Terminals and warehouses in international business

The terms warehouse and terminal are often used in logistics. Often, a warehouse performs the functions of a terminal, and a terminal performs the functions of a warehouse, but these have different primary purposes.

The most important function of a warehouse is to accumulate and store a certain volume of raw materials, components or production over a given period of time necessary to buffer the variations of demand and offer, or to allow accumulation of goods for matching sufficient transport capacity. The most important function of a terminal is to transfer raw materials, components or products from one mode of transport to another, or from one transport mean to another. Transloading or often referred to as cross docking is very rarely carried out directly from one transport mean to another, so the cargo has to be unloaded at the terminal, sorted, and stored there for some time, before being loaded into another transport mean. Terminals often perform the function of cargo consolidation and distribution. For instance, the required quantity of goods to be shipped on a vessel that will be docked at the port is collected and accumulated for a specific duration of time at the bulk cargo or container terminal. The destination port also has bulk or container terminals where the cargo is unloaded from the ship and later distributed by road or rail transport.

Terminals are for single transport mode, multimodal, and intermodal. In multimodal terminals, cargo is transloaded from one mode of transport to another (Lowe & Davies, 2021). Intermodal terminals provide transloading containers, trailers, or for instance swap bodies which is in use in Scandinavia. The cargo is stored in the terminals for as long as it takes to complete or reshape the shipment for loading into another transport mean. The largest terminals in the seaports, which are located along transport corridors, have become consolidation and distribution centres, they function as major hubs points in the entire logistics chain. Due to the size of the cargo flow served by them, the terminals are lucrative for related service providers, therefore, insurance agencies, packaging and labelling providers, customs clearance agencies. 3PL or 4PL service providers have settled near the terminals or right in the terminal areas. The largest transport terminals provide additional services in addition to the transloading function – packaging, handling customs procedures, insurance, marking, sticking labels, tracking of goods. For manufacturers and traders who decide to abandon warehouses, the terminals also provide a temporary storage service if there is a need for it.

A warehouse is a place where raw materials, components or manufactured products are accumulated and stored for purpose of sale or further manufacturing (Lowe & Davies, 2021). Essential functions of warehouses are reception, storage, sorting, packaging, and administration, each occurring at various degrees of automatization and manual work. According to their purpose, warehouses are divided into warehouses for raw materials or components and warehouses for finished products. According to an ownership, warehouses are divided into warehouses of manufacturers, traders and logistics providers.

A factory usually has both a warehouse of raw materials and components and a warehouse of finished products in its premises (Exhibit 13-23). Even if the organization aims to work on the principle of just-in-time logistics and avoid warehousing, no matter how small, the warehouse is still needed to store the newly produced products and store the raw materials before they enter the production or assembly line. Each organization decides for how long it takes to stock up on raw materials and components. Some factories store critical raw materials for several months or even years. Other factories stock up for just a day or a few days. The size of the manufactured goods warehouse depends on the manufactured goods distribution channel strategy and the cargo itself.

Ex. 13‑23 Contemporary storage points by level of product readiness

Keywords: storage, warehouse, terminal

Merchants also use warehouses often. Wholesalers, importers, exporters usually create value and earn profit from presenting the product to the consumer, bottling or packing the product into smaller packages for retail sale. Merchants often store goods from different manufacturers in their warehouses.

For example, global electronic stores have a network of warehouses where they store products intended to serve individual local markets. Although the pull logistics principle, when the product is sent from the manufacturer’s warehouse to the final customer, is becoming more and more popular, it is still not possible to fully avoid intermediate storage distribution in warehouses. Warehouse locations closer to consumer markets significantly shorten product delivery times. For example, if a client places an order with the manufacturer, the delivery from factory may take several weeks or even months. If the product is available at the merchant’s warehouse close to the market, the delivery time may vary from one to several days.  The significance of delivery time to the buyer prompts manufacturers to use market demand research and forecasting techniques enabling them to stock the anticipated quantity of goods to sell.

In the special case of urban logistics, in large cities, the time between order and home delivery can even be reduced to few hours. In the special case of online grocery food in UK, innovative market players are promising extremely short delivery times, like fast food deliveries. They can do so by establishing a decentralized network of small warehouses around urban centres. In France, supermarket chains offer grocery shopping services with similar logistics velocity.

Logistics operators possess their own warehouses primarily establish them to perform the function of a terminal. However, if there is a need for warehousing services in the market, traders or even manufacturers sometimes decide whether to have their own warehouses or to use the services of warehouses owned by logistics operators (Tapaninen & Andelin, 2020). Warehouses of logistics operators, where traders or manufacturers can rent space for storing their goods or raw materials, are called public or open warehouses.

Warehouses belonging to logistics operators sometimes have the status of a customs or so-called bonded warehouse. There are customs-supervised protected areas, various economic zones, and customs warehouses. When the goods are delivered and unloaded in such a customs-protected tax-free place or zone, the obligation to pay customs duties does not arise immediately, but is postponed until the time when the goods are sold to the final consumer and when they are taken out of the customs-controlled place. However, at the time of importing a product subject to customs duty, a document is required during the transit from the border crossing to the customs-supervised warehouse, which confirms the importation of such a product. Transport organizations must have a permit issued by the state when transporting such cargo. Customs warehouses are often established in seaports, near airports. Sometimes the entire port is granted a duty-free zone. If the customs duty is paid before crossing the state border or when crossing the border, then the cargo must be accompanied by documents confirming that the customs duty has been paid for it, in other words confirming that customs clearance is done. Customs protected warehouse is sometimes called bonded warehouse. Bonded warehouses are useful in that the importer can pay duty on the imported goods in parts rather than all at once. In this case, the duty is paid only for the quantity of goods that the importer wants to take from the customs warehouse and transport to the point of sale or simply to the final consumer. This allows goods to be stockpiled in the customs warehouse for a longer period of time and stored without paying customs duty, until there is a need or demand to sell these goods. It helps to save working capital for other operations in business.

Warehouses are differentiated by types of cargo. Warehouses intended for general cargo are usually covered; they are equipped with racks, the size of which is adapted to the size of the pallet used in a specific region. Loads on pallets are loaded on racks with special loaders, on several floors, the total height can reach 10 meters or more. For storage in the logistics operator’s warehouse, manufacturers or traders pay for the storage service usually by calculating the number of pallets, or the so-called running meters of the rack shelf, i.e., what width of the rack will the loads placed on the pallets occupy. The prices vary according to the volume, but also to the duration and time.

Bulk cargoes, such as fertilizers and grains, are stored in covered warehouses by simply pouring them on the floor or in special containers. Some bulk products – for example, coal, crushed stone, gravel – are stored by pouring in open-type sites.

Warehouses have an important function to ensure that the right shipment, in the right quantity, is loaded into a freight vehicle. When a shipment of different goods is assembled from the warehouse, the challenge is to find quickly and efficiently the selected goods. For this reason, goods are specially marked with barcodes, RFID codes, QR codes and other codes that can be read by electronic devices. Automation can occur during the picking, sorting, labelling and fulfilment process, whereby manual action is also needed when parcels or boxes are filled and pallets, roll-cages or containers are built together and moved to the expedition area. Electronic scanning and information processing facilities ensure that items in stock are quickly located. Despite the use of electronics, it is still difficult to avoid human error, so there are still cases of wrong product or quantity delivery. The warehouse employees are responsible both for the conformity of the cargo loaded from the warehouse to the vehicle with the order documentation, and for checking the order information with the actual arrivals during the reception of the cargo from the vehicle.

When storing the same goods, there is often a dilemma whether to send the goods from the warehouse that arrived last and, are the closest and most conveniently placed, or to send the goods that entered the warehouse earlier. Both methods are possible. FIFO – First in First Out is a warehousing method, when the first goods received are the first to be taken out when an order appears. FILO – First In – Last Out is a warehouse method, when the last goods that entered the warehouse are the first to be removed. The FIFO method is more recommended for goods that are perishable or have a shorter life cycle. In any case, stock balances are constantly reviewed, considering the retailer’s and manufacturer’s distribution strategies, and prevent the accumulation of items that will lose value and become non suitable for sale if they remain in stock for too long.