PURCHASING

Ethics In Purchasing

By Martin Murray

Every day the media has reports of cases of bribery and unethical business practices that involves the purchasing of materials or services in almost every country in the world. Although we like to think that the people who determine contracts and purchasing agreements are fair and ethical, there are some that will accept coercion that may affect the award of contracts that are worth thousands of dollars to those that are worth millions of dollars.

Purchasing Standards

Every company will hold their employees to a purchasing standard that is put in place with processes, methods and rules to ensure that the procurement process is as fair as possible. However, the purchasing of materials and services is a process that involves the interaction of purchasing staff and potential vendors, which leads to personal relationships and contacts. A purchasingprofessional will naturally call a vendor they have personal knowledge of before they cold call other potential suppliers. The relationship between a company and their suppliers is one that is developed over a period of time and based on personal relationships.

However, the purchasing professional is duty bound to their employer to ascertain the best product or service at the best cost, in the timeliest fashion. Purchasing standards are in place to ensure that the needs of the company are foremost in any negotiations with potential suppliers. The first ethical standards for purchasing professionals were published by the Association of Purchasing Management in 1929.

Actions of Suppliers

Although we expect purchasing professionals to be as ethical as humanly possible, most companies have a sales department whose job is sell your product and that can means having contact with employees of potential clients, which could be purchasing or non-purchasing staff. These sales teams will have budgets to promote products with advertisingsouvenirs, such as pens, calendars, diaries, etc., or more tangible gifts such as lunches. In a number of studies on purchasing it has been found that almost all purchasing professionals accepts something from vendors, even if it as small as an item of stationary.

Although the majority of companies will require purchasing and non-purchasing employees to sign and abide by an ethics policy, smaller companies are less likely to either have or indeed abide by a code of ethics. Small business failure is high and it is vital for companies to win business, and that can come at the expense of ethics.

Non-Purchasing Employees

Although large companies insist on purchasing professionals strictly adhering to ethics codes, the same is not necessarily true for non-purchasing staff. In many companies purchasing is allowed by department heads or even line staff which by-passes the purchasing department all together. This means suppliers sales departments can target non-purchasing staff to gain sales where perhaps they have been rejected by the purchasing department. Much of this rogue procurement is never seen by the purchasing department as it either is paid for a department’s cost center or checks cut by the accounting department.

Rogue purchasing has two major drawbacks for a company. Firstly the spending is never funneled through the purchasing department so there is no way to know if the purchaser obtained the best price for the item. Secondly, the purchaser may have been unduly influenced to make the purchase; perhaps by gifts, personal relationship or even a conflict of interest. Rogue purchases can make up as much fifty percent of a company’s overall spending for a year. If non-purchasing employees are restricted to minor or even zero purchasing, the company would be confident that the purchases were made in an ethical manner and the best product was selected based on price, quality and delivery time.

Summary

Purchasing professionals are an asset to any company. They can save a company thousands if not millions of dollars a year. The way in which they purchase items is vital to the success of a company and a strict code of ethics ensures that all potential vendors are treated equally.

CONTAINER DEPOT GATE CHARGES ISSUE

Hauliers' strike raises fee issue between shippers, shipping lines

Posted on 15 May 2012 - 03:41pm

Kang Siew Li
sunbiz@thesundaily.com

PETALING JAYA (May 14, 2012): The recent three-day protest by haulage drivers in Port Klang has offered a compelling reason for the government to regulate the set-up and operation of container depot operators across the country, but it also gave rise to another long-standing conflict between manufacturers and shipping players over who should pay for charges at the depots.

The Federation of Malaysian Manufacturers (FMM) reckons that the depot gate charge (DGC) or any other claim by the container depot operators should be borne and absorbed by the shipping lines.

That's because shipping lines are the depot operators' principals and therefore, should be fully responsible for depot operations, it said in a statement recently.

However, the Shipping Association of Malaysia said the DGC is a matter entirely between the depot operators and the shippers (importers and exporters).

Currently, the DGC is paid upfront in cash by haulage drivers for deposit and withdrawal of empty boxes at the depots, but will be reimbursed by their employers (haulage companies) several days later who will then bill the shippers. Depot operators also get paid by shipping lines to store their containers.

"Hauliers do not have any legal standing to pay the depot operators on behalf of shippers and thereafter collect the charges from shippers. Shippers and hauliers are not a party to any agreement for services provided by container depot operators. Shippers merely adhere to the requirement by shipping lines to collect and return empty containers to and from the respective container depots," said FMM.

The federation said it has, through the various channels, raised this issue and concerns with the relevant authorities including the Ministry of International Trade and Industry, Ministry of Transport, Ministry of Domestic Trade, Cooperatives and Consumerism, and recently, with the Malaysian Competition Commission.

"We have highlighted that shippers have consistently been subjected to numerous unfair charges and fees by the logistics service providers that have contributed to increasing the cost of doing business. While the authorities have studied specific aspects of the issues over the years, a resolution has not been so readily forthcoming as these ancillary charges fall within the purview of several agencies. A holistic approach to the matter is urgently required," it added.

The federation believes that the move by the government to regulate the depot operators is a step in the right direction to avoid a recurrence of the recent protest.

"Strikes by haulage drivers (that started on May 2) as a result of unilateral demands made by the depot operators affect not just manufacturers, but the economy as a whole given the significance of exports in driving the growth of the economy," it added.

Container depot operators, a vital component in the logistics chain, now fall under the purview of the Klang Municipal Council, which is mainly for licensing purposes. There are no proper authority to monitor their performance, like what the Commercial Vehicles Licensing Board is doing for container haulage operations.

CUSTOMS PROCEDURE - Simplification of processes

Chongqing Customs to ease cargo flows
By Raymond Duan
Chongqing 

Customs officers at Chongqing municipality have been simplifying procedures and creating convenient channels for cargo flows in anticipation of ballooning traffic in the coming years.
Ma Zhongyuan, director-general of the Chongqing Customs District and a deputy to the National People’s Congress, said during a recent NPC session that Chongqing has adopted measures to streamline Customs clearance for the convenience of supply chain operators so as to help them cut costs and speed up the flow of cargo, capital and Customs documents.
The measures include advanced clearance and Customs-to-Customs transfer, localised declaration but coastal port release, and one-time declaration, one-time inspection and one-time release of cargo.
According to officers with the Chongqing Customs District by introducing this mode of advanced clearance and transfer between Customs offices, it enables inland enterprises to shorten their clearance and taxation period by 20-25 days.
Once the overseas-bound cargoes enter the Customs zone at the Lianglu Cuntan Free Trade Port Area, officers go through all the local Customs formalities and forward the cargoe to Customs offices along the coast, where the cross-border procedures are finalised before the cargo heads overseas.
Localised declaration but coastal port release became a reality because of cooperation among the 23 Customs ports across the mainland to provide a convenient service to enterprises.
For qualified enterprises under the Chongqing Customs administration, once their shipments go through Customs declaration procedures at Chongqing, the cargo is released upon inspection to the offices at coastal ports. Exporters do not have to provide any downpayment for taxes weeks earlier to coastal port agencies as was done before. And the cargo can be directly forwarded toward destination upon double checking of documents on computers by the coastal Customs ports.
Enterprises in Customs areas, namely the Lianglu Cuntan Free Trade Port Area and the Xiyong Comprehensive Bonded Zone, can apply for one-time declaration, one-time inspection and one-time release. Such procedures include declaration, initial check, acceptance, inspection, release and transfer to another Customs office.
The major benefit for foreign trade companies under this new system is a saving in costs, said Yan Zhu, general manager of Chongqing Tianzhuhang Import and Export Trade. “Importers could store the cargo in the warehouses in the free trade port area and pay the charges upon leaving, which would lower capital costs and ease the burden of credit loans.’’
Customs officials at Lianglu Cuntan area say the move has encouraged businesses from neighboring provinces to relocate at the Chongqing free trade zone. More than 30 percent of foreign trade goods handled at the Lianglu Cuntan Customs office are from outside Chongqing municipality; the percentage was one digit before the office officially went into operation a year ago.
Moreover, Chongqing Customs has been agile in applying information technology to speed up cargo flow. Each container entering and leaving the yard at designated zones will automatically form a basic account in the computer system to be matched at checkpoints with related information.
Exporters and importers do not need to get their cargo checked during Customs eight-hour working hours. The loading of exports, launch of shipping and unloading of imports are allowed to go through approval procedures via the Customs automation system at the free trade areas. This means that cargo owners and shippers, forwarders and carriers can decide what time they want their cargo checked instead of waiting for Customs officers. Once out of the Customs area, the cargoes are monitored by satellite tracking systems on their way to the vessels.
With the deployment of more information technology products, the Customs at Lianglu Cuntan area are extending their services to paperless declaration and bar code checks. Last year, the Customs office at Lianglu Cuntan area handled 45,000 sets of documents and enjoyed a 100 percent rate of container matching.
Chongqing has also been promoting its coordination not only with the districts, but also with coastal ports as well as European counterparts. Thanks to cooperation with Belgium and other European Customs, Chongqing has been designated as the first trial port in inland China for the China-Europe trade to make the route more cost-efficient and transparent.

INDIA _ EFFECT OF PORT TARIFF CUT

Two of India's private terminals post losses after tariff cuts 

Two of India's earliest private container terminal projects at Jawaharlal Nehru port near Mumbai and Tuticorin port in Tamil Nadu, both owned by the Union government, have started making losses on the back of tariff cuts, reported The Mint.

On 1 March, the Tariff Authority for Major Ports (TAMP) asked Nhava Sheva International Container Terminal (NSICT) to pare rates by 27.85 percent when the firm asked for a 30 percent raise.

NSICT is owned by Dubai-based global port operator DP World. It is one of the three container-loading facilities at JN port, India's busiest container gateway.

PSA-Sical Terminals, a firm running a container terminal at V.O. Chidambaranar at Tuticorin, is 62.5 percent owned by PSA International, the world's second biggest container port operator. It has also been hit by rate cuts.

The two terminal operators say the tariff cuts would reduce their revenue earning capability and position them as loss-making units.

The royalties these firms are contractually-mandated to pay the government-owned ports on each container handled at their respective terminals have exceeded the revenue they earn from each container.

Both these contracts followed the royalty model that was in vogue when the government flagged off a port privatisation programme in 1997. The terminal operator had to pay a certain royalty, specified in the contract on each container handled at the terminal, to the government-owned port.

Both PSA and DP World were done in by the peculiar nature of the contract-royalty rates, which were low in the first 10 years of the contract and then rose rapidly over the remaining period of 20 years, making it difficult to run the terminals profitably in the face of rate cuts.

The union government-owned ports now follow a revenue-sharing model for port privatisation contracts.

The bidder willing to share the most from its annual revenue with the port wins the contract.

According to the terms of PSA's contract at Tuticorin port, the royalty per loaded standard container was US$1.9 in the first year of operations. In the 30th year of operations, in 2028, it would reach $96.37 for a loaded standard container. PSA-Sical currently charges its customers around $39.08 for handling a loaded container.

PSA pays $42.13 as royalty to Tuticorin port on each loaded container handled at the terminal. This will rise to $46.34 from 15 July this year.

In the 14 years since starting operations, PSA made three attempts to raise rates for the services provided at the terminal; but, each time, the tariff regulator slashed rates-by 15 percent in 2002, 54 percent in 2006 and 34 percent in 2008 which PSA did not implement by securing stay orders from the Chennai high court.

It is operating the 450,000 standard container capacity-a-year terminal at rates approved in 1999, when it started out on a 30-year contract.

NSICT has been a little luckier. It managed to win some tariff increases from TAMP in the first 15 years of operations.
DP World handles some 1.4 million containers at NSICT every year, more than double the original designed capacity of 6,00,000 containers.

Its royalty increases progressively from 89.09 US ents for one loaded standard container in the first year of operations in 1998 to $104.41 per container by the 30th year, in 2027, according to contract terms.

NSICT was earning $46.62 on each container handled at the terminal.

But, after the 1 March rate cut, it can charge customers only $33.63 per container.

It pays a royalty of $41.28 per container to JN port. This will rise to $43.94 per container from 3 July this year.

Between 2005 and 2006, TAMP cut rates at NSICT cumulatively by 25 percent. The latest blow came on 1 March.

Besides, the port policy that prevailed in 1998 allowed the royalty fully paid by the firms to the port as an item of cost while setting rates.

But, in July 2003, the shipping ministry altered this policy and allowed only a partial pass-through of royalty into tariffs, limiting the extent of pass-through of royalty to the maximum quoted by the second highest bidder in the auction.

Both DP World and PSA declined to comment.

"Global firms are keen to participate in India's port projects by bringing new generation technology and much wanted capital," said Samir Kanabar, partner, tax and regulatory services at Ernst and Young. "So it's important to have a consistent and sustainable policy framework that scales up to international standards."

Agility Logistics Expansion in Malaysia

Agility sees trucking, warehouse operations driving growth

By DAVID TAN
davidtan@thestar.com.my

GEORGE TOWN: Agility, a public-listed logistic company in the Kuwait Stock Exchange and Dubai Financial Market, expects its overland trucking and warehouse operations in the Malaysia to spearhead the growth of its subsidiary, Agility Logistic Sdn Bhd, this year.

Agility chief executive officer Morten Damgaard (South-East Asia/Malaysia) said this was due to the improvements made in the highways and land routes connecting Indochina, Thailand, Singapore, and the rising cost of fuel, which made air and ocean transportation expensive.

Agility's trucking and warehouse business in Malaysia generate more than 40% of the subsidiary's 2011 revenue.

“Besides better connecting infrastructure, there is also improvements in the customs services at the borders,” he told a press conference on the launch of Agility's new 60,000 sq ft warehouse in Bayan Lepas by Penang Chief Minister Lim Guan Eng.

Agility CEO (SEA/Malaysia) Morten Damgaard(left) and Agility Penang Branch manager Ali Ahmad at the press conference

Agility also has three warehouses in Kuala Lumpur, two in Johor, and one in Malacca, comprising about 600,000 sq ft of warehouse space.

“We are getting a lot more interest from our customers to transport their goods by land, which is one of the reasons why we moved to a larger warehouse,” Damgaard said, adding that Indonesia, Malaysia, Thailand and Vietnam were the key markets in the Asean region driving growth for the logistics industry.

“In Asia, China and India are still the top two drivers of growth for the logistics business.

“The commissioning of the facility in Penang underpins Agility's emerging markets growth strategy and is a testament to the successful expansion of our contract logistics business in Malaysia and the Asia-Pacific region,” he said.

Meanwhile, Lim said according to Frost Sullivan, the logistics industry in Malaysia was expected to experience a year-on-year growth of 10.3% to reach RM129.9bil in 2012.

“The logistics industry in the country is projected to grow at a compounded annual growth rate of 11.6% to touch RM203.7bil in 2016,” he said.

Agility Logistic Sdn Bhd's new warehouse in Bayan Lepas.

Employing more than 22,000 employees in 550 offices across 100 countries, Agility's annual revenue is around US$6bil.

Air Turbulence

Published: Friday May 11, 2012 MYT 4:28:00 PM

Rafidah: AirAsia, AirAsia X, MAS collaboration crucial

PETALING JAYA(Bernama): All airlines in the country must be able to face challenges when the Asean open sky policy comes into force in 2015 and therefore, collaboration efforts between AirAsia, AirAsia X andMalaysia Airlines (MAS) is important, said AirAsia X chairman Tan Sri Rafidah Aziz.

"If airlines do not strengthen now, through what ever way, there will be problems. This is why AirAsia and AirAsia X is willing to continue looking at possible collaboration with MAS," she said on Friday.

She emphasised that the collaboration had nothing to do with the share-swap.

"It is about cutting cost so that we can pass the efficiencies to consumers. We have agreed at the board level to sign a memorandum of understanding (MOU) to continue pursuing this collaboration as long as it does not violate any anti-trust law globally and bring benefits to us," she told a press conference after the Malaysian National Co-operative Movement (Angkasa)'s 41st celebration.

Following the reversal of the share swap deal, AirAsia, AirAsia X Sdn Bhd and MAS, have entered into a supplemental collaboration agreement (SA) to explore areas of mutual-need to realise savings and boost efficiencies.

The SA would focus on specific areas of collaboration while continue to comply with all relevant anti-trust laws.

Under the SA, the airlines have identified key areas for collaboration, which would result in efficiencies and cost savings, which among others, includes procurement, aircraft component repairs, training initiatives and technical and operational efficiency.

Additionally, the airlines will also continue working to further identify and evaluate opportunities to collaborate on a broad range of areas both at operational and strategic levels.

To push forward with the collaboration initiative, the three parties also signed a MOU to cooperate on two initial areas, joint procurement and aircraft component maintenance, support and repair services.

Of Malaysia's Fiscal Control

Malaysia's Lack of Fiscal Self-Control KUALA LUMPUR, May 10 — Malaysia’s lack of fiscal self-control could push up its borrowing costs and limit its ability to respond to a global economic crisis, said the former chief of one of Asia’s top economic think tanks. Prof Datuk Mohd Ariff Abdul Kareem, who formerly headed the Malaysian Institute of Economic Research (MIER) and is now with the Global University of Islamic Finance, said there were signs the country’s credit ratings were under pressure, and without a budget surplus, Malaysia could find itself short of options during times of crisis. He also noted that the country has grown accustomed to debt, and reported budget deficits in 47 years but surpluses in only seven. “Malaysia lacks fiscal discipline,” said Mohd Ariff at the launch of an economic report by the United Nations Economic and Social Commission for Asia and the Pacific (UN Escap). “It (Malaysia) is so used to having fiscal deficits. If there is a global crisis, Malaysia is not equipped to handle it. There is no space. If there is a surplus, there is a large space.” He said that part of the problem was that the government’s operational expenditure was “over the roof”. “The government needs to raise tax revenue and reign in expenditure,” he said. “There are already signs the country’s credit ratings are under pressure.” A drop in Malaysia’s sovereign grade by credit ratings agencies would make it more expensive for the country to raise money. Mohd Ariff said, however, that the country was not on the verge of bankruptcy although its debt-to-GDP ratio of nearly 54 per cent was just under its 55 per cent limit. “The debt is largely domestic and less vulnerable to external shocks,” he said. He warned, however, that the ratio could shoot up to 100 per cent by 2020 if present overspending is not reversed. The Najib administration had pledged to trim the chronic federal budget deficit as part of fiscal reforms to make the country more competitive. The Budget deficit was cut from seven per cent in 2009 to five per cent last year. The government aims to reduce the deficit further, to 4.7 per cent this year. UN Escap said today that Malaysia is looking at slower growth as regional economies take a hit from the deterioration of the global economic environment, particularly in Europe. It added that the world was in the second stage of the global financial crisis, with a sharp deterioration in the economic conditions largely due to the euro zone debt crisis and uncertain US economy. The commission estimated that a sovereign debt default in Europe or the breakup of the euro zone monetary union would result in a new world crisis that could lead to a total export loss of US$390 billion over 2012-2013 and reduce Asia-Pacific growth by 1.3 per cent. The agency projected a growth rate of 4.5 per cent for Malaysia this year, compared to 5.1 per cent last year and 7.2 per cent in 2010.