Suzanne Richer, director of trade advisory practice with Amber Road, sketches out the major trends that are disrupting global supply chains today.
SCB: What are the top developing trends in global supply chains today?
Richer: One of the key developing changes is the institution of so many new and upcoming free-trade agreements [FTAs]. According to the World Trade Organization, there are more than 420 trade agreements today. We're seeing not only the evolution of FTAs, but the ability to apply for them in a more simplified way. Take the U.S.-Mexico-Canada Agreement, which should be ratified this year. That’s a big move forward. But it means there’s going to be more complexity. Companies are thinking about where they source and move product, in order to take advantage of all these different agreements.
SCB: Notwithstanding the tripartite nature of the USMCA, is there a trend toward bilaterals, and away from multilateral trade agreements?
Richer: There’s definitely a trend in that direction. Most likely it led to the Trans-Pacific Partnership not being ratified by the U.S. Countries are beginning to negotiate separately and individually.
SCB: Certainly there are some new opportunities, but also a lot of confusion because of the trade war that’s raging right now. Do shippers have deal with that as well?
Richer: Certainly. The trade wars are causing companies to realign their supply chains. We talk about an agile supply chain, and this is definitely a test of that today. Companies are looking to whether they can replace existing suppliers quickly, in line with new tariffs and modernized FTAs. Another opportunity is drawback, which allows for 99% refund of all duties, fees and taxes.
SCB: What's happening with supply-chain security, against the backdrop of everything we're talking about here?
Richer: We're seeing some major changes and shifts in supply-chain security globally. Most companies are familiar with implementation of the American program C-TPAT [Customs-Trade Partnership Against Terrorism], which is now 17 years old. And they're looking at aligning themselves with the European AEO [Authorized Economic Operator] program. This is a major change for the U.S. and reflects what's happening globally, which is that terrorism and cargo security today simply aren’t the same as they were 10 to 15 years ago. We see a change in the number of anti-Western terrorist organizations. We see change also in cybersecurity requirements. And the new big one is agricultural security — making sure that pests aren't making their way into countries where the economic impact is overwhelming. Also, we're going to see more changes into how we use packaging materials because of agricultural security issues.
SCB: Changing suppliers in a global supply chain is a big deal. How can companies cope with the uncertainties that come with these trade wars?
Richer: We need to understand that these uncertainties are now commonplace. It’s a trend that's here to stay. To remain agile in their supply chains, companies have to look at their sourcing capabilities through multiple tiers. Are they able to source elsewhere? Are they tied to a particular country? Can they lower a tariff so that it has less impact on manufacturing costs and duties, through something like a foreign trade zone? Today, you have to look at the concept of tariff engineering. Can they reclassify or reorganize the development of a product, such that they can manage components from anywhere around the world?
SCB: You're talking about the description of the product, or where the product's coming from?
Richer: The mere coding of a product, along with its origin, affects the duty rate. If I can re-engineer a product so that I have 50% coming from one country with a high tariff and 10% or 20% from another country, it really makes a difference. It’s about understanding where your products come from, where components are sourced, and whether or not you can shift that more quickly than you’re doing today.
SCB: Figuring all that out becomes even more complicated in a multi-tier supply chain. How is all this affecting global contracts?
Richer: Contracts are becoming more and more important. What's changing in the negotiation is the ability to source from one country or another: can I move my supply chain without more than a 30 days’ warning? We're also seeing the evolution of social compliance programs becoming fundamental for customs. Forced labor is a huge issue today, and every contract should have qualifying language built into it. You have to look not only at trade regulations and product lines; all the other criteria for trade regulations across global supply chains need to be incorporated into language that will satisfy a customs regulation, while protecting the company as it moves into and out of various areas around the world.
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