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The Pros and Cons of Local Sourcing

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Archives, Global Logistics, Global Trade Daily, International Trade

The Pros and Cons of Local Sourcing

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The Pros and Cons of Local Sourcing

Local sourcing is the practice of contracting suppliers located within your country or even city. This term also applies to the suppliers in your home county. However, there is always considerable debate over whether to prioritize the local suppliers or cast your net wider. To help decide, it is wise to look at the pros and cons of local sourcing.

The pros of local sourcing

Local sourcing means faster and more predictable delivery times

The news of supply chain disruptions is prevalent. Also, planning for survival in the new normal the pandemic has left us with is complex. So, it is no wonder that perhaps the most significant advantage of local sourcing is its reliability. Considering that the distance your cargo would need to travel is vastly reduced, the problems it can run into are fewer as well. You would not need to worry about ports or airports closing down and leaving your goods stranded. And, with that increased reliability, it becomes much easier to handle the risk factors of high-profitability deals.

You can work with suppliers much more closely

Another of the advantages of local suppliers is that you can work with them more closely. When dealing with an international supplier a whole sea away, it is natural that you can have at most one or two meetings in person a year. On the other hand, a short trip is all that would take to reach and discuss business with a local supplier. Of course, this means that you can also get them to customize some of their services for you, particularly if you need certain parts that need to be custom produced for your needs or a similar demand.

You would not need to manage your warehouses as meticulously

When your supplier is just down the street or a city or two away, timing deliveries right becomes easier. It means that, instead of having huge shipments that take up lots of space and cause logistics problems, it is possible to have a string of smaller deliveries. And, with the reduced risk and delay factors that we have already discussed, you can also order them, so they arrive before you need to have them shipped out. In turn, this would ensure that your warehouse is kept busy but never overflows or has shipments clogging up space better used for something else. And you could even manage with much smaller warehouses.

You could more easily make last-minute orders

Making a last-minute order is not something you should turn into a habit. However, if any of your suppliers run into problems, or you have a sudden order of goods yourself, you would be able to resolve the situation much more easily. A quick trip or a phone call would allow you to check in with your partners and look for additional goods. And the proximity would make getting the goods to you a breeze, as well. In the end, this extra wiggle room would let you approach your business in a much more relaxed way than ordering goods from overseas. After all, a missing shipment in such cases might take weeks to make up for.

You would not need to deal with import taxes

It is impossible to avoid worrying about taxes when trying to import goods. For any legitimate business, it is not too difficult a hurdle to cross. However, it can be tough to manage when you are just starting, and they are cutting into your profits. That is why, especially for brand new businesses, local suppliers that allow them to bypass this expense are an excellent choice. There are plenty of rare and common U.S. customs clearance issues you would entirely avoid by choosing to go through a local supplier, too.

Enhancing Sustainability and Reducing Carbon Footprint

One of the most significant advantages of local sourcing is its positive impact on the environment. By reducing the distance that goods travel, you contribute to lower carbon emissions and minimize the ecological footprint of your supply chain. With growing awareness of environmental concerns and increasing consumer demands for sustainable practices, opting for local suppliers can significantly boost your company’s reputation and attract eco-conscious customers.

Fostering Community Growth and Support

When you source locally, you actively contribute to the growth of your community and support the local economy. By providing business to nearby suppliers, you help create job opportunities and stimulate economic development. This, in turn, can lead to increased consumer spending within the community, benefiting other businesses as well. Additionally, building strong relationships with local suppliers can foster a sense of camaraderie and collaboration among businesses, creating a supportive network for mutual growth.

The cons of local sourcing

The local supplier might grow over-dependent on your business

It might sound odd. But be it for the supplier or the business, over-dependence is not great. If a supplier starts to prioritize the demands of the company they rely on for the majority of their profits, it can seriously impact their competitiveness in the market. They can grow too specialized to grow their business, and it can be challenging to secure new contracts. There is also the matter of their new product development slowing or halting entirely. It means that they might eventually be left behind and lose their chief source of income as well. It would make demand planning for the buyers difficult as well if planning to branch out to new products.

Canceling a contract can incur a lot of backlash

Hiring local suppliers and helping the local economy is fantastic for PR. However, if you ever need to move on from those contracts, you would be facing an equal amount of backlash and ill-will. No matter how justified your decision might be. The public could still view it as abandoning those same businesses and economies you were lauded for helping.

You might not be able to obtain the best or latest products

Local suppliers might not be able to offer you top-of-the-line goods. They are likely solid and reliable manufacturers, yes. But with the world as a stage for your business, it is always possible to find someone producing better versions of the product you are interested in. So, you are more or less choosing between reliability versus quality. Of course, there are exceptions.

Local suppliers can be less efficient

Even though they are more reliable, local suppliers can have efficiency problems. They tend to be smaller and have a smaller production capacity. Of course, as you work together and prosper, they might expand their business and build more facilities. But then you run the risk of our first cons: their reliance on your purchases growing to the point they practically only cater to you.

It is hard to ensure objective supplier selection

You might, over time, develop a tight-knit bond with the local suppliers, especially if they have been there for you since the foundation of your company. That is natural. However, if your company is developing faster than they are, you might find yourself in need of new partners to keep up with the demand you are facing. At such a time, due to your friendship or perhaps fear of public backlash, it wouldn’t be easy to objectively select another supplier better suited to your needs.

Limited Access to Specialized Products

While local suppliers offer reliability, they may not always have the capacity or expertise to provide highly specialized or cutting-edge products. In industries where innovation is crucial, you might need to explore international options to access the latest advancements and unique offerings.

Higher Costs and Reduced Cost Competitiveness

Local sourcing might come with higher production and labor costs compared to countries with lower manufacturing expenses. This can affect the cost competitiveness of your products in the global market. As a result, careful cost-benefit analysis is essential to ensure that the benefits of local sourcing outweigh the potential price disadvantages.

Dependence on Regional Vulnerabilities

By relying heavily on local suppliers, your supply chain could be susceptible to regional vulnerabilities. Natural disasters, economic downturns, or political instability in the region could disrupt your supply chain and affect your operations. Diversifying your sourcing strategy can help mitigate these risks and ensure a more resilient supply chain.

Final word

Now you know the pros and cons of local sourcing, so it should be easier to make an informed decision. Whether you decide to pursue local or international suppliers, remember that your priority is always the development and future of your company.

 

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Archives, Global Logistics, Global Trade Daily, Ocean Carriers

AN OVERVIEW ON COMPLIANCE IN OPERATIONS AND MANAGEMENT

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Shippers across the globe are sure to be confronted with new disruptions when navigating international markets–regardless of the shipping method put into place. Gone are the days when minimal compliance efforts are overlooked or passed off as acceptable. In the modern trade arena, compliance and accuracy are everything.

Tack on the pandemic, an ongoing trade war and what seems like a constantly shifting trade landscape, and compliance efforts can seem downright daunting and costly–especially to and from the U.S., according to Ben Bidwell, director of North America Customs and Compliance at C.H. Robinson.

“Former U.S. Deputy Attorney General Paul McNulty once said, ‘If you think compliance is expensive, you should try non-compliance.’ When shippers make mistakes, it can become costly and not just in terms of freight delays, but it can lead to seizure of goods and even jail time for those who are involved,” explains Bidwell. 


The C.H. Robinson executive shares that not only do shippers have to be more careful now than ever when trading across borders, but simply understanding the evergreen trade landscape and various barriers is a critical part of successful operations.

“Challenges in today’s trade market include Section 301, punitive tariffs, forced labor concerns and more,” Bidwell says. “But shippers cannot afford to forget about basics such as the U.S. Customs List of Trade Priority Issues, for example. Customs has certainly not lost sight of that list, and the importing community can’t afford to lose sight of it either.”

Different challenges require unique, strategic approaches in management. The constant shifting of these challenges depends primarily on the country in question, the products being shipped and local customs regulations. This is where automation, advanced technology and access to critical information can serve as significant game-changers for your customers and operations.

Trade & Tariffs Insights, a page on the C.H. Robinson website, “brings the latest challenges, changes and more wrapped together for importers and exporters to utilize and understand,” Bidwell says. “This resource helps shippers get the information they need–not only to remain compliant but to also keep them updated on the latest changes and potential changes that could impact their business.”

Staying informed with rock solid information is becoming ever more important, Bidwell notes.

“Visibility, access to your data and data analytics are critical in running a compliant and successful supply chain,” he says. “It equals not only results in compliance, but also duty savings, duty mitigation opportunities and overall awareness.”

C.H. Robinson’s Navisphere platform does exactly that. The data analysis tools (Carrier, Insight and Vision) capture key elements in the importing and exporting process while providing a clear path of data-backed insights and next-step actions. Navisphere leaves the guessing out of the process and enables customers to make informed decisions and cost analysis. Additionally, the different Navisphere tools serve as an extension in predictive data allowing shippers to proactively plan their next move.

“Shippers can go in and see where they are paying the most in duties and taxes by country, by specific commodity, by shipper, etc.; they can see all of that data side-by-side,” Bidwell says. “This feature gives them the opportunity to make informed decisions and assist with weighing, should we look at alternative sourcing options, for example.”

Another trending issue within the importing and exporting landscape is forced labor compliance. Bidwell shares that the penalties for such compliance issues–regardless of whether the importer is aware—are costly and can lead to the ultimate seizure or destruction of the goods in addition to severe civil penalties.

“Anytime you are shipping across borders, it is important to have a compliance program in place and that your company has individuals or a team dedicated to reviewing and maintaining that program,” he adds. “C.H. Robinson has worked with thousands of companies related to this. At the end of the day, our role is to act as an extension of their team, to not only get them up to speed on what they need to be doing from a compliance perspective, but in the long-term acting as a reliable partner to ensure their ongoing compliance.”

Shippers must keep in mind that customs has eyes on their shipments and implementing proactive rather than reactive measures will greatly benefit the business in the long-term. Bidwell advises that to ensure compliance measures are met and maintained, costs are inevitable. It really boils down to when these costs are enforced.

“Compliance is an investment. It may cost more on the front-end but skipping out on that investment could cost you tenfold in the long term. As far as other supporting elements with compliance efforts, I recommend going back to the data analytics and visibility of your own data, because that information can be telling, and it allows you to identify anomalies as they occur.”

Investing in a solid compliance strategy is not just for shippers, it is a critical piece to the entire process, throughout the whole supply chain. With the labor shortage being felt in almost every industry, the logistics sector cannot afford to skip out on the creation and adherence to acceptable compliance efforts. When employees are professionally trained and informed on upcoming changes within the market, your business benefits.

“It’s about getting back to basics and not losing sight of all of the baseline compliance that comes with importing and exporting,” Bidwell says. “It is easy to get lost with all the changes that are happening with trade policy and a very volatile market. Companies must ensure that they do not lose sight of traditional basic compliance, because that stuff hasn’t gone away, and customs certainly hasn’t stopped.”

C.H. Robinson provides solutions for their customers at the local level and across the globe. Ensuring all bases are covered through customs and compliance experts enables the customer to rely on these resource experts to advise on how to ensure their supply chain is compliant. 

To learn more about C.H. Robinson’s Navisphere technology platform or other offerings, please visit chrobinson.com/en-us/technology/navisphere/.

__________________________________________________________

Ben Bidwell is the director of North America customs and compliance at C.H. Robinson. Ben joined C.H. Robinson in 2004 and became a Licensed Customs House Broker in 2007. Throughout his career at C.H. Robinson, he has consulted and resolved a wide range of customs disputes for clients involving classification, country of origin, marking violations, seizures and protests for products ranging from hospitality goods, automobile tires, apparel and textiles, toys and other consumer retail goods.

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Archives, Global Trade Daily, News

U.S. Domestic Industry Files Anti-Circumvention Cases Against Three Countries Regarding Crystalline Silicon Photovoltaic Cells

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The Petitioners representing the U.S. domestic industry filed new petitions with the U.S. Department of Commerce (“Commerce”) against imports from three countries, Thailand, Vietnam, and Malaysia, alleging that certain Chinese producers are diverting Chinese-origin components through Thailand to undergo minor processing to complete Crystalline Silicon Photovoltaic (“CSPV”) cells and modules subject to the Orders and subsequently to export the merchandise to the United States to avoid AD/CVD duties. The companies that were named in the circumvention submissions were:

Thailand

1. Canadian Solar Manufacturing (Thailand) Co., Ltd. (“Canadian Solar Thailand”), a subsidiary of Canadian Solar Inc. (“Canadian Solar”);

2. Trina Solar Science & Technology (Thailand) Co., Ltd. (“Trina Solar Thailand”), a subsidiary of Trina Solar Co., Ltd;

3. Talesun Solar Technologies Thailand or Talesun Technologies (Thailand) Co., Ltd.; and

4. Astroenergy Solar Thailand Co., Ltd (“Astroenergy Thailand”).

Vietnam

1. Trina Solar (Vietnam) Science & Technology Co., Ltd. (“Trina Solar Vietnam”);

2. Canadian Solar Manufacturing (Vietnam) Co., Ltd. (“Canadian Solar Vietnam”);

3. China Sunergy Co., Ltd. in Vietnam (“CSUN Vietnam”);

4. Boviet Solar Technology (Vietnam) Co., Ltd. or Boviet Solar Technology Co., Ltd. (“Boviet Solar”);

5. GCL System Integration Technology (Vietnam) Co. Ltd. (“GCL-Si Vietnam”);

6. Vina Cell Technology Company Limited and Vina Solar Technology Company Limited; and

7. Jinko Solar (Vietnam) Co., Ltd.

Malaysia

1. Jinko Solar Technology Sdn. Bhd. (“Jinko Solar Malaysia”);

2. LONGi (Kuching) Sdn. Bhd.; and

3. JA Solar (Malaysia) Co., Ltd. or JA Solar Malaysia Sdn. Bhd.

While the requests are hundreds of pages in length, the gist of the allegations against each country is that the operations being performed in each of these countries are minor or insignificant, and the products being exported from each of the three countries are subject to the antidumping and countervailing duty order on CSPV cells and modules from China.

Within 45 days of the filing (which was August 16, 2021) the rules of Commerce require it to either make a final determination or initiate a full investigation. The 45-day deadline is September 30, 2021. It is very likely that Commerce will conduct a full review of these circumvention allegations, in light of their complexity and seriousness.

Of great importance to importers here is that if there is a final determination that there has been circumvention, the entries on or after the date of the initiation of the scope inquiry will be subject to Chinese rates. Thus, for imports made no later than September 30, 2021, importers could find themselves subject to the high Chinese rates. At the moment, it is very difficult for importers to know the likelihood of whether those Chinese rates will be applied, because the preliminary and final determinations of Commerce are still several months away.

The final determination in an anticircumvention ruling is to be issued normally within 300 days from the date of initiation, according to the Commerce rules. Before that time Commerce will issue a preliminary determination and at that time importers will have a better idea of the likelihood that duties will be applied to those products allegedly circumventing the order.

_________________________________________________________________________

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell. He leads the firm’s International Trade Remedies team.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell. She leads the firm’s International Trade & Supply Chain group.

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Archives, Global Trade Daily, News

The Art Of Compliance: Doing What’s Right, Not Just What’s Required

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The rest of society got a taste of what corporate compliance officers go through when the pandemic forced restrictions and requirements on the entire population.

Suddenly, people were told to wear masks, social distance, and wash their hands more regularly and thoroughly than ever before. Plenty of people didn’t like that, trying to dodge the new rules or openly defying them, even as clerks, store managers, police officers, and health professionals firmly reminded them they needed to comply.

In somewhat the same way, compliance officers for a business may appear to act as the resident scolds, reminding people when their plans or actions come into conflict with state or federal rules and regulations that govern their industries.

It doesn’t always go over well.

“People often resist compliance because they don’t like to be told what to do,” says Steve Vincze, president and CEO of Trestle Compliance (www.trestlecompliance.com) and author of the upcoming book Winning with Compliance: Strategies to Make Commercial Compliance Your Competitive Advantage.

“But compliance is about doing what’s right, not just what’s required.”

Companies can face hefty fines when they fail to comply with rules that govern their activities, whether the non-compliance was inadvertent or intentional. A couple of examples: In 2020, Capital One was fined $80 million for a data breach that exposed customers’ personal information the previous year. The Cheesecake Factory came under scrutiny and reached a $125,000 settlement with the U.S. Securities and Exchange Commission over the SEC’s allegation that the company misled investors about the impact of the COVID-19 pandemic on its business.

So, whether you are the CEO of the company or a compliance officer, how do you make sure people are doing what they need to do? Vincze offers a few tips:

Listen. If you want people to listen to you and embrace your advice, you need first to listen to them, to understand their fears, their challenges, and their motivations, Vincze says. “You need to be able to answer the ‘why’ behind the what,’ “ he says. “Why do I need to comply? What’s in it for me if I do?  When it comes to compliance, the key message is that you have to listen well, hear what they are saying, and then mirror back to that person that you understood them.”

Inspire and motivate. Logic alone doesn’t always win out, which may be frustrating for some leaders, but that’s when the art and science of compliance and of leadership must come to the fore, Vincze says. “You need to touch both hearts and minds to inspire and motivate people,” he says. “The trick is to get people to want to comply. Depending on who you are speaking to, you may be able to reach them rationally and sensibly. But sometimes you may need to go deeper and find out what motivates them. For example, if you are dealing with young people fresh out of college, you might show them how compliance connects to a broader purpose, that it’s not just about following some rule but about helping people in some way.”

Be tough. Eventually, though, you may need to get tough. “You have to draw limits,” Vincze says. “You have to discipline people if they don’t comply and put themselves and others in jeopardy. You have to know where to draw the line, but you have to do it consistently and fairly, and you must communicate the limits very clearly.”

“At the end of the day, effective compliance boils down to understanding people as human beings, and using that understanding as an effective leader to inspire the desired behavior,” Vincze says. “You have to connect compliance and each individual’s role to a cause greater than any one person, a cause greater than themselves. Connect with their passion and you will inspire their compliance. Fundamentally, most people are good and want to do what is right. Apply that understanding to win them over to start winning with compliance.”

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Steve Vincze is president and CEO of TRESTLE Compliance, LLC. (www.trestlecompliance.com), a consulting firm that provides compliance, risk and regulatory services. He also is author of the upcoming book Winning with Compliance: Strategies to Make Commercial Compliance Your Competitive Advantage. Vincze has more than 25 years of experience in regulatory compliance matters, from government policy and enforcement to private sector business implementation considerations. Prior to forming TRESTLE, Vincze split his private-sector career between service as an in-house or outsourced senior vice president or vice president chief of compliance and privacy officer for several life science and healthcare companies, and as a consultant, as a senior leader with a Big 4 firm, and forming his own firms. He also served as an officer in the U.S. Marine Corps.

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Archives, Global Logistics, Global Trade Daily, Imports/Exports

Expanding the Supply Chain for Rare Earth Materials

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From cars and construction equipment to cell phones and military weapons, rare earth materials are critical to manufacturing many important things businesses and consumers use on a daily basis. While people around the world rely on these minerals in their everyday lives, China produces 80% of the U.S. rare earths and has been doing so for quite some time.1 What’s made things even worse over the past 12 to 18 months is a global pandemic. Many consumers stuck at home decided that their current cell phone or computer needed to be replaced, which ultimately caused a shortage of these materials that is affecting various other sectors including the automotive and electronic industries.  

Expanding the supply chain means the production of at least 17 minerals indispensable to manufacturing both consumer and government necessities would not be solely sourced from China.2 However, this won’t happen overnight. The process of having a fully diversified supply chain is several years away due to the planning, process and permitting it takes to both open a mine and build a factory. 

New Rare Earth Production Will Open the Global Supply Chain 

Fortunately, new entrants into the market have begun mining projects throughout the world that are mining for tungsten, one rare earth particularly in demand for important items. This is extremely important as China has limited the amount of tungsten exports that can be shipped to the U.S., which has caused a great deal of concern regarding the overall supply chain of this rare material.  

Tungsten is used in the construction and content of both semiconductors and anodes. It’s also used in a wide array of products from the filament of light bulbs, electric furnaces, and X-rays for medical and industrial imaging, to lead-free fishing weights and golf clubs, and drill bits and saw blades.3 In fact, tungsten is also used for the production of glass syringes – a product that has become very high in demand during a global pandemic that relies on the worldwide distribution of vaccines.4  

This is why it’s imperative to diversify the supply chain for rare earth materials like tungsten. Efforts made by new mining projects throughout the world will increase both supply levels and exports back to or within the U.S., which will benefit the overall supply chain of tungsten for production and manufacturing.  

One mining project in South Korea is of particular importance. The Korea Tungsten project in the Sangdong Mine hosts one of the largest tungsten resources in the world. This mine was the leading global tungsten provider for more than 40 years and has the potential to produce 50% of the world’s tungsten supply. The project is steadily becoming the center of focus for resource experts, miners, investors, shareholders around the globe.  

What the Future Holds for the U.S. 

President Biden is working hard toward a significant infrastructure plan that is also meant to serve as 50% cut in emissions by 2030.5 The infrastructure proposal includes $174 billion in spending to create electric vehicle charging stations in addition to other roadway enhancements while also touting both tax incentives for electronic vehicle battery makers for building factories and the creation of new manufacturing jobs in the U.S. However, 70% of the world’s EV batteries are still currently built in China because that’s where most of the materials used to build them are located.5 Until the new rare earth production players are up-and-running in mining and manufacturing, there remains an immediate issue for those working in the coal mining and traditional auto manufacturing industries when it comes to making a pivot in their careers to clean energy sector that is to come in the U.S.  

Even so, the future of mining and manufacturing rare earths remains to be seen in the U.S. While China dominates a majority of rare earth mining and manufacturing, their domination didn’t happen overnight. For approximately 30 years, China has been building its supply chain in addition to re-evaluating it every one to five years. With export restrictions to the U.S. now hindering the demand of popular consumer goods and materials, it’s important for the U.S. and other countries around the world to evolve and diversify their own supply sources, but it will take time to make the change. 

Editor’s Note: Lewis Black is CEO of Almonty Industries, a leading global company involved in the mining, processing, and shipping of tungsten concentrate. For more information please visit www.almonty.com. 

 _______________________________________________________________________

Sources: 
1: https://www.wsj.com/video/tech-companies-depend-on-china-for-rare-earths-can-that-change/674228C1-D75A-4598-8597-D68108CDA45F.html  
2: https://www.eetimes.com/china-will-dominate-rare-earth-supply-for-decades/  
3: https://sciencing.com/info-8363311-things-made-out-tungsten.html  
4: http://ipimediaworld.com/wp-content/uploads/2017/10/Tungsten-in-the-production-1.pdf  
5: https://www.nytimes.com/2021/04/24/business/bidens-climate-change.html  

agility
Archives, Global Trade Daily, News

Dubai Customs Confirmed for BAI’s Agile Organization Certification

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Competing against four private sector companies from around the world, government organization Dubai Customs achieved the highest agility rating by the American Business Agility Institute in addition to earning the organization’s coveted Agile Organization Certification. This represents a significant milestone for Dubai Customs as they are the first and only government organization to receive the certification.

“Dubai Customs has made great progress in building competencies to achieve the highest level of corporate agility,” said Sultan bin Sulayem, DP World Group Chairman & CEO and Chairman of Ports, Customs and Free Zone Corporation. “Quick adapting to change and going the extra mile to build products and services that continuously exceed the expectations of their customers is what sets Dubai Customs apart. Businesses develop strategies to manage the future and predicating it, but this works well only in an unpredictable market. We no longer live in such a world. We have to be more agile to adapt to the change.”

BAI reported that Dubai Customs remained in the top 10 percent among the thousands of companies and organizations considered. Senior management in conjunction with corporate agility teams were cited as a significant driver behind Dubai Customs’ success and achieving this recognition.

As part of the process for evaluation, factors including agile mindset and culture, authorization and ownership, diversity, equality and integration, psychological wellbeing, individual development, vision and mission, client-focused services, agile operations, external stakeholders, transparency, and quality are all assessed for final determination.

“We continuously develop our levels of agility within our vision of developing the customs field to achieve the best results in facilitating global trade and protecting the society,” said Ahmed Mahboob Musabih, Director General of Dubai Customs.

“The standards of the Dubai Government Excellence Program and the corporate agility model serve as the roadmap that we follow to achieve corporate agility. This renowned certification is reflective of our persistence and hard work. There are corporate agility teams in the department that manage risks and stimulate innovation. This is the prerequisite for going into comprehensive development in the next 50 years. We have learned a lot from the current covid-19 crisis, this included our quick response to the emergencies and turning challenges into opportunities. We have dealt with it with professionalism and agility and managed to facilitate global trade and provide quality services during what has been a testing time for all.”

logistics
Archives, Global Logistics, Global Shippers 101, Global Trade Daily

2021 Logistics & Transportation Forecast: Here’s What to Prepare for in the New Year

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The US-China trade war, COVID-19, regulations and compliance, economic disruptions, and more all contributed to a hectic year for players in the global logistics and transportation arenas. It’s safe to say that 2021 will inevitably require a new level of innovation and predictions compared to how operations used to be. Sophisticated forecasting and agility take on a new meaning for proactive measures to prove successful in the new normal. With the hope of 2021 on the horizon, Deepak Chhugani, founder and CEO of Nuvocargo, the first digital freight forwarder and customs broker for US/Mexico trade, lists what he considers to be some of the most significant events to prepare for in 2021 and how shippers, manufacturers, and other industry players can prepare.

-Mexico is now the USA’s #1 trade partner, according to the US Census Bureau’s 2019 report. The China-US trade war, as well as the COVID-19 pandemic, are driving more US companies to establish new supply chains and we anticipate explosive growth as Mexico becomes the new China. Companies are nearshoring and moving their US supply chains closer to home in favor of Latin America and more specifically Mexico. The automakers especially should continue to see a big boom and reliance on Mexico as it favors homegrown manufacturing. The auto industry will continue to see a shift, in particular the Bajio region of Mexico, which is flush with trucking capacity.

-Digitization, software, and giving shippers and carriers efficient tech tools are critical as technology continues to disrupt this industry. COVID-19 has forced the traditional and analog logistics industry to adopt technology as its primary way of doing business. Everyone is working from home, switching in-person and paper processes with digital transactions and signatures. Digital freight forwarding technology can help businesses ease this transition from offline to online and empower them with tools to smoothly transition towards more digital and modern ways of managing their cargo and supply chains.

-Changes to the global logistics industry (trucking, maritime, and others) that inherently impact the cross-border world is mainly the result of the United States-Mexico-Canada Agreement (USMCA) and tariff schedules. The expectation was that the USMCA would increase annual US exports to Canada and Mexico significantly.  As exports increase, that results in more cross-border truckloads between the US and Mexico which will lead to more capacity crunches as several trucking players have exited the marketplace in recent years and volumes will only increase. This should also increase reliance on cross-docking shipments to leverage trucking capacity on both sides of the US/Mexico borders.

-Politics will also play a role in 2021 as we can anticipate a Biden administration will bring more stability and predictability to trade relationships, especially after the recent signing of the new North American Free Trade Agreement USMCA. An expected increase in US government spending and a policy refocus on middle and lower classes could also prove beneficial to Mexico’s production capabilities, as additional consumption incentives are created. Finally, with the tight grip on China not likely to loosen in the near future, both countries (US/Mexico) could benefit from embracing the shift of global supply chains to bring more manufacturing to North America.

-Transportation of COVID-19 vaccinations will create more demand and we’ll see an increase in shipping, especially refrigerated cargoes and cold-chain solutions. The U.S. Department of Transportation just announced that “all of its necessary regulatory measures have been taken for the safe, rapid transportation of the coronavirus disease (COVID-19) vaccine by land and air.” As a result, there will be additional safeguards and support in place for the trucking industry. Also, the importance of freight forwarders is likely to increase as the complexity of vaccine distribution reaches never-before-seen levels. Freight forwarders’ role as the “connective tissue” of logistics will be key and will take the pressure of managing the logistics of pharmaceutical companies. On the flip side, prioritizing vaccines means that some non-essential cargo will get bumped, increasing rates and affecting businesses that are not properly prepared for this unprecedented time.

-COVID-19 and border restrictions continue to impact customer’s exporting needs as they move their freight into the US. Since most of the available equipment is retained at the border and looking to move southbound from Laredo, the export/import ratio of 8:1 continues to impact the overall capacity into specific areas such as Guadalajara, Bajio, and Mexico City which creates challenges. Companies will have to be nimble and diligent as they navigate and comply with their customer’s requirements.

brexit
Archives, EU Trade, Global Logistics, Global Trade Daily

How to Mitigate the Burden of Brexit Disruption

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It’s difficult to believe, but after nearly six years of debate and disruption, the end of the Brexit saga is close at hand. There are less than two months left until the official departure of the UK from the EU, and with each passing day the possibility of a mutually agreeable free trade arrangement between the two parties becomes less likely.

For businesses engaged in trade across the English Channel and the Irish Sea, this is likely to mean significant disorder in the form of long queues at customs checkpoints, a deluge of new documentation with which to reckon and the expense of new taxes and tariffs. Just as an example, the total volume of customs declarations is due to rise by 20% after Brexit Day.

For their part, the governments in London and Brussels are doing what they can to provide relief to those businesses that will inevitably experience adversity with the onset of Brexit. As part of this, the British government has introduced a new process called Entry in Declarants Records or EIDR. It is being made available only to those businesses that do not trade in controlled goods, such as food, chemicals, medicines, etc.

Why It Matters to Trading Businesses

As noted above, businesses engaged in trade will face a series of setbacks as the UK and EU part ways, the foremost of which will be border delays. The EIDR allows businesses to import goods into the UK without providing a full or even partial customs declaration at the point of import. That means quicker and easier release of shipments and, in turn, shorter delays. It also allows for the deferral of Value-Added Taxes (VATs) using the introduction of Postponed Accounting for VAT (PVA) and duties, as well as the deferral of supplementary declarations for individual or bulk shipments. This not only provides financial relief in the short term, but also a smoother transition into the customs regime.

What’s the Catch?

It’s not so much that there’s a catch, but there are limitations and requirements. EIDR allows traders to obtain the release of goods from a third country to a customs procedure and can be used to enter goods into:

-Free circulation;

-Customs warehousing;

-Processing;

-Specific use or;

-For export/re-export purposes

However, in order to import goods through EIDR, businesses are required to use the Customs Freight Simplified Procedure (CFSP) to complete the reporting process through the submission of a supplementary declaration. EIDR will be accessible to traders without the need for authorization until June 30, 2021.

A supplementary declaration must be completed up to six months after the date the goods were imported. If a Trader elects to use EIDR after this date, an application to HM Revenue and Customs (HMRC) will be required.

If those last two paragraphs left you shaking your head and craving alphabet soup, the good news is EIDR doesn’t require the documentation to be submitted directly by the importer, so trading businesses can lean on their customs brokers for the heavy lifting on documentation and process.

What are the Limitations?

Goods that cannot be declared using EIDR includes but is not limited to:

-Items on the Controlled Goods List – which also includes but is not limited to Excise goods, Fisheries, Endangered species, Anti-dumping duty and countervailing duties.

-ATA Carnet

-Personal Effects

-Special procedures e.g. Inwards Processing (IP) by import declaration.

What are an Importer’s Responsibilities?

Like all other documentation and duty deferral programs around the world, the EIDR will require importers to apply diligent record-keeping to ensure they are able to document their transactions and keep logs of relevant information in the event they are audited or a miscalculation occurs.

All businesses using EIDR to trade goods must:

-Maintain records for no less than 4 years.

-Ensure records are backed up and kept secure.

-Obtain the use of a CSFP software package or the services of a CFSP authorized customs agent.

-Maintain a clear audit trail of temporary imported goods.

Although EIDR will allow faster release of goods, use of simpler customs declarations and provide potential cashflow benefits to traders; these benefits could be outweighed by fees and software costs.

Make it a Supply Chain Conversation

Businesses would be well served to discuss with their trade partners and supply chain vendors precisely how they intend to operate in the post-Brexit period. In addition, they should work with their vendors, including freight forwarders, customs and freight brokers and trade consultants to conduct a thorough cost analysis to enable an informed decision on the process to be used.

Doing this today has the potential to mitigate border disruption, reduce landed costs and lessen the burden of documentation requirements, allowing businesses to focus more on what they do best and less on the minutiae of customs processes.

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David Merritt is a director in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at dmerritt@livingstonintl.com.

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Archives, EU Trade, Global Trade Daily

Simplifying Customs Procedures in the Post-Brexit Period

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Anyone who has ever arrived at an airport outside of his or her home country knows all too well the chaotic, tedious, and time-consuming process of going through customs and immigration.

Now imagine that, instead of people, the lineup was made up of tractor-trailers full of time-sensitive goods and was several kilometers long because there aren’t enough customs officials to process the backlog of required paperwork. Somewhere far away from the lineup is a business owner impatiently waiting for those goods and becoming far more open to the idea of finding a new supplier. Now you’ve got a sense of what the borders of the UK and EU will be like come January 1, 2021. The total volume of import and export declarations entries is anticipated to balloon to approximately 400 million annually after Brexit, adding about £13 billion a year in cost to businesses. What’s more, British officials estimate only about one in three small-to-medium-sized businesses are prepared for the customs changes compared with about 70% of large businesses.

The good news is that for those businesses engaged in trade across the English Channel (small or large), there will be some relief in the form of a fast pass. It doesn’t let you skip the queue, but it does allow you to join it with far less fuss.

With the Brexit deadline fast approaching, this is the time for traders to embrace the UK’s customs simplifications for their future business activities.

What is CFSP?

CFSP was first introduced in 2001 to enable the import of shipments by traders from third countries to be completed in two stages – an initial declaration with reduced content is submitted at the port, and a second supplementary declaration containing full data is submitted weeks later (or months later in the case of phase one of the Brexit import declaration program). The use of CFSP provides a trader with greater certainty of the receipt of goods and cash flow savings.

During the first phase of Brexit, traders of non-controlled goods who wish to defer the finalization of their import declaration for six months may elect to use Entry in the Declarant’s Records (EIDR) rather than the submission of a full or initial port declaration. This process allows importers to use their commercial records to have goods clear customs without being required to complete a full custom import declaration or the initial CFSP declaration. However, the commercial records must be supplemented with additional information required by H.M. Revenue and customs using a Supplementary Declaration via CFSP within six months of the date of import.

An importer who uses the CFSP deferred declaration process can also participate in the Postponed Value-Added Tax (VAT) accounting scheme.

Who can apply for it?

A customs broker can be authorized for CFSP and provide this on an importer’s behalf; however, more complex import operations would benefit from an importer obtaining his or her own authorization.

If an importer decides to become authorized for CFSP in their own right, an application in advance of importing must be submitted and approved and 120 days should be allowed for the approval of the application. One key factor for importers to consider when applying for CFSP is that it is not merely a matter of applying for and being granted authorization. Applicants will also require software to produce supplementary declarations to the authorities.

To be eligible for CFSP, an importer must:

-Fulfill a set of criteria and comply with any additional criteria for the simplified procedure(s) required for his or her business model.

-Maintain and retain records for all shipments processed under CFSP.

-Keep a clear audit trail, and ensure all records are backed up and kept secure.

The requirements of CFSP for an importer in their own right can be costly and time-consuming, and as such should be weighed against an intermediary completing such activities on an importer’s behalf and using their CFSP authorization.

It is imperative that controls are in place by importers to validate customs declarations made on their behalf to ensure errors are captured and corrected.

Although CFSP will allow faster release of goods, use of simpler customs declarations, and cashflow benefits to importers; these can be outweighed by the additional fees and software costs. Importers looking to make an informed decision regarding whether or not CFSP is worthwhile for their businesses should conduct a thorough cost and business-process analysis and an equally thorough review of services and cost benefits.

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David Merritt is a director in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at dmerritt@livingstonintl.com.

PMO
Archives, Global Trade Daily, News

Dubai Customs Earns Second PMO Award for 2020

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The world’s largest award by the PMO Global Alliance selected Dubai Customs for the coveted award recognizing them as the “Best PMO in the World” for 2020, right after being named Asia-Pacific PMO of the Year in August. The PMO Award is known as the largest of its kind globally and highlights exemplary practices in international standards and exceptional project management for economic development-focused projects. This year’s annual ceremony was conducted virtually on October 29th and featured delegates from across the globe.

“We have implemented comprehensive development plans that integrate global project management best practices based on AI applications and advanced technologies run by skilled and highly motivated teams,” HE Sultan bin Sulayem, DP World Group Chairman & CEO and Chairman of Ports, Customs and Free Zone Corporation said. “Inspired by the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, we follow an innovative project management methodology that seeks not only to promote sustainable development but also turn challenges into opportunities.”

Dubai Customs maintained its competitive position against private companies and government departments with a total of 125 projects worth AED 350 million implemented between 2007 and 2019 paired with a business-minded approach. These and the implemented technology-focused integrations continue to support economic vitality and development support.

Juma Al Ghaith, Executive Director of Customs Development Division at Dubai Customs added:

“As part of its digital transformation strategy, Dubai Customs’ future projects are driven by fourth industrial revolution technologies like AI and blockchain. Our projects seek to better facilitate trade operations, automate customs procedures and reduce cost on clients. Projects managed by Dubai Customs’ Development Division have reduced operational costs of clients by AED898 million, generated revenues of AED384 million, reduced internal operational costs by AED561 million, and safeguarded AED25 billion worth of customs revenue.

Dubai Customs has achieved a 100% digital transformation, which has enabled us to raise the happiness levels of clients to 98%. Key projects that have made this possible include the Mirsal System developed in house by Dubai Customs. The project was praised by the World Customs Organization as one of the world’s leading customs systems and adopted by the Federal Customs Authority to create a unified customs system integrating all local customs departments in the UAE.”

Source: Dubai Customs