It may sound like fun and games, but managing a consumer electronics supply chain is getting tougher by the minute thanks to new compliance and security restrictions.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
If your job is selling consumer electronics components or finished goods, you are likely struggling to close deals amid the most difficult business environment in decades. But take heart. You could be managing your company's supply chain.
Consumer electronics exporters and importers—as well as those in other industries—face a year of compliance and security changes that the International Compliance Professionals Association calls the "most significant" since the 1993 passage of the Customs Modernization Act. At the same time, compliance professionals are being forced to manage with scarcer resources from their cash-strapped companies, knowing all the while that fines, penalties, shipment delays, or forfeitures that may have been routinely dealt with in good economic times will not be blithely ignored in a downturn.
The industry's challenges range from new data-filing requirements for ocean imports to physical screening of air exports before they're loaded into passenger planes. Exporters can expect tighter government scrutiny and stiffer fines for inaccurate or non-filed export declarations due to heightened concerns over export shipments falling into the wrong hands, experts say. An array of agencies— including U.S. Customs and Border Protection, the Consumer Product Safety Commission, and even the Federal Communications Commission—will also have their fingers in the enforcement pie in 2009, these experts say.
CPSC, for example, has the authority to place "manifest holds" on imports—including consumer electronics—in order to satisfy its own compliance requirements, according to Amy Magnus, district manager at A.N. Deringer Inc., a St. Albans, Vt.-based customs broker, freight forwarder, and thirdparty logistics service provider.
All of this comes at a time when the industry already faces critical time-to-market issues because of its products' high value and risk of obsolescence, and must also cope with precise and particular tariff classifications. "A slight difference in classification can mean a huge difference in the duties that are paid," says Melissa Irmen, vice president, products and strategy for Integration Point Inc., a Charlotte, N.C.-based trade compliance software developer. Integration Point offers a Web-enabled product called "Global Classification" that allows a supplier in, say, Singapore to populate the site with product information for a colleague in the United States to review and determine the appropriate classification, according to Irmen.
A new world order
The new compliance world is already taking shape. On Jan. 26, U.S. Customs and Border Protection launched its "Importer Security Filing" program, commonly known as the "10 + 2" rule. The name derives from the additional data sets required of importers and carriers—10 data sets from importers to be submitted to CBP at least 24 hours before the cargo is laden aboard a vessel, and two additional sets from ocean carriers to be filed no later than 24 hours prior to a ship's arrival at a U.S. port.
The rule calls for a one-year phase-in, during which time CBP will not impose any fines or penalties for non-compliance. That's a good thing, experts say, because most of the supply chain is not ready to meet the requirements.
The ISF program does not apply to international air freight, the primary mode of transportation for electronics. Still, recent improvements in ocean transit times and delivery precision are prompting many electronics importers to at least begin serious discussions about shifting goods to the sea. At that time, 10 + 2 would become a reality for those companies.
The electronics supply chain is "not aware of the full impact of what is required" by the rule, says Magnus, who spent 18 years at CBP and whose clients include consumer electronics companies, some of which ship by vessel. She adds that importers will need to renegotiate supplier contracts to mandate that product information required by CBP is accurate, complete, and available to the importers at the time they need to file.
Though the 10 + 2 rule may not yet be on the consumer electronics industry's radar screens, what is front and center is a federal law requiring, effective Feb. 3, the screening of half of all domestic and international shipments loaded into the bellies of passenger aircraft. Companies are struggling both with confusing regulations administered by the Transportation Security Administration and a hard-and-fast deadline that many were not prepared for.
For example, there are TSA-approved "certified cargo screening facilities" in 18 cities, where cargo will be screened before it reaches the airport, thus taking some of the pressure off the airlines to perform the service. Once cargo has been screened by either a shipper or freight forwarder at a certified facility, it can be palletized or wrapped, and airlines will not have to reinspect it. However, industry sources said that TSA-authorized equipment needed to perform the tasks might not reach the facilities until March at the earliest. As a result, airlines faced at least a month of being the sole screener of the goods.
"I wouldn't say people are just throwing up their hands. But I think there is some frustration with following programs that are not yet particularly well-defined," says Judy Davis, senior manager, export compliance for Maxim Integrated Products, a Sunnyvale, Calif.-based manufacturer of integrated circuits that are used in consumer electronics products. Maxim, a heavy user of air freight, is working with its primary forwarding partner, James J. Boyle & Co., to build a certified cargo screening facility in San Bruno, Calif., outside of San Francisco.
Bad news for the bad guys
But, as industry innovators are fond of pointing out, for every problem there is progress. Magnus of Deringer says she has noticed "an increased hunger for compliance information" among electronics companies, adding that many, for the first time, have begun recruiting people to focus on compliance issues. She adds that compliance processes are even being integrated into the product design process, also a first for many companies.
Not surprisingly, technology will play a key role in importers and exporters' compliance efforts. Last September, global trade solutions provider Management Dynamics Inc. introduced a software program that aggregates information on individuals and organizations that U.S. firms are prohibited from doing business with. Ty Bordner, vice president, solutions consulting for MDI, says the company culls information from 94 government lists, arranges the names and addresses in a uniform format, and maintains the list on a daily basis. The software uses what he calls "comparing algorithms" to minimize the potential for false positives. Bordner says MDI's software has a false-positive rate of between 0.2 and 1.2 percent; other programs, he contends, have false-positive rates of between 5 and 10 percent.
Letting an export shipment slip into the hands of the bad guys can result in fines of up to $120,000, not to mention the incalculable damage associated with bad publicity, Bordner says. With so much at stake, companies are stepping up to the plate.
"Five years ago, I would have said that U.S. companies had a significant compliance challenge," he says. "But they are solving the problem by buying systems such as ours. Compliance is being taken more seriously than ever before."
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."