<html><head></head><body>1 Major Issues in Global Supply: Chain Management Today The book opens with a view of current world events that impact global supply chains, import and export operations, and the entire responsibilities that business executives have in trade compliance management. 2011 and into 2012 have seen a number of shifts in world politics, Middle East stability, and major physical occurrences that have huge short-term impacts on global trade, and these impacts may extend into the future for years to come. Overview Physical Events The earthquake in Japan has rocked the world in a number of ways. Perhaps most important, the long-term utilization of nuclear power is very much in jeopardy. The impact of the devastating tsunami that followed goes far beyond the tragic loss of life that occurred. The insurance community who insured the risks involved with both events will have to pay hundreds of million in claims, potentially in excess of several billion dollars. This will impact insurance costs and the availability of certain types of insurances in risk-prone centers of t he globe as well as for freight that moves on certain trade lanes. Cost and availability will become major issues. Personnel involved in international shipping and logistics who had freight coming in and out of Japan are witnessing great delays in transit times, limited access to transportation infrastructure, and increases in freight charges. Shipping managers worldwide have looked at this disaster in Japan and have already begun to access risk management alternatives not only in earthquakeprone areas, but in all corners of the globe where there are significant physical risks such as but not limited to: • Earthquakes • Floods • Tornadoes • Hurricanes • Harsh changes from winter to summer weather patterns • Tsunamis These are but a few of the major physical exposures that companies who operate globally are now assessing, and they are reevaluating their supply chain decisions to avoid exposure and mitigate risk. Economic Events As of this writing, most professional assessments and benchmarks in world trade have shown a betterment in most market segments in the overall economy. Most manufacturing, inventory, and trade indexes have shown increases of 3 to 6 percent in 2011 into 2012. While most sectors have shown improvement, there is still serious concern over the following areas: • Stability of global banking and financial infrastructure. • Housing and unemployment in the United States. • Political instability in the Middle East. • Financial issues in an array of countries, such as but not limited to Greece, Poland, Brazil, Venezuela, and the United States. • The rise in government bailouts and increase in debt worldwide. All of this impacts global supply chains. It impacts cost, risk, and choice of global sourcing and offshore manufacturing, and it potentially retards the growth of globalization. A good example of this in the United States is shown by the number of companies who had sent manufacturing overseas to Asia and the Near East but have moved some or all of it back here to America or to Mexico or Canada (referred to as ‘‘near-shoring’’). Near-shoring makes a huge statement to the world. It says that from a competitive standpoint there may be better places to locate operations than Asia and the Near East (primarily India and Pakistan)—reversing a major trend of the past thirty years. In logistics, these economic woes have reduced capacity in the ocean freight market, causing pricing instability and difficulties in locating available containers and chassis for timely, reliable, and consistent bookings. Companies relying on the ocean freight mode to fulfill a time-sensitive supply chain have been hugely disappointed in 2011 and have had to make major compromises in risk, cost, and choice of carriers. Political Instability The events in the Middle East—in Tunisia, Libya, Egypt, and Bahrain to name a few—have rocked the traditional world of dictatorship and kingdoms in terms of historic attitudes in the Muslim community in that part of the globe. The West, led by the United States, has taken a fairly aggressive role in supporting the move to democratic governments, including military action. There are costs to supporting these uprisings that add to the economic turmoil, tied into the instability which has caused the price of crude oil to climb in excess of $100.00 US. This will impact every aspect of the supply chain cost models, from manufacturing, to plastics, freight, and security surcharges due to gasoline increases. The threat of an increase in terrorism promised from the more radical corners of that circle will place additional stresses on security and oil costs. Many security analysts also see the West’s proactive engagement in these Muslim democratic turnovers as another reason for terrorists to mount more aggressive and frequent attacks, which will include exposure for global supply chains. The continued presence of the United States and its allies in Iraq and Afghanistan has also increased political stress among the West and the Muslim countries. These stresses impact politics—here and in those countries—which in turn impact the decision-making process as to where and how to ship, source, deliver, and partner. These issues increase risk and cost. Airfreight: TSA/Transportation Security Administration and Hazardous Materials 100 percent cargo screening, not just for Americans anymore! The screening rules of 2010–2012 affected all air cargo destined for a passenger aircraft originating in the United States or being shipped from overseas to the United States. The TSA was charged with this daunting task. While the shipping community doubted the TSA would be able to accomplish the 100 percent screening rule by the initial 2010 deadlines, the TSA proved us wrong. They have accomplished this task and have done it without too many hiccups in the process. This process is still a work-in-process and is being tweaked and modified as we enter 2012. The fear and overall concern were mainly twofold: the issue of higher costs and the issue of serious delays in the movement of air cargo. While there has been a cost increase due to the additional layer of security that has been imposed, it has not been dramatic. Nor have the anticipated delays been as serious as we first thought they would be. The program seems to be a success so far. As the air freight community just began to breathe easy again, here comes another directive. All foreign origin inbound air cargo must be screened at 100 percent. This issue of screening foreign air cargo is not a new development. The primary goal of the U.S. government was to enact the rule for screening of cargo that originates in the United States, and then to ultimately include foreign origin air freight, with a deadline of Y2013 for such foreign origin freight movement. Then it happened! While we were focused heavily on cargo originating in America that was booked to fly aboard a passenger aircraft, terrorists were focusing on freight originating in a foreign country that was intended to fly on an allcargo aircraft. UPS and FedEx both recently discovered explosive devices in cargo shipments that were ultimately addressed to a synagogue in Chicago. Fortunately, these devices were found prior to the final flight to the United States. Packages with explosives were found in Dubai and in the United Kingdom. The Prime Minister of England stated that it appears the device they discovered was intended to go off in midair, en route to the United States. The publicity, hype, and exposure of the 100-percent passenger air cargo screening rule was a clear indicator to terrorists that there is a big black hole in the screening program: foreign-origin air cargo coming into our country is not subjected to rigorous screening. While U.S. Customs and Border Protection controls the security of inbound cargo through the C-TPAT program 4 Mastering Import & Export Management, Second Edition Partnership Against Terrorism), the program is heavily focused on ocean freight. And the program is only in effect for commercial import companies who voluntarily join the program. Remember that goal of Y2013 for screening of foreign inbound cargo? Well, that date was moved to a goal of December 2011, and as of this writing in fall 2011, it looks like it will be achieved. What should we do if we import air cargo? Will this requirement be a detriment to our ability to import goods timely and cost effectively? Maybe—and maybe not. How can the importing community proactively respond to this requirement? There are several things we can do to prepare for this monumental task. A good start would be to discuss this pending issue with your freight forwarder/customs broker. The U.S. forwarding and brokerage community must act quickly to ensure a smooth flow of goods across our borders. Service providers here in the states should be advising their foreign agents of this new directive. They should work with their foreign counterparts to ensure that all screening options are reviewed, and to ensure that the options presented are viable for particular business models. For example, how will shipments of perishables and dangerous goods be screened? Will the foreign agent or carrier be responsible for any damage that may occur to the cargo during the screening process, or does additional insurance need to be purchased for this risk? It is strongly recommended that the import community approach this issue before the rule goes into effect. The proactive approach that we all took regarding the 100-percent screening deadline related to U.S. origin air shipments must be the same approach we take now, as our borders are being pushed back even further. After all, that approach certainly eased the pain here in the United States. When the first day that the mandatory screening of 100 percent of air cargo destined for a passenger aircraft goes into effect, every single package, prior to being loaded on a passenger aircraft, will have to go through security screening. That is, every single package at the piece level. For example, you tender a skid containing twenty-five packages. The skid will be broken down and each package on the skid will be individually screened. There are various methods of screening that are authorized by the TSA. There are also various points in the supply chain where screening can take place. There are very strict regulations regarding the sharing of information about the programs that are in place to screen packages. Therefore, the information that follows will be basic. Currently, according to TSA statistics, the air carriers are at their capacity regarding their capability to screen cargo. And currently they are not screening at the 100-percent level. That translates to big delays on the near horizon. The bottleneck is anticipated to hinder the current flow of exports and domestic ‘‘just in time’’ distribution systems. In anticipation of this dilemma, the TSA developed a program to allow businesses other than air carriers to perform the screening of air cargo prior to the cargo being tendered to the carrier. Thus, when you deliver the cargo that you have had screened by one of these alternate businesses, the carrier is permitted to proceed with loading of that cargo. BIG time saver! The key is to have an alternate plan. The key is to not rely on the carrier to fulfill the screening requirements. Even this late in the game, it is not too late to put a screening program in place. This is particularly wise for the shippers of air cargo. A shipper is eligible to participate in the Certified Cargo Screening Program (CCSP). Under the program, a shipper’s place of packaging can become a Certified Cargo Screening Facility (CCSF). You may sometimes hear this program referred to as ‘‘reverse screening.’’ This name comes from the idea that the screening occurs at time of packaging, and not after it is packaged and en route to carrier, a reversal of the usual carrierperformed screening. This screening program has been available to the community and I find it hard to believe that more shippers have not joined the program. Companies, in tight financial straits due to the faltering economy, fear the cost and labor would be too heavy a financial burden right now. I must say that this line of thinking does not square with the actuality. In my consulting capacity, I have personally assisted many clients with their application to become a screening facility and I can assure you that in almost all cases, the costs were minimal—and the benefit tremendous! Many freight forwarders are becoming Certified Cargo Screening Facilities to provide their customers yet another option. The concern with having a third-party service provider responsible for screening is the increased risk of damage of the contents of the packages. Some freight forwarders and smaller service providers are performing physical screening, opening every single package to check the entire contents. Naturally, this gives cause for reasonable concerns of increased incidents of damage and subsequent insurance claims. However, freight forwarders and other transportation service providers are not required to be a screening facility in order to transport screened cargo. That opens the door to yet another program that involves the chain of custody of screened cargo. Transportation service providers can work with the TSA to develop a program that insures the integrity and security of cargo from point of screening to point of delivery to the air carrier. This would probably be the most cost-effective, time-saving option. The shipper should become a screening facility and, at a minimum, the chain of custody program should be in place for their providers. And just as a side note to all those shippers who are already C-TPAT members, you already meet most of the minimum security criterion. Much of the battle has already been won for you. Shippers are strongly encouraged to reach out and grab hold of this program. You will be very thankful you did! What can shippers do to avoid the huge delays that can be incurred by carriers and service providers as they work at meeting this 100-percent screening rule? Become a Certified Screening Facility. The discussion below gives a brief overview of the program. If you wish to obtain more information, or wish to inquire about becoming your own screening facility, contact the TSA through their website: www.tsa.gov. </body></html>

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Mastering Import & Export Management

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