Project Practitioners > Freight, The Continuing Saga

Freight, The Continuing Saga

By Morley Selver, P.Eng IPMA B

Just to finish off the freight article from last month there are a few additional items you should be aware of that could affect your project. To summarize, I talked about the Incoterms Free On Board (FOB), Free Carriage  (FCA), and Ex-Works (EXW). These come from Incoterms (the international rules governing freight), and are the most common terms you will be working with. I also explained demurrage and how it can affect your project cost. So , what else do you need to know?

 Cash Flow Forecasting - EXW

Every month you do cash flow forecasting and your method of freight has a affect on it. When you choose to ship your goods EXW that means the final payment is due when you pick up the goods. When doing your cash flow you are always looking months out, so you should know when the goods will be picked up. Once picked up the cost is transferred to you, you will get an invoice with payment due in 30 days.  If the manufacturing is late or delivery delayed by the Vendor, then the cash flow is adjusted according to the latest shipping information you have. This means you have to expedite and do it properly, which is another story.

Sometimes, the on-site construction is behind and you can not accept the delivery. You may want to have the Vendor hold the goods at his location for later pickup. In this instance you will owe the Vendor the money and will have to make payment arrangements you both are happy with. Again this is noted in the cash flow documents. 

Cash Flow Forecasting - FOB / FCA

When you choose to ship FOB / FCA that means the final payment is due when the goods are delivered to you. Once they arrive, they are signed for as being good order, and you will then get an invoice for payment due in 30 days. This is then reflected in your cash flow forecast. Again, you have to know when the goods will be ready to ship, but you also have to know how long it will take to get to you. For highway transportation, there is the problem of the highway infrastructure. After the collapse of the Interstate bridge in Minneapolis a few years ago, oversize loads are not allowed on some Interstate bridges. This is something you have to check. On one project we did, we had to ship an four oversize loads from Houston TX to the Pacific Northwest. We bought the equipment before the bridge collapsed and it was shipped after the bridge collapsed. The equipment delivery was to be 8 days, however it turned out to be 18 days. We tracked the journey on the Internet, and the trucks were on backroads the whole way. They had to get oversize load permits for each state and the backroads were all the states would allow them to travel on.  

End Of The Year

Every industry and company I have worked for goes through the year end cash flow shuffle. They may be trying to spend money this year or trying to drag spending out to next year in order to pay or not to pay the bill. You have to be concerned about paying the bill before the end of the year. Usually sometime in November management starts thinking of how to spend the money and the panic ramps up as the end of the year approaches.  Some companies only require the equipment to be shipped before the end of the year while others require the goods to be on site by the end of the year.  You have to find out what applies to you. You only want to get involved in this cash flow shuffle if your goods are almost ready to ship.  If it only has to be shipped by the end of the year, then it should be shipped in finished condition. If the goods have to be on site by the end of the year, then the process gets tricky. Don’t rush the manufacture of the goods and expedite continuously until shipped.

Anybody Available?

In operating facilities, it is usually an on-site contractor who will unload large pieces of equipment for you. The contractors will normally shut down from just before Christmas and not start up again until the new year. So, here you are trying to get a large piece of equipment shipped to site and you don’t know if there will be anyone there to unload it. Sometimes the contractor will keep a skeleton crew on over the holidays, but you have to coordinate with them to get your goods offloaded. Don’t leave the coordination until the end as it won’t work out. Keep in mind that during this time frame, it is winter in a large part of North America and driving conditions are not the best. You have to track the shipment daily to make sure it gets to you in sufficient time. If you miss the time slot and can’t unload, you get to pay demurrage as the goods will sit there for several days before it can be unloaded.  If you are going to do this do not shoot for 5 pm on December 31, give yourself a couple of days in case something goes wrong with the shipment. This takes coordination and if you miss it can be costly to your project. Plus management will not be happy.




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