Project Practitioners > Project Freight

Project Freight

By Morley Selver, P.Eng IPMA B

As a project manager, there are a lot of things you have to be aware of know otherwise you could end up in trouble. One of those things is freight. On all your projects you will be purchasing equipment which will be shipped to your facility. There are several items you have to be aware of and be prepared to change if you perceive a problem.

If you look at an equipment quotation or purchase order you will notice two items relating to the shipping. One item is a statement that states how the goods will be shipped. The two common ones you will get to know about are Free On Board (FOB) , (some companies use Free Carrier (FCA)), and Ex-Works (EXW). The other item is a statement about how long you have to unload the goods.

Incoterms

The shipping terms are not dreamt up out of the blue but come from Incoterms. They are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. FOB started out as the rules for shipping goods by ship, then and still dose in some cases, covered all goods shipped by any transport mode. In the old days, with FOB, the Seller was responsible for the goods until they were loaded on the ship, then the Buyer was responsible for them. FCA is now used in place of FOB for any transport mode and FOB has now reverted back for maritime use only. If you go to this link (www.fauveder.com/IMG/incoterms_2010_chart.pdf) you can get a downloadable chart of the terms meanings.

If you look at the chart, you will see that what mainly distinguishes FOB, FCA, and EXW is:

- Who arranges shipping

- When does risk transfer

- When does cost transfer

So why are these important?

Free Carrier (FCA) & Free On Board (FOB)

Figure 1 You will typically procure goods shipped FCA site. This means the Seller arranges the transportation to your site, then once they arrive, the risk and cost transfers to you. With goods shipped FCA, demurrage is the rental that you pay on a trailer or other piece of equipment used to ship your goods. With large pieces of equipment the Seller will give you a certain length of free time to unload the goods. After the free time you will be charged demurrage or rental. The trailer shown in Figure 1 could have a demurrage cost of $10,000/day. Some ships have a demurrage charge of $85,000/ day.

When purchasing goods it is important to know how much free time you have to unload the goods. You do not want to be unprepared, have the goods show up on a Friday at 3 pm and you can't unload the goods until Monday morning when everyone comes back to work. Your project could get hit with a $20,000 charge. This is why when we have large pieces of equipment to unload, we tell the Seller when we want the goods on site. For the transformer in the above picture we would tell the Seller to have it on site at 8 am on a Tuesday morning. We would get everything ready, crews and equipment, unload it, and get rid of the trailer as soon as possible. This is extremely important for large pieces of equipment. If you don't look into the demurrage and free time, it could cost your project a lot of money.

Ex-Works (EXW)

With EXW it means that the Buyer (you) arranges shipping from the pickup point, assume the risk when the goods are picked up and the cost transfers when the goods are picked up. Figure 2 If you work for a large corporation, they will typically have an alliance agreement with a carrier that gives them shipping at a reduced rate. Procurement will insist on you using them for any shipment. Most of the time this is no problem, however things can and do go awry.

Figure 2 shows a case of EXW where the Owner's (Buyer's) truck picked up a transformer in the loading dock (the black opening in the wall), made a left turn and for some reason, decided to back up. That's when the transformer tipped over. This is now the Owner's project manager's problem as it was EXW. The PM is located on the west coast while the factory is on the east coast. The PM now has to arrange for an inspector to go in and look at the transformer to see if it is any good, (it wasn't). The Vendor (Seller) was after the PM to remove it as they could not ship anything while it was sitting there. So the PM had to arrange for a crane and crew to remove and dispose of it. The transformer was worth $500,000 standing up and they got $10,000 scrap value for it. The Vendor was busy and there was a three month delivery on another transformer. The PM had to come up with a $250,000 downpayment for a new transformer and had to beg with the Vendor to get back in the production lineup too pick up the lost schedule. This whole affair was a time consuming, costly effort for the PM on a large project.

If on the other had, the transformer was FCA Site, the Vendor would have been responsible for the the issues associated with the event, if it would have occurred. They would have looked after moving it and getting another one made as soon as possible. The PM would have been able to beat up the vendor to get a new transformer. As it was with EXW, the PM had no influence.

You really have to watch how things are shipped. If it is an important piece of equipment it is usually better to use, and pay for, FCA and let the vendor ship it since he does it all the time and uses proven methods. With all things project management, you have to watch what you do and how contracts / purchase orders are written. As you can see, it doesn't take much for a problem to arise. With everything you do as a PM, you want to make sure you have the hammer over others when something goes wrong.

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Workshops

New On-line Course Coming Soon!
Project Management In Oil & Gas

A co-worker of mine has extensive IT project management experience and is one of the top IT Agile project management trainers in NA. What he has been seeing is IT project managers being laid off in large numbers. I have extensive project management experience in industrial project management and do project management training in the oil & gas (O&G) industry. What I see is O&G not being able to find enough project mangers. So, we collaborated and developed a short course aimed at project managers looking for a new career, but are reluctant to change to O&G as they are not sure of what they will be getting into. Using material from my “Fundamentals of Project Management” workshop, we give an overview of how projects are managed in industry, particularly oil & gas. We will be rolling out the course shortly to help you decide whether to make the change to O&G or not. Keep watching www.bmoj.com for the rollout.

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What We're Planning
Certificate in EPC Project Management

Although this certificate is available in a home study kit, we are planning on making this into an on-line e-course assessable over the internet from anywhere in the world.

Follow us at www.bmoj.com for further updates or e-mail bmoj@bmoj.com for further information.

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Fundamentals of Project Management Workshop

Before you know it, the August 2014 Calgary 'Fundamentals of Project Management' workshop will be here. Now is the time to start thinking about what your work calendar will look like and sign up for your Project Management Survival Skills.

If you are not able to make this one, we will also be in:

Calgary AB August 26 - 28, 2014
Denver CO September 23 - 25, 2014
Houston TX October 21 -23, 2014
Calgary AB November 19-21, 2014

For information and to register go to:
http://www.peice.com/eventdetails.aspx?event=109336&rfi=605878

For workshop info go to:
http://www.bmoj.com/news/categorywork-shops/

Or contact bmoj@bmoj.com




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