Category Archives: Global Trade

15 Ways to Shave Costs From Your Supply Chain Part II

As per yesterday’s post, earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the remaining eight (8).

3PLs
Determine What Each 3PL Does Best
Most 3PLs excel in a niche such as global logistics, transportation, or warehousing because most of them started off focusing on one function and added others as they grew. Understand their strengths, and weaknesses, before selecting a 3PL.

Inventory Accuracy
Establish external and internal product traceability.
It’s not just inbound and outbound shipments, but internal transfers between different warehouse locations, etc. that need to be tracked. Knowing you have 10 units of a product is only useful if you know where the units are.

Lean Logistics
Manage your empty container flow.
Moving empty containers is equivalent to burning money. It’s a complete waste.

Seasonal Peaks
Know Your Overflow Potential Before You Need It!
Don’t be scrambling for overflow space and trailers, etc. when you need it — have a plan in advance.

Maritime
Bypass Distribution Centers
If you can consolidate a large shipment that can go directly to a store, or a local DC that serves multiple stores, do so — temporary storage costs money and so does unnecessary unloading and reloading of inventory.

Port Selection
Know Your Port’s Infrastructure Limits
Especially if the port is near capacity. If the port isn’t investing in infrastructure to expand capacity, or can no longer expand its infrastructure, then it should be expected that the port will hit capacity and that could be a problem for your organization in the future if you plan to do more global trade.

Security
Protect Against Malicious Behaviour By Former Employee … Credentials
It’s not just the former employee that can cause you problems, it’s their credentials! Just because an employee left on good terms does not mean that their login and access credentials won’t cause problems. A current employee trying to arrange an inside job will happily use the ill-gotten password of that esteemed former employee for their illegal gain.

Risk Management
When Selecting Geographically Distributed Vendors, Consider the Ports!
Multiple suppliers who ship through the same primary port can all be taken offline as a result of a typhoon that destroys the port.

For another 148 ways to optimize your supply chain, see the Inbound Logistics article on 163 Ways to Supercharge Your Supply Chain.

15 Ways to Shave Costs From Your Supply Chain Part I

Earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the first seven (7).

Global Logistics
Collect Data About Your Products
Not only is understanding product composition vital to correct classification, which determines your tariffs, but it makes sure you don’t get any surprises when you product gets detained at the US border because your new hard drives with built in encryption were designed primarily for industrial information security and do not automatically qualify under Category 5, Part 2 of the Electronic Code of Federal Regulations like your hand-held personal digital cameras.

Customs
Focus on What You Can Control
When it comes to customs, you have no control — but you can create a position for a Customs Compliance Officer and make sure everything you do is fully compliant, fully documented, and fully auditable at a moment’s notice to prevent unnecessary delays when some newbie mistakes your fig paste ship for hash.

Documentation
Confirm Document Receipt
Just because you sent the documents, it doesn’t mean they were received, even if they weren’t returned (or the e-mail didn’t bounce). For critical shipments make sure the documents were received and noted in the system before your goods hit the border.

Expedited Shipping
Eliminate Padding
It’s a typical situation where everyone along the logistics chain adds “safety” time to ensure on-time delivery. It only takes a few layers to transform a shipment required by 9 am into one that is required by 5 am which requires expensive expedited shipping. Make sure unnecessary padding is not added to the delivery time.

Warehousing
Processes Need to be Quality Based
When a mistake happens, get to the real root cause. As per the article, if a forklift knocks off a sprinkler, don’t just ask why it was so high and how to prevent the forklift from getting so high again, but if it should even have been there in the first place. It might not just be a storage height issue, but an overall storage plan issue. If boxes are being stacked to the ceiling in multiple locations, maybe you need a new storage arrangement or maybe you need more storage space!

Equipment
Recognize the Environmental Impact of Your Pallets
Plastic pallets, which require oil, cannot be repaired and must be melted down to be recycled — requiring more energy that likely uses more oil. Wood pallets are easily repaired and recycled.

Trucking
Place your production facilities close to major cities.
Metropolitan areas have a substantial concentration of LTL trucking firms and terminals, which minimize your freight charges.

Come back tomorrow for Part II.

Are Money Launderers Putting Your Trade At Risk?

According to a recent article in the Economist, Trade is the Weakest Link in the Fight Against Dirty Money. And, as a result, your supply chain is threatened. But let’s back up a bit. The article starts off by noting that:

Cuddly toys don’t have to be stuffed with cocaine or cash to be useful to traffickers. A few years ago American customs investigations uncovered a scheme in which a Colombian cartel used proceeds from drug sales to buy stuff animals in Las Angeles. By exporting them to Colombia, it was able to bring its ill-gotten gains home, convert them to pesos and get them into the banking system.

But this is not the only way cartels are abusing trade. For example, we also have mis-invoicing, and the example of:

A front company for a Mexican cartel might sell $1m-worth of oranges to an American importer, while creating paperwork for $3m-worth, giving it cover to send a dirty $2m back home. One group of launderers was reportedly caught exporting plastic buckets that cost $970 each from the Czech Republic to America.

And now, to make matters worse, as chronicled in Drug Cartels are ruining Cinco de Mayo, in addition to using trade to launder dirty money, when they don’t get their way, drug cartels are using violence to take control of high-value shipments, bolstering their ability to not only launder money across borders but control entire commodity markets in a country, which means they make large profits off of their money laundering activities.

So, you have:

  1. Old-Fashioned Laundering where money is converted to products, shipped, sold and converted back to money
  2. Mis-Invoicing Laundering where money is converted to products, bought low, and sold high
  3. Market-Manipulation Laundering where cartels force products high on the market through demand manipulation so they can buy high, sell slightly higher, and not attract attention because the products are being bought and sold near market price

And each threatens your supply chain.

With old-fashioned laundering, a trading partner could be buying and selling your product to launder money, putting your company at risk of being identified as an accomplice to money laundering.

With mis-invoice laundering, your company is part of the money laundering scheme, which means someone in your company is part of the money laundering scheme, and this could bankrupt your company if the DoJ swoops in and shuts your company down while the mess is sorted out.

With market-manipulation laundering, if you are a buyer or a seller of the product being manipulated, you are affected as your costs can quickly skyrocket and your product lines will be at risk if your competition senses the situation and scoops up available inventory before you do.

Unfortunately, there’s not much you can do on your own except maintain vigilance and make sure that your supply chain is not involved. You do this by way of regular auditors from independent third parties who report not to the people doing the trading and keeping the books, but the CEO and CFO who could be criminally on the hook if the money laundering schemes of terrorist organization are aided and abetted by the company.

All The World’s A Stage … and 115 Years Ago Today, the First Hague Conference Tried to Set the Rules of Performance.

One hundred and fifteen years ago today, the First International Peace Conference was held at The Hague in the Netherlands. The goal of the peace conference was to negotiate disarmament, the laws of war, and war crimes and, if possible, to create a binding international court for compulsory arbitration to settle international disputes — an establishment considered necessary to replace the institution of war. While most of the countries present favoured the process for binding international arbitration — including the United States, Britain, Russia, and China, a few countries — including Germany — vetoed it.

However, in addition to the creation of three primary treaties, ratified by all major powers, namely:

  • Convention for the Pacific Settlement of International Disputes
  • Convention with respect to the Laws and Customs of War on Land
  • Convention for the Adaptation to Maritime Warfare of the Principles of the Geneva Convention

and three declarations, ratified by all major powers except the United States (and Great Britain with respect to the first declaration):

  • Declaration concerning the Prohibition of the Discharge of Projectiles and Explosive from Balloons or by Other New Analogous Methods
  • Declaration concerning the Prohibition of the Use of Projectiles with the Sole Object to Spread Asphyxiating Poisonous Gases
  • Declaration concerning the Prohibition of the Use of Bullets which can Easily Expand or Change their Form inside the Human Body

it did manage to establish a voluntary forum for arbitration, the Permanent Court of Arbitration (PCA), which is typically overshadowed by the International Court of Justice that replaced its sister court, the Permanent Court of International Justice that was formed in 1922.

The PCA is important, even though you’ve probably never heard of it, because it is the court that administers cases that arise out of international treaties (including bilateral and multilateral investment treaties) that span a wide range of legal issues, including maritime boundaries, international investment, and matters concerning international and regional trade. While your company will likely never end up in the courtroom, your government likely will, and the decisions might change what your country is, and thus what you are, allowed to do — and might be the entire reason laws change overnight (which will happen if a maritime boundary is rezoned and you are fishery, for example).

Of course, if you are a big multinational, the PCA might be the registry for your government arbitration that is being conducted under UNCITRAL arbitration rules.

(For example, the PCA recently held a hearing between Bilcon of Delaware et al v. Government of Canada on an arbitration claim about the need for Canada and its subnational governments to fairly administer and follow their environmental and investment laws and regulations to ensure a high standard of environmental protection that arose out of unfair, arbitrary, and discriminatory application of certain government measures relating to the permitting of a basalt quarry and marine terminal at Whites Points in Digby County, Nova Scotia because the type of environmental assessment that the Investors were required to carry out were more burdensome, unfair, and arbitrary than the types of environmental assessments other Canadian investors with similar projects have had to undergo.)

While it was not the preferred outcome of the Peace Conference, the court does give nation states a viable alternative to war and corporations and investors a way to hold nation states accountable to the global agreements they signed up for. And it is a fairly busy court. Right now, the PCA is the registry in eight inter-state arbitrations, fifty-two investor-state arbitrations, and thirty-three arbitrations under contracts or other agreements to which one party is a state, state-controlled entity, or intergovernmental organization. If you’re working for a big multi-national, the PCA is an entity you should be aware of.

The New Silk Road Might Be the Biggest Boon to Supply Chain Finance This Year

In yesterday’s post, we asked what impact will the new silk road have on global trade. Specifically, what impact will the new Russia, China, and Germany trade partnership have on global trade — besides simplifying and building Eurasian trade relationships.

One thing it will do is strengthen the resolve of these countries to not only de-couple their currency from the dollar and launch a new reserve currency backed by their union, but to trade in local currencies as well. As trading in local currencies becomes more and more common, banks will become more and more inclined, and even comfortable, to lend in foreign currency denominated debt as well as local currency. Private lending institutions will not only follow, but begin to lead the way.

This will be a great boon to foreign companies which, until now, have been limited to either borrowing from local lenders, at high interest rates, but in the local currency, or a handful of global lenders, at slightly lower interest rates, in a foreign currency, that could cause their debt to skyrocket if their currency weakens with respect to the foreign currency.

The whole point of Supply Chain Finance is to help the cash-strapped supplier. Early payment or dynamic discounting doesn’t help the supplier if the discounts are too high. Arranging for third party lenders to lend using your credit score, and not the suppliers, doesn’t help if the supplier has to take a risk in a foreign currency. And factoring isn’t a solution at all! (Since a third party will only buy your suppliers’ receivables if it can make money off of them — loan sharks at their finest.) Arranging for lending in your suppliers’ local currencies on your credit score when you can’t pay early is safest for your supplier and probably the best supply chain finance solution we’re going to see for a while.

Thoughts?