Customers that have been sourcing goods in China increasingly are looking further afield in Southeast Asia and in Africa for new locations, says Michaels. Countries like Myanmar are opening up, but these smaller sourcing locations are less developed and so have a lot more complexities and more risk, he says. “What might be a lower piece cost could end up costing quite a lot more if companies underestimate the cost of extra transit times and other added complexities,” he says.
Non-compliance risks also can be pretty significant in less developed areas, he says. “If a company runs afoul on compliance issues or doesn’t understand the materials content of products, for example, the risk can be quite grave, with major penalties.”
Additionally, there is a lot of risk associated with anti-corruption laws. “In a lot of these newer sourcing markets, local companies may not be aware that what is allowed under one importing country’s foreign corruption practices act may not be permitted under a different country’s rules,” Michaels says. Anti-corruption laws are a particularly tough issue because laws on the books in a lot of countries are not necessarily followed in practice, noting that as a part of Maersk Group, Damco has a directive to work with governments and to point out to them when laws are not being followed.
Additionally, customers need to be very aware when going into new countries that certain local practices may be followed that technically are not allowed under U.S. regulations, he says. “It is very important for companies to understand these differences when making policy decisions,” he says. Damco fully supports its customers who have a “zero tolerance” for any deviance from the rules, Michaels says, but they need to be aware that not following locally accepted practices could result in shipment delays. “It is up to the individual company to make the right decision for its situation, but they need to be aware of the implications.”
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