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EXPANSION ALONE MAY NOT BE ENOUGH AS BUSY PORTS EYE SMARTER GROWTH

ports
Archives, Global Logistics, Global Trade Daily, Ocean Ports

EXPANSION ALONE MAY NOT BE ENOUGH AS BUSY PORTS EYE SMARTER GROWTH

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A sharp increase in container cargo in the second half of 2020 and into the early months of this year has proven to be a pleasant surprise for several U.S. ports. But even prior to the impacts of COVID-19 on container cargo, many ports were already dealing with substantial growth and operational success. “Deeper, wider, bigger” has been the theme as ports and terminals spent and continue to spend billions of dollars to capture greater market share.

So, is “deeper, wider, bigger” the secret to growing the container business?

“There really is no secret,” says Joe Harris, spokesman for the Port of Virginia, who adds that his home facility “offers a modern, technologically advanced port run by a team of experienced professionals. We focus on customer service, efficiency and providing a predictable experience to our customers–the ocean carriers–and the cargo owners choosing to move their goods over our terminals. Those things, combined with a long-term plan of strategic infrastructure investments that is shared with the port’s users, are vital to our future.” 

From 2014 through 2024, the Port of Virginia will have invested nearly $1.5 billion in modernization. This includes expanding annual TEU (twenty-foot equivalent units) throughput capacity by 1 million units and deepening and widening commercial channels to make Virginia the deepest port on the U.S. East Coast. 

“The strategy is to leverage these investments to grow volume, expand market share, build our competitiveness and continue to be a catalyst for economic investment and job creation in Virginia for decades to come,” Harris said. 

Supporting the strategy is a team of professionals across the world, including the U.S., representing the port. These professionals are continually engaged in driving business to Virginia, according to Harris. “They are supported by a business analytics team that is helping to identify emerging markets, new industries, expansion among beneficial cargo owners and ocean carriers,” he adds. 

Port Tampa Bay has also witnessed a strong uptick in container cargo.

“Our container business increased by 33 percent last fiscal year and is up another 43 percent in the most recent quarter,” says Wade Elliott, the port’s vice president of Business Development. “The primary driver is the continued rapid growth of the Florida market, which was the second-fastest-growing state by population last year.”

The Tampa Bay/Orlando I-4 Corridor region, home to Florida’s largest concentration of distribution centers with close to 400-million square feet of space, “was already one of the hottest industrial real estate markets in the U.S. pre-COVID-19,” Elliott notes.

“New container service connections from Asia, and more recently Mexico, have helped facilitate this increased business,” he says, “and the port’s close proximity to these distribution centers allows importers and exporters to make multiple round-trip deliveries per day, resulting in significant savings in trucking and supply chain costs.”

To keep pace with the growth, there is a need to develop more infrastructure.

“Port Tampa Bay recently completed 25 acres of additional paved storage, bringing the total container terminal footprint to 67 acres with plans to add another 30 acres,” Elliott said. “Work has also begun on a third berth which will bring the total to over 4,500 linear feet, allowing three large ships to be worked at the same time. Construction is also about to start on a new container gate complex and the bid process has begun to acquire two, additional gantry cranes,” Elliott concluded.

The Jacksonville Port Authority (JAXPORT) saw container volumes rebound up by 5 percent year-to-date in FY21 (Fiscal Year) which began in October. Nearly 353,400 TEUs moved through JAXPORT during the first quarter of FY21, making it one of the port’s busiest first quarters on record for container volumes.

“Location and efficiency are both central to JAXPORT’s success throughout our various trade lanes and business lines,” says Robert Peek, JAXPORT’s general manager of Business Development. “JAXPORT is located in the heart of the southeast U.S. and offers fast access to 70 million consumers within a day’s drive.”

Historically, Puerto Rico has been JAXPORT’s largest trading partner, accounting for about half of all JAXPORT’s containerized volumes, but Jacksonville has been actively pursuing new business.

“Today, container shipping lines service additional Caribbean islands through JAXPORT, as well as Central and South America,” Peek added. “JAXPORT also offers robust container vessel service with China and countries throughout Asia.” 

With the benefits of congestion-free terminals and infrastructure enhancements, anchored by a harbor deepening project, JAXPORT will “continue to work to grow our offerings in the trans-Atlantic and African trade lanes as well,” Peek said.

With Jacksonville also in the “deeper, wider, bigger” mode, its infrastructure projects will support its growth plans.

“The federal project to deepen the Jacksonville shipping channel to 47 feet from its current depth of 40 feet will be completed through our Blount Island Marine Terminal in 2022,” Peek said. “Harbor deepening is JAXPORT’s single biggest growth initiative and positions us as a port of choice for the increasingly larger container ships calling the U.S. East Coast.”

More than $200 million in terminal enhancements are also underway at the SSA Jacksonville Container Terminal at Blount Island. “These enhancements include phased yard improvements to allow the facility to accommodate more containers, berth enhancements to enable the terminal to simultaneously accommodate two post-Panamax vessels and the addition of three additional state-of-the-art, eco-friendly container cranes, bringing the facility’s total to six,” Peek added.

California’s Port of Long Beach is a leading gateway on America’s most important trade route, the trans-Pacific, and it offers the fastest and shortest route between Asia and the United States.

“We offer more connections to interstate highways and national rail lines, along with access to 2 billion square feet of warehouse space in the region,” says port Executive Director Mario Cordero.

In 2020, Long Beach handled more than 8.1 million TEUs, the best year in its history “and to start off 2021, we’ve had our best January and February on record,” Cordero adds.

The port sees growth opportunities in markets such as Southeast Asia as well as Latin America, and eventually Long Beach would also like to see a resurgence in U.S. exports, Cordero says.

Capital improvement projects are crucial to maintaining successful and growing operations. Cordero says the port is completing “the world’s most advanced container terminal at Middle Harbor,” known as Long Beach Container Terminal.

Slated for completion later this year, this automated terminal will have 14 ship-to-shore, dual-lift cranes. Six of the cranes will be big enough to handle a 22,000 TEU ship. There will be 70 stacking cranes and 72 automated guided vehicles (AGV) at full build-out, adding an annual capacity of 3.3 million TEUs.

“In 2021, planned capital expenditures of $379 million account for 58 percent of our spending,” Cordero says. “Over the next 10 years, the port will invest $1.7 billion in infrastructure and $1 billion of that is for the development of the port’s on-dock rail capacity.”

Not surprisingly, the growth of the container business has spurred innovation in other aspects of the industry. 

California-based Blume Global, for example, has co-developed with Fenix Marine Services (FMS), a marine terminal operator at the Port of Los Angeles, a technology platform to add efficiencies to container movement. 

“This service doesn’t simply help the terminal operate more efficiently, the entire port ecosystem (ocean carrier, rail carriers, motor carriers, labor interests, logistics service providers, beneficial cargo owners) gains an advantage,” says Lincoln Pei, account manager, Blume Global. “When containers flow quickly through port complexes and marine terminals, vessel berth and rail car capacity are optimized, gate transactions are timelier, and dray carrier wait times are reduced, among other improvements,” he says.

cross-border
3pls, Archives, Global Logistics, Global Trade Daily

CROSS-BORDER CARGO TRANSPORTATION CHALLENGES AND SOLUTIONS

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Managing a streamlined supply chain for cross-border cargo transportation entails much more than identifying the fastest, most efficient method of getting cargo from point A to point B. Current market challenges have been amplified due to the pandemic and now go beyond ensuring cargo arrives at the final destination on time. The safety of transportation workers as a result of internal processes is now at the forefront of cross-border transportation. After all, if the truck driver is not healthy enough to deliver the products, the products do not move. In the new normal, worker safety is more important than ever.

“Some of the challenges out there are found more so in the area of the trucks that are crossing and the drivers,” says Michael Ford, vice president of Government and Industry Affairs at BDP. “If I was a trucking company, how do I ensure my driver’s safety? When that driver gets in the cab every day, do I know they are healthy?”

Ford continues, “Setting up those types of protocols internally, ensuring that I’m putting a safe driver on the road and that they’re able to perform those tasks as if there’s any type of cross border is critical, especially now. Coordinating, communicating, setting that up, and ensuring that everything is in play really becomes important.”

When driver safety has been established, coordination efforts are challenged once again depending on the region the cargo is crossing. Each region presents a unique set of roadblocks from customs to short and long-haul planning times. Cross-border transport from the U.S. to Canada is a much different process than what U.S. to Mexico transport requires for success.

Although these challenges are not new, they include more variables that require streamlined coordination from the very beginning. Trade lanes are now more open and traveler impact has shifted, presenting opportunities along with the challenges.

“In the past, we have seen much more congestion than we do currently,” Ford notes. “It has always been there between the U.S. and Mexico. But now, while there is less cargo and less traffic running back and forth, it has improved processing time. So, less cargo, less travel. If anything, it has improved and allows U.S. and Mexico customs to do what they need to do–which is all about security and ensuring the right cargo is coming through.”

Technology continues to play a critical role in ensuring worker safety and the efficient transport of cargo. The pandemic created an environment where technology is no longer simply an option but a requirement for the continuation of operations as it provides alternatives to paper-processes and close-contact for workers and customs agents.

“Previously when trucks cross, the driver pulls over, gets out of the cab, and hands paperwork over,” Ford says. “So, the question now is how do we achieve that full paperless experience on both sides in the U.S., Canada, and Mexico? When the driver pulls off, I need to know I have the driver, the driver’s ID, etc. and technology supports the keeping up with this information. It also keeps the driver in the cab and allows whatever information needed to be accessed.

“Advanced data has allowed a lot of that to take place. Being able to share and obtain better inter-agency  cooperation goes a long way to helping the flow of cargo across the borders.”

Technology is a part of the bigger picture. Without technology, the constant exchange of information and obtaining updated data is slowed down. Without inter-agency communications along with customs collaborations, cross-border operations are at risk for further delay. Collaborations between customs agents are the key to making operations for cross-border providers more simplified and accelerated. This incorporates security and accuracy while verifying the right cargo continues to its final destination.

“U.S. Customs has been working with Mexico and vice versa to establish points inside of the other’s country and allowing personnel to set up there,” Ford says. “In the case of letting Mexican Customs come into U.S. territory and process the clearance, it allows that truck to go all the way through, eliminating the need for stopping at the border area. This makes a world of a difference and it speeds everything up. It requires the need for cooperation of the companies that want to improve their business flow. Changing to a brand-new environment for cross borders is big.”

Beyond reducing interactions, the overall reduction of paper processes and redundancies continues to be at the top of mind for companies engaging in cross-border operations. Along with its other supply chain disruptions, COVID-19 has pushed logistics players toward paperless and contactless operations, adding more pressure to the already complex market. For some, utilizing the technology toolbox (such as blockchain) could be the very thing that overcomes the hurdles presented by the pandemic.

“We hear a lot about blockchain, and there are applications inside of this cross-border sector where blockchain can be used as a piece of technology,” Ford says. “Instead of paper, using a blockchain technology to prove that your goods qualify under the USMCA agreement should be in play, for example.”

Regardless of whether the world is battling a pandemic, streamlined collaboration will ultimately pave the way for successful cross-border trade. This requires the latest data for every participant, thorough internal and external communications, and solid business relationships with a common goal to ensure products are received safely and accurately.

“Everybody needs to be involved,” Ford maintains. “It is everybody working together: the carrier, the custom-house broker, the government, and all others. It is also about forming that type of relationship where information is being shared and collected, and as much in advance as possible is part of the success that needs to happen.”

He concludes: “Things can’t just stay the way they have been. But on the other side of things, we need cargo security and the customs officers from the U.S. and Mexico need to be safe. We talk about COVID-19 and workers, but we are also asking those officers to be on the front lines. Keeping that in play becomes a big challenge.”

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Michael Ford is a career professional with more than 40 years of experience in international transportation, specializing in import/export documentation and regulatory compliance. Among his other affiliations, Mr. Ford is the co-chair for Trade on the Export Committee in the development of the new Customs ACE system and has served with Customs as a member of COAC (Commercial Operations Advisory Council), chair of the Mid-Atlantic District Export Council and the partner sector with the American Chemistry Council, Responsible Care Committee. He can be reached at michael.ford@bdpint.com. 

This article was originally published in December 2020

regulations
Archives, Global Trade Daily, International Trade

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: OUTLOOK FOR 2021

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This is the fifth in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules and intends to be explanatory in nature.

During a seemingly interminable and challenging transition period, the Trump administration has layered on an array of additional China sanctions. What are the impacts of these actions? What approach is the Biden administration likely to adopt and what changes can we expect? These are the topics that are addressed in this article, the last in this five-part series.

China-related Sanctions since November 6, 2020

Specifically, since November 6, 2020, the Trump administration has:

1. issued an Executive Order banning US persons from trading in the publicly traded securities of more than 35 “Communist Chinese Military Companies;”

2. named no less than 60 Chinese entities to the US Commerce Department Entity List, which establishes a license requirement for nearly all exports to such firms and general presumption of denial for such exports;

3. designated 58 entities as China “Military End Users” under the Export Administration Regulations (EAR), which also results in restrictions on a wide range of high-tech exports; and

4. removed Hong Kong as a separate destination from China under the Export Administration Regulations, which removes its preferential treatment for export licensing.

Moreover, during the same period, President Trump signed an executive order blocking transactions with companies that “develop or control” certain Chinese connected mobile and desktop applications and related software – namely Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office. At the same time, earlier executive orders banning transactions with the owners of TikTok and WeChat were halted by federal courts and the effective date of these orders has been suspended pending the outcome of ongoing litigation.

In particular, compliance with the recent securities trading ban has proven challenging for the financial community, forcing banks and investment companies to divest or restructure hundreds of products containing publicly traded securities of the named “Communist Chinese Military Companies” and other companies whose names “closely match” the names of the listed companies. The term “securities” is broadly defined under US law, and OFAC has interpreted the ban to apply to any security that “designed to provide investment exposure” to the securities of a named entity. Thus, the ban includes, for example, a mutual fund which includes in its portfolio one or more of the subject securities or an insurance policy that has a mutual fund option for insureds holding the securities of such named entities. The ban also applies to securities held on a US or foreign exchange if the investor is a US person. The NYSE has announced the delisting of these companies, and both the NASDAQ and MCSI have announced they will remove the listed companies from their indices.

In short, while other lame duck presidents have taken actions that make things easier for their successors, the Trump administration has taken the opposite tack in an apparent effort to lock in a hard-line China policy. It will be more challenging for the Biden administration to easily unwind. In response, China has adopted its own regulations prohibiting Chinese companies and individuals from complying with “punitive measures mandated by foreign governments.”

Outlook under President Biden 

Whether and to what degree the Biden administration will implement, unwind or limit the scope or applicability of these and other pre-existing Trump administration restrictions against China remain to be seen. As a threshold matter, we expect an initial waiting period as the Biden administration gets its new team in place, evaluates its overall strategic approach toward China, and considers these particular restrictive measures in the context of its overall strategy.

Generally, based on public statements to date, we believe that the Biden administration will in all probability share the basic view that China is a strategic competitor and potential adversary. However, how to deal with China, a major power whose cooperation the United States needs on some important issues, is another matter – there are a range of possible approaches. In this regard, at this early juncture, we believe that US policy toward China under President Biden is likely to reflect a number of elements:

-selective disengagement with China in certain areas viewed as more central to national security and cooperative in other areas where national security risks are considered less significant;

-more cooperation with allies to shape shared approaches to addressing areas of concern with respect to China;

-stronger views on human rights violations by China; and

-more direct engagement with China on areas of concern with a view toward seeking sensible solutions.

It is within this overall policy framework that the Biden administration will evaluate and approach the new and existing China restrictions imposed by the Trump administration. Certainly, the Biden administration has the legal authority to undo or roll back nearly all of the Trump Administration’s actions.

At the same time, the new administration undoubtedly will recognize that any major actions to roll back China sanctions will be controversial and raise questions among policy hard-liners who believe stringent dual-use export control sanctions are strongly justified in light of China’s “military-civil fusion” strategy (i.e., whereby any dual-use exports to commercial firms could wind up in China’s military sector).  Indeed, even small actions to curtail or limit China sanctions (e.g., removing companies from lists, creating new licenses or issuing new interpretations) will send political signals both at home and abroad. Meanwhile, the business community will monitor and interpret such measures in Talmudic fashion to divine if there is a new wind blowing in this area.

For these and other reasons, we do not foresee an imminent reversal of most of the Trump administration’s actions. Rather, we expect a more balanced and incremental approach than we have seen in the last four years, with more careful sculpting of existing sanctions to ameliorate the effects (with FAQs, licenses and the like) while taking a strong line against China in other areas in coordination with close allies.

Previous installments can be found here.

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Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. A former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, export controls, foreign investment, industrial security, the Foreign Corrupt Practices Act, and mergers and acquisitions, and procurement.

Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

humanitarian
Archives, Foreign Trade Zones, Global Trade Daily, Imports/Exports

ECONOMIC SANCTIONS EXEMPT HUMANITARIAN TRADE

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Ailing Relations

Iran has been among the worst affected countries from COVID-19, having emerged as an early hotspot outside China. As of April 7, there were an estimated 62,589 confirmed cases with over 3,800 deaths. Iran’s cases appear to have peaked in late March, but exact numbers are unknown due to the secretive nature of its totalitarian regime. Other countries throughout the Middle East began reporting cases in late February and continue to battle spread of COVID-19 due to travel linked to Iran.

U.S. offers of assistance were rejected by Iran’s Supreme Leader Ayatollah Ali Khamenei, who said publicly on March 22, “You might give us a medicine that would spread the disease even more or make it last longer.”

According to the U.S. State Department, the United States has offered more than $100 million in medical assistance to foreign countries, including to the Iranian people, and reports that Iranian health companies have been able to import testing kits without obstacle from U.S. sanctions since January. The U.S. government has urged Iranian leaders to be more truthful about its efforts to contain the virus.

Iran assistance

Humanitarian Trade Exemptions

U.S. economic sanctions against Iran include a general exemption for U.S. exports of agricultural commodities, food, medicines and medical devices to Iran and an authorization process to obtain licenses for a specific list of medical supplies and equipment not covered under the general exemption. Such licenses are usually given for one year.

The U.S. government recently reinforced its messaging that sanctions are directed at the Iranian regime, stating: “[Sanctions] are not directed at the people of Iran, who themselves are victims of the regime’s oppression, corruption, and economic mismanagement.”

A 2019 Congressional Research Service report suggests U.S. sanctions have limited access by the Iranian population to “expensive Western-made medicines such as chemotherapy drugs,” due to a lack of bank financing for such transactions and that the limited supplies that exist have gone to elites.

Role of Financing

Between 2018 and 2019, overall U.S. trade with Iran went from small to very small under tightened sanctions. In 2018, U.S. exports to Iran were valued at $425.7 million. In 2019, U.S. exports had decreased 82 percent to $73.1 million.

Underlying that decrease in trade, even of humanitarian-related goods and services, reflects a tendency toward over-compliance by banks and multinational firms that avoid transactions with Iran to minimize possible violations of U.S. sanctions. Doing so, even inadvertently, could cut off their access to vital U.S. financial markets. The U.S. government has also explicitly cited concerns about the Iranian regime’s abuse of humanitarian trade to evade sanctions and launder money.

To close these loopholes, in October 2019 the Treasury Department announced a new payment mechanism “to facilitate legitimate humanitarian exports to Iran.” The measure restricts the role of the Central Bank of Iran in facilitating humanitarian trade, which the U.S. government views as financing terrorism. It also imposes rigorous reporting requirements to thwart diversion of funds intended for humanitarian use.

By late February 2020, as the COVID-19 medical crisis unfolded in Iran, the U.S. Treasury Department issued a general license authorizing certain humanitarian trade transactions involving the Central Bank of Iran while also approving the use of a Swiss financial channel to finance such transactions.

The Swiss Humanitarian Trade Arrangement (SHTA) enables Swiss-based exporters and trading companies in the food, pharmaceutical and medical sectors to access a secure payment channel with a Swiss bank to guarantee payments for their exports to Iran. Novartis was the first Swiss company to send medicine for use in cancer treatments. Germany, France and Britain have also used this new channel to offer a $5.5 million package to Iran to help fight the coronavirus.

exemptions in sanctions

Trade in Food and Medicine

Much has been written recently about governments restricting exports and otherwise increasing the cost of traded medical supplies during the pandemic.

For two decades now, the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) has ensured that each U.S. country-based sanctions program provides for trade of agriculture, medicine and medical devices under a broad humanitarian exemption. This is intended to limit potential adverse effects on civilian populations who are not the target of sanctions.

The United Nations Security Council maintains 14 active sanctions programs that also include humanitarian exemptions driven by the belief that a supportive and healthy citizen population is necessary to achieve improvements in a sanctioned regime.

Recently, the United Nations Security Council approved a humanitarian exemption to sanctions against North Korea (DPRK) requested by the World Health Organization for diagnostic and medical equipment to address COVID-19. The United States supported this decision.

Exemptions Thwarted by Totalitarian Regimes

The health impacts of embargoes are difficult to isolate and quantify. They may not become apparent until years after resource shortages occur. Domestic production challenges can also play a role. For example, Iran produces 97 percent of its medicines locally, but a third of these drugs rely on active ingredients that are imported, according to the head of Iran’s Food and Drug Organization.

Although humanitarian trade exemptions are intended to mitigate shortages of essential supplies, totalitarian regimes are known for putting their goals before the needs of their citizens. The negative impacts of sanctions are often compounded by inequitable distribution or outright theft of essential goods and ongoing civil conflicts.

In any case, it’s difficult to know the net effect of sanctions and humanitarian trade exemptions because data on key indicators of health effects are often missing or unavailable from embargoed regimes. However, it is clear that enabling trade in essential goods like food and medical supplies has served a role in health diplomacy for decades.

During her career in international trade and government affairs, the author worked with pharmaceutical and medical device manufacturers to navigate U.S. sanctions policies and requirements.

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Sarah Smiley is a strategic communications and policy expert with over 20 years in international trade and government affairs, working in the U.S. Government, private sector and international organizations.

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