chain management; global financing and other considerations, the decision points and risk management areas will be relatively constant and stable.
Most likely, Daimler AG and its subsidiaries all have a template of operations that has been polished throughout several years of doing business. 4. 1 Price Calculation The price calculation will be based on the standard prices that freight carriers already quoted and offered for Daimler AG and its German subsidiaries. Most likely, this will be based on distance from the point of shipment to the point of destination; the volume, occupied space and/or weight of the product; and/or specialised handling procedures or specified handling areas.
However, since Daimler AG has the bargaining power with carriers due to economies of scale, certain reputable and reliable service providers may make alternate offers with lower prices than the standard industry charges. These lower offers shall be considered for Export Shipping Management. 4. 2 Transport Mode and Carriage The transport mode will be multi-modal requiring land carrier transport and marine vessel carrier transport. 4. 3 Geography of the Route This has already been described in pages 5 to 6 of this report. 4.
4 Buyer Requirements In compliance to Australian Government Regulations, the importer will have provided inputs to the German subsidiary manufacturer prior to any importation request. This is for the sole reason that the Australian Mercedes-Benz market is quite considerable selling some 24,000 plus units in 2008 alone (Mercedes-Benz Australia/Pacific Pty Ltd 2010b). 4. 5 Risks: Buyer, Country, Exchange and Cargo The importer’s risk is very minimal as it is a subsidiary company procuring from another subsidiary company of the mother company.
Moreover, since the mother company Daimler AG has a financial services subsidiary, the buyer basically places an importation order only when its end-user client has already secured an automobile loan with DaimlerChrysler Bank. The main country risk in Australia will be its trade protectionist stance as shown in its Motor Vehicle Standards Act of 1989 and Motor Vehicle Standards Regulation 1989. Its exchange risks will also be very minimal as it will be well-managed under a single global financial services subsidiary.
Its cargo risks though will be higher due to the great distance from the Bremerhaven port to the Melbourne port. 4. 6 Transport Variables The transport variables will have been well-managed throughout several years of shipping operations from Germany to Australia since 1965 (The Motor Report 2008, p. 2). 4. 7 Methods of Payment and Documentary Credit The International Trade Administration of the U. S. Department of Commerce provides for a risk payment risk diagram that shows the relative security of four payment modes between an exporter and an importer (2008, p.
1; See Figure 3). The safest for an exporter will be the cash advance while the least secure will be an open account or consignment payment usually due in 30 to 90 days after the goods have been shipped and delivered (International Trade Administration, U. S. Department of Commerce 2008, p. 4). In between are letters of credit or ‘documentary credit’ as its technical term and documentary collection (See Figure 3; CreditGuru. com 2010). The World Trade Press (2008) distinguishes documentary collection from documentary credits as follows:
…there are two major differences… (1) the draft involved is not drawn by the seller (the “drawer”) upon a bank for payment, but rather on the buyer itself (the “drawee”), and (2) the seller’s bank has no obligation to pay upon presentation but, more simply, acts as a collecting or remitting bank on behalf of the seller… In the case of Daimler AG and Mercedes-Benz Australia/Pacific Pty Ltd. , the exporter and importer role between two subsidiaries has made use of a creative mode of payment that is secure and enhances Daimler AG’s global supply chain efficiencies.
Technically, the exporter receives a cash advance payment not from the importer but from DaimlerChrysler Bank as the bank facilitates the end-user financing for the procurement of a Mercedes-Benz automobile. For in-country compliance to trade and motor vehicle regulations, however, both the importer and exporter makes use of either a documentary collection and/or documentary credit mode of payment to ensure that the exporting subsidiary complies with the in-country requirements of the importing subsidiary.
Thus, this facilitates proper checks and balances between two subsidiaries that are located in two different parts of the world. The documentary collection and/or documentary credit mode of payments likewise ensure that the proper revenues among subsidiaries are clear and distinct for taxation and investor relations purposes. 5. 0 Transport Procedure from Origin to Destination The following are the transport procedure steps from origin to destination of Mercedes-Benz products: 5. 1 Order Processing The Australian order is received in the German subsidiary via the company’s internal enterprise order tracking system.
Freight charges; marine and land insurance; taxes; in-country duties; and other concerns are processed and/or attended to at the German subsidiary. 5. 2 Product Selection, Checking, Inspection and Packing The ordered product is selected for the Australian market version, checked and packed at the Daimler AG German subsidiary warehouse or premises in Stuttgart then delivered by land carrier to the port of shipment in Bremerhaven, Germany. This is an FCA Stuttgart for an EXW Bremerhaven. The land carrier will be a regular service provider that picks up deliveries at regular time intervals.
5. 3 German Government Customs Inspection Prior to loading on ship or vessel, German government inspection is conducted on both the document and the product to be shipped. 5. 4 Shipping to Melbourne, Australia The marine carrier will be a regular service provider to Daimler AG. It will deliver the product from the port of shipment to the port of destination. This will be a DDU Australia with a CIP Australia. 5. 5 Australian Government Customs Checking and Inspection The port of destination will be Melbourne.
Once reached, the product will be unloaded and warehoused at the port for customs checking and inspection, and processing of Australian import duties, taxes and/or other charges. 5. 6 Delivery Pick Up from Port to Mulgrave, Australia The importer then commissions a land carrier to pick up the product and deliver it to the Mulgrave warehouse. 6. 0 Conclusion An established multinational company like Daimler AG will operate through subsidiaries that cover import, export and financing to minimise its risk as well as leverage its multi-country presence for further efficiencies.