2008 Global Trade and Supply Chain Predictions

Supply chain greening, environmental compliance, shift in sourcing from Asia top list for JPMorgan Chase Global Trade Services prognosticator


When considering the global trade environment in 2008 there are a number potential issues looming that could disrupt global supply chains, sourcing strategies and the flow of working capital. If not properly addressed, importers and exporters may face significant unexpected costs and increased disruptions to their supply chain. But the news for 2008 isn't all bad. A number of promising opportunities exist as well.

"Green" Continues to Grow: Public health and environmental concerns will remain a major issue. Continued attention on global warming, lead-based paints and the contamination of goods will drive businesses toward environmentally friendly packaging, recyclable products and the enforcement of trade regulations pertaining to the use of toxic electrical and electronic components. The concept of having a green supply chain will move from being a public relations strategy to a necessary means of deriving real economic value and improving compliance. As companies focus on supply chain and product lifecycle management initiatives in this environmental light, concepts that will be embraced include the designing of products derived from recycled materials; striving for "zero waste" from a product at end-of-life; and employing sourcing and fulfillment strategies based on less fuel consumption and the environmental practices of supply chain partners.

Manufacturers Lag in Environmental Compliance: Though a number of environmental regulations have been implemented globally over the past year, a majority of manufacturers are lagging in terms of demonstrating and maintaining compliance with new trade laws, such as the Restriction of Hazardous Substances (RoHS) regulations in effect in China, Japan and the European Union. Non-compliance with these directives can result in stalled supply chains, lost revenue, fines and damage to corporate reputation. While many companies claim to have met certification requirements, others may not be up to par and will need to make further adjustments to their manufacturing processes. Make sure that an internal team or outside trade specialist is actively managing compliance with these regulations as laws may evolve. Validate that your supply chain partners are shipping RoHS-compliant products and that you maintain an audit trail to track and capture data pertaining to compliance measures you have taken.

Sourcing Shifts from Asia to the Americas: Coinciding with the 2008 Summer Olympics in Beijing, media attention will focus on China as the world's next potential "bubble" and cause many manufacturers to shift sourcing strategies from Asia to the Americas. The falling U.S. dollar, limited free trade agreements, high energy costs and rising production costs in Asia will all contribute to companies reevaluating extended supply chains and moving sources closer to their home markets. In addition, shareholders and board members could question their company's reliance on China and the Asia region should any further negative headlines arise regarding quality issues or if China receives bad press on the handling of protestors and dissidents prior to the Olympics. While opportunities still exist in Asia, Mexico will become an increasingly popular source for manufactured goods as companies compete on time-to-market strategies, seek financial advantages found in Mexico's multiple free trade agreements and capitalize on Mexico's investment incentives, streamlined customs processes and abundant English-speaking workforce.

Import Safety Initiatives Increase Burden for U.S. Importers: According to the U.S. Interagency Working Group on Import Safety, U.S. consumers purchase approximately $2 trillion worth of products annually that are imported by more than 800,000 importers through over 300 ports-of-entry. Due to increased product recall issues and the fact that imports are expected to rise, the Import Safety group in November published an action plan that provides specific short- and long-term recommendations to better protect consumers and enhance the safety of the increasing volume of imports entering the United States. In 2008, importers will find themselves burdened with new requirements and fines. The Import Safety plan is a set of 14 broad recommendations and 50 action steps, such as establishing third-party certification, raising consumer safety penalties and strengthening enforcement actions to ensure accountability. As the U.S. government looks for ways to step up enforcement of import safety, the question all companies should be asking themselves is, "What are we doing to make sure imports are safe?" Here are some questions to ask when evaluating your current business: Do you inspect your foreign factories? Do you have a recall program to inform consumers and agencies of defects? Do you test products internally and externally and document results? Do you have a product safety audit plan? Do you train internal units and suppliers on product safety? For additional information, visit www.importsafety.gov.

Supply Chain Security Initiatives Gain "Teeth": Five years after the introduction of C-TPAT, smaller firms are finding that C-TPAT participation is becoming critical to the viability of their business. As part of the vendor selection process, more large-scale importers are requiring that their vendors become C-TPAT certified or have an equivalent security program in place. While U.S. law states that C-TPAT certification is not mandatory, current C-TPAT participants are assessing their own risk exposure and reassessing whether they should be conducting business with a vendor lacking effective, documented security measures. The obligation remains with C-TPAT participants to ensure that a vendor poses minimal risk to their global supply chains. As a result, many smaller companies are creating their own security criteria above and beyond the C-TPAT requirement in a bid to maintain or win additional business with large-scale importers. In the European Union, manufacturers are bracing themselves for the January 1 launch of the Authorized Economic Operator (AEO) global security program. Similar to C-TPAT, AEO extends customs authorizations to the financial and security areas of corporate global supply chains. While AEO participation is not mandatory, manufacturers with AEO certification will benefit from expedited processes, preferential opportunities and peer group recognition.

Trade Compliance Further Scrutinized: The U.S. Government will continue to apply additional resources and emphasis on trade compliance and enforcement, ensuring that the most sensitive U.S. technologies are safeguarded. This will result in increased investigations to hold U.S. manufacturers, exporters, importers and brokers accountable and in compliance with the letter and spirit of trade control regulations. These efforts will result in even more enforcement actions, a wider-range of mandated corrective measures and a greater number of negative consequences for those entities that violate the law. Fines will increase based on a bill signed by President Bush on October 16. For example, Commerce Department fines for administrative violations jumped dramatically from $50,000 to $250,000 per violation. Countries around the world also are focusing on the importance of trade compliance. The United Arab Emirates recently issued Federal Law No. 13 of 2007 on commodities that are subject to import and export control procedures. Non-compliance with the provisions of the law can lead to up to a minimum of one year's imprisonment, fines of up to AED 500,000, or both. The implementation of the law is expected to bring import and export controls to the forefront in a country that has often been the concern of U.S and E.U. authorities as a destination for re-export of controlled commodities.

About the Author: As the global product executive for the logistics product suite with the Global Trade Services Group at JPMorgan, Bernie Hart leads a business of 650-plus employees that delivers end-to-end global risk management and operational solutions. Prior to its acquisition by JPMorgan, Bernie Hart joined Vastera in October 1999 and created the company's managed services business model aimed at helping manufacturers to outsource all or portions of their international trade and supply chain operations. From 1985 to 1999 Hart held various management positions at IBM, focused on international trade. As the senior manager of IBM's North American Distribution Systems, he was responsible for the development and maintenance of international logistics applications with more than two thousand users worldwide in support of the movement of twenty-billion dollars of goods annually. More information about JPMorgan Global Trade Services at www.jpmorganchase.com/trade.

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