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How to Get a Handle on Risk in Uncertain Times: 10 Important Considerations

risk

How to Get a Handle on Risk in Uncertain Times: 10 Important Considerations

Risk: It’s the operative word on everyone’s mind right now. Whether it’s COVID-19 or oil prices, supply chain impacts or financial market concerns, understanding the impact of macro and micro-events, assessing their impact and putting in place the right action plans to mitigate that risk as best as possible is the priority task at hand.

Here we’ll examine ten steps to consider to ensure you’re being as thoughtful and rigorous as possible in your response to risk.

1. Take Care of Your PeopleHopefully, this has already been priority number one for your business after the past few weeks. How do we safeguard our people? How do we handle work from home – voluntary versus mandatory? What other flexible resourcing options do we provide – from sick leave to absenteeism considerations? What are the IT implications and subsequent human resource and capacity management concerns we need to consider and fully factor in? Err on the side of caution. Better to be safe than sorry.

2. Analyze Internal Risks – Before you can do that, you need to galvanize the right teams to be able to understand, assess and action against those risks. It’s critical to build the right cross-functional teams to be able to look at, and understand, the relevant issues to consider. This will involve finance, R&D (depending on your business) and marketing and sales. It will also involve teams like quality and sustainability leaders, as there will be implications and follow on ramifications despite your very best efforts.

3. Conduct Scenario Analyses – For critical categories, it’s important to get a handle on what alternative demand/supply options are. What are the pessimistic versus expected versus optimistic cases depending on what happens with the current situation, both in terms of the pandemic but also in terms of current and expected economic conditions? As part of any such assessment, you’ll need to score, assign probabilities and weights and adjust your thinking and actions accordingly.

4. Talk to Customers –This doesn’t tend to be the first thing people think about when it comes to procurement, but understanding the demand side implications for your business will be essential. How will demand be disrupted? Will there be specific products in your portfolio that will be more directly or severely impacted? Will this result in demand cutbacks or surges? Where will you source supply from? Can you cut back supply needs for others? How will buying patterns change – will there be channel shifts from offline to online? How does that play out in terms of critical suppliers and critical buys and requirements in the near to medium terms? Maintaining a dialogue with customers to understand their needs and issues and where all of this plays through for your team is essential.

5. Develop Plans for Strategic Categories –You’ll need to revisit your plans and the related risks around your most critical categories during a time of crisis. Make sure that these plans have been reviewed, the pressure points tested, the risk points analyzed and alternative plans considered. This could mean enhancing inventory levels (and rethinking inventory buffers based on the scenario planning we talked about earlier), assessing implications for delivery performance, gaining a view of multi-tiered supplier performance, increased inbound category visibility and more.

6. Examine Logistics Implications – By the same token, businesses must assess the logistics implications both inbound and outbound, either to make products or to ensure delivery. This has cost and timeline implications. All modes of transportation can be seen to be impacted, not least of which is shipping impacts – especially to and from China, but elsewhere, as well – whether these impacts are halts on movements, ramp downs, or the subsequently phased ramp back up. Or bypassing some of these options and going to airfreight which presents another level of cost to timeline tradeoffs.

7. Assess Liquidity – This will be critical and will call for a stronger partnership and alliance with finance. Looking at cash positions, assessing payables, and of course extending that into receivables, etc. will be essential. Add to this, talk of tightening credit markets and this makes it all the more important. Cash as always will be king if we need to endure near term instabilities, revenue disruptions, supply chain impacts, sourcing problems, and more

8. Assess Supplier Health – Part and parcel to all of this is assessing supplier health and evaluating who will be the most impacted. A clear view of your supplier segments – strategic versus mid-tier versus everyone else – is essential so you can focus your time and analysis accordingly.

For the most strategic suppliers, it’s critical to have a multi-tiered view of their supply base and related dependencies so you can adequately assess their performance and supply chain bottlenecks. This will involve structured risk analyses – looking across multiple variables beyond financials, to operational performance, to industry performance factors, to geographic and locational concerns and more. You’ll also need to identify alternate supply sources to shift production as and where needed, and as quickly as possible. Not all of this can be done at a moment’s notice. Some of it should have been done as part of a prior risk assessment exercise.

9. Think Ahead – Businesses can’t afford to simply think about today. Consider what the next three to six months look like. This is where scenario planning comes into play. It is critical to assess not only how you can react now but also how to prepare for eventualities later, when things are either fully back to normal or in some altered state based on longer-lasting ramifications from the events of today.

10. Work With Facts and Manage Emotion – Fundamentally, the most important thing you can do is to continuously monitor changes in a structured fashion. Have a programmed information collection and analysis mechanism. If we accept that the crisis is still unfolding and that the true impacts from a supply chain disruption perspective may not reveal themselves for months, we need to take tangible steps.  This can be done by establishing a process to monitor other regions outside the infected areas that could be impacted. Are ports outside the infected areas being impacted through disruption or through new regulations to protect against transmission of the virus?  Are suppliers struggling financially without access to the Chinese markets, jeopardizing their viability? Data will be important but data converted to relevant insight for your specific supply chain situation will be essential.

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Omer Abdullah is Co-founder and Managing Director of The Smart Cube and is responsible for managing the company’s Americas business.Omer has more than 25 years of management consulting, global corporate and industry experience across North America, Europe and Asia.

Prior roles include A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA and a BBA from the University of East Asia.

disruptions

How to Manage and Overcome Disruptions in the Supply Chain

Regardless of the type of disruption, supply chain resilience is highly dependant on several factors, one of which being reliable end-to-end visibility created at the first sign of trouble. Whether it’s a health crisis, a series of policy changes, or other forms of disruption, proactive rather than reactive measures are critical in staying afloat when facing a variety of disruptions or bottlenecks.

Disruptions in the modern supply chain are simply inevitable and require a different approach in data management and predictability to successfully overcome the challenge at hand.  By effectively utilizing technology tools available and developing a solid crisis plan can make a significant difference in recovery times.

Below is a helpful infographic from DiCentral breaks down various predictable and unpredictable supply chain disruptions and what it takes in the planning, reaction, and response stages of managing and navigating challenges.

business owners

All In Or Out? How Business Owners Can Deal with COVID’S Cloudy Future.

As the coronavirus pandemic continues, small businesses have reopened across the nation but certainty and optimism are a long way from being restored.

Spikes in infections in many states, double-digit unemployment, consumer and lender concerns, and steep economic challenges in the wake of a long shutdown make it difficult to forecast if and when many companies will fully recover. Small business owners – many of them baby boomers and in the retirement age range – are in a difficult position trying to decide whether to risk staying in business or sell and cut their losses, says Michael Sipe, author of The AVADA Principle and founder of the consulting firm 10x Catalyst Groups (www.10xgroups.com).

“We are in the early stages of a depression that’s going to go on quite a while,” Sipe says. “Many small business owners are in their 60s and 70s, and they’re tired and beat up. Some recovered from the financial collapse of 2008, but now they’re getting hammered again.”

“Customers and employees are scared or nervous. The supply chain is a big problem, and there’s this crazy situation where prices are going up because of the shortages, but meanwhile we have a depression because there aren’t enough transactions.”

Sipe offers the following suggestions to small business owners as they try to sort out their future amidst so much uncertainty:

Quit. “A lot of people are going to do that,” Sipe says. “And if that’s the decision, they should quit fast. Don’t drag this out. One of the things that happened in the recession of 2008 was people refused to face reality, and it cost them everything, their savings and retirement. If you’re 60 to 70 years old right now and don’t know if you can gut this out another 10 or 15 years, then cut your losses. You’ll have a little nest egg now as opposed to spending all of it trying to bail the business out.”

Reinvent. “If you’re not going to quit,” Sipe says, “then you’ve got to change. Just slugging it out and hoping it’s going to get better or that it will get back to normal – that kind of thinking is ridiculous. We have huge structural problems as a country. So if you’re going to reinvent, you have to come back to the fundamentals of business. The owner has to back up and say, ‘What are the fundamental concerns of customers we are actually trying to address here?’ And focus energy on those prime areas that are going to move people to pay a good margin for your product. Don’t ask why it’s not easier; ask how you can get better.”

Be flexible. Given the fluid state of our world, Sipe says changing some of your business model and processes may have to become a habit. “The next thing business owners have to do is realize what they changed today may need to change tomorrow,” he says. “The innovation has to happen every day. That has a lot to do with listening to customers and anticipating what they would respond to. Engagement with customers and engagement in the innovation process for owners is absolutely critical. If an owner is not willing to try and get that figured out with and for their customers, they’re going to fail.”

“The business has to be infused with a fresh energy and a fresh passion,” Sipe says. “If you’re not going to quit during these extremely difficult times, that means you’ve got to get back in the game. And you’ve got to play hard because this is going to be tough.”

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Michael Sipe, author of The AVADA Principle, is the founder of 10x Catalyst Groups (www.10xgroups.com), which helps entrepreneurs grow profitable and thriving businesses organized on a foundation of Biblical principles. Sipe has also enjoyed a successful 30-plus year career in mergers, acquisitions, and business development as the founder of CrossPointe Capital, a middle market investment-banking firm. In that capacity, he consulted with and evaluated over 5,000 companies and has provided advisory services for approximately a half-billion dollars in business sales involving hundreds of companies. He remains active in transactional work and has been a key advisor in mergers and acquisitions projects covering a multitude of industry sectors.

cashless

TOWARD A GLOBAL CASHLESS ECONOMY

Going Cashless During COVID-19

When we originally published this article in November 2018 during holiday shopping season, we could not have foreseen that a global health crisis would accelerate cashless payments worldwide. But new precautions in place due to COVID-19 have propelled us faster in the direction of contactless transactions everywhere.

Transmission of the disease from handling banknotes has consumers concerned, but the risk is reported to be low compared with touching credit card terminals and PIN pads. Yet the plexiglass that divides customer from cashier urges less reliance on bills and coins in favor of using point of sale machines to swipe your credit card.

Central banks around the world are taking steps to quarantine and sterilize banknotes to promote retained trust and universal acceptance of cash. Even so, many financial industry analysts are predicting that truly contactless payments through mobile e-wallets may be upon us sooner than previously forecast as consumers and retailers become more accustomed to eschewing cash.

Mobile Payments are the Future

According to Statista, 259 million Americans routinely bought products online in 2018.

That wasn’t the case just a few years ago when many of us were hesitant to punch in our credit card numbers to a website. But as ever more business is transacted online, financial services and “fintech” companies have built and continue to improve a secure payments ecosystem that consumers and businesses can be confident will protect their most vital assets: their private information and money.

Pretty soon we might not need to pull out a physical card as our credit card information gets linked with mobile payment systems. All you need is your finger, your phone, or a watch – items you probably already have on hand, literally. As more consumers adopt this convenience, “e-wallets” will eventually replace cash altogether.

The United States and Emerging Markets Lead

Mobile payments in the United States, China, Russia and India are driving the global trend – the United States by sheer volume of cashless transactions and the big emerging markets by virtue of how fast they are growing. In 2017, non-cash transactions grew 34.6 percent in China, 38.5 percent in Russia, and 38.5 percent in India.

Russia’s surge owes to the Central Bank of Russia’s implementation of a National Payment Card System that boosted growth of cashless transactions by 36.5 percent after it was introduced in 2015-2016. AliPay and WeChat Pay are keeping China on a sustained upward trajectory. Mobile payments in China climbed from $2 trillion in 2015 to $15.4 trillion in 2017, an amount greater than the combined total of the global transactions processed by Visa and Mastercard. India has improved its regulatory environment for digital payments as smartphone penetration expands.

TradeVistas | growth of global cashless transactions, World Payments Report 2019

Growth of global cashless transactions

Leapfrogging in Developing Countries

According to the 2019 World Payments Report, developing markets as a group contributed 35 percent of all non-cash transactions in 2017 and are close to reaching half of all non-cash transactions if they maintain the current rate.

Financial inclusion initiatives in developing countries that are designed to pull citizens into the formal banking system combined with an increase of mobile phone ownership means developing countries are leapfrogging over credit card use, going from cash to mobile payments.

Remittances, which comprise a high percentage of GDP in many developing countries, are being facilitated increasingly through person-to-person mobile money transfers. In one example, Western Union and Safaricom, a mobile provider in Kenya, have teamed to enable 28 million mobile wallet holders to send money to family and others over Western Union’s global network.

The Global Mobile Industry Association predicts the number of smartphones in use in sub-Saharan Africa will nearly double by 2025, enabling previously “unbanked” individuals to send and receive money by phone. For merchants in developing countries, scanning a QR code on a phone is faster and cheaper than installing point-of-service terminals that require a continuous electrical supply for reliability.

TradeVistas | cashless transaction volumes grew 12% during 2016 and 2017

Developing countries will account for half of cashless transactions soon.

Mobile People with Mobile Phones

Chinese tourists are also driving global proliferation of mobile payments as vendors work to accommodate Chinese travelers in airports, restaurants, hotels, and stores. China’s Alipay advertised popular “outbound destinations without wallets” for Golden Week, when millions of Chinese go on vacation. Last year, prior to travel restrictions, there was a boom in Chinese tourists to Japan, with over 9.5 million visitors in 2019. China’s WeChat Pay teamed with Line, Japan’s popular messaging app service to offer mobile payments to Japanese retailers seeking to accommodate the influx of Chinese tourists. WeChat’s rival, Alipay, is also partnering to extend services in Japan.

Global Standards and Interoperability are Needed

Through national financial inclusion programs, a steep increase in the accessibility of mobile phones, and with trade driving more global business transactions online, a cashless global economy could be in our future.

What’s standing in the way of faster integration globally of mobile payments, however, is a lack of international standards and common approaches to security, data privacy, and prevention of cybercrimes.

Companies in this space are continually evolving layers of protections such as the chips on your credit cards, encryption, tokens, and biometrics to stay ahead of cybercriminals, but it’s a constant battle against fraud and hacking of personal account information. For example, tokenization is a technology that safeguards bank details in mobile payment apps. That’s how Apple Pay works – rather than directly using your credit card details, your bank or credit card network generates random numbers that Apple programs into your phone, masking valuable information from hackers.

Differing national regulatory approaches to data authorization and distributed ledger technology (like blockchain) could fragment markets and inhibit adoption of the underlying technologies that permit mobile payments. Industry groups say international standards should be modernized to reflect technological innovations, but also harmonized to avoid developing different payments systems for different markets.

Interoperability is then the cornerstone of expanding trade through global digital payments. Groups like the PCI Security Standards Council advocate for international cooperation not only to set standards for ease of consumer use but because no single private company or government can stay continually ahead of hackers. They say that sharing information and best practices can raise everyone’s game, prevent attacks, and disseminate alerts quickly to stop the spread of damage when an attack occurs.

Mobile Payments Slim My Wallet in More Ways Than One

By 2023, there will be three times as many connected devices in the world as there are people on Earth. (And that prediction was made pre-pandemic.) Young people with new spending power are favorably disposed to cashless transactions and shopping through their devices. Mobile payments help connect poorer and rural citizens to the formal economy just through SMS texts. Even tourism is spreading a culture of mobile payments. And many brick and mortar retailers say online browsing can drive in-store sales and help the bottom line.

Small businesses are making great use of mobile payment readers to take payments anywhere on the go, from selling jam at farmers markets to selling band t-shirts at small music venues. Business executives surveyed in the World Payments Report also cite increasing use of such rapid transfer payments to speed the settlement of business-to-business invoices and for supply chain financing, particularly across borders.

Experts are realistic, however, that cash isn’t dead yet. In most countries, cash payments as a share of total payment volume is declining, but cash in circulation is stable or rising – and that seems to be holding true despite the pandemic.

For a little while anyway, I conserved both cash and mobile spending during the pandemic. I’m back to routinely overspending at Starbucks where my thumb is all it takes to reload the card on the app using a preloaded credit card. If my behavior is any indication, the ease of mobile payments will probably cause many of us to spend more as the cash doesn’t have to physically leave the grip of our hands. The increase in availability and accessibility of cashless, mobile payments will be good for economic recovery and good for global trade.

Editor’s Note: This post was originally published in November 2018 and has been updated for accuracy and comprehensiveness.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.
consumer

As Consumer Habits Change, How Can Businesses Keep Up?

American consumers don’t act and buy the way they did just a few short months ago – at least most of them don’t.

The pandemic and the need for social distancing led to an upsurge in online buying. Takeout and delivery replaced, at least temporarily, dining out. Many consumers, worried about the health risks of spending time in grocery stores, turned to services that would do their shopping for them.

Now, as the country tries to reopen and seek the next normal, businesses across the nation must figure out which of those consumer behaviors will become permanent, which were temporary, and whether any new ones yet unthought of might emerge.

“We live in a time when information can become outdated pretty quickly, and that’s become even more true because of COVID-19,” says Janét Aizenstros (www.janetaizenstros.com), a serial entrepreneur and the chairwoman and CEO of Ahava Digital, a company that ethically sources data on American consumers.

“The businesses that are going to succeed moving forward are those that grasp what consumers want and understand their changing habits.”

In contrast, those businesses that fail to understand what the latest consumer data is telling them, and are slow to adapt to the changes in consumer behavior, are going to be at risk, Aizenstros says.

She says going forward, businesses need to:

-Be prepared to pivot. Business leaders must be flexible. Many restaurants figured that out when the pandemic began, Aizenstros points out. Patrons could no longer dine-in, so the restaurants put an emphasis on takeout and delivery services. In the same way, each business will need to figure out how it can adapt and adjust its services or products to meet what customers want and need, she says.

-Gather reliable consumer data. With the internet, social media and numerous other sources, there is plenty of information available today about consumers, but not all of it is reliable. Make sure data comes from a quality source and that it reflects as much as possible the current thinking and behavior among consumers, Aizenstros says. “Businesses that fail to use reliable data and stay on top of the consumer trends,” she says, “will have a difficult time thriving as we go forward.”

-Take steps to make consumers feel comfortable. Even as people venture out more to dine in restaurants or shop in person, a Gallup survey shows they still plan to exercise caution. Businesses can help themselves by letting consumers know what steps they are taking to keep their stores, restaurants, and offices as safe as possible. “This is just another example of understanding and keeping up with what consumers want,” Aizenstros says.

Businesses have always had their plans and operations disrupted by both technological advancements and changing consumer habits. But rarely does consumer behavior evolve as quickly as it did in the early months of 2020 – and the changes didn’t always happen in easily predictable ways.

“Some areas such as home decor and fashion have done well recently,” Aizenstros says. “At the same time, we are seeing trends with businesses like J.C. Penney, Hertz and others struggling and filing for bankruptcy. It’s hard to keep up with consumer thinking unless your data is consistent, relevant and accurate. But if you understand what your customers want and work to give it to them, your business will have the opportunity to prosper.”

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Janét Aizenstros (www.janetaizenstros.com) is a serial entrepreneur and the chairwoman and CEO of Ahava Digital, which provides businesses and investors with ethically-sourced verified data about American consumers. Her background includes roles in finance at TD Canada Trust, Canon, and Brookfield LePage Johnson Controls, along with management consulting in a broad range of functions, such as supply chain operations, data analysis, and strategic thinking. She has a doctorate in metaphysical sciences with a specialization in conscious business ethics.

shippers'

Shippers’ New 2020 Priorities

While cities and states are slowly reopening, there is still significant uncertainty surrounding the global economy and when we’ll head towards recovery. Shippers are experiencing never-before-seen challenges and, in maneuvering them, realize it’s vital to understand the change in consumer behavior and how it impacts the supply chain.

A recent Consumer Brands’ Association Coronavirus Survey found 68% of Americans are optimistic about the next 6 months and the United States’ ability to reopen the economy. Despite consumer mentality improving, shippers’ concerns on COVID-19’s impact on the supply chain remain top of mind.

While some industries experienced a surge in demand, including healthcare, grocery and consumer packaged goods (CPG), this hasn’t been the case across the board. Some faced a reduction or, in some cases, a complete halt in business. These new challenges and concerns have led shippers to shift their strategies and develop new priorities for the rest of 2020 and beyond.

Shippers’ Top Priorities

As reported in the recent Q2 2020 Coyote Curve Market Forecast, the truckload market has likely already hit the bottom in Q2 at a -9% spot rate, and contract and spot rates should more or less converge from here. Due to the circumstances, the rate environment will most likely be more forgiving than usual, but it will definitely be volatile; and, with rates regularly fluctuating, shippers must keep their key priorities top of mind.

First and foremost, shippers’ top priority is keeping their people safe during this unprecedented time. They’re also focusing on keeping team members productive despite disruption, making necessary strategic shifts in production, managing rapid and frequent shifts in demand, and maintaining operational efficiency.

The priorities for those experiencing an influx of demand are quite different from those seeing a decrease. Shippers in surging markets are focused on supporting frontline employees by ensuring their facilities have necessary crucial safety items like personal protective equipment (PPE), testing kits, and sanitization products.

The industries experiencing a downturn, such as durable goods, have been focused on keeping their businesses operating and their people productive. They’ve had to prioritize repurposing available capacity to streamline operations, while others have turned to private fleets to haul less-than-truckload or full truckload shipments. To support COVID-19 relief efforts, some industries even shifted their production lines completely, like automotive manufacturers producing ventilators or clothing manufacturers making masks and scrubs.

Other shipper priorities include managing increased production output, despite lower processing rates. These lower rates come from new facility regulations mandating safety procedures, social distancing, and fewer employees per shift, resulting in less efficiency. Shippers are also dealing with a less frequent transportation schedule and imbalanced inventory, adding to the struggle of keeping supply chains running smoothly.

A new 2020 for shippers

Regardless of the industry a shipper operates within, the outlook for the remainder of 2020 is much different than originally planned. The entire supply chain realizes the importance of developing new strategies to adhere to the current situation and prepare for future disruptions.

Shipping processes will inevitably change to improve supply chain visibility and automation and update future inventory and warehousing procedures. These new plans and strategies focus less on short-term, cost-based decisions, and more on proactivity, flexibility, and efficiency.

Shippers have rewritten their 2020 plans to address these new priorities. While some tactics have higher initial costs, investing now will allow shippers to better recover from future disruptions. Other new strategies include:

-Collaborating with other shippers to garner insights and best practices

-Creating pop-up fleets at surging origin points

-Focusing productions on the lines making the most, the fastest

-Working with 3PL providers that offer flexible, instant capacity to haul freight

-Moving live-load pick-ups and deliveries into temporary drop trailers

-Reducing number of SKUs to eliminate unnecessary variety

What comes next

 Some shippers have found it easy to identify ways to better prepare their businesses for future disruption and have established new processes to do so. However, this doesn’t mean they have avoided uncertainty altogether. Shippers are asking themselves three key questions:

-How do I keep my employees healthy and safe?

-How do I keep my facilities up and running efficiently?

-How do I limit disruption to my supply chain?

Since COVID-19, shippers immediately made shifts to maneuver the unthinkable. Unfortunately, there is no clear answer as to when or how shippers will see less market volatility, and they may even see more complexities in the meantime. This brings additional geographic and industry disparities.

As the economy moves towards recovery, we anticipate a surge in demand and a corresponding increase in volume. Industries, especially those whose shippers slowed down, will have lean inventories and, when demand rises, need to increase production. While shippers’ results may differ from their original 2020 goals, we believe a recovery in consumer demand will be here soon.

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Nick Shroeger is the Chief Network Solutions Officer at Coyote, a leading global third-party logistics provider headquartered in Chicago. Since joining the Coyote team in July 2009, Nick has been a key leader in identifying challenges of the supply chain industry and developing and scaling solutions. In his current role, Nick leads Coyote’s research and innovation efforts for both shipper and carrier solutions as well as network connectivity with Coyote’s parent company, UPS.

gcc ports

GCC Ports: Surviving the COVID-19 Crisis

Global trade has come under severe pressure as the COVID-19 pandemic continues to significantly disrupt economic activity across the world. Shipping liners have drastically cut capacity, with a notable rise in the number of canceled departures worldwide to 212 in first week of April. Capacity declined by about 34% on the Asia-EU route and about 25% on the Asia-US route. As a result, almost 11% of ports globally have recorded a more than 25% drop in container vessel calls, according to the May 2020 IAPH-WPSP Port Economic Impact Barometer Report.

In the short term, GCC port operators need to prioritize the physical safety of their employees. They should put in place the requisite emergency response procedures to ensure that ports remain open for business. Some readily available digital solutions can help reduce employee interactions, handling such tasks as document management, customs payments, and even access points such as gate entry. Port operators also need to cut costs, preserve cash, collect outstanding payments, and ensure that they remain sufficiently capitalized.

Port operators also need to analyze variations in trade volumes. For example, gateway ports in the region will likely experience continued volume declines due to limited manufacturing activity and the global drop in demand for crude. Transshipment ports, however, could enjoy a short-term surge in traffic. As a lack of outbound capacity makes shipping calls uneconomical, many ocean liners will seek to off-load cargoes at transshipment hubs.

Longer-term, port operators will need to prepare for a protracted slump in rates and trade volumes. The following five measures will help them strategically reorient themselves for the future.

Improve operational efficiency. GCC ports should focus on reducing costs, improving productivity and asset utilization, and streamlining and automating processes. In doing so, many operators will need to revise their budgets and capital allocation. Over the past decade, GCC ports have invested heavily in physical infrastructure as a key component of national economic diversification programs. The region’s capacity is on track to more than double, from the equivalent of about 45 million standard containers in 2012 to about 100 million by 2022. Yet utilization rates remain low, averaging under 50%. Accordingly, port operators need to shift away from sheer capacity. Instead, they should focus on improving efficiency according to metrics such as asset utilization, revenue per ship, unit profit from cargo handled, and return on invested capital.

Upgrade port capabilities through digital. To improve efficiency, ports must invest in digital, which will give them the capabilities needed to capture cargo, reduce costs, better manage capacity, and improve cross-border trade. There is a wide range of applications, from blockchain to autonomous vehicles, drones, smart sensors, 3-D printing, and cloud platforms. These can help cut costs, improve asset utilization, and significantly improve the customer experience across the value chain.

Expand into inland logistics. Before the pandemic, some terminal operators had already started expansion into inland logistics. The aim was to better connect with owners of cargo, improve transparency, and reduce the friction in trade flows. GCC ports, especially gateway ports, should consider such expansion as a means to secure the inland trade system, improve supply chain resilience, safeguard operational continuity, and deliver more reliable and transparent service to their customers.

Rethink pricing. GCC ports should reassess their traditional pricing structures to help ease pressure on shipping lines, improve productivity, and maximize their return on assets. To achieve this, GCC ports first need to ensure that they have pricing freedom within regulatory regimes. Then they need to explore a shift to value-based pricing, which encourages effectiveness and efficiency among shipping lines, and extracts maximum value from end customers.

 Acquire assets at distressed valuations. The pandemic will lead to a shakeout in which some assets come up for sale at attractive prices. GCC ports can take advantage of their strong balance sheets and low-interest rates to make strategic acquisitions. Deals can be particularly beneficial if they help ports pick up assets in high-growth and emerging markets with a healthy commercial outlook and growing volumes.

A sharp decline does not automatically mean a slow and painful recovery. The decisions that GCC ports and operators make today will shape their future. It is critical that they take steps to keep operations and markets open, and develop programs to reorient themselves to succeed in times to come.

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Dr. Ulrich Koegler and James Thomas are partners with Strategy& Middle East, part of the PwC network. Shantanu Gautam is the director and Kushal Sinha is a senior manager with Strategy&, India, part of the PwC network.

COUNTERFEIT

TRADE IN COUNTERFEIT MEDICAL AND PROTECTIVE HEALTH GOODS SPIKING DURING PANDEMIC

Making matters worse

As the coronavirus pandemic continues to alter lives around the world, predators have seen opportunities to exploit the global health crisis by marketing and shipping counterfeit medical equipment, devices, and pharmaceuticals. In the few months since the beginning of the pandemic, illicit trade in counterfeit medical goods is both widespread and global in nature.

Authorities in the UAE shut down two factories, finding 40,000 fake sanitizers that were actually body sprays. In Cambodia, authorities seized three tons of fake sanitizer and nearly 17,000 gallons of fake alcohol. Australia’s Border Force intercepted shipments of counterfeit and otherwise faulty personal protective equipment.

Playing whack-a-mole with counterfeit goods

EUROPOL has cautioned that fake blood-screening tests, sanitizers, and pharmaceutical products are increasing in volume in the EU as criminals take advantage of shortages of genuine medical products. EUROPOL is monitoring the trade in counterfeit and substandard products by “listening” to social media platforms, following conversations that mention fake products. The agency reports many new online platforms have cropped up in response to coronavirus to profit illegally from illicit trade in fake medical goods.

Enforcement activity has also ramped up in the United States in response to the significant increase in criminals attempting to capitalize on the pandemic. In mid-April, Immigration and Customs Enforcement (ICE) announced Operation Stolen Promise, a joint effort by experts in global trade, financial fraud and cyber investigations to combat smuggling of counterfeit safety equipment and test kits. The operation quickly shut down over 11,000 COVID-19 domain names for illicit websites. After seizing test kits at an Indianapolis express consignment facility, Customs and Border Protection (CBP) announced it is “targeting imports and exports — mainly in the international mail and express consignment cargo environments — that may contain counterfeit or illicit goods”.

More data, better enforcement?

In early May, ICE’s Homeland Security Investigations announced an unprecedented partnership with private sector companies including Amazon and Alibaba to combat price gougers and scammers online. But will the effort be sufficient? The pandemic has exposed how vulnerable consumers are and how difficult the challenges are for law enforcement, prompting new discussion of potential changes to data collection practices that will better safeguard consumers while aiding law enforcement. Policymakers are also considering ways to shift more burden to the private sector engaged in online sales and trade.

The Country of Origin Labeling (COOL) Online Act was introduced in the U.S. Senate on May 13. The sponsors noted that with the pandemic causing Americans to stay home, online commercial activity has increased, but that products sold online are not sufficiently transparent. The COOL Online Act would require that buyers of products sold online be told the country where the product was manufactured and where the seller is located.

CBP is currently conducting the 321 E-Commerce Data Pilot which requires private sector participants in the pilot program to transmit a significant amount of data to CBP regarding products shipped to the United States. What is yet unclear is whether companies in the supply chain and e-commerce ecosystems will be required to verify that the information submitted to CBP is accurate and whether they will be required to take the step of rejecting products or packages before facilitating shipment to the United States.

Such a requirement obligates private sector entities to take some measure to screen and prevent the export of non-compliant or suspect goods before they leave the country of export. Absent such an obligation, most, if not all, of the burden will remain on CBP – and its counterparts around the world – to protect public safety.

Countering the counterfeiters

Medical communities around the world are still grappling with a virus that has no known cure while law enforcement agencies work to combat the growing volume of counterfeit and substandard medical equipment and pharmaceutical goods marketed by criminals. Meanwhile, international crime watchdog INTERPOL has ominously issued a warning that it expects global markets to be flooded with fake pharmaceuticals as soon as a vaccine does become available.

The policy landscape continues to shift in various ways in the wake of this health crisis. Governments are actively engaging with the private sector regarding potential changes to the collection and sharing of data — and, how both should act on that data — to more effectively prevent counterfeit and illicit goods from even leaving the country of origin in the first place.

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Tim Trainer

Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.
foreign

The Proposed Expansion of Mandatory Foreign Investment Filings During the Pandemic

In the midst of the pandemic, the Committee on Foreign Investment in the United States (“CFIUS”) has proposed several revisions to its regulations (“Regulations”) that change when short-form filings (called “declarations”) are required with respect to covered foreign investments of U.S. businesses which work with critical technology [2]. What is most significant for foreign investors is that the proposed rules expand the mandatory declaration and required CFIUS review to include critical technology transactions that range well beyond the 27 industries originally designated by CFIUS – to cover all sectors of the economy [3].

The raison d’etre for this proposed CFIUS rule change is not entirely clear. While the modification largely reads as being technical in nature, CFIUS does, however, observe that other, unspecified “national security considerations” are involved. Thus, a reasonable inference from current circumstances is that CFIUS seeks the ability during the Covid-19 crisis to review acquisitions by China in a broader range of business sectors in order to assess in advance the national security risk, if any, in situations where financially struggling U.S. firms with innovative dual-use technology might be more willing than before to consider such investments as a lifeline.

Interested parties in the business community should note public comments are due by June 22, 2020.

The Proposed Expansion of Mandatory Filings for Critical Technology Transactions

By way of background, under the existing Regulations, a mandatory declaration is required for transactions involving certain U.S. businesses that: 1) produce, design, test, manufacture, fabricate, or develop one or more “critical technologies”; and 2) use the critical technology in specified ways in one or more of 27 specified industries. Significantly, under the revisions, CFIUS eliminated the second prong of the requirement – i.e., the nexus to 27 industries, and refocused the requirement instead on companies that have critical technology that would require certain export licenses or other authorizations to export, re-export, transfer (in-country) or retransfer the critical technology to certain transaction parties and foreign persons in the ownership chain.

CFIUS indicates that the new focus of the mandatory filing requirement on export control requirements for critical technologies “leverages the national security foundations of the established export control regimes, which require licensing or authorization in certain cases based on an analysis of the particular item and end-user, and the particular foreign country for export, re-export transfer (in-country) or retransfer.” 85 Fed. Reg. 30894.

While that is true enough, in fact, the existing standard already is based on the export control standards. The term “critical technology” was and still is, defined as technologies that are subject to export controls (i.e., articles or services on the U.S. Munitions List, items on the Commerce Department’s Control List, and other specialized lists)[4]. Now, in addition to being subject to export controls (e.g., on one of the enumerated lists of controlled items), the technology must specifically be subject to a licensing requirement.

In effect, CFIUS has doubled down on export controls as the criteria for mandatory filing – the item must be on a controlled list and a license must be required for the particular foreign acquirer that is a party to the transaction.

The Significance of the Proposed Change in Mandatory Filing Requirement

Is this licensing requirement a meaningful distinction for foreign investors? While many of the items on these export control lists do require licenses or other authorizations for export, this is not necessarily the case for the export of all items to all countries for all uses. On some lists (e.g., the Munitions Lists), every article and service requires a license for export to all locations. On others (notably the Commerce List, the main list of “dual-use” technologies), items controlled are only licensable for certain countries and certain purposes to certain end-users, as designated on the list.

Overall, however, the universe of items on controlled lists versus those on the lists where licenses are required probably aren’t all that different – i.e., the range of mandatory filings is not very meaningfully limited by this change. Notably, for certain near-peer competitor countries like China and Russia, the distinction is particularly limited. Indeed, for these countries, many items on the Commerce List will require licenses in any event. Moreover, since China is under a U.S. arms embargo in place for many years, any export of an article or service on the Munitions List would certainly require a license (which would not be granted).

In any event, even if the new nexus to export license requirements narrows somewhat the class of critical technology transactions subject to mandatory declarations, this change is undoubtedly more than offset by the elimination of the required nexus to the 27 specified industries. Under the proposal, foreign acquisition of any U.S. business – regardless of what industry it works in – would require a mandatory declaration where the business utilizes critical technology provided that certain export licenses or other authorizations would be required to export such items to the foreign acquiring party.

On balance, this change is significant. It broadens the scope of the mandatory filing requirement to a wide variety of acquisitions involving critical technology applications from medical devices to commercial vehicles to a wide range of high tech sectors. Foreign investors thus would need to be considerably more diligent in considering the CFIUS risk with respect to structuring a broader range of these acquisitions.

Why the Expansion of the Mandatory Filing Requirement?

Why the expansion of mandatory declarations and does it relate to the pandemic?  CFIUS offers only vague explanations – noting its further consideration of public comments made in prior rulemakings, the Committee’s additional experience assessing mandatory declarations, and “other,” unnamed, national security considerations” [5].

One very possible set of such “national security considerations” is to afford CFIUS the ability to investigate a considerably broader range of transactions involving China where any critical technology requiring a license is involved. Since many dual-use items on the Commerce Control List and everything on the Munitions List do require licenses for China, the expansion of jurisdiction would be significant – as it applies without regard to the industry where the critical technology is used.

The logic of this expanded approach would be that, under Chinese laws and policies on civil-military fusion, any Chinese company, regardless of industry, could be required to divert the critical technology it is acquiring to the state sector for military use. Thus, it arguably makes sense for CFIUS to seek to examine these technology deals across the board.

This action also would be consistent with a range of other recent Administration actions during the Covid-19 crisis – from restrictions on participation in the U.S. bulk-power infrastructure to additional export control restrictions on Huawei – all of which appear to be focused on limiting U.S. high tech engagement with China.

Why now? The pandemic has raised the specter of foreign firms from potential adversaries buying sensitive assets at steep discounts. Numerous European governments are very focused on protecting sensitive assets against distress buying.  In this context, recent comments by Ms. Ellen Lord, the Under Secretary of Defense for Acquisition and Sustainment, suggest concern that during the pandemic smaller U.S. companies that support the aerospace and defense sector could experience “significant financial fragility” and therefore be more vulnerable to acquisition by potential adversaries [6]. She also noted the prospect of “nefarious” acquisitions involving the use of shell companies during the pandemic and indicated a desire for CFIUS to have more authority to address these situations. Thus, it just may be that the proposed revision to the Regulations is an effort to address this felt DoD need.

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A partner in Eversheds-Sutherland, a global law firm, Mr. Bialos [1] previously served as Deputy Under Secretary of Defense for Industrial Affairs and co-chairs the firm’s Aerospace and Defense practice.

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References

[1] A partner in Eversheds-Sutherland, a global law firm, Mr. Bialos previously served as Deputy Under Secretary of Defense for Industrial Affairs and co-chairs the firm’s Aerospace and Defense practice.

[2] 85 Fed. Reg. 30893 (setting forth amendments to 31 C.F.R. §800). The mandatory filing requirements were established pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).  The proposed amendments also make clarifying changes with respect to mandatory declarations in transactions involving foreign States. Specifically,  section 800.244 of the Regulations (see 85 Fed. Reg 30898) would, among other things, change the definition of “substantial interest” with respect to transactions where a general partner, managing member or the equivalent is involved, to clarify that the foreign state’s interest is only relevant it applies only where a general partner, managing member, or equivalent “primarily directs, controls or coordinates the activities” of the entity that is the acquiring party.  In effect, this change narrows to a limited extent the range of transactions with foreign government involvement where a mandatory declaration is required.

[3] CFIUS accomplishes this expansion through a series of technical amendments to the Regulations: Section 800.254 (defining U.S. “regulatory authorization” to refer to the types of export licenses that require mandatory declarations); section 800.256 (introducing the concept of “voting interest” to include foreign persons in the ownership chain that would need to be analyzed from an export control standpoint to determine if a license would be required to transfer the technology in question to that party); and 800.401 (which re-scopes the mandatory declaration requirement for critical technology transactions).  See 85 C.F.R. 30895-8.

[4] 31 c.f.r. § 800.215.

[5] 85 Fed. Reg. 3894.

[6] See Transcript, Press Briefing of Ellen Lord, Undersecretary of Defense (A&S) Ellen Lord on COVID-19 Response Efforts (April 30, 2020).   Available at: https://www.defense.gov/Newsroom/Transcripts/Transcript/Article/2172171/undersecretary-of-defense-as-ellen-lord-holds-a-press-briefing-on-covid-19-resp/

covid

Post-COVID Logistics: Retooling for the Future

The impact of COVID-19 continues to be felt across global economies and businesses, but for the supply chain and logistics industry, challenges go beyond the present and threaten the future of operations and business continuity. These challenges redefine what prediction could look like for the logistics industry and what considerations should be taken to keep the supply chain moving.

Global Trade had the opportunity to speak with business owner and author of “The GOP’s Lost Decade: An Inside View of Why Washington Doesn’t Work,” Jim Renacci on what changes the industry can anticipate as the current health crisis continues to change the pace for global business.

What planning measures will logistics players need to consider in a post-COVID environment?

There is no doubt that COVID-19 has changed the way manufacturers/logistic players will need to review their supply chain management post-COVID-19 and access their supply chain vulnerabilities. The crisis has demonstrated that reliance on sourcing from two geographic areas could pose a risk.

During the crisis, while supplies became unavailable, many companies were forced to start looking for new supply chains as many of their overseas suppliers had to limit or reduce shipments significantly. Post-COVID planning will include asking current suppliers to take on more and different product lines. It is already happening with many current business relationships. Also, the reliability of the supply chain…. over cost…. will be more of a priority.

In what ways have supply chain players supported their customers and consumers during the crisis?

Manufacturers/supply chain players are supporting their customers by shifting and increasing supply chain needs where possible. In many instances, secondary suppliers have started adding product lines where possible. With any crisis, opportunities will be there for the business that can move quickly and adapt to change.

How will the manufacturing site selection process shift in a post-COVID world? 

Manufacturing site selection processes in a post-COVID world should include seeking locations within the US and other countries that have access to highly trained engineers, top tier R&D, access to advanced manufacturing technologies as well as private and public institutions and universities. Site selection should also include countries that offer a competitive investment package as more and more countries post-COVID will be looking to entice companies to locate or relocate inside their jurisdictions.

In what ways can logistics players use the disruption from COVID-19 to benefit their operations in the future?

Current disruption due to COVID-19 will allow companies to reassess their vulnerabilities but also their strengths. With these disruptions, companies can retool for the future. They can adjust for their weaknesses and benefit from their strengths.

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Jim Renacci is the author of The GOP’s Lost Decade: An Inside View of Why Washington Doesn’t Work. He is also an experienced business owner who created more than 1,500 jobs and employed over 3,000 people across the Buckeye State before running for Congress in 2010. Jim represented Ohio’s 16th District in the House of Representatives for four terms. He is also the chairman of Ohio’s Future Foundation, a policy and action-oriented organization whose goal is to move the state forward.