INTERMODAL IS HOT: HOW SIX CITIES ARE MEETING LONG-HAUL CHALLENGES

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INTERMODAL IS HOT: HOW SIX CITIES ARE MEETING LONG-HAUL CHALLENGES

October 19th, 2021 Matt Coker Leave a comment

How hot is intermodal right now? Total volumes rose 20.4% year-over-year in the second quarter of 2021, according to the Intermodal Association of North America (IANA) Intermodal Quarterly report.

International containers gained 24.8% from 2020; domestic shipments, 15.7%; and trailers, 18.5%, according to the Calverton, Maryland-based association’s report, which also found that intermodal volumes not only grew for the fourth consecutive quarter in Q2, but the double-digit gain was the largest quarterly increase since Q3 of 2010 as well as the sixth quarter with a double-digit growth rate in the history of the data.

“What is noteworthy is the breadth of the gains,” said Joni Casey, president and CEO of IANA, before September’s IANA Expo in Long Beach, California, where the Q2 surge was a source of industry optimism. “With one or two exceptions, the three market segments showed positive performance in all of IANA’s 10 regions.”

Trans-Canada led with a 29.6% total growth increase, followed by the Southeast-Southwest at 28.9% and the Midwest-Northwest at 26.6%. The Intra-Southeast likewise posted a 25.9% increase; the South Central-Southwest, 24.5%; and the Midwest-Southwest, 21.8%. The Northeast-Midwest came in at 20.9%.

“Freight volumes are expected to slow but experience steady q/q growth into 2022,” forecasts the 2021 Second Quarter Intermodal Quarterly report. “For 2021 as a whole, truck loadings are forecasted to be 7% higher than 2020 levels.”

Freight demand pressures, the end of consumer stimulus infusions and unemployment supplement and the ongoing surge in small new trucking companies have complicated matters, according to the report. “Intermodal remains highly competitive with trucking due to very high rates and tight driver supply.

This situation will likely continue at least into early 2022, however, could be affected by a quicker stabilization in the trucking market, as reflected by a peak in truck spot metrics.”

Managing the ups and downs of intermodal transport is greatly assisted by the IANA, whose roster includes more than 1,000 members from railroads, ocean carriers, ports, intermodal truckers and over-the-road highway carriers, intermodal marketing and logistic companies, and suppliers to the industry. (Learn more at intermodal.org.) But at the hyper-local level, economic development corporations (EDCs) also play a role in keeping freight trains rolling. Below are six cities meeting intermodal challenges with the help of their EDCs.

MILLERSBURG, OREGON

The Albay-Millersburg Economic Development Corporation estimates that 81% of the exported agricultural products from the Mid-Willamette Valley of Southern Oregon are loaded onto ships at the Seattle and Tacoma ports, with the remainder exported from ports in Long Beach (8 percent) and Oakland (3 percent), California.

Complicating the flow of produce is traffic congestion near Portland, Seattle, Tacoma and farther down Interstate 5 into California.

However, like an oasis of calm sits Millersburg, which allows agricultural producers in the region to consolidate their products efficiently and avoid bumper-to-bumper nightmares altogether. To that end, the Linn Economic Development Group (LEDG), which is an affiliate of the Albay-Millersburg EDC, is constructing the Mid-Willamette Valley Intermodal Center (MWVIC) in Millersburg.

The town of around 2,000 people just happens to be where the Union Pacific Railroad mainline, BNSF’s Portland Western Railroad and I-5 come together. The MWVIC was made possible by passage of the state’s Keep Oregon Moving legislation, which appropriated $25 million toward development.

The intermodal center will include a main office, parking lot, space for about 100 trucks to park overnight, amenities for truck drivers, capabilities to handle domestic and international containers, track space for inbound and outbound trains, a 60,000-square-foot storage warehouse and docks to support reloading and transloading onto rail, with capacity for longer-term storage of product.

Agricultural producers and train operators are not the only beneficiaries of the project. Shippers will now have the option of choosing the best transportation alternative for each individual load. The LEDG estimates that under full utilization, private transportation cost savings will total $2.1 million per year.

But the public should turn out to be the biggest winner. Reducing the number of trucks on the highways would lower maintenance costs, reduce congestion, improve air quality and decrease carbon emissions—while the MWVIC at the same time increases jobs and local spending.

ALLENTOWN, PENNSYLVANIA

The Norfolk Southern Allentown Rail Yard is among the railroad’s largest facilities, but only a few of the 200 manufacturers in the Pennsylvania town transport goods by rail. The Allentown Economic Development Corporation would like to change that. Saying of the yard “we’re very fortunate to have it,” Scott Unger, executive director of the Allentown EDC, says he and his team are pulling out all the stops to increase rail usage.

Pennsylvania’s Bureau of Rail Freight administers a special grant program called the Rail Freight Assistance Program that provides financial assistance to companies that are interested in bringing a railroad spur directly to their property for freight shipments. The goal of the grant program is to preserve and stimulate economic development through new and expanded rail service.

Also hoping the state incentive program lights a fire under local manufacturers is the R. J. Corman Railroad Co., LLC, which owns 11 Class 3 short line railroads in the Mid-Atlantic and the South, as well as the R. J. Corman Allentown Rail Yard.

“Products that are ideal for transloading include palletized commodities which can be loaded and unloaded in a boxcar,” explained John Gogniat, director of Commercial Development for R. J. Corman. “In addition, products such as lumber or steel that can be unloaded with a forklift are ideal candidates. That said, we are open to entertaining any potential commodity and will develop a mutually desirable solution for its loading and unloading.”

Gogniat notes that Allentown’s strategic location provides access to Philadelphia, Scranton, York, Harrisburg, Wilmington, New York and beyond.

WILKES COUNTY, NORTH CAROLINA

The North Carolina Department of Transportation’s Rail Industrial Access Program also uses state funds to help construct or refurbish railroad spur tracks required by a new or expanding company. Program funding is intended to modernize railroad tracks to ensure effective and efficient freight deliveries.

Many companies taking advantage of the incentive are located in Wilkes County, which was established in 1777 and is still known today as a mecca for outdoor recreation, small-town living . . . and a big business mentality.

Consider the Yadkin Valley Railroad, which offers Wilkes County businesses rail access to ship their products into the Ronda and Roaring River areas. Operating out of the Winston-Salem area and hauling 11,500 carloads per year with freight, Yadkin joins G&O’s short line railroads, which offer connections to CSX and Norfolk Southern, in figuring into the logistical operations of Charlotte Regional Intermodal Facility.

Wilkes County Economic Development Corporation will point businesses to other local and state incentive programs to improve rail access—dependent on the applicant’s potential to create new jobs and invest capital in the region. The aim is to get companies to locate or expand in North Carolina versus another state.

“The North Carolina Railroad Company partners with the state’s economic development community and railroads on initiatives designed to drive job creation, freight rail use and economic growth,” reads an EDC release. “Through NCRR Invests we evaluate requests for investments to address the freight rail infrastructure needs of companies considering location or expansion in the state.”

But Wilkes County does not live by rail alone, as the EDC also trumpets a location that is close to major freeways and interstates, two international airports (Charlotte Douglas and Piedmont Triad) and three major East Coast ports (Wilmington, North Carolina; Norfolk, Virginia; and Charleston, South Carolina).

NEW YORK, NEW YORK

An ambitious program was born out of congestion, pollution and unconnected cargo transportation options in the Big Apple. Freight NYC aims to expand the use of rail and water to move food, building materials and other goods that are normally trucked in from outside the five boroughs.

“Freight NYC will better equip New York City to meet 21st-century demand by modernizing the city’s freight infrastructure, reducing truck traffic and improving air quality, while creating nearly 5,000 good-paying jobs in the process,” says James Patchett, chief executive of the New York Economic Development Corporation. “This plan is a win-win for our environment and economy.”

The city would invest as much as $100 million in the program that would include a 500,000-square-foot distribution center on the site of the Brooklyn Army Terminal, adjacent to the New York New Jersey Rail carfloat hub, as well as a new air cargo center near John F. Kennedy International Airport in Queens.

Private participation in a $20-30 million barge terminal on five acres of land owned by the city in Hunts Point, a major distribution crossroads for produce in the Bronx, is also part of the multimodal plan.

Small rail freight yards on a line through Brooklyn and Queens, where goods would be transloaded to smaller vehicles for final delivery, is also envisioned.

DECATUR, ILLINOIS

When you think of the granddaddy of rail operations in the Midwest, you think of Chicago. That’s part of . . . heck, the main problem, according to Nicole Bateman, president of the Decatur Economic Development Corporation and executive director of the Midwest Inland Port. The Windy City is not only the nation’s busiest rail freight gateway, it’s the third-largest intermodal container/trailer port in the world, following Singapore and Hong Kong, according to the Illinois Department of Transportation.

What comes to mind when you think about freight, Singapore and Hong Kong? Congestion. As such, shippers on both ends of the supply chain need alternatives to Chicago—which is where Decatur (as Bateman’s fingers cross) comes in.

Located 160 miles southwest of Chicago, Decatur is now being propped up by its EDC and the Midwest Inland Port as a distribution transportation center, which is fed not only by four railroads but easy access to interstates and airports. The port association is utilizing public-private partnerships to capitalize on Decatur’s geographic location, while the EDC seeks to make the city Illinois’ designated downstate freight transportation hub as a way to relieve rail and highway congestion in Chicago.

Users of the Midwest Inland Port have experienced savings in freight transportation costs and significant reduction in transit times, Bateman recently told American Shipper.

SEGUIN, TEXAS

Talk about strategic locations, Seguin sits alongside Interstate 10 and the banks of the Guadalupe River, with San Antonio a mere 35 minutes to the west, Austin only 55 minutes north and Houston about 2 ½ hours to the east.

Besides the easy access to I-10, Seguin also connects to State Highway 130, which it bills as “the safe, fast and reliable alternative to congested Interstate 35 in Central Texas.” Two international airports (San Antonio and Austin-Bergstrom) and two deep-water ports (Houston and Corpus Christi) are an hour of so away.

But perhaps the biggest jewel in the close proximity crown is Union Pacific’s San Antonio Intermodal Terminal (SAIT), a $100 million state-of-the-art facility designed to support the growing intermodal volume in southern Texas. The expansive facility is designed to handle 250,000 annual container lifts as it serves markets across South Texas.

If that hasn’t sold you, allow the Seguin Economic Development Corporation to work its magic. The EDC helps guide businesses through the maze of available loans, grants and tax breaks from the city, county and state. To hear the EDC tell it, finding applicants should be no sweat considering Seguin’s “easy access to four of the United States’ largest consumer markets, allowing manufactures to get their products to millions of consumers, all within a five-hour drive.”

Archives, Global Trade Daily, International Trade

5 Ways to Ease Canadian Supply Chain Pain

August 24th, 2021 Michael Zobin Leave a comment

Canadian businesses are facing a painful dilemma as they enter the second half of 2021.

A study released by the Bank of Canada in early July shows business confidence has soared across the country as vaccination programs have rolled out and reduced restrictions on public movement. Business leaders reported strong sales outlook, unprecedented levels of planned hiring and plans for greater investment. In fact, the monetary policy overseer’s quarterly survey showed confidence at its highest level since 2003.

There is good reason to be buoyed about the future. Canadian consumers have saved an estimated $220 billion during the pandemic that they are now looking to spend. Another Bank of Canada survey showed near unprecedent intentions amongst consumers to spend their savings once the economy opens. That is the good news.

The bad news is retailers, wholesalers and service-sector businesses reliant on the movement of goods are also facing unprecedented supply chain woes. Shipments of goods critical to the success of these businesses have been delayed by months due to backlogs at ports in Asia stemming for a global container shortage. In its survey, the Bank of Canada found 60% of businesses would have some difficult or significant difficulty meeting demand if there was a sudden increase. Commodity prices have soared to their highest levels since 2014 while factory-gate prices in China – where many manufactured goods are produced and exported to Canada – witnessed a year-over-year increase of 6.8% in April 2021. Shipping costs from China to the coast of British Columbia have tripled.

‘Just in Case’ Becoming the Norm

The delays and escalating costs of shipping are prompting businesses to stockpile inventory at rates not seen in recent years. The just-in-time supply chain model that has characterized the movement of goods throughout most of the 21^st century is now being traded in for a just-in-case model. But the market has responded accordingly with warehouse lease rates up 25% and warehouse availability almost non-existent with little new capacity slated in the near term. In some cases, businesses have had to invest far more heavily in warehousing than they had planned when inventory arrived at port on time, along with delayed inventory and the oversupply that could not be contained within existing warehouse space. In addition, fiscal stimulus programs have tightened the labor market, driving down labor availability and driving up labor costs.

All the added expense is fuelling concerns about inflation as businesses pass down the additional costs to consumers. A spike in inflation could dampen consumer demand, which would then resolve the supply chain woes, but would also stagnate economic recovery. This leads to the greater challenge of whether to plan for a consumer boom or a more temperate market.

What is a Business Decision Maker to Do?

As the old saying goes, necessity is the mother of invention. Businesses have been finding creative solutions to supply chain problems as they have arisen – from alternative transport routes and methods to new suppliers and even alternative materials to build their products.

The reality, however, is there is no one-size-fits-all solution to the supply chain woes being faced by Canadian importers. Solutions will vary based on industry, pain points, sourcing markets, ports of entry and several other factors.

Gain Visibility: One of the key actions being taken by businesses is digging in to learn more about their suppliers’ suppliers. Doing so allows them to better identify potential disruptions where materials may be scarce, or transit routes are congested.

Call for Backup: Even businesses that have reliable suppliers should consider finding alternative sources of supply and ideally from a different country. In most cases, delayed supply is the result of congested ports or a regional dearth of cargo container availability. Finding backup suppliers in other markets means not only having an insurance policy for supply but also for transport.

Make Accurate Supply Projections: It is a tall order to know how consumers intend to spend in the wake of a global pandemic. But businesses that use analytics to gauge future demand will suffer fewer supply chain headaches as they will be able to plan better for anticipated inventory arriving from overseas.

Secure Freight: Cargo capacity is at historic lows as businesses around the world fight for space on ocean freighters. Even inland transport has become challenging. For businesses that have not secured space, finding available transport can be near impossible. Working with a freight forwarder can help not only to identify available capacity but also to secure space for future supply. This is particularly true for businesses that have a stronger gauge of upcoming demand.

Lower Landed Costs: Businesses searching for alternative suppliers can often find cost savings by leveraging free trade agreements to reduce duty outlay. Canadian businesses may find refuge in trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which gives importers free trade access to markets like Vietnam and Singapore. Other opportunities may be found with suppliers in Europe via the Comprehensive Economic and Trade Agreement (CETA). Of course, Mexico is a viable alternative to sourcing in Asia and is party to the recently enacted United States-Mexico-Canada Agreement (USCMA) that replaced NAFTA. Using Mexico could also remove the need to use ocean freight where congested ports are forcing weeks-long delays to bring goods to market.

When will it End?

Canadian importers are anticipating the day when business can get back to normal. After years of uncertainty over the fate of free trade in North America, conflicts with the U.S. over steel, aluminum, and lumber, and conflicts with China over agricultural goods, there is a desire to see things stabilize. The reality, however, is that Canadian importers will have to compete with their counterparts in the U.S. and other markets with recovering demand for cargo space. While more containers are being brought online, the shortage is anticipated to continue into the early part of 2022 or even later. That means rates will remain high for the foreseeable future, particularly for Asia-origin goods moving to North America’s west coast.

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Michael Zobin is a Canada-based director of global trade consulting at Livingston International. His expertise includes supply-chain optimization; duty deferral and drawbacks; conducting compliance program reviews; developing compliance procedures; voluntary disclosure; and post-entry review.

Archives, Global Logistics, Ocean Carriers, Trucking

IANA Releases 2021’s Second Quarter Intermodal Quarterly Report

August 12th, 2021 Intermodal Association of North America Leave a comment

Second Quarter 2021 Intermodal Volume

Intermodal volumes improved for the fourth consecutive quarter, surging 20.4% year-over-year in Q2. This quarter’s double-digit increase was the largest quarterly gain since Q3 of 2010 and was also the sixth quarter with a double-digit growth rate in the history of the data. On a seasonally adjusted basis, total intermodal volume was 1.7% higher in Q2 than the previous quarter. This was anticipated, as inclement winter weather and service shutdowns held back volume in Q1. In Q2, all three market sectors had impressive growth. The domestic market, which consists of trailers and domestic containers, improved by 16.1% year-over-year. Trailer loads jumped 18.5% this quarter, compared to a 14.0% decline in Q2 of 2020. Domestic container traffic rose slightly less than trailers, at a pace of 15.7% year-over-year. However, domestic containers were up against stronger comparisons as this sector only lost 7.0% in Q2 of 2020. International volumes expanded by 24.8% this quarter, after declining 15.4% in Q2 of 2020.

On a regional basis, domestic container moves posted positive growth in all ten IANA regions in Q2. This was a change from the previous quarter when losses were present in both the Midwest and
Mexico. Only the Midwest and Eastern Canada increased less than 10% during Q2, rising 9.3% and 9.8%, respectively. Domestic container volumes were the best in western regions this quarter. The Mountain Central, Northwest and Southwest rose by 33.9%, 19.3% and 18.0%, respectively. In comparison, the eastern regions gained 15.0% year-over-year but were up against an almost 10% loss in the previous quarter. Stronger West Coast growth can be attributed to less trucking competition in the region and an overwhelming amount of imports flowing into West Coast ports and being transloaded. The trailer market sector surged by double-digits for the third quarter in a row during Q2. However, strong growth cannot be attributed to improving conditions but instead to weak comparisons. From Q4 of 2019 to Q2 of 2020, trailer volumes dropped 19.8% when compared to the previous year. As of Q2 2021, trailer moves were still considerably below 2018 and 2019 levels and it is unlikely that they will return to levels seen in prior years throughout the remainder of 2021. On a regional basis, this
market sector expanded in nine of the ten IANA regions. Trailers are currently not present in Eastern Canada, as the trailer lane was closed in early 2018.

Q2 is the second consecutive quarter with double-digit gains in international traffic and the third with positive improvements. Robust performance was bolstered by weak comparisons and soaring U.S. imports. As with last quarter, international volumes advanced in nine of the ten IANA regions. Mexico, the only region to decline in Q2, faltered 3.9%. However, this is one of the smallest regions, representing only 3% of the total international volume. International moves rose at comparative levels of 32.5% in the West and 32.6% in the East. And while growth rates were very close, Western improvement was more impactful as almost 30% of all international volume originates in this region.

Solid intermodal growth is expected over the remainder
of 2021. Strong domestic demand coupled with weak comparisons will bolster future gains. Intermodal volumes are forecasted to advance an estimated 9% during 2021. International traffic is anticipated to lead the annual improvement by rising almost 13% in 2021. Domestic container moves are expected to rise just above 6% over the course of the year, while trailer loads are estimated to gain between 1.5% and 2.5%.

In Q2 of 2021, total IMC loads rose significantly again, up 29.8% from last year. Q2 2020 volumes were down for IMCs, falling 10.0%, as COVID-19 slowed almost everything. Highway loads were up slightly more than intermodal loads, but both surged during the current quarter. Highway loads rose 33.4%, and intermodal loads grew 23.9% during Q2. Also, highway loads were up over 30% for all of the last three months, while intermodal loads slowed a bit as both April and May increased nearly 30%, but June was up only 11.5%. Total revenue rose in Q2, climbing 59.5% from 2020. Most of that surge was in highway activity that jumped 93.4%, reflecting the 45.0% rise in average revenue per highway load. Intermodal load revenue rose 29.2%, just a bit higher than volume because the average revenue per intermodal load was up just 4.3%. The normal growth from Q1 to Q2 happened again in 2021 with total loads up 6.7%, and total revenue increasing 9.7%. Part of that was due to intermodal volume and revenue slowing down significantly in February 2021 because of the weather.

Trucking Industry Outlook

Trucking posted modest quarter-over-quarter volume growth in the second quarter of 2021. Seasonally adjusted tractor-trailer loads were up 1.1% quarter-over-quarter. While dry van loadings had led growth in Q1, it was the only segment to experience a small decline in Q2 of 0.3%. Refrigerated loadings increased 1.4% q/q while all other loadings were up 2.1%, which is a reflection of the industrial sector’s recovery after lagging the consumer sector.

Short-haul tractor-trailer loadings were the only length of haul to decline in Q2, easing 1.3% quarter-over-quarter. Short-haul had also been the only drag in volume in Q1. The strongest quarter-over-quarter growth was in the super long haul which was up 2.2% quarter-over-quarter. Long-haul rose 1.6%, and medium-haul was up 0.9%.

Trucking volume was 14.0% higher in Q2 than in the same 2020 period. Comparisons range from being up 8.2% in short-haul to a 19.4% differential in long-haul. Dry van was 18.8% higher. refrigerated was up 7.8%, and all other segments were 11.6% above Q2 of 2020.

Active truck utilization – the share of seated trucks engaged in hauling freight – stood at 100% in Q1, basically in line with the extreme tightness seen in late 2017 and early 2018.

Hiring in for-hire trucking finally showed some signs of strength at the end of Q2 as payroll employment rose by 6,400 jobs, seasonally adjusted. The sector remains 38,300 jobs, or 2.5%, below February 2020 on a seasonally adjusted basis, although on an unadjusted basis, for-hire employment has essentially recovered to February 2020 levels.

While June’s job growth was the strongest since November, the first half of the year remains relatively weak with the addition of just 7,600 jobs, seasonally adjusted. By comparison, for-hire trucking in Q4 of 2020 had added nearly 29,000 jobs – the most in any three-month period in 25 years.

It is unclear how much loosening, if any, trucking has seen in the headwinds for adding drivers. Although the licensing of new drivers presumably has improved since the heights of the pandemic, hard data is lacking.

Net orders for Class 8 trucks are finally coming back down to normal levels. After orders of 40,000 or more in each month of Q1, they decreased to nearly 35,000 in April and moderated further to the mid-20,000s in April and June. However, one clear factor in the decline is that order boards for 2021 have been filled and manufacturers had not yet opened the boards for 2022.

Truck freight has not shown any signs of weakness, though it is showing indications that growth might have peaked. Total spot market volume by the end of June was off the peak in May, although the flatbed sector was mostly responsible. Dry van and refrigerated volumes through June were holding at near-record levels if the year’s two big spikes – February weather and the International Roadcheck inspection event in May – are excluded. Moreover, spot rates might also have peaked, but they have not moderated significantly yet.

Freight volumes are expected to slow but experience steady q/q growth into 2022. For 2021 as a whole, truck loadings are forecasted to be 7% higher than 2020 levels.

Freight demand pressures are becoming more complicated. Automotive sales are starting to slide based on low production due to the semiconductor shortage. This bottleneck could keep demand high for an extended period. The large infusions of consumer stimulus that the economy saw in January and March appear to be over but advance payments of a child tax credit started in July and run through December could extent consumer spending. On the other hand, a $300-a-week supplement in unemployment payments to around 14 million Americans has already ended in nearly half of U.S. states and probably will not be renewed nationwide beyond early September.

The sunset of generous unemployment benefits could have some near-term implications for trucking capacity as well if it turns out that those benefits have been a constraint on drivers returning to work. Active truck utilization is forecasted at 100% through Q3 and an easing to only about 99% in Q4. However, this forecast does not assume a significant increase in driver employment as generous unemployment benefits end. Therefore, the forecast risk would seem to be mostly on an easing of active utilization rather than a hardening of it.

Another issue that bears watching is the ongoing surge in small new trucking companies since the middle of 2020. However, if the spot market begins to cool, many of these mostly one-truck operations might rush back to the security of employment with larger carriers.

Intermodal remains highly competitive with trucking due to very high rates and tight driver supply. This situation will likely continue at least into early 2022, however, could be affected by a quicker stabilization in the trucking market, as reflected by a peak in truck spot metrics.

Archives, Global Logistics, Global Trade Daily, Trucking

DESPITE MANY CHALLENGES, TRUCKERS ARE KEEPING THE SUPPLY CHAIN MOVING. HERE IS HOW.

August 12th, 2021 Haylle Sok Leave a comment

Of all the lessons learned from the pandemic, the critical role of supply chain workers remains among the most significant. Simply put, without the people keeping things moving, the supply chain suffers. Truckers are among supply chain workers who represent industry resilience, ensuring deliveries and shipments are fulfilled before, during and after COVID-19.

However, protecting truck drivers has become less of a thought and more of a formality in the new normal. We looked to Avi Geller, CEO and founder of Maven Machines, to give us an idea of exactly how truck drivers are handling the new logistics climate and what companies can do to further protect, support and retain their workers.

“The pandemic has had a substantial impact on the trucking industry, requiring fleets to accelerate digital transformation efforts like the widespread adoption of data and AI-based technologies,” Geller said. “Increased demand since 2020, coupled with an ongoing driver shortage, has forced fleets to reevaluate processes, plans and current levels of efficiency. Route optimization and planning technology can automatically provide managers with the best possible plans by considering variables such as traffic, road quality and weather. As route optimization tech becomes more advanced, driver preferences and proficiencies can also be taken into account as variables in machine learning algorithms.”

Geller goes on to explain that in 2021, the stakes are higher than ever before. Companies no longer have room for error when it comes to compliance and transport conditions. And with the surge of demand in pharmaceutical transportation for the COVID vaccine, the transportation sector is under even more pressure to quickly deliver vaccines at accurate temperatures while keeping employees safe. Utilizing technology solutions to keep up with demand and meet shipment requirements will be a significant game-changer for many.

“Companies must ensure that their drivers adhere to compliance mandates and delivery timelines,” Geller observes. “For instance, COVID-19 vaccines require super cold storage temperatures. Drivers carrying vaccines must follow the appropriate shipping protocols and reach their destinations on time to prevent costly disruptions to the super cold supply chain. More than ever, drivers are relying on fleet management software to increase productivity and using route optimization and workflow technologies to their advantage.”

If retaining drivers was not already an issue, recruiting qualified drivers continues to be a pain point for the trucking industry. And with COVID-19 now in the mix, fleet managers are seeing more of their drivers leaving and a shortage of talent to quickly replace them.

“The trucking industry’s largest challenge today is the shortage of qualified drivers,” Geller says. “We cannot afford to lose drivers, but more are leaving the field than we are able to replace. We need to continue to find ways to revitalize the driver workforce and encourage people to join the profession. The pandemic has only highlighted our dependency on these employees, who are some of the economy’s most essential workers.”

Geller reiterates the importance of providing drivers with an experience that stands out from competing sectors, including providing accommodative tech solutions to minimize redundancies and maintain driver safety as a priority instead of an afterthought.

“To stop the driver attrition and attract more drivers, fleets must prioritize the driver experience—and the right technology can help them do so,” he says. “Route optimization, ELD, and fleet workflow software foster a safer, more productive work environment by providing drivers with the fastest routes, automating the most tedious tasks, ensuring compliance, and presenting stop-based forms and step-by-step workflows that help them progress smoothly through their assigned trips and ETAs. By better positioning drivers for success, fleets can improve driver satisfaction and give drivers opportunities to be rewarded with pay increases and safety bonuses, which could lead to increased driver recruitment and retainment.

Streamlining operations and communications in the new normal is simply not an option for companies that want to last. The phases of adaptation are behind us.”

Those companies that are left standing in 2021 must continue to advocate for workers while providing a competitive edge for customers through the effective use of technology and automation. Geller’s company, Maven Machines, puts drivers first with their specialized and tailored solutions that optimize operations starting at dispatch all the way through.

“Maven Machines provides fleets with solutions that increase efficiency and elevate their drivers’ work experiences,” he says. “Our solutions for dispatch, route planning, workflow, ELD and fleet management software facilitate driver and trip management while also meeting each fleet’s unique set of operational needs. By eliminating outdated legacy solutions and processes, we are helping to increase fleet success, including driver performance.”

Among the applications tailored specifically for drivers are large, color-coded buttons, alerts, document imaging tools and other utilities that drivers can rely on for communications. Geller states that this technology provides a safe, reliable way for drivers to focus on driving and still manage communications expectations.

“A streamlined messaging system for drivers to communicate with managers, along with other smart features and intuitive user interfaces, keeps drivers safe, on task and satisfied. The driver experience is important, and we’re proud to support drivers with our software.”

For every company, the customer comes first (after the workers, of course). It is important to ensure your solutions portfolio is flexible, adding to the customer experience instead of further complicating it. Maven Machine’s adaptable solution provides solutions for different customer requirements.

“Different customers require different processes, so our flexible Maven Workflow solution takes that into account and provides drivers with the right workflow for their stops and trips,” Geller says. “It is a game-changer in terms of driver productivity. Our dispatch and route optimization software provide drivers with the fastest and safest routes so that they can make more on-time pickups and deliveries. With Maven ELD, drivers use a simple mobile HOS app that allows for faster log editing, helps them reduce HOS violations, and ensures FMCSA compliance.”

In conclusion, providing a safe, reliable, and pleasant experience for drivers and customers is not a new concept. Some would argue that it has always been a priority while others claim it took the pandemic to bring back the saying that when you take care of the workers, they take care of business.

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Avi Geller is the founder and CEO of Maven Machines. Since 2014, he has led Maven’s growth as an IoT platform that serves the transportation industry through real-time, mobile cloud enterprise software. Avi originally hails from Palo Alto, California, but he started Maven in Pittsburgh, Pennsylvania, due to the city’s impressive innovation and technology resources. Prior to founding Maven, he held international positions with SAP and contributed to the growth of several successful software companies and startups. Avi has an engineering degree from MIT and an MBA from Northwestern University.

Archives, Global Logistics, Global Trade Daily, International Trade

Navigating the 12 Pitfalls of the Global Supply Chain

July 29th, 2021 Thomas Cook Leave a comment

With over 30+ years of international trade experience, I have witnessed numerous and repeated errors made by Sales, Purchasing, Logistics Managers, Supply Chain, and International Business Executives.

There are tremendous opportunities and benefits to be derived through global sourcing and foreign business development. Along with these opportunities are considerable challenges, obstacles, and pitfalls. In order to succeed in international business, management must mitigate these concerns through gaining knowledge and implementing processes and controls over import and export operations, including the development of robust training for all personnel.

The following section contains twelve steps companies can take to manage the solutions that will allow the navigation through these challenges and delivering success to the international operation.

These twelve steps create a pathway forward in a concise, straightforward methodology and time-tested process to ensure management accomplishes their desired corporate goals of profits, growth, and sustainability.

Avoid the following:

Step 1: “We have no personal liability”.

There is significant personal liability for individuals who operate in global supply chains.

U.S. Government enforcement agencies, such as but not limited to:

– Department of Justice

– Customs and Border Protection

– Departments of State, Commerce and Treasury

– Bureau of Alcohol, Tobacco and Firearms

– United States Department of Agriculture and the Food and Drug Administration

All above are a few of the agencies that will prosecute both organizations and individuals who are seriously out of trade compliance with their import and export regulatory responsibilities.

While criminal prosecution is a rare occurrence … it does happen every day in the supply chain, somewhere in the world of international trade.

Trade Compliance Management in companies with an international footprint is a necessary evil that needs to be managed and integrated into the fabric of the organization’s culture and business model.

Step 2: “The FOB Term is Always a Safe Incoterm to Utilize”.

The FOB Incoterm has three deadly areas of concern:

-It is used in domestic trade

-It is a gray area in the loading process

-There can be ambiguity when the point in time responsibility and liability shift from the seller to the buyer (exporter to importer).

It is used in domestic trade

For domestic trade in the United States, the UCCP (Uniform Commercial Code of Practice) currently (though in contention) utilizes the FOB term as a “term of sale or purchase”, where there are two primary options FOB Origin and FOB Destination.

Within the UCCP, FOB is defined as:

Uniform Commercial Code › U.C.C. – ARTICLE 2 – SALES (2002) › PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

2-319. F.O.B. and F.A.S. Terms.

Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which:

(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or

(b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and their tender delivery of them in the manner provided in this Article (Section 2-503);

(c) when under either (a) or (b) the term is also F.O.B. vessel, car, or another vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case, the seller must comply with the provisions of this Article on the form of a bill of lading (Section 2-323).

The UCCP Term allows any mode of transit or conveyance.

Some sources claim that FOB stands for “Freight on Board”. This is not the case. “Freight On Board” is not mentioned in any version of Incoterms, and is not defined by the Uniform Commercial Code in the USA.^[10] Further to that, it has been found in court that “Freight On Board” is not a recognized industry term.^[11] The use of “Freight on Board” in contracts is therefore very likely to cause confusion. The correct term is “free onboard”.

Keep in mind that a huge amount, if not a clear majority of domestic commercial transactions, are sold or purchased on a FOB basis and moved by truck, rail, or air. This would be ok if the FOB Term was the UCCP intent and not intended utilization under Incoterms 2020.

There is a very clear line of confusion between the domestic and international “FOB” terms in selling and purchasing. It is only when it causes a problem when it is seen as an issue.

Free on Board, or FOB is an Incoterm, which means the seller is responsible for loading the purchased cargo onto the ship, and all costs associated with same. At the point, the goods are safely onboard the vessel, the risk transfers to the buyer, who assumes the responsibility of the remainder of the transport.

FOB is the most common agreement between an international buyer and seller when shipping cargo via sea. This Incoterm only applies to sea and inland waterway shipments.

The 2020 edition of Incoterms opened the door for domestic utilization of the FOB term. The FOB UCCP term varies greatly from the FOB Incoterm.

Under Incoterms 2020, the preferred term for domestic utilization, since that door was opened, is FCA (Free Carrier At).

It is a gray area in the loading process

Under Incoterms 2000 and prior, the FOB term transferred risk and cost from the seller to the buyer once the goods passed the ship’s rail.

This factor was changed in the 2010 edition of Incoterms and continues in the 2020 edition. The term now read “…passes when the goods are on board the vessel”.

However, “on board” is not clearly defined. Is that when the goods are placed on the deck, in the hold, not yet secured, secured, etc.?

We had a case in our office, where a U.S. exporter, sold a huge piece of equipment, (25 Tons, $11m in value) to a customer in Europe. It was going to be shipped via ocean, secured in a cargo hold under deck.

During the loading process, the goods were being lifted onto the vessel by a crane and longshoreman crew. In the handling, the equipment was laid down on the deck of the hold several times, while the longshoreman positioned the cargo.

In that repositioning process, the freight was damaged. The issue now became who is responsible, based upon the Incoterm of FOB Port Elizabeth – the seller or the buyer?

Were the goods actually “on board” when they were damaged? The maritime judicial system will eventually resolve that issue and court precedence will be established.

But today there is an ambiguity in defining “on board” in the FOB Incoterm. There are references to being “secured in place”, but it appears ambiguous.

Sellers and buyers need to address these specific concerns in the contract of sale and attempt to minimize the gray areas of liability, that may present themselves when using the FOB term.

There can be ambiguity when the point in time responsibility and liability shift from the seller to the buyer (exporter to importer).

This is the explanation of the FOB term from the Incoterms 2020 edition.

A2 (Delivery)

The seller delivers by placing the goods on board the vessel nominated or provided by the buyer on the agreed date, or within the agreed period as notified by the buyer, or if there is no such time notified then at the end of that period.

There is still a belief that the ship’s rail is the defining point, i.e.: before the notional vertical line above the rail is the seller’s cost and risk, and after is the buyer’s cost and risk. A court ruled that the delivery point was when the goods were on the deck but that then caused the question was the notional vertical line replaced with a notional horizontal one in line with the deck itself and what if the goods were being placed below deck? This ship’s rail concept was removed in the Incoterms® 2010 version. Typically, then, “on board” is taken to mean when the goods are safely on the deck or in the hold. If the cargo needs to be then further secured for transportation such as being lashed or separated with some material or spread evenly throughout the hold for bulk goods like grain the seller and buyer should agree in their contract what is needed and at whose cost and risk this is done.

B2 (Delivery)

The buyer’s obligation is to take delivery when the goods have been delivered as described in A2.

FOB A3 / B3: Transfer of Risk

A3 (Transfer of risk)

In all the rules the seller bears all risks of loss or damage to the goods until they have been delivered in accordance with A2 described above. The exception is loss or damage in circumstances described in B3 below, which varies depending on the buyer’s role in B2

B3 (Transfer of risk)

The buyer bears all risks of loss or damage to the goods once the seller has delivered them as described in A2.

If the buyer fails to inform the seller of where and when the vessel will be presented or if the vessel fails to arrive on time, or it fails to take the goods so that the seller cannot deliver, then the buyer bears the risk of loss or damage to the goods from the agreed date or at the end of the agreed period.

On an operational level, the seller delivered the goods to the terminal, carrier, or other agreed named place, and the goods were not loaded on board as anticipated for an array of reasons, such as but not limited to the carriers having vessel timing or loading issues and the seller appropriately notified the buyer than delivery has been made and risk of loss and damage has passed from the seller to the buyer.

The important aspect to note here is that the buyer expected to take delivery “on board” and now that did not occur as the buyer will take delivery and assume all risks at a point short of “on board”.

In general, Incoterms need to be understood in their entirety including the consequences associated with using the incorrect Incoterm or not understanding the specific responsibilities as the buyer or seller. Incoterms training is a must for all personnel engaged in global trade and more particularly those operating in Procurement, Sales, Operations, Finance, and Customer Service.

Companies involved in international trade using best practices will switch Incoterms 2020 rules in quotations, purchase orders, contracts, commercial invoices, and other commercial documentation when determining the level of responsibilities and costs they want to take on; dividing the responsibilities for risk transfer, costs, and responsibility for carrier selection between the buyer and the seller.

Step 3: Contracts Override Relationships

In international trade, relationships trump contracts. Relationships will drive a successful deal and a long tenure. I have always extolled “you can contract out risk”, but you can seriously minimize and mitigate risk by establishing favored relationships that allow the best opportunity for problem resolution and working out issues that will likely occur over time and trade.

Contracts are important to make the deal have legal standing, but it is foolish to believe that the contract eliminates any risk in the transaction. In fact, sometimes contracts can cause risk when a false sense of security is at hand.

Obtaining legal support is prudent but spending money and time at building relationships with suppliers, vendors, agents, and customers will go a long way in mitigating many of the risks in global trade.

Step 4: Service Providers are Experts in all Aspects of the Global Supply Chain

Just not so! While a small percentage of service providers are clearly experts, professionals, and aligned with teams of knowledgeable staff the majority have serious limitations.

While many have the expertise to arrange affreightment, pick up and delivery many lacks:

-the necessary local connections in all foreign markets

-trade compliance knowledge

-an understanding of how best to eliminate risk and cost from the supply chain

A high degree of scrutiny, vetting, and discerning should take place when choosing service providers, 3PL’s, freight forwarders, and customhouse brokers.

Areas of evaluation:

Service providers can be very valued partners in your global supply chain. Just because they hang out a shingle does not mean they can provide real benefit. Scrutinize robustly and vet diligently. It will pay off in the long run. Having a quality partner will make your job easier and with a greater ability to meet all the challenges successfully.

Step 5: Manage the Supply Chain with Robust Technology

Supply chains that have expansive technology in every aspect of the operation will gain great leverage in performance metrics.

Areas of technology in the supply chain are:

Technology creates efficiency, ease of operations, robust information flow, security, and other benefits. It allows for the highest levels of performance in any organization, but more particularly in the global supply chain. Technology advances forward and expands every day. Keeping contemporary is a challenge that all supply chain executives face.

Cyber Security has grown to be a significant threat. It must be contemplated and managed in every moment and keystroke of the day. There are cybersecurity solutions that must be integrated into all aspects of operation, where there is a technology interface.

Step 6: We have been doing it this way … for over 5 years with no problems.

We hear this often and clearly because a company has not encountered a specific problem, does not necessarily mean things are being done correctly.

A volcano is not a problem until it erupts. The underlying problem is waiting for emergence. Dealing with potential issues proactively and anticipating “what ifs” are a much better option.

Potential problems along with potential betterments must be proactively pursued to assure you do not have serious issues and are doing all possible to reduce risk and cost and/or business process improvements.

Continually updating a logistic SWOT Analysis, risk management assessments and process evaluations are all necessary steps in mitigating any unanticipated problems in the future.

Because no one is complaining does not mean everything is ok. You must be proactive in making sure everything is ok, without assumptions. Err to the side of conservativism as it will prevent future headaches.

The pandemic was a complete disaster and disruption to all global supply chains. Having said that, some good came out of it as companies had time for internal introspection at risk and threats leading to proactive steps in mitigation.

Step 7: We Handed it to the Carrier, so it must be “on board”

Tracking and tracing need to be accomplished at a very detailed and exhaustive level.

Just because you have confirmation that a carrier has received freight, does not assure it made it on board the vessel, aircraft, railcar or truck.

You need affirmation that in fact the goods have actually made it on board the conveyance with an updated ETA, followed up with daily frequency, in case of any unanticipated delays, which occur all the time.

Step 8: We Always Check the Denied Parties List

Many international executives believe their companies are consistently checking and reviewed the various lists making up the “Denied Party Screening” regulations for importers and exporters.

In many years of auditing companies engaged in global trade, only a small percentage is fully compliant with the review, checking and compliance responsibilities associated with Denied Party Screening.

There are available direct connections into the government agencies and numerous third-party technology companies with DPL Screening Capabilities.

Step 9: I am the Ultimate Consignee on these Goods, but not the Importer of Record.

Many companies who are the recipients of imported merchandise who are not participative in the import process believe they have no import responsibilities.

That is potentially and totally incorrect! Customs (CBP) has the right to evaluate any import situation and determine that the ultimate consignee could be considered the “importer of record” and therefore has all the responsibilities as the “importer of record”. This would then require adherence to all import regulations HTSUS, valuation, recordkeeping, etc.

Step 10: Domestic Packing will work for my International Shipments

Claims for loss and damage on international shipments occur every day and a major cause is inadequate packing, marking and labeling.

Just check with any marine insurance companies they will advise of the frequency and the severity of claims occurring on import and export shipments directly attributed to inadequate packing marking and labeling which could jeopardize marine cargo insurance coverage as an implicit or explicit warranty.

Step 11: Do we really need to ensure the shipment?

Loss and damage to international freight is a daily occurrence worldwide. In the overall cost of the global supply chain, marine insurance is an inexpensive purchase offering a high value of the return.

Just looked at what happened this year in the Suez Canal, with the grounding of the Ever Given (Evergreen Lines) which potentially caused losses in excess of $ 1billion.

Direct claims in delays and damage and indirectly caused by a General Average Claim. The fines, penalties, delays and lost cargo is still mounting, as only in early July, has the vessel finally exited the Suez Canal.

Marine cargo insurance is a solid, responsible, value-driven, and best practice purchase for any company shipping goods internationally.

“All Risk”, “Warehouse to Warehouse” with contemporary customized underwriting terms under standard policies are available.

Step 12: Do I need to train my global supply chain team?

The challenges of the global supply chain are numerous and daunting. These challenges can only be met by experienced well-trained managers and staff. The training needs to be consistent, contemporary and robust. Key areas to include are:

-Compliance

-Documentation

-Negotiating Freight

-Sourcing Management

-Logistics Management

-Technology Management

-Warehousing & Distribution

-International Contracts

-Risk and Spend Directives

-Foreign Trade Zones

These outlined above show a handful of the necessary skill sets required for import and export personnel to master. And “training” is the pathway to successful global supply chain management.

Summary:

The twelve examples outlined above provide a synopsis and evidence that mistakes based upon a lack of knowledge and skillsets can cause great disruption in import and export activity in the global supply chain.

Developing resources, providing training, and implementing procedures will assist in mitigating the problems and challenges identified in the above article.

Resources in international business and supply chain management will provide informed intelligence that will allow for making better decisions.

Training and skill set development will better prepare supply chain, import & export executives, managers, and staff to better deal successfully with all the challenges of global trade.

Procedures, protocols, and disciplines in management are always critical to a company’s success in business. In the global supply chain, SOPs are an integral component of freight, logistics, trade compliance, foreign sales, and overseas procurement that assure a company’s success in its international footprint.

The author can be reached at: tomcook@bluetigerintl.com for questions and comments.

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

Eliminating Non-Dutiable Charges from Customs Value

July 26th, 2021 Andrew Siciliano and Elizabeth Shingler, KPMG LLP Leave a comment

Similar to how taxable income is a primary element to determining income tax, the customs value is used to calculate duty liability. To determine an accurate customs value, companies must factor in certain dutiable additions and non-dutiable deductions. In today’s high-tariff environment, maximizing every deduction is critical and many importers are leaving money on the table.

For U.S. importers using transaction value, which is “the price actually paid or payable for the merchandise when sold for exportation to the United States,” the focus is often on validating that the enumerated additions to the price are properly declared to U.S. Customs & Border Protection (CPB). While this is a necessary step for maintaining compliance, trade teams should also consider whether they may appropriately deduct or exclude certain charges.

Historically, these savings opportunities have not been fully explored because the resources required to sustain some of these programs exceeded the savings. However, with the Section 301 tariffs in place for China-origin products, many companies are paying significantly more in duties. Removing these non-dutiable costs can provide substantial savings–making it worth taking a second look at them for many importers.

Eight Overlooked Non-Dutiable Charges

For importers using transaction value, the following savings opportunities should be considered. While some of these programs provide ongoing savings and some are only used in specific circumstances, they all may play a role in reducing the tariff spend.

1. Freight and Insurance

Foreign inland freight, international freight and insurance costs may be deducted from the transaction value if you meet certain requirements. More specifically, with accurate incoterms and supporting costs and documentation, this can provide long-term cost savings. Importantly, importers must verify that they are deducting the actual, not estimated costs, and that the supporting documentation is adequate. While the requirements around deducting these costs may be daunting, the advances in technology make freight deductions more approachable than ever.

Further, insurance costs may be deducted from the entered value when they are separately itemized and the actual costs (not estimated) are claimed. It is important to verify with sellers that they are providing actual costs because CBP will reject deductions based on estimates, even in cases where the importer paid more than it claimed on the entry.

2. Supply Chain (“Origin”) Costs

International transportation costs typically include certain other fees, often referred to as “origin costs.” In many cases, CBP considers these origin costs to be “incident to the international shipment of merchandise” and, therefore, possibly excluded from the customs value. Examples of these charges include security charges, documentation fees, and logistics fees.

On a per-shipment basis, these miscellaneous fees may appear insignificant. However, on an annual basis, they can result in a significant expense for the company by driving up duty payments. As a general rule, the importer must deduct the actual costs, validate that commercial documentation meets all requirements and understand where services are being provided. However, once these steps have been taken, it is likely that little additional work will be required to realize ongoing savings.

3. Warehousing Costs

CBP has found that warehousing costs paid by the buyer to third parties are not included in the price actually paid or payable of the imported merchandise. However, CBP has distinguished this scenario from instances where the seller, or a party related to the seller, provided this same service and the warehousing costs are included in the price actually paid or payable. In that case, those payments were found to be dutiable and may not be deducted.

For importers interested in using this opportunity, a careful review of payments and terms of sale should be conducted to validate that the transaction meets all of CBP’s criteria prior to taking this deduction.

4. Inspection or Testing Fees

Often before shipment, an importer will arrange for products to be inspected or tested to validate it satisfies a buyer’s quality standards. Under certain conditions, these fees may be excluded from the dutiable value in instances when they are made to third parties unrelated to the seller of the goods.

It’s also important to understand that testing that is “essential to the production of that merchandise” is dutiable. In such cases, CBP would consider payments to unrelated third parties for these services as assists that are part of the transaction value. For importers who rely on the seller to perform inspection or testing services, an analysis should be conducted to assess the ROI for engaging a third party to perform these services.

5. Latent Defect Allowances

In certain circumstances, importers may be able to reduce dutiable value post-importation based on repair costs attributable to manufacturing or design defects. For importers with high-value products, such as those in the automotive industry, repair costs can be substantial and this allowance in value provides an opportunity to manage those costs by reclaiming duty.

With proper planning, a program can be implemented to help ensure the importer does not overpay duty on goods that were defective at the time of import. While there are a number of requirements that must be satisfied to receive a duty refund, high-value importers should explore whether this may be an opportunity for them.

6. Instruments of International Traffic – Reclassification of Packaging

In certain cases, pallets, cartons, hangers and other packaging material may be considered instruments of international traffic (IIT), exempting them from duty. To qualify as an IIT, CBP has determined that the article must meet criteria, including that it is “substantial, suitable for and capable of repeated use, and used in significant numbers in international traffic.” Further, the article must be used in commercial shipping or transportation more than twice to qualify as an IIT.

For importers whose supply chains include the reuse of certain containers or other materials used to transport international goods, it may be valuable to assess whether these goods qualify as IIT and are, therefore, duty-free.

7. Post Importation Price Adjustments

When companies make post-importation price adjustments they may be entitled to a duty-refund on the amount adjusted. This typically occurs when downward transfer pricing (“TP”) adjustments are made between related parties, causing a reduction in the products’ customs value.

For companies that routinely make retroactive transfer pricing adjustments, having in place the documentation to support a refund can have a powerful impact on duty spend.

8. Taxes and Other Fees

Companies may be entitled to deduct Value Added Tax (“VAT”) or Goods and Services Taxes (“GST”) from the declared value of the imports when these payments are refunded. Not only should importers maximize their refunds where possible, but in doing so they open another opportunity for savings. When VAT is remitted by the U.S. importer to the foreign seller, separately identified and refunded to the importer, then the refunded amount is not included in transaction value.

Importers should team with their tax departments and foreign suppliers to understand if VAT refunds are obtained and create documentation that reflects separate itemization of the refunded VAT.

The Big Picture

Potential cost savings through the reduction of non-dutiable charges from the dutiable cost basis of imported goods are often overlooked. However, in this high-tariff environment, these programs can help companies easily achieve cost savings.

Additionally, with advancements in technology, managing these programs is more straightforward than it used to be.

Of course, like with any duty-savings program, strong controls must be implemented to preserve compliance. However, as it is likely that steep tariffs will be in place for some time, companies should evaluate which of these programs can help reduce costs, potentially improve the return on investment and then develop an implementation roadmap.

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Andrew Siciliano is a Partner and U.S. Trade & Customs Leader at KPMG LLP. and Elizabeth Shingler is a manager at KPMG’s Trade & Customs Practice.

Archives, Departments, Dispatches, Global Trade Daily

MERRY CHRISTMAS IN JULY, FROM SEKO LOGISTICS

July 25th, 2021 GT Staff Leave a comment

SEKO Logistics, which began in 1976 as a single-office operation in Chicago and now has a global reputation for innovation and first-class logistics services, has a special season’s greetings for the supply-chain industry: Get your shipments in order now for the peak Christmas holiday shopping season.

The Grinch causing this disruption: COVID-19, whose “lingering effects . . . meant that the Port of Los Angeles and Long Beach were hugely congested earlier this year by the surge of importing, and it’s only going to get worse before it gets better,” according to a SEKO release.

Compared to previous years, shipments need to be booked up to eight weeks earlier than usual, according to Akhil Nair, SEKO’s VP Global Carrier Management & Ocean Strategy APAC. “The current global ocean freight supply chain is facing huge issues, none of which seem to be going away any time soon, and definitely not before Christmas,” Nair maintains.

“Based on what we are seeing, the current port-to-port lead times are being impacted by two major factors. One, origin–shippers are unable to get equipment or space to get their cargo out in time. And two, destination–the port congestion is having a severe impact on schedule reliability. This is resulting in further delays–up to 20 days on major export trades from Asia.”

Bah, humbug!

Air Cargo, Archives, Global Logistics, Global Trade Daily

The Important Role Air Cargo Plays in the Global Supply Chain

July 15th, 2021 Melissa Hull Leave a comment

For over a century now, air cargo has played a crucial role in getting time-sensitive and high-value shipments from one point to another as quickly as possible. The world’s first cargo flight was in 1910. Since then, air cargo and private cargo shipping have played a crucial role in transporting time-sensitive and high-value goods internationally and domestically.

Over the years, air transport has also proven to be a key “connector” between the manufacturers and the consumers. In the midst of the COVID-19 pandemic, shipments that took too long to get from one point to another were quickly transported via air.

According to the International Air Transport Association (IATA), air cargo has played a pivotal role in delivering much-needed medical equipment (including repair components and spare parts) and medicines.

Air cargo has also kept the global supply chains functioning for time-sensitive materials. This was carried out by utilizing cargo capacity in passenger aircraft, dedicated cargo freighter operations, and relief flights to affected areas.

IATA added that airfreight had been used to transport a staggering $6 trillion worth of goods annually. This represents at least 35 percent of all global trade by value. However, it is less than 1% of the trade when measured by volume.

The imbalance between value and volume can be attributed to the fact that most of the products that are shipped via air have a high value. Within a given 24-hour period, air cargo providers around the world have:

-Utilized over 100,000 airplanes

-Transported over 20 million parcels

-Shipped a whopping $18.6 billion worth of cargo

Economic Benefits of Air Transport

The air transport industry has a massive and significant impact on other industries and is also considered a growth facilitator. It also affects the global economy’s performance by enhancing the efficiency of other industries across the entire spectrum of economic activity. This is also referred to as “spin-off” or catalytic benefits.

Air transport helps facilitate world trade.

Air transport has allowed countries to participate in the global market by giving them access to primary markets and allowing globalization. Air transport also helps countries to specialize in activities where they have comparative advantage. It also helps facilitate trade with countries that provide other goods and services.

Air transport has been indispensable in the tourism industry.

Air cargo is especially useful for tourism on the island and remote destinations. Tourism directly supports employment in airports and airlines. Spending of tourists and visitors that arrive by air also creates a significant number of jobs in the tourism space.

Air transport boosts global productivity.

Improved air transport links have been pivotal in helping global markets expand. As a result, companies can exploit economies of scale better. This reduces cost dramatically and, as mentioned earlier, allows companies to specialize in areas of comparative advantage.

As more markets open up, air services can introduce companies to more competition and encourage them to become more efficient in the process.

Air transport improves supply chain efficiency.

Countless industries utilize air transport to reduce delivery times as part of the “just-in-time” delivery systems. This will reduce costs and enable companies to deliver products to customers reliably and quickly.

Air transport encourages effective collaboration and networking.

Air transport has been helping promote collaboration and networking among companies from different parts of the world. An excellent transport infrastructure also encourages companies to spend more on development and research.

Final Thought

As the world continues to deal with the unprecedented impact of the COVID-19 pandemic, air transport will continue to play an increasingly vital role in keeping the world’s supply chains running smoothly.

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Melissa Hull is the Content Marketing Strategist for Aviation Charters, a West Trenton, New Jersey-based private aviation company that provides on-demand aircraft charter, aircraft management, and aircraft acquisition services. Aside from her passion for writing, she loves to travel and read espionage books.

Air Cargo, Archives, Global Logistics, Global Trade Daily

Why is Global Air Cargo Demand on the Rise?

June 24th, 2021 Thomas Hendricks Leave a comment

According to the International Air Transport Association (IATA), the official global body of the airline industry, the demand for global air cargo reached its highest level since IATA began collecting the data in 1990. In March 2020, the demand was 4.4 percent higher than in March 2019. This was the month before the Covid-19 outbreak. However, the statistics don’t necessarily explain why global air cargo demand is at such an all-time high. Let’s try to break down some events that have led to the current state.

The upside of the pandemic

The pandemic has taken many lives and caused numerous problems for nearly every nook and cranny of the financial world. However, this doesn’t mean that there’s no silver lining to be found. The demand for global air cargo has benefited from the consequences of the pandemic in volumes no one could’ve predicted. Following the COVID-19 epidemic, air cargo demand has been steadily increasing.

However, it’s not all rainbows and butterflies in this industry. It seems that the demand growth slowed down a bit in March. In March 2021, air cargo demand was only 0.4 percent greater than it was in February 2021. Furthermore, in February 2021, it was 9.2 percent greater than in February 2019. The lower performance of Asian-Pacific and Latin American operators could be to blame for the slowdown. This, of course, doesn’t mean that the rising chain has been broken. It’s merely settled on a slower pace. The fact that demand in March 2021 was at its highest point since 1990 supports this point.

The everlasting will to evolve

Of course, we cannot contribute the rise of global air cargo demand solely to the pandemic. People need to be willing to make lemonade out of lemons; the lemons alone aren’t enough. The cheesy metaphor aside, all it means is that airlines are taking all the necessary measures to find the needed capacity to continue working and evolve beyond their previous achievements. They are using the recent boost to improve upon significant issues such as the frequency of delayed or damaged goods.

This crisis has proven that air freight can overcome fundamental problems by quickly embracing innovations. This is how it has continually remained the most effective way of shipping. Even though a part of the passenger fleet remains grounded, it continues to meet the growing demand. By digitalizing and being open to new ways of doing business, global air cargo is a bright light in the aviation industry.

Underlying economic conditions are beneficial to global air cargo demand

The underlying economic climate remains favorable for air cargo. The manufacturing Purchasing Managers’ Index (PMI) component of new export orders, which stood at 53.4 in March, reflects this. Manufacturing growth during the previous month is demonstrated by a score of above 50. During January and February 2021, this was centered in developed countries. Deliveries for manufactured goods are also increasing dramatically, which usually means more demand for air freight in an effort to cut down on shipping time.

Global air cargo is convenient

Seeing how this way of transporting items is the fastest, there are many benefits to it. This naturally makes it far more convenient and is why people turn to global air cargo regularly. Aside from the fact that this transportation alternative is fast, it’s also very reliable. Another great pro that explains the rise of global air cargo demand is that there are no conditions location-wise. Wherever you live, delivering your goods won’t be an issue. This means that you’ll be able to cut down on additional costs such as renting storage, packaging, and insurance, especially if you’re relocating. Global air cargo allows you to plan your shipments to a tee.

Air cargo is setting new sustainability goals

One of the worst downsides of global air cargo is its environmental impact. However, the industry has been working on reducing its carbon footprint by digitalizing operations wherever possible. The fact that air cargo is trying to be sustainable is excellent news! These activities are critical for long-term success. By removing unnecessary steps and reducing the amount of time, effort, and resources needed, digitization will help advance sustainability. They’ll save paper by using e-air waybills, for example. The use of artificial intelligence will result in more efficient planning and lower fuel use. Apart from the ideas that have already been set in motion, the demand for global air cargo also motivates industry workers to keep trying to develop new ways of making air freight sustainable.

Not everything is black and white

Although we can safely speak of the rise of global air cargo demand, staying objective is imperative. It’s essential to be aware of the reality surrounding this matter. All this means is that you should by no means imagine a straight rising line of improvement. Even though the demand for global air cargo is growing, we cannot neglect the rollercoaster nature of it all.

Many factors affect global air cargo demand. For example, it varies significantly across the IATA’s regions. Africa has had the best results, while Latin America had the lowest. Strong Asia-Africa trade flows dramatically enhanced African air cargo demand by 24.6 percent in March this year compared to March 2019. Over the same period, Latin American demand on international routes decreased by 23.6 percent.

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Thomas Hendricks has been working as a consultant at primemoversnc.com with an ambition to help people get the most out of their moving experiences. When he is not working, you can find him reading about the innovations in the industry or polishing up his cooking skills.

Archives, Global Logistics, Global Trade Daily, Ocean Ports

Yantian Port Congestion: How Can Shippers Navigate Another Major Supply Chain Disruption?

June 22nd, 2021 Sri Laxmana - Vice President, Global Ocean Product, C.H. Robinson Leave a comment

While the global logistics industry has not been a stranger to disruption this past year, the congestion at the Port of Yantian in China is starting to impact the market at an exceptionally high level. At the current pace, it’s going to be even more disruptive than the Suez Canal blockage this spring and the ongoing congestion at the Port of Long Beach/LA over the past year. This is due to the magnitude of the trade lanes and exports the port touches. Unlike the Suez Canal incident or other recent port issues, which have impacted a more limited number of regions and trade lanes, the Port of Yantian is a major export hub for multiple large markets like Europe, North America, Latin America and Oceania.

This disruption also came on top of an already brittle logistics system which is currently grappling with several unprecedented challenges, including equipment shortages and decreased schedule reliability, to name a few. Right now, the reliability that the vessel carrying your goods or expected to pick up your goods will show up on time is roughly 5%. At this time last year, it was around 80%+. And, as ocean carriers introduce more blank sailings or skip ports to start improving the reliability percentage, that means the freight that was skipped is now added to the backlog of containers that will flow into the next vessel.

It’s likely we won’t see a large shift in congestion until the demand levels out. And while this market does not lend itself to a silver-bullet solution, there are things shippers can do to keep their supply chain afloat:

1. Be open to hyper flexibility

While flexibility is important any time global logistics are involved, the phrase ‘now more than ever’ holds true here. Currently, delays at the Port of Yantian are ranging from 10-15 days, which is a large jump from the 2-7 day delays we experienced just few weeks back.

Switching between ports, modes, and trade lanes has been an active strategy to avoid these delays, but shippers can’t rely on only adjusting once or twice since other shippers are also making these shifts as they compete for limited space. A good example of how this plays out is in the case of congestion at the Port of Oakland. Over the last few months, as the delays at the LA port were mounting, carriers started diverting sailings to Oakland. The result? Oakland is now also severely congested and suffering from the same unpredictability.

Fact remains, ocean carriers are deploying the most capacity on the U.S. west coast (USWC) routing, and as complexities in the interior of the U.S. continue to be exacerbated (i.e. lack of chassis and rail congestions), carriers continue to limit options for containers moving inland. Shippers need to continue to be flexible in enabling containers terminating on the USWC and leveraging transloading and trucking inland options.

When considering flexibility across modes, keep in mind air may be the solution for a few shipments, but it’s not a feasible option to shift all your ocean freight to air. Instead, exploring a mix of modes, like LCL + air, may offer a more realistic opportunity for your company in a more cost-competitive way. Having the right partner with a global suite of service and technology offerings coupled with scale and a strong inland network, is going to make the difference for supply chains in the market.

2. Prepare for ultra-prioritization

Prepare to make tough decisions on what freight is most important to move. This can be especially difficult for companies importing seasonal items, like patio furniture or pools since their selling window is limited.

With today’s demand, most shippers would classify all their freight as a top priority but shipping it all at once may not be realistic. It’s important to sit down and have those conversations now so when the opportunity presents itself for portions of your freight to move, like in an LCL shipment, you’re ready to make the call.

3. Don’t dismiss historical data

I’ve been in the business 20 years and never seen anything like this in a global magnitude, impacting almost all core trades. However, a unique situation does not mean historical data no longer lends itself to helping us find solutions.

The market will improve, and things will get better. However, these issues tend to be cyclical as we look at the data. We need to build resiliency around supply chain and continue to have options to navigate. While some of these events are hard to predict and plan, there are things that you can do, such as diversifying distribution center locations, sourcing, etc.

Final Thoughts

Until the high demand subsides, the above points will be crucial moving forward. C.H. Robinson has always been focused on working alongside our customers to help them succeed – and that’s no less true during times of incomparable volatility. It’s important to keep an open line of communication and to be open to creative solutions. As we work through this together, I encourage you to keep tabs on our data-driven market insights page and reach out to your representative.

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