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  June 8th, 2024 | Written by

Managing Risk With Trade Compliance In Global Supply Chains

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When we view the risks associated with global supply chain management, trade compliance stands out as an area often misunderstood, miscalculated and at times misaligned with corporate cultures of compliance and operational excellence.

It often is also not appropriately aligned with corporate sustainability, resiliency and adherence to company policies, credos and goals. While we are seeing this beginning to gain ground in some larger public companies, we are continuing to witness a huge void in small, medium and larger organizations.

Typically, when an infraction on an import or export transaction or trade compliance issue arises that no one saw coming, it sets off the alarm bells of corporate governance. This leads to scrutiny from all levels of management and legal oversight … causing discomfort, stress and often chaos. 

Read also: Resiliency, Wherever You Can Get It: Uncertainty In Global Supply Chains Is Going To Stay

When I began my supply chain career in the 1980s, “trade compliance” was heard but it was a benign factor in global trade. Only the most serious goods related to the military were scrutinized on exports and importing into the U.S. was a routine process.

Historically, the turning point was the Customs Modernization Act of 1993, which changed the entire landscape of imports into the States. Furthermore, it changed the relationship between U.S. Customs and Border Protection (CBP), brokers and principal importers.

Trade compliance, like any aspect of global supply chain—procurement, manufacturing, operations, distribution, import/export, customer service, sales, finance, and other related silos—became a more important aspect of the global supply chain in 1993, but it took a huge leap forward following the events of 9/11. 

From that point forward, trade compliance took on a whole new meaning and continues to do so in 2024. Trade compliance has become a much more integral and functioning component of larger corporations and made a more serious medium in smaller importers and exporters.

Managing trade compliance responsibilities prevents supply chain disruption, mitigates exposures to fines and penalties, avoids civil and criminal prosecutions. Public companies can gain Sarbanes-Oxley compliance, while for private companies a best practice culture is created. Trade compliance opens the door for better run supply chains, faster movement through the border and potentially less delay.

Trade compliance can be utilized to gain access to reducing “Landed Costs,” including:

  • Foreign Trade Zones
  • Bonded Warehousing
  • Container Freight Stations
  • Drawback Opportunities

It can provide access to the Customs Trade Partnership Against Terrorism and the CTPAT Trade Compliance Program, where a host of benefits are gained. And it keeps management out of time-consuming compliance issues, allowing execs to focus on business development and sustainability matters.

Trade compliance management can be viewed as both a Risk Management Silo or a Best Practice Silo in a company, depending upon how the silo is utilized and its role in the corporate structure. In the most likely circumstances, in most global supply chains we would weigh trade compliance as 70% prevention and 30% opportunity. 

Government agencies actively involved in trade compliance include CBP, Alcohol, Tobacco and Firearms, the Food and Drug Administration and the departments of State, Justice, Commerce, Treasury, Agriculture and Homeland Security, to name a few of the more than 20 agencies that interface with the import and export supply chain, from a regulatory perspective.

There are four pillars of trade compliance: due diligence, reasonable care, supervision and control and proactive engagement.

Due diligence and reasonable care are defined by court precedence, common practice and interpretation of CBP and other government agencies in enforcement proceedings. In other words, it is a concerted, responsible and comprehensive effort put forth by a company and the individuals responsible for trade compliance to actively pursue the compliant operations in their global supply chain according to the import and export regulations that apply to their business model.

The concept of supervision and control refers to the typical scenario where importers and exporters outsource much of their supply chain responsibilities to service providers, channel partners, freight forwarders, customshouse brokers, direct carriers, 3PLs and other related parties.

Though the work is outsourced, the government mandates that the principal importer and exporter supervise and control those actions of their engaged third parties. This means that the principal importer and exporter create capabilities followed by controls to responsibly supervise their activities. In fact, that supervision can be outsourced to third party auditing and inspection type companies. This would not usurp responsibility; the principal importer and exporter is simply enlisting professional assistance in the review process.

Proactive engagement may not be specifically written into government regulations, but it is implied in the enforcement practices of the various agencies outlined previously and is something we supply chain consultants with over 35 years of experience have learned. More specifically, there is an implied responsibility that the government expects, which is that the company and the personnel involved in trade compliance will proactively outreach to develop an information flow, resources, skill set development and practical guidance on how to responsibly manage trade compliance in your company’s global supply chain.

Examples of such outreach include:

  • Joining trade compliance organizations, such as the International Compliance Professionals Association (ICPA)
  • Engaging in trade compliance training
  • Working with consultants, attorneys and service providers that have expertise in trade compliance.
  • Attending government outreach events sponsored by agencies including CBP, the Census Bureau and the Bureau of Industry and Security
  • Studying and developing trade compliance skill sets through various mediums and documenting same

When we consider the four pillars, the natural question that arises is, “How are those standards best achieved?” That question weighs into our experience over 35 years in managing trade compliance matters, being engaged in the global supply chain industry and being involved in all sorts of compliance cases, problem resolutions and in the development of best practices.

This can only be achieved if senior management strongly endorse a trade compliance management culture in their organization. Additionally, proper funding, support and guidance need to be in the senior management team’s credo.

An internal memo and doctrine notating and documenting that support needs to be published publicly and regularly re-endorsed.

A point person, potentially supported by a committee of stakeholders, should be designated to lead trade compliance initiatives in the organization. It may be a full-time position or part of an individual’s job description.

If there is leadership, follow-through and proactive engagement, the structure can vary and succeed.

Standard operating procedures are a significant and important methodology in keeping a company aligned in trade compliance adherence. It also demonstrates to government agencies your organization’s commitment in writing to how trade compliance will be managed in your company.

Training from an oversight perspective should be mandated to all stakeholders in the import and export operation, including procurement, sales, customer service, finance, operations, manufacturing, legal, distribution and senior management. It should be thorough, comprehensive and timely, occurring periodically and with the new hire of personnel in the supply chain.

Technology can be utilized as a major tool to support trade compliance management responsibilities. Classifications, denied parties checking, record keeping and auditing are examples of technology interface in trade compliance management. Artificial intelligence is also developing as an important tech gain helping companies manage trade compliance programs. 

Auditing is a requirement demonstrating due diligence and reasonable care in assuring your company is operating compliantly. It can assign degrees of compliance, provide recommendations for improvements or efficiencies, and can hold personnel and systems accountable for their performance in compliance responsibilities.

Trade compliance management is certainly a risk management policy for corporations to follow. More importantly, it can be utilized in foreign trade zones and drawback programs that can not only minimize risk but reduce landed costs and earn revenue gains in the organization’s bottom-line.

Author Bio

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at or (516) 359-6232.