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There is no end in sight for global supply delays stemming from trade restrictions and transportation logjams. Demand continues to rise for U.S.-manufactured goods, but raw material and component disruptions are hindering production expansion.
“Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Tim Fiore, chair of the Institute for Supply Management’s manufacturing survey committee, in early May.
There are measures businesses can take to streamline the processing of shipments by U.S. Customs and Border Protection (CBP), according to Heather Marx, a leader in the customs, imports and trade remedies group at Cozen O’Connor. A perfect storm of trade disputes, tariffs, Covid-19 and a stranded ship in the Suez Canal have delayed cargo and stressed the agencies responsible for import and export compliance.
Heather Marks, Cozen O’Connor
Budget cuts during the Trump administration, along with the global pandemic, had hollowed out many of the traditional enforcement mechanisms at CBP. “The Biden administration is restoring funding to CBP front-line enforcement, so you are seeing increased scrutiny and the actual enforcement of trade policies at the ports again,” Marx said. CBP, which was dealing with massive employee and management turnover, is now able to fill vacancies.
The government has also launched a study to secure and improve the U.S. manufacturing supply chain. In the meantime, companies can prepare for some of the issues they will face while importing and exporting products and services.
The high-tech supply chain isn’t just about the business that’s conducted internationally. It is also a security concern. The U.S. government regulates technology exports to foreign entities that could exploit advancements made in the United States. Equipment and devices are vulnerable to theft — or interference — during transportation and supply networks can be hacked. National security has become an integral part of the supply chain, explained Marx.
“In electronics, a trend we have been noticing is cargo seizures as a matter of national security,” she added. “In instances such as IP infringement, we are seeing the designation of ‘national security’ used with increasing frequency. For customers expecting shipments, it’s hard to get information on their goods when national security is invoked.”
Marx, who advises domestic and international clients on strategies for foreign-based manufacturing, advises importers be certified under Customs-Trade Partnership Against Terrorism (CTPAT), a voluntary supply-chain security program led by CBP. The program aims to improve the security of private companies’ supply chains with respect to terrorism.
Although it was designed to combat sabotage, said Marx, CTPAT has become a demonstration of security and trade compliance. “Importers can use the program to streamline getting goods into the country. There are still hoops to jump through, but it is worth the certification. If you want to get in the short line and work efficiently through the process with CBP, we encourage customers to focus on having a streamlined and certified import process.”
Double down on due diligence
Most businesses vet their supply chain partners, but Marx emphasizes the importance of due diligence. “You really have to understand who you are doing business with,” she said. “You see tier-1 suppliers that otherwise would be nixed from the U.S. shipping through other countries or next-tier partners. Enforcement is working to keep pace with trans-shipment issues. Some companies manipulate the system, so businesses have to take a detailed look to see who they are dealing with both for their own knowledge and in case enforcement becomes an issue.”
One of the problem areas is China, which is subject to both import and export restrictions. “The trade limits on China aren’t going away,” Marx added.
Tariffs and trade embargos have prompted many high-tech companies to reconsider their relationship with China. Companies have had to pivot from both a supply and manufacturing standpoint.
“Considering the impact of both Covid -19 future trade bans, we recommend companies pivot now rather than be caught flat-footed,” said Marx. “Diligent companies are not only examining the import partners in their supply chain but are also reviewing their overall import strategy and contracts to determine if either modifications or wholesale moves are necessary.”
Smart manufacturers, she added, are looking for geographic diversity. “Vietnam and Thailand are countries that companies are looking to with increasing frequency as potential replacements for China, but, again, diligence is necessary in order to confirm that the expense of a move in either import or manufacturing is justified.”
In the post-tariff and Covid environment, Marx said, companies have to do things that they may have delayed – such as reviewing their partners and their contracts.
“Businesses have to make sure they are not dealing with sloppy manufacturers. And companies have to get the little things right. If your certification is not in order or your product classification is wrong, the shipment is likely to experience import scrutiny or seizure at the port. You have to do business with the right people and do the right things.”
Problems incur costs, she added. “If your shipment gets nipped at a port, you are looking at not only delivery delays but the potential that your products will not be released. These additional costs have significant impact at each level of the supply chain.”
Businesses should also get their contracts in order. This includes provisions for passing on tariffs or dealing with force majeure (unforeseeable circumstances) in addition to the requirements of transparency and disclosures to confirm supply chain partners are providing all necessary information, certifications, and proper classifications to streamline the import process.
“If contracts expire,” Marx said, “they have to be renewed and that is the perfect opportunity for businesses to ensure that all necessary clauses are included or modified. It will serve businesses better going forward.”
“There is so much that can go wrong – good companies are equipped with knowledge,” she concluded.
