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Competing in a Consumer-Focused Age with an Agile Supply Chain

From a new couch to a week’s worth of groceries, shoppers can summon nearly anything to their doorstep, local store or delivery locker with just a few clicks. Some of the most significant consumer changes impacting supply chains include:

  • Shifting demographics. While in-store purchases still dominate among shoppers of all ages, younger consumers are continuing to migrate to e-commerce, underscoring the importance of a strong omnichannel supply chain.
  • Shifting buying patterns. Emerging trends, including subscription boxes and purchasing large-scale items like furniture online, are creating complexity and forcing businesses to reexamine their last-mile strategies.
  • Shifting technology. In a role reversal from the last few decades, consumers are pulling ahead of businesses when it comes to technologies like artificial intelligence. These tech-savvy customers expect connected yet frictionless experiences from their brands – forcing many businesses to play catch-up.

Increasing agility through technology

Faced with these pressures, business leaders recognize that agility will be the key to success in the coming years. A KPMG survey found that 68% of CEOs believe that being slow to adapt to change will lead to obsolescence, while Gartner revealed that 82% of CEOs intend to change their business models by 2020 to stay relevant.

For supply chains, a technology-enabled approach is essential to drive agility and keep up with consumer demands. According to a World Economic Forum analysis, digital transformation will generate $1.5 trillion in value for the logistics industry over the next five years. Among businesses that adopt digital supply chains, executives report a 3.2% average increase in annual earnings – the highest ROI of any business function.

As supply chain executives recognize the importance of technology investment, an analysis conducted by AGL and Logistics Trends & Insights found that total logistics IT spending will rise 17% to $87.8 billion between 2017-2022. Yet a data-driven, agile supply chain remains a dream for many businesses, with a significant number of organizations still relying on Excel and email to manage complex supply chain functions. For organizations that master digital transformation in the supply chain, the benefits are big – faster time to market, increased efficiencies and better customer experiences.

Improving Supply Chain ROI in a Tough Tariff Environment

After duties on $200 billion in Chinese goods jumped from 10% to 25% earlier this month, businesses barely had time to blink before receiving news of yet another tranche of tariffs. These duties would cover $325 billion in goods, hitting the price-sensitive apparel sector particularly hard and taking a significant bite out of business’ bottom lines.

While no timelines are available yet for the new tariffs, NRF is expecting “unusually high” import levels in the coming months as shippers scramble to beat the duties. In its latest Port Tracker report, the organization estimated that TEUs would hit 1.9 million in May – the first time ever TEUs have risen to that level before July. That surge in shipments could lead to another chaotic peak season and higher prices for shippers, who are already paying 20% higher ocean contract rates than last year.

Some businesses may also turn to more expensive airfreight to get high-profit merchandise like electronics into the country faster. And once goods cross the border, tight warehouse capacity on the West Coast could push up prices as well, creating additional supply chain pain. For businesses grappling with these issues, a focus on optimization is increasingly critical. Here’s how combining a technology-enabled supply chain with the right logistics expertise can help deliver ROI that carries you through whatever comes next.

  • Find cost-effective capacity. With ocean spot rates already 40% higher than they were a year ago, sourcing affordable spot capacity to beat impending tariffs is likely to be a challenge once again during peak season. A centralized supply chain platform makes it easier to compare carriers and routes to find the most cost-effective solution, while an experienced supply chain partner with a deep logistics network can give you extra leverage in negotiations.
  • Shift your sourcing. As the cost of doing business in China continues to climb, many of AGL’s own customers are weighing the pros and cons of moving to neighboring countries. A supply chain platform that offers an end-to-end view, from production to final destination, lets your business compare suppliers and make the right choice based on production and logistics costs, vendor reliability, and more.
  • Check your classifications. For businesses that haven’t reviewed their classifications recently, the latest round of tariffs is a good reminder to keep current. A centralized platform makes it easier to review classifications in one spot to avoid penalties and identify opportunities to substitute products not subject to duties, if possible. A partner with customs expertise can help find additional ways to save time and resources, such as improving auditing procedures.
  • Automate routine activities. A more efficient supply chain starts with understanding all the touchpoints across your operations and seeing where there’s room for improvement. By managing every shipment in a single platform, you can uncover those efficiencies more easily. Technology that enables management by exception, rather than reviewing every single shipment, can also free up significant time for large global importers.
  • React faster to disruptions. Supply chain disruptions are inevitable, but being able to make adjustments on the fly can help keep issues from ballooning into disasters. For example, when faced with fast-approaching tariffs, a technology-driven supply chain can help you decide whether shipping via airfreight or paying additional duties will ultimately be less costly.

As shippers prepare for more tariffs and a potentially wild peak season, investing in effective tools, people and processes can help offset the impact to their operations and their bottom lines.

Winning the Tariff Waiting Game

The last few months have forced many global importers into a holding pattern as they wait for the latest round of tariff headlines. The March deadline has come and gone for 25% tariffs on $250 billion in Chinese goods, and the U.S. administration has said that talks are going well with China, putting additional increases on hold indefinitely. The 10% increases imposed last year are still in effect, however, and the U.S. has hinted they may stay in place, even if the two countries make a deal. Meanwhile, trade tensions continue to flare around the world, with news of $11 billion in potential tariffs on European Union products surfacing earlier this month.

These ongoing uncertainties are having a definite impact on the $6.5 billion in goods that come through U.S. ports each day. After breaking import records in a rush to stockpile inventory last year, businesses have slowed their pace so far in 2019. U.S. ports handled 1.62 million TEUs in February, down 14.3% from January and a 4% year-over-year decrease.

While import volumes for April and May are expected to top 2018 levels, much will depend on the ultimate results of U.S.-Chinese negotiations. If tariffs do rise to 25% on some goods, many shippers will need to make major adjustments to their sourcing and transit strategies to stay afloat. No matter where duties land, however, the current environment is making businesses more aware of the power of tariffs to shape the economy – and the importance of customs compliance. Whether you have an in-house brokerage team or rely on external support, these strategies can help your business stay strong amid tariff uncertainty.

Go to the source. If your business has global production facilities, running what-if scenarios now can help you hit the ground running if massive tariff spikes require a shift in sourcing. An experienced supply chain partner can help you assess alternate transit routes and associated costs for moving production from China to Vietnam or Malaysia, for example. In addition, some shippers are turning to their vendors to handle clearance to mitigate the bite of tariffs – whatever those duties might be in six months.

Double-check classifications. While many classifications, like tires, don’t leave much room for interpretation, businesses should still review all their harmonized tariff classifications if they haven’t done so recently. A customs brokerage expert can help confirm all classifications are correct, so you’re not paying tariffs unnecessarily or putting yourself at risk for fines for missing duties. Depending on your goods, there may also be opportunities to adjust your sourcing to items that aren’t eligible for duties.

Stay on top of customs paperwork. Regardless of what the future brings for tariffs, the increased scrutiny on all U.S. imports is likely here to stay. Establishing a thorough auditing system can help your business avoid errors and fines, while cutting back on time-consuming post-summary corrections. Trading paper-based processes for automated systems can also help you improve compliance and overall efficiency.

While only time will tell whether more tariffs are in store, businesses that invest in a strong customs compliance program now will be better positioned to handle whatever comes next.

3 Strategies for a Smoother Ocean Shipping Season

Efforts by ocean carriers to prop up rates by reducing sailings last year came at the exact wrong time for importers, coinciding with President Trump’s announcement of additional tariffs on Chinese imports. As shippers raced to beat the effects to their bottom lines, imports hit a record 21.6 million TEUs in 2018 – and spot rates skyrocketed accordingly.

Just a few months into 2019, several factors are already keeping spot rates at higher-than-normal levels:

  • High import volumes: Demand for cargo space has remained elevated among shippers looking to beat additional tariffs, with January imports rising an estimated 4 percent over the previous year.
  • Trade uncertainty: While the March 1 tariff deadline has come and gone, continued back-and-forth between the U.S. and China make it unlikely that rates will drop anytime soon.
  • Bunker fuel costs: With carriers facing rising fuel costs and an impending 0.5 percent global sulfur cap on fuel content, shippers will undoubtedly see the effects reflected in their rates.
Navigating contract season effectively

As shippers enter contract negotiations, they will need to work with carriers to find a middle ground that balances cost with capacity to keep their supply chains moving. These strategies can help businesses lock in the capacity they need without compromising their budgets.

  1. Focus on total spend, not on rate. Trying to negotiate contract rates at the lowest possible level will ultimately wind up costing you more. Rather than trying to nickel and dime contract rates, focus on choosing a reliable carrier who will keep your shipments on time and on budget.
  2. Map your supply chain. Truly optimizing your ocean freight spend requires taking a critical eye to your supply chain. A centralized technology platform offers insight into every mode, carrier, shipment and more, so you can spot opportunities for improvement and make informed decisions during negotiations.
  3. Be ready for the unexpected. A provider with a deep network of relationships can be invaluable in accessing affordable capacity when disruptions inevitably arise. A little logistics creativity, such as changing the port of discharge, can also help lessen the impact of disruptions.

Want additional tips on managing ocean freight season without sinking your budget? Read our recent article in the Journal of Commerce, “Navigating 2019 ocean contracting.

What’s Next for Supply Chain Tech?

From floods to hurricanes to historically high ocean rates, 2018 has dealt one challenge after another to supply chain professionals. In our recent infographic, we broke down the stories making headlines and causing turmoil for shippers this year, including:

  • April 1’s ELD mandate, which led to a reported drop in productivity for 83 percent of trucking companies
  • The $250 billion in Chinese tariffs President Trump has imposed this year, with more looming on the horizon
  • The shocking 50 percent year-over-year increase in ocean rates, as freight carriers tried to wrestle back control of pricing and improve profitability

As for 2019? More uncertainty and complexity are sure to follow. Measures like the bunker adjustment factor, which many ocean carriers are enacting to offset rising fuel costs, will have an impact on organizations’ bottom lines. Meanwhile, two in three businesses say they lack visibility into logistics processes, and 70 percent of businesses experience supply chain disruptions. These current and impending challenges underscore the importance of an agile, technology-driven supply chain.

Tech Investments Are on the Rise

By preparing with the right mix of tools, people and processes, businesses can equip themselves to handle whatever 2019 brings. Technology is the backbone of that strategy: A centralized platform is key for improving visibility, optimizing operations, gaining insight and delivering value across the supply chain.

Recognizing these opportunities, a new wave of digital logistics startups aims to help businesses enhance nearly every area of supply chain activity. Venture capital continues to pour into the sector, and shippers are increasing their tech investments to gain a competitive edge in the market.

In a report set for release November 13, AGL will reveal:

  • How much businesses are spending on supply chain technology today, and how much that number will rise by 2022
  • The growing role that disruptive technologies play in overall spending
  • The top five areas for technology innovation

Visit our website to download a free copy and get an inside look at the technologies that could transform your operations in the years to come.

Want more competitive insights? Download our infographic for a look back at supply chain in 2018 and strategies to prepare for the year ahead.

What to Look for in Your Supply Chain Partnerships

2018 has been packed with one shakeup after another, leading to one of the most uncertain environments in recent memory for shippers. The biggest headline-grabbers include:

  • Trump’s tariffs. Arguably the biggest supply chain story of the year, the U.S. and China have kept importers on their toes with a barrage of duties. With roughly $250 billion in Chinese goods now subject to tariffs, businesses have been importing record-breaking volumes as they rush to get items in hand before duties take effect. The trade war is poised to escalate further, as Trump threatens to enact tariffs on an additional $267 billion in goods.
  • The ELD mandate. The long-awaited mandate, which required truck drivers to install electronic logging devices (ELDs) that track and cap their total hours in service, has had a ripple effect across modes. The mandate reduced productivity for 83 percent of trucking companies, creating a capacity crunch and rising rates for shippers. Meanwhile, many ocean carriers have been forced to sit at port for trucks, prompting some to impose emergency intermodal fees and restrict door deliveries.
  • Ocean turmoil. The industry’s move to cancel sailings in an effort to improve profitability shocked many shippers this year, and continues to wreak havoc with capacity and rates. Total capacity has shrunk by 7 percent, leading to a 50 percent year-over-year spike in Trans-Pacific ocean rates and a scramble to secure space during peak season – even for shippers under contract. Those hefty prices are slated to continue into 2019, thanks to newly announced bunker adjustment factor surcharges.
  • Disruption from disasters. When Hurricane Florence tore up the East Coast in September, businesses across the country felt its effects. Delivery disruptions rose by 49 percent that week nationwide, despite only a 2 percent drop in shipments. With more than a month to go before hurricane season ends, more disruptions could be looming for shippers.

Dealing with supply chain disruptions

For shippers large and small, the move toward technology-enabled supply chains is helping to improve visibility, control and responsiveness when things go awry. But while a centralized platform is the cornerstone of a high-functioning supply chain, hands-on support is the key to keeping it running day after day.

That’s why more businesses are turning to external providers to help them navigate this disruption-prone environment. Freight forwarders now account for nearly 45 percent of U.S. containerized imports from Asia, a 2 percent year-over-year increase. The right partner can help businesses access scarce capacity, tackle challenges head-on and offer best practices for improving operations. Here are a few areas to consider when choosing yours.

  • Dedicated support. By assigning a single point of contact to your business, your partner can get to know your business goals, rules and requirements better, so they can make more effective recommendations.
  • A deep logistics network. The ongoing struggle to source ocean capacity underscores the importance of a well-connected partner. Look for a partner with a strong network to help find available space at the best possible rates.
  • Customs expertise. As the scope of U.S. tariffs extends to new areas like electronics, food and housewares, more businesses are bracing for the impact to their organizations. A partner with customs brokerage expertise can minimize the pain by ensuring harmonized tariff classifications are correct, helping to apply for exemptions and taking other steps to ensure customs compliance.

For supply chain professionals, dealing with disruptions is a growing part of the job. Finding the right partner can help equip these businesses to face today’s biggest challenges – and whatever comes next.

5 Steps for Improving Customs Efficiency

With 28 percent of U.S. GDP now related to trade, businesses across a variety of industries are wrestling with the complexities of customs brokerage. The U.S. collects $95 million in duties each day, and companies need a plan to ensure they’re not paying more than their fair share. Supply chain professionals also have to manage individual countries’ trade requirements, complete extensive documentation, and maintain accurate classifications for their imports – all while keeping up with a constantly changing environment.

While customs brokerage has a reputation for being cumbersome, growing trade tensions and a flurry of regulatory activity are making the process even more difficult. Last week’s announcement regarding a potential 25 percent tariff increase on over 6,000 products, up from the originally planned 10 percent, is just one of the most recent examples of the challenges inherent in managing the already volatile supply trade landscape. The U.S. government is increasingly scrutinizing every shipment that arrives at port, and staying current on regulations like the recent changes to duty refunds is becoming even more time-consuming for importers. Meanwhile, some ocean carriers are cutting back on service between Asia and the U.S. in response to U.S.-Chinese tariffs. That decrease in capacity prompted double-digit increases in spot rates in July, making it even more important to manage customs cost-effectively.

By establishing effective customs brokerage tools and processes, businesses can keep shipments on track, avoid paying for fines and penalties, and make the most of their time and resources. Here are five key areas to consider:

  1. Stay up to date on harmonized tariff classifications. Inaccurate classifications can leave your goods stranded at the border or subject you to hefty fines. In the wake of the U.S.’ confirmed new tariffs on nearly 800 items, now is an ideal time to review classifications. Collecting all shipment data into a single platform makes this task infinitely easier, while also allowing businesses to see shipment status easily and reroute goods as needed if a shipment gets stuck.
  2. Take a hard look at your sourcing. With the U.S.-China trade battle continuing to escalate, many U.S. companies that import Chinese goods are considering their alternatives. When vetting your vendor list, take all the pros and cons into account, including applicable duties, vendor reliability and how quickly goods can travel from a particular destination. For example, some wooden furniture importers are choosing Thailand and Vietnam for production over China, despite its strong transportation and port infrastructure, because Chinese goods are subject to AD and CV duties that can lead to retroactive changes in tariff rates and slow liquidation.
  3. Use ACE to your advantage. The Automated Commercial Environment (ACE) saved businesses $52 million in 2017 by automating filings for U.S. Customs and Border Protection and dozens of partner agencies. In addition to streamlining the filing process, ACE also gives businesses a ready-made view into all historical filing data. That means businesses no longer have to worry about losing data during brokerage or port changes, and they can also uncover information to enhance efficiency, such as ports where they’ve had a history of exams.
  4. Put the government to work for you. While it requires some time upfront, obtaining C-TPAT certification from the U.S. government can ultimately help accelerate your supply chain by reducing the amount of cargo called for exams. In addition, taking part in the U.S. Foreign Trade Zone program can help businesses significantly improve their bottom lines by deferring, reducing or even eliminating import duties. An experienced supply chain partner can help you determine which programs fit your business best and guide you through the process.
  5. Build a sound audit process. Without an established auditing program, businesses can become overwhelmed with time-consuming post-amendment entry corrections, shipment delays and even fines. Whether you manage the process yourself or rely on an external provider, make auditing a priority. Your supply chain partner can help you evaluate your internal processes, including recruiting and training people with the right skills, while providing the peace of mind that your filings are accurate.

For global importers and exporters, customs brokerage is more than just a checkpoint along the way – it’s a critical component of the supply chain. By partnering with a provider who understands your business and the rapidly evolving trade landscape, your business can boost operational efficiency as well as customs compliance.

Taking On Tariffs

On July 6, U.S. customs agents began collecting duties on more than 800 Chinese goods worth $34 billion, affecting those who import electronics, vehicle parts and accessories, chemicals, and more. A second phase of the tariffs, which must go through public review first, would levy 10 percent tariffs on an additional 280 items. China has promised to go tit-for-tat by slating $34 billion in U.S. exports for 25 percent duties, including soybeans, lobsters, sport utility vehicles and whiskey.

These tariffs come on the heels of steel and aluminum duties announced earlier this year, with many manufacturers still trying to decipher the potential impact to their organizations. Businesses have filed more than 20,000 exemption requests for steel and aluminum tariffs so far, but the U.S. government had processed fewer than 100 of them as of the end of June. As the world’s two biggest economies gear up for this latest round of tariffs, they could be just the tip of the iceberg. President Trump has threatened to unleash up to $400 billion in additional duties if China retaliates, and increased inspections on both sides could make it harder to move goods across the border.

Staying ahead in a changing environment

For U.S. importers and exporters, these tariffs are one more economic hit amid rising overall costs. U.S. business logistics costs clocked in at 7.7 percent of nominal GDP in 2017, up from 7.6 percent in 2016, as rising fuel costs and shrinking capacity put pressure on supply chain budgets. Beyond the financial impact, the current trade environment is forcing businesses to spend time and resources to ensure customs compliance – or else risk additional fines and penalties.

As Chinese tariffs go into effect, here are two steps businesses can take right away to stay compliant and minimize the financial impact.

  • Review harmonized tariff classifications. Now is the ideal time to review your list of imported goods to make sure items are classified correctly. As a best practice, businesses should review their classifications twice a year (and more often if their commodities fall into frequently updated categories). With the U.S. government scrutinizing every shipment, you could be subject to penalties if you inadvertently miss an item slated for tariffs. On the other hand, some businesses may be pleasantly surprised to find that items they thought were subject to tariffs actually aren’t. Unsure about a particular item? Request a ruling from the U.S. government. A centralized supply chain platform makes it easier to review all classifications in one spot, while an experienced customs broker can help ensure accuracy.
  • Apply for an exemption. The U.S. government recently announced that it will be accepting exemption requests for items included in the latest round of Chinese tariffs. Although there’s not an official form available yet, you can start gathering information now to make your case. Typically, the government will ask to review details on the type of product, the quantity imported, and tariff and customs-related documentation. Your supply chain partner can help you gather the appropriate materials to submit your request. Be warned, however, that exemption relief will likely take a while. For steel and aluminum tariffs, the government estimated 90 days for a response, but applications are taking longer than that to process.

Long-term considerations

While new and impending tariffs have many businesses concerned, be careful about knee-jerk reactions that could have longer-term implications. The economic effects of tariffs are significant for some industries, but the overall scope is still relatively small, considering that the U.S. trades nearly $5 trillion in goods annually, as AGL CEO Jon Slangerup recently told Journal of Commerce.

As trade tensions continue to brew, businesses will need to remain vigilant about customs compliance while also evaluating potential adjustments to their supply chains. The right partner can help you source new factories or materials, manage importing and exporting requirements, and make sure your supply chain stays competitive in an uncertain environment.