The European Union’s recent 11th package of sanctions against Russia marks yet another turning point for the shipping industry. With transit bans and restrictions on certain containerized goods, the most impacted sectors of cargo — automotive, technology and chemicals — are about to experience a paradigm shift in the way they conduct business.

Historically, trade compliance and supply chain visibility were considered separate components of business operations, and many companies still rely on outdated screening methods to analyze harmonized system codes at the source. While these methods played an important role in tracking the comings and goings of ships at any given port, they often lacked dynamic monitoring capabilities, leaving blind spots in container journeys and potentially exposing companies to compliance risks.

Today, CFOs, CIOs and general counsels are facing a new reality, one that demands the fusion of two crucial elements: visibility to maintain the smooth flow of the supply chain, and compliance with stringent regulations.

A Brief History of Sanctions

On June 25, the EU announced its 11th sanctions package since the Russian invasion of Ukraine in early 2022. Any new sanctions enacted in maritime trade are of the utmost importance and have a wide-ranging impact on trade around the world. After all, 90% of the world’s traded goods are transported via ocean shipping. This crucial artery of trade, however, remains one of the least governed supply chains.

In 2020, in an effort to address these shortcomings, both OFAC and OFSI adopted the UN Security Council’s definition of deceptive shipping practices (DSPs), establishing clear regulations to reduce the maritime shipping of sanctioned goods. However, as regulations have become increasingly stringent and complex, bad actors have become more innovative, and a new DSP has emerged: automatic ship identification system (AIS) spoofing.

Historically, when it comes to DSPs, the focus of regulatory bodies has been centered around so-called dark activities — when vessels turn off their AIS or adopt a fake identity via identity manipulation. Now, the industry must confront AIS spoofing, a DSP that utilizes a cocktail of new deceitful methods, most notably the transmission of fake locations.

AIS spoofing is among the most widely used techniques by the “shadow fleet” of vessels connected to Russia, to obscure ships’ points of origin, and allow them to trade oil above the price cap established under anti-Russian sanctions. Consider that in the second quarter of 2023 alone, there were more than 1,200 vessels involved in activities flagged as high risk, and over half of them were Russian-affiliated.

Such DSPs are among the many ways Russia has tried to undermine the West’s sanctions, and the EU is right to act against them with the 11^th sanctions package.

The new sanctions provide authorities with the power to block entry to any vessels turning off, manipulating, or spoofing their location, and to those conducting ship-to-ship transfers when suspected of violating Russian restrictions.

These regulations mark a significant expansion of compliance responsibilities, and signal a notable shift in the industry. What this means practically is that the circle of responsibility has expanded. Once, financial institutions were reliant on screening HS codes to ensure compliance — now, forwarders, shippers and other entities iin the supply chain must recognize their roles in maintaining compliance, and work collaboratively to mitigate the risks.

Some companies hope to pass the buck and push this new accountability and liability into their standard agreements with carriers. The existing boilerplate clauses in service agreements won’t apply to these new export restrictions, nor were they intended to. Especially in an age of losses, this hope has little legal or business basis, as carriers aren’t likely to take on more responsibility without additional compensation.

What makes this even more complex is that most carriers are active in alliances with others that might not be required to abide by these regulations. In practice, this means that if someone books a container with a carrier who is a member of an alliance, unless there are back-to-back agreements between the carriers, there’s no guarantee the container won’t enter a Russian port or pass through Russian waters. 

Managing the Shift

So how do these new DSPs, and the sanctions built to curb them, tie back to the supply chain?

In the quest for supply chain resilience, compliance can now be considered another necessity for stakeholders to manage. And in a world inundated by data — much of it unreliable — it’s easy to be overwhelmed. Therefore, stakeholders would do well to utilize the practice of “management by exception,” an approach that specifically addresses what matters when it comes to resilience and compliance, while removing the distractions of superfluous information.

Exception management allows businesses to focus on shipping activities that deviate from the norm. In the case of supply chain management, this translates into shipments that aren’t meeting expectations, and in the case of compliance, vessels that engage in suspicious activity. By adopting this methodology, stakeholders can identify the trade and shipping issues that stand to significantly affect their operations and get ahead of them proactively before it’s too late.

It's no longer optional to think of visibility and trade compliance in tandem; their interdependence is the key to unlocking supply chain resilience in an ever-changing world. Shippers in the automotive, technology and chemical sectors must embrace the paradigm shift catalyzed by these new sanctions, and be proactive in adopting innovative technologies that bridge the gap between visibility and trade compliance, and enable successful exception management and monitorization of their containerized goods' journeys.

By doing so, they not only protect their organizations from being unnecessarily hindered by sanctions, but also lay the foundation for a robust and agile supply chain, poised to navigate any future challenges and regulations.

Ami Daniel is chief executive officer and co-founder of Windward.