Preparing for Future Supply Chain Disruptions: Insights from the Field
Organizations across all industries—from automotive, consumer goods, and pharmaceuticals to transportation, electronics, and oil and gas—have felt the disruptive effect of the coronavirus pandemic. Turning the global supply chain on its head, COVID-19’s impact has cut across multiple facets of international trade, including manufacturing, import/export, logistics, compliance, and supply chain management. This disruption has been a wake-up call for organizations worldwide, prompting them to assess their readiness to respond reliably, expediently, and effectively to rapidly evolving risk factors going forward.
Disruption Is Inevitable
Whether driven by an unprecedented pandemic or events that are more familiar, like trade wars or frequent duty and tariff changes, future disruptions to the flow of goods are unavoidable and companies must be as prepared as possible. Case in point: on June 29, the amendments to the Export Administration Regulations (EAR) published by the U.S. Department of Commerce, Bureau of Industry and Security (BIS) came into force, impacting U.S. companies that export goods, software, and technology to China, Russia, and Venezuela.
A few days later on July 1, a new free trade agreement entered into force as the United States-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA). While the USMCA is designed to provide “significant improvements and modernized approaches to rules of origin, agricultural market access, intellectual property, digital trade, financial services, labor, and numerous other sectors,” companies must respond efficiently to changes in import duties, tariffs, and rules of origin verification procedures in order to avoid compliance issues.
The current government’s uncertain trade relations with China, BREXIT’s unfolding impact on U.K. trade, and evolving pandemic predictions are just a handful of factors that may unsettle global supply chains going forward. With disruption an unavoidable consequence of doing business in 2020, successful companies are securing their supply chains by prioritizing operational responsiveness, agility, and adaptability in order to keep goods flowing while avoiding compliance violations and penalties.
Are You Prepared?
Today’s businesses are keenly aware of the importance of keeping a close eye on their sources of raw materials, parts, and finished products to ensure logistics costs do not erode overall profit margins. But COVID-19 caught many companies off guard, throwing their sourcing strategies and revenue flow into crisis.
Descartes’ 2020 Global HTS Classification Benchmark Survey of importers, shippers, logistics and supply chain operators, and customs brokers around the globe analyzed the impact of the supply chain disruption on companies’ operations and ascertained how they are addressing issues for the long-term.
The survey found that 35% of respondents were forced to research alternative suppliers or locations as a result of the pandemic. An additional one-third felt increased pressure to identify ways to reduce duty and tariff costs in order to shore up the shrinking bottom line.
Lessons Learned: Count On Technology
For those survey respondents forced to look for alternative suppliers due to COVID-19, many also looked to advanced technology solutions to address the more demanding workload and support the shift to a distributed workforce and the ‘remote working’ model.
In their leaning towards more advanced technology, approximately three-quarters of respondents were aiming to establish a workflow process for mass classification and to create an audit trail for proof of due diligence; sixty-eight percent were seeking a collaborative online classification process, while 55% sought configurable classification rule sets for different industries and product categories.
The Descartes survey also found that the majority of companies—not just those impacted by COVID-19—are adopting more advanced technology to enhance responsiveness to change and to increase resiliency. Regardless of the number of SKUs classified annually, businesses are recognizing the value of additional layers of protection against the unknown to help ensure their import operations remain viable during turbulent times.
Keep Agility and Responsiveness Top of Mind
Prior to switching to av more automated and integrated research and classification solution, most respondents surveyed were using labor-intensive and error-prone manual methods; a massive 81% were accessing multiple government websites to access classification data and 46% were looking up information in hardcopy books—an unacceptable drain on valuable time and resources and a serious impediment to pivoting swiftly in the face of disruption.
Respondents using advanced global trade intelligence solutions, with up-to-date tariff data accessed from a single system, reportedly accelerated the classification process by 30% to 100%. This increase in speed is a critical piece of the preparedness strategy, as companies aim to focus on agility to keep goods moving during market volatility.
Future-proof Your Organization
New disruptions to the global supply chain may be just around the corner. A proactive global trade intelligence strategy will help organizations continue to drive commerce while ensuring trade compliance in the face of inevitable change:
1. Take advantage of more advanced technologies to maintain compliance efficiency and accuracy as workload demands increase, as well as to better manage a more distributed workforce.
2. Look to technology solutions to increase the resilience and responsiveness of trade compliance programs.
3. Ensure a single point of access to research complex international trade information, including up-to-date HTS codes, duties and tariff treatments, rulings, and explanatory notes.
4. Use a robust solution to effectively exercise and establish a “standard of reasonable care” for product classification.
With the impact of COVID-19 on sanctions and export controls still not fully known, compliance professionals should re-evaluate their global trade compliance strategy, honing it to boost adaptability, agility, and responsiveness to change. By leveraging advanced global trade intelligence technologies, companies can better insulate themselves from the fallout of future supply chain disruptions while minimizing duty spend and achieving higher trade compliance rates in the process. For compliance professionals everywhere, the age-old Boy Scout adage rings true: Be prepared.