Use the following six logistics best practices to mitigate risk and develop a comprehensive compliance strategy for your organization.
1. Assemble Knowledgeable Compliance Teams
Import/export requirements are requirements, not suggestions. In some countries, repeated violations (even minor ones) cause additional delays. A pattern of non-compliance could keep a company from importing goods into the destination country at all.
Export Management Compliance Program (EMCP) and Import Management Compliance Program (IMCP) teams set the standards for the organization, monitor compliance, and even notify authorities when audits uncover problems. These teams are the internal watchdogs who keep the external watchdogs (i.e., government officials) at bay. In the event of a U.S. export/import regulatory infraction, the Bureau of Industry and Security and U.S. Customs and Border Protection consider the effectiveness of the internal compliance teams and the company’s commitment to compliance when assessing financial and legal penalties.
Your teams must understand the requirements and stay current with the constant regulatory changes.
An excellent way to ensure compliance teams understand the requirements and apply them correctly is to rely on written manuals for both import and export. It is important to have them, and if you do, they must “say what you do, and do what you say.” If it’s written, it must get done or it bites you in the end.
2. Leverage Trade Agreements & Streamline Customs Compliance
Free-trade agreements (FTA) can substantially lower taxes and tariffs as well as decrease the time and complexity of customs compliance. Consider all FTAs and the various incentives countries offer. Depending on the destination, it might be advantageous to export components for in-country assembly instead of exporting finished products.
For instance, India has special manufacturing zones that allow easier clearances and regulatory exemptions for items shipped there and used for in-country manufacturing. In China, exporters can manage cash flow by storing products in bonded warehouses. High customs and duty taxes don't have to be paid until the product is moved for sale or manufacturing.
However, even with incentives, customs compliance can still involve a lot of paperwork. The most successful importers and exporters rely on automated systems and in-country experts who can quickly address potential issues.
This may require you to have dedicated staff in the country to manage these operations or contract the responsibility to a trusted partner.
3. Choose the Best Shipping Methods & Service Providers
"Planes, trains and automobiles" isn't just a movie title; it may describe your global supply chain. Be prepared to manage a supply chain that involves some combination of air, rail, ground and sea transportation modes as you move freight across multiple borders.
In emerging markets, transportation can be a particular headache. When countries begin to industrialize, the industry often arrives more quickly than the infrastructure can support it. Shipments may be delayed because there aren't enough delivery trucks available or a flood destroyed a poorly maintained bridge.
Keep these issues in mind when selecting transportation options:
• Transit time: In the United States, companies can easily access overnight shipping by air or dedicated trucks. In other countries, however, shipments are often delayed simply because there isn't capacity to move them. Match the product to the transportation method to ensure that time-sensitive products (like mission-critical computer parts) arrive on time.
• Cost: Actively manage your transportation methods and destinations to meet established service level agreements. Ocean shipping costs are lower, but freight moves slower — and the shipper has limited visibility and almost no control over the schedule.
• Prohibited shipments: Carefully study the U.S. export laws and the laws of the receiving country. Companies can face huge fines for violating import/export regulations. Other countries place special shipping/packaging requirements on shipments of live animals, food, and hazardous materials.
• Use Incoterms to avoid confusion: Incoterms are three-letter abbreviations that indicate certain internationally recognized shipping terms. They describe contractual obligations such as where a product is to be delivered, who pays the freight costs, and who pays duty and import taxes.
Unexpected transportation and customs costs can severely erode profit margins. Import and export compliance teams should always be in the loop when transportation and shipping partner options are evaluated.
4. Maintain Supply Chain Transparency
Shipping transparency affords companies with opportunities to make last-minute adjustments, such as redirecting shipments around bottlenecks or diverting shipments to a new destination. Real-time knowledge provides the flexibility needed to protect the supply chain from disruptions such as overloaded ports or a higher-than-expected demand. It is imperative to know the location and status of shipments at all times.
Achieving full transparency is more difficult with international shipments. Few common carriers offer total visibility with a single phone call or account login. Tracking an international shipment might require talking with seven or more different people. Some could be outside contractors with limited authority to resolve issues. It would be wise to enlist the services of a 3PL or end-to-end supply chain solutions provider who can provide a satisfactory level of visibility to shipments anywhere in the world.
With global supply chain management, time really is money. Choose partners who are able to provide the best overall value. A cheap price becomes quite expensive if you have to spend time tracking down shipments yourself and struggle to resolve problems from thousands of miles away. End-to-end providers manage all logistics and compliance, so the exporter can check the status with a single phone call to a dedicated contact.
5. Understand the Cultural & Geographic Challenges
Some of the fastest-growing markets — China, Brazil and India, for instance — are also the most challenging for exporters for various reasons:
• Language: In the U.S., you can get by communicating in English and Spanish. More diverse countries are a different matter. China has several hundred languages and dialects, while India has recognized 22 individual "official" languages. The paperwork challenges are obvious: your staff needs to understand and be ready for it.
• Business culture: Brazilian business practices can be so complex and opaque that they even have their own name – Custo Brasil – and India ranks near the bottom of the World Bank's "Ease of Doing Business" scorecard.
• Barriers to entry: China prefers to export rather than import, and duties can increase costs by as much as 50 percent. India also protects domestic industry, but both countries offer alternative import strategies that lower costs. Your compliance team should be aware of these options and take advantage of them.
As we've seen with the recent Brexit vote in the U.K., even seemingly stable countries can suddenly change course politically. Within the next few years, all U.K. trade agreements, contracts, and patent laws could be radically different from those in the EU.
Exporters must constantly monitor political and regulatory situations and be ready to react to legal and regulatory changes. The situation is never static.
6. Develop a Supply Chain Risk Management Plan
The impact of political change, though, almost seems negligible when one considers the power Mother Nature has to disrupt the best-laid supply chain plans.
Toyota and other manufacturers experienced multiple supply chain disruptions after earthquakes in Japan. In 2010, a massive volcano eruption in Iceland disrupted supply chains in Europe. After Hurricane Katrina in 2005, the Port of New Orleans was closed for weeks, forcing shippers to scramble to find alternate routes.
The possibility of supply chain disruption is something that most professionals recognize as a serious problem – but not so serious that they do anything to mitigate the risk. Researchers at the University of Tennessee studied how businesses manage supply chain risk and found that few deal proactively to mitigate risk. Ninety percent don't quantify risk when outsourcing production, and two-thirds of companies surveyed don't have dedicated risk managers monitoring the supply chain.
The study authors note that having a risk management plan "is a competitive advantage, because so few firms have one."
Compliance Is Good, But a Compliance Strategy is Even Better
Companies that implement just one or two of these best practices will experience benefits. However, implementing all of them within the context of a compliance strategy is even better. There's a difference between being compliant and having a compliance strategy. Basic compliance keeps you out of trouble with regulators, but an overall strategy requires more planning and understanding of international markets and regulations.
Think of it this way. You can file your personal income taxes using the 1040-EZ and take the standard deduction. You're compliant with the IRS but may be paying higher taxes because you lacked a financial strategy. The financial stakes are a lot higher in international trade, where the difference between basic compliance and compliance strategy can be millions of dollars in taxes.
A compliance strategy helps create more robust, reliable supply chains, lowers costs, and mitigates risk. It's the one best practice you can't ignore.
Source: Flash Global
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