Logistics Planning Paper for Olive Oil 2
Abstract
This work consists of: 15 sheets, 7 parts, a list of references, 6 figures. In my work I suggest a company which deals with the ocean freight activity. My company will transfer olive oil from Spain to the USA. I will explain why I have chosen Spain as a country of olive oil origin. Moreover, I will pay detailed attention not only on the selected counties but also on the ports involved in the work. The activity and the strategy of the company were discussed in details. Also the appeal of the company to clients was touched upon.
This work is also devoted to the general state of ocean freight worldwide and its perspectives for the future. There was discussed the influence of economic crisis on the world freight transportation.
Problems that a new company may face with were analyzed in my work, as well as ways to solve them.
One part of my work illustrated the state of trade between the USA and Spain. Main American exporting goods were revealed.
The main ideas from this work are provided in the conclusion at the end of the work.
The references consist of 7 items including books, periodicals and electronic resources.
Keywords: Olive oil, ocean freight.
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Part 1.
In my work I would like to draw the attention on the term of the olive oil process of distribution to the USA from Spain. In my work I will try to demonstrate the thought process in problem-solving; i.e. the identification and assessment of the issues, the challenge presented by the issues, proposed solutions (pros & cons of each), the decision process leading to the solution adopted, the implementation phase, expected results and the next steps. I have chosen this topic because I find it very suitable for the analysis during my Logistics course. Moreover, I personally find this topic very interesting because of the world olive industry peculiarities which I aim to identify in my work. As a result, my work poses informative qualities as I hope everybody will find something new and interesting in it.
The olive oil industry traditionally is based in the Mediterranean region. On the next diagram there can be seen the share of global production of olive oil.
Figure 1. The share of global production of olive oil (2013).
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As it can be seen from the diagram below, more than 73% of global olive oil production is concentrated in the Mediterranean region, from which 70% relates to Spain, Italy and Greece. This is one of the peculiarities in olive oil industry – its country monopoly production. Traditionally, the main consumption of olive oil as well belongs to the countries-producers. But according to the latest statistics, the consumption of olive oil all over the world is growing rapidly. Especially this is true to the USA due to greater awareness of the health benefits of olive oil. So now it is becoming clear, that the establishment of the profitable olive oil logistics is the issue of a great interest for the American economy.
In my work I suggest a company which deals with the ocean freight activity. My company will transfer olive oil from Spain to the USA. I will explain why I have chosen Spain as a country of olive oil origin. Moreover, I will pay detailed attention not only on the selected counties but also on the ports involved in the work. The activity and the strategy of the company were discussed in details. Also the appeal of the company to clients was touched upon.
This work is also devoted to the general state of ocean freight worldwide and its perspectives for the future. There was discussed the influence of economic crisis on the world freight transportation.
Problems that a new company may face with were analyzed in my work, as well as ways to solve them.
One part of my work illustrated the state of trade between the USA and Spain. Main American exporting goods were revealed.
The main ideas from this work are provided in the conclusion at the end of the work.
The references consist of 7 items including books, periodicals and electronic resources.
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Part 2.
The company I suggest is named Transatlantic freight company (TFC) . The main activity of this company is to organize transportation of olive oil from the producer country – Spain, to the consumer country – the USA. The transatlantic transportation will be carried by tankers in bulks. According to the International Olive Council (IOC) a bulk containers are those exceeding 18 kg. Over the past twenty years import of bulk olive oil to the USA has increased on 36 percent. On the figure 2 there can be seen the tendency of constant growth of the bulk olive oil transportation. Here is the justification of the chosen company strategy. Moreover, in the past five years, bulk imports have surged 43 percent, while packaged imports have seen only a one percent rise (2015).
Figure 2. The USA Olive Oil imports by type of container.
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Transatlantic freight company LTD will work in two main market segments: food service, and the food processing industry. Food services include full-service and quick-service restaurants, hotels, and institutions (e.g., hospitals, schools, cafeterias, and prisons), while the food processing industry uses olive oil as an ingredient in processed foods. These consumers do not need small bottled oil as their demand is to be met by the bulk amounts of oil.
The office will be situated in Boston, Massachusetts. There are two reasons for this:
Boston is a large port;
New England is the USA most olive oil consumer region.
The last statement is illustrated in the Figure 3.
Figure 3. Average annual U.S. per capita sales by region (2013).
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So, as New England is the region of the highest level of olive oil sales, it is becomes obvious why it is economically justified to situate the company there.
Part 3.
Figure 5. Logistic Scheme of olive oil supply.
Transatlantic Freight Company is to be small but mobile company with narrow specialization of olive oil transportation. We have mentioned above, that U.S. demand for olive oil is increasing rapidly. Americans want to buy olive oil for their domestic needs; moreover, they want to eat healthy, cooked with olive oil, food out of their houses. It means that American olive oil market is untapped. TFC will suggest unique services:
a direct delivery from Cadiz (Spain) to Boston (the USA);
only olive oil specialization;
the best quality oil from direct producers.
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Why Cadiz? Cadiz is a big port in the Andalusia region of Spain. This region produces 75% of all olive oil produced in Spain. In Andalusia the olive oil is of the best world quality. TFC cooperates only with reliable producers and gives 100% guarantee of the oil quality. Olive oil is bought from direct producers on wholesale prices.
Narrow specialization speeds up and simplifies the process of loading because of the uniformity of product.
Requirements for the company have three main points: 1) ships with all the necessary equipment, 2) contracts with ports of Cadiz and Boston, 3) contracts with producers and customers.
Initial capital for the company can be raised at the expense of shareholders' equity, with the use of bank credits or with the combination of these two ways.
The procedure to conclude the agreement on port services in each country has its peculiarities. In order to avoid legal difficulties it is better to seek the assistance of a qualified lawyer with international specialization.
Part 4.
According to the latest statistics, trade activity through seaports accounts for 26 percent of the U.S. economy, generates over 23 million American jobs, and provides over $320 billion in local, state and federal tax revenues (Burnson, 2015). American government support new businesses in this field by providing benefits, favorable loans and tax breaks. But nevertheless, there are some areas which are necessary to be improved. And first of all it concerns legislation. For example, the adoption of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015) will open the door to new markets for American goods and services, boost U.S. economic growth and support well-paying jobs nationwide (Burnson,2015).
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In ocean freight the issue of great importance is port charges. According to Business Dictionary, port charges are taxes and surcharge which apply to a ship and/or the cargo on board the ship once it has reached port. These charges are different in different ports. Of course, it is obvious that in order to reduce costs, companies select ports with lowest port charges. What concerns Transatlantic Freight Company, its olive oil specialization narrows the selection of ports. We have already substantiated the choice of two ports – Boston and Cadiz.
Another problem of ocean freight is time on the route. From the figure 6 it can be seen the distance in mils and kilometers from Boston to Cadiz as well time on the route. Transatlantic Freight Company will guarantee that together with route and goods shipment it will take 10 days to deliver olive oil from Cadiz to Boston.
Figure 6. Ocean Freight Rates from Boston to Cadiz.
In our case there exists one serious problem that is to be solved. We are speaking about Transatlantic Freight Company as about one with narrow specialization. It means that the only
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good delivered is olive oil. It is clear when we speak about Cadiz-Boston route. But the question is what to do with Boston-Cadiz route? It goes without saying, that sending an empty vessel is economically unfeasible. So the main question to answer is how to efficient use the existing freight possibilities of vessels.
Part 5.
We have already mentioned the main problem of our project. Transatlantic Freight Company specialized on olive oil transportation from Cadiz port to Boston port. The issue to be solved is how to provide the occupancy of vessels on the Boston-Cadiz route. As I see, the solution is to offer the company’s transportation services to local American exporting companies. America shipped US$1.623 trillion worth of goods around the globe. America’s exports to Spain amounted to $10.1 billion or 0.6% of its overall exports. Here is the list of Top 10 US Exports to Spain in 2014:
1. Pharmaceuticals: $1.8 billion
2. Machines, engines, pumps: $815.1 million
3. Oil: $756.2 million
4. Fruits, nuts: $713.3 million
5. Aircraft, spacecraft: $665.6 million
6. Organic chemicals: $611.7 million
7. Oil seed: $585.6 million
8. Medical, technical equipment: $479.4 million
9. Electronic equipment: $454.7 million
10. Vehicles: $334.3 million (6).
There can be made a conclusion that a lot of goods are exported to Spain from the USA. Transatlantic Freight Company can assists to American export. To my mind the best
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way to find clients for ocean freight is to cooperate with The U.S. Commercial Service. There exists a special department for work with Spain. The U.S. Commercial Service Spain provides a range of services to help American companies export goods and services to Spain. For example, it helps American companies to find freight companies. The agreement between Transatlantic Freight Company and The U.S. Commercial Service Spain is of a mutual interest for both sides. For TFC such an agreement will solve the main problem by providing the goods to be exported to Spain.
What else can be done to raise the efficiency of our project is to analyze port charges in ports different from those we have selected. We have decided that our office will be situated in Boston. Boston is a big city with well-developed infrastructure. Moreover, Boston is one of the biggest ports in the USA. In addition, it is situated in New England - the region of the USA with highest ranks of olive oil sales. All these factors make Boston a perfect location for the company office. What can be done in this case is to change the port in Spanish destination. For example, in Andalusia there are many ports available for our business. The port of Malaga is one of it. But I see it is inappropriate to change the Andalusia as the region of Spain with highest concentration of olive oil production. The work with Andalucía region looks the most preferable for our company as it means work directly with producers.
Also I would like to add, that a company, in order to prosper, needs to increase its efficiency all the time. This fact is true for all companies as well as for freight companies. The management of a company should find new clients, new customers, be aware of new legislation and world tendencies.
Part 6.
According to the company’s strategy the most preferable mean of transport to use is a multi-purpose vessel. As it becomes clear from its mane, multi-purpose vessel carries different
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types of goods: liquid and non-liquid general goods. Moreover, such a vessel can carry different types of good at the same time. This point is very important when the company will transport goods on the Boston-Cadiz route.
The expected results of TFC’s activity are of rosy forecast. In this paper we have mentioned many times that the demand for olive oil in the USA is constantly increasing. In addition, the export from the USA to Spain is also on a high level. All these factors determine the demand for TFC’s services. Also it is necessary to say, that the latest business tendency stands for cost savings. This statement makes ocean freight more and more popular with the comparison of air freight for example, where freight costs are much higher. So, nowadays ocean cargo is becoming a new shipping trend.
The TFC’s main strategy is to low clients’ freight costs and increase shipping efficiency and this strategy meets all the latest business trends. As a result, there expected to be no lack of clients. TFC’s services are to be in demand.
During last 10 years ocean freight was in a state of crisis. Many freight companies all over the world feel the consequences of global economy stagnancy. As a result many of them left the market. From the year 2014 ocean carries finally returned to the profitability. Years 2015-2016 are predicted to be the period of blossom for the industry. So, the time selected to win the market is well chosen.
TFC is a small and mobile company. It means that it will easier and faster adapt to changes than huge transport corporations. Moreover olive oil specialization means the dependence on the stable market of olive oil production. It is true to say that olive oil market is stable because the world demands on this product is increasing from year to year and the productivity of Spanish earth will meet all this increasing demand.
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Also, I would like to mention that the chosen line of activity is in demand nowadays. According to Winston, international ocean shipping represents the largest transport activity in the world. More than 70% of world transportation is carried by ocean. It becomes obvious, that ocean freight is a business area with huge potential. Competent work of high management and the right chosen strategy will lead a company in this area to prosperity.
Part 7.
In conclusion I would like to say that this project was of a great interest to me. I have found out a lot of new information. Next I would like to underline some of the most important and interesting facts.
The olive oil production industry is concentrated in the Mediterranean region led by such countries as Spain, Italy and Greece. Spain wins the first place with more than 45% of global olive oil production. In Spain the region of olive oil production is Andalucía were more than 75% of Spanish olive trees are grown.
Global olive oil consumption is constantly growing. This fact is also true to the USA. The reason lies in people’s aspiration to healthy food. It is a well-known fact that olive oil is one of the healthiest, most useful and diet oil. People’s awareness about what they eat caused the increased demand of olive oil. People want to buy it not only for their domestic use, but also they want to have opportunity to eat food cooked with olive oil in restaurants, cafes, hospitals.
International ocean shipping represents the largest transport activity in the world. It meets the latest demand for costs saving for international companies and because of that ocean freight looks more attractive than air freight.
The most convenient and economically reasonable way to transport olive oil is in bulk. Such transportation reduces expenses for wholesales.
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The time needed for the route between Boston (USA) and Cadiz (Spain) is 9 days and a half.
Times on route and port charges are the problems of the greatest interests for ocean freight companies. Together with the problem of qualified workforce, these two aspects are to be adjusted in the best way in order to bring benefits to the business.
Nowadays is the most prosperous time to create an ocean freight company because, after the longtime of recession, this sphere of business is on rise. This statement allows to believe in the beneficial results for the company we discussed.
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References
Lynch, B., Rosema, A. (2013). U.S. International Trade Commission: Investigation No. 332-537. Washington, DC 20436, 2-11.
Olive Oil Staff (2015). Spain Dominates Booming American Market for Bulk Olive Oil. Olive Oil Times, (Febrart 10, 2015). Retrieved from http://www.oliveoiltimes.com/olive-oil-business/north-america/spain-dominates-booming-american-market-bulk-olive-oil/46526
Burnson, P. (2015). State of Ocean Cargo: Shippers still seeking sustainable performance from carriers. Logisrics Management, (June 01, 2015). Retrieved from http://www.logisticsmgmt.com/view/state_of_ocean_cargo_shippers_still_seeking_sustainable_performance_from_ca/oceanfreight
Burnson, P. (2015). Nation’s ocean cargo gateways applaud Senate passage of trade promotion. Logisrics Management, (May 27, 2015). Retrieved from http://www.logisticsmgmt.com/view/nations_ocean_cargo_gateways_applaud_senate_passage_of_trade_promotion/oceanfreight
Ocean Freight Rates from Boston to Cadiz. Retrieved from http://www.searates.com/reference/portdistance/?B=13434&E=3245&
Top US Exports to the World. World’s richest countries. Retrieved from http://www.worldsrichestcountries.com/top_us_exports.htm
Winston, C. (1981). A multinational prohibit prediction of the demand for domestic ocean container service. Journal of transport economics and policy, September 1981, 243-251.
