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Transcript
Kevin Doucette is the director of North American trade policy and compliance for C.H. Robinson. He joined C.H. Robinson in 2009 after a decade of managing an international trade and regulatory compliance consulting firm. In Kevin’s current role, he oversees the external consulting division (trade policy), the internal export corporate compliance department, and both the internal supply chain security divisions for C-TPAT and TSA.
David Maloney, Editorial Director, DC Velocity 00:01
What's next for a global trade? How is automation changing the real estate landscape? And volatility continues to dominate the freight sector.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Yale Materials Handling, a leading warehouse brand that specializes in much more than just lift trucks. Logistics operations rely on Yale for everything from robotics and advanced power options to the company's most recent addition: an innovative tag-to-tag solution to help enforce social distancing protocols and inform reactive measures to limit virus spread. For more information, visit yale.com. That's Y-A-L-E dot com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin: The Covid-19 pandemic, the U.S. elections, and the worldwide economy have all left their marks on the global trade sector. What are the important trade issues we should be focusing on now and into the future? Here to talk about that is Ben with today's guest.
Ben?
Ben Ames, Senior News Editor, DC Velocity 01:27
Thanks, Dave. Yes, we have a special guest here with us today with a lot of experience in that area. Joining us is Kevin Doucette. He's the North American director of trade policy and compliance for C.H. Robinson.
Welcome, Kevin.
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 01:41
Thanks, Ben. Thanks for having me.
Ben Ames, Senior News Editor, DC Velocity 01:44
Glad you could be here. Kevin, could you start out just quickly for us, letting us know what C.H. Robinson does and how your work fits in there?
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 01:53
Sure. So, C.H. Robinson is is a logistics company. We specialize in both domestic and international logistics as well as in U.S. customs-house brokerage and brokerage and customs around the world. [It's a] multinational company. My particular area of expertise is in U.S. import, U.S. export compliance. I oversee a group that does external consulting for customers.
Ben Ames, Senior News Editor, DC Velocity 02:20
Got it. Thank you. There's a lot of ground that that sort of job description covers, and although Covid-19 has, of course, dominated many of our conversations throughout 2020, global trade regulations have continued to impact logistics companies throughout that time as well. Heading into 2021, as we are now, what should importers and exporters have top of mind in regards to the trade war?
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 02:45
Good question, definitely a good question, Ben. Obviously, you know, we have a new administration, and new administration means change. So what that change will look like in 2021, at this point, obviously, we don't know. The executive branch is going to set the tone for foreign policy. So, as such, President-elect Biden will implement his foreign policy goals once he takes office.
President Biden, back in August, had stipulated that he would immediately remove, for example, this trade-war this Section 301, with China. However, that statement has been walked back in recent times, and, you know, chances are, he's been discussing the fact of obviously leveraging with our allies to confront China on economic and intellectual property-right[s] issues. It's my opinion that importers and exports should continue to see these Section 301 duties at least for the near term. And, obviously, importers and exporters are hoping that this trade war ends, but to put it bluntly, hope isn't a strategy.
Companies should be looking hard at duty-minimization strategies. And not just because of these 301 duties. This is something companies should have been doing for quite some time. We at C.H. Robinson have documented what strategies companies should be reviewing based upon speed to implementation—those that can be implemented as quickly as possible to those that are more long-term goals. If you want to review those, I'd suggest checking out our Trade & Tariff Insight[s] page. It can be found at our corporate website. And on that page, you'll notice the chance to connect with an expert, and if you have further questions or scenarios that you want to address, you can absolutely have the ability to to reach out to a C.H. Robinson expert to discuss those in further detail. But, right now, companies should definitely be looking at duty-minimization strategies, and it should be a strategy that companies look at regularly.
Ben Ames, Senior News Editor, DC Velocity 04:48
It sounds like some great resources. Thank you for mentioning those. Could you, for those of us who are still on the learning curve on this, is the "Section 301" terminology, is that a reference strictly to the trading arrangements with China? Or can you give a little back-of-the-envelope description?
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 05:07
Sure. So a quick description: Section 301 actually refers to the Trade Act of 1974, and not to get too much in the weeds, but this Trade Act of 1974 basically authorizes a president to take action if he thinks that a foreign government is somehow violating an international trade agreement, or is being unjustified or unreasonable, or putting burdens on U.S. commerce.
So, Section 301, is a section of that Trade Act, and what it allows the president to do is, if he determines that there's some type of practice that's occurring that is discriminatory to the U.S., what happens is, the U.S. Trade Representative [at] that time would investigate to see if that act that is occurring is actually damaging U.S. commerce.
So, in the case of, for example, China 301s, which is one that most companies are probably familiar with—however, keep in mind, we currently have 301s in place with EU, because of Boeing EU 301s. We also have 301s on the docket and ready to go with France, currently, and we're in the process of having a 301 investigation against Vietnam. But in the case of China 301, it was determined that we were relinquishing intellectual property rights and China was having IP violations--intellectual property rights violations. So USTR [U.S. Trade Representative] determined, in the case of China, that those types of damages equated to about [$]50 billion worth of U.S. loss a year, loss in U.S. dollars a year. So, as such, after the investigation was completely finished, we were able, and authorized to put tariffs on China, to hit that $50 billion mark. So, 301 is an avenue. It's not specifically just used against China. As I mentioned, it is something that's being used and is in place for, to take care of these discriminatory acts with multiple countries right now, and you could actually see, if the investigation continues with Vietnam, you could potentially even see 301 duties in the future with Vietnam as well.
Ben Ames, Senior News Editor, DC Velocity 07:30
Really interesting, and as you mentioned, some really big dollars here that are involved. You mentioned France, and that was another point that we've been covering a little bit lately, that there's something on the horizon called a digital service tax that France may implement in the coming year. Can you give us a little description about what that's about, and what impact it might have on U.S. companies?
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 07:53
Sure. So France actually proposed and signed into law a digital service tax. The digital service tax is actually additional--it's a tax placed on digital services such as digital intermediation and digital advertising. Intermediation is, for the lack of better words, it's being an intermediary between either a business to business, a business to consumer, or a consumer to consumer. And obviously, we all know what digital advertising is. It's posting of advertisements, sales, on different platforms, etc.
So how does this affect the United States? Well, this digital service tax that France has already signed into law, basically, if a company has over $750 million worth of--not dollars, sorry--750 million euros worth of revenue annually, and 25 million euros of revenue is directly from France, there would be a 3% tax on those digital services that they have within the country, okay? What the USTR did, as I mentioned, is a 301 investigation. [A] 301 investigation was taken, undertaken underneath this digital service tax for France. And to see that the fact of—if it was retaliatory, if it was discriminatory, if it was not meeting international agreements, you know, so, for example, an agreement on accounting. And the USTR has determined that this tax would fall underneath the 301 and be discriminatory.
Ben Ames, Senior News Editor, DC Velocity 09:34
Okay.
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 09:36
Now, France has not collected this tax as of today. They were supposed to do a collection of this tax back in, I believe it was April. But right now, it's looking like they're probably going to collect this tax from companies starting in December. And it's discriminatory in the fact that two-thirds of the companies that would most likely have to pay this tax are U.S. companies, and they're companies such as, like your Facebooks your Googles, Amazon, eBay, Uber. There's a multitude of different companies, U.S. companies, that would most likely have to pay this tax. So what the U.S. has done is, we did a 301 investigation and determined that it was over a billion dollars worth of damages that would be inflicted on the U.S. Therefore, we're authorized to put a 25% tariff on goods from France starting on January 6th of 2021 if, in fact, France, collects this tax, this digital service tax
Ben Ames, Senior News Editor, DC Velocity 10:41
interesting. Interesting. Yeah, in a sense to balance that out between the two countries.
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 10:46
That's 100% correct. And, you know, previously, I mentioned the EU 301s. So, not only would France be applicable to pay--you know, if you're importing goods from France, you might have to pay EU 301 duties, but in addition, you could also, if you're importing from France, have to pay the French digital service, tax 301 duties. Some ways, it can get quite costly.
Ben Ames, Senior News Editor, DC Velocity 11:09
It really can. And it's not just China, as we've often talked about.
We only have a couple seconds left, but that there was also some brand-new news that came out just last week, speaking of China, speaking of Vietnam, which we have, about a new Asian trade deal between a lot of the countries--15 countries in that region [that] have an enormous amount of buying power, worldwide. Will, that exert even more pressure on the U.S. to do some deals with other trading partners in 2021?
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 11:35
I would assume it would put pressure on the U.S. to absolutely look at furthering trade agreements within 2021. You know, obviously, this is a speculation at this point. President-elect Biden, his administration, his foreign policies and goals, are going to dictate how this would would actually come to play. But keep in mind, underneath President Obama, we were on the verge of entering into something called the Trans-Pacific Partnership back then, and, you know, something like that—and this is purely speculative—could potentially get resurrected underneath President-elect Biden's administration, in my opinion, you know. And obviously, it's complete speculation. But who knows? Maybe we go from a complete trade war to, not only trade peace, but trade prosperity within the region here, in the long term.
Ben Ames, Senior News Editor, DC Velocity 12:29
Wow. All sorts of things, threads, to keep track of in the coming year. Really fascinating stuff. Kevin. We really appreciate your joining us here and keeping us up to date on some of this complex stuff. You did a great job of helping us all understand.
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 12:43
Keep in mind, that's purely speculative. Hope's not a strategy. Hope—we can hope that that's going to happen. We'll see what actually happens.
Ben Ames, Senior News Editor, DC Velocity 12:51
Understood, understood. Thank you for being with us today, Kevin. Really appreciate your joining us.
Kevin Doucette, North American Director of Trade Policy and Compliance, C.H. Robinson 12:55
Thank you.
David Maloney, Editorial Director, DC Velocity 12:57
Thank you, Ben and Kevin.
Now let's take a look at some of the other supply chain news from the week. Victoria, you reported on how automation is changing the industrial real estate market. Can you tell us more?
Victoria Kickham, Senior Editor, DC Velocity 13:09
Sure, Dave, yeah, happy to. So, the accelerating adoption of warehouse automation technology is really spurring change in the industrial real estate market, especially when it comes into tapping the potential of urban markets and making strides in things like e-commerce fulfillment. We've been covering this changing landscape for a long time, but also, more recently, because of the pandemic.
So, I came across some research released by logistics real estate firm Prologis this week that really homes in on the issue, and it highlights three trends that are converging to really change the market. The three trends are: rapidly increasing e-commerce activity, which we've talked a lot about, and we've seen in these last nine months; labor-related challenges due to Covid-19—you know, you see increased absenteeism, the need to social distance in the warehouse; and then the third thing is steadily improving technology solutions that make it easier and more affordable for companies to implement automation. And these automation solutions, I should say, could include a range of things from conveyors and sorters to shuttle systems, robotics, and the like, so… .
An interesting point in the research is that automation can actually help logistics customers, which are, you know—whether they're e-commerce retailers, grocers, others—tackle some of the bigger issues in last-mile or last-touch delivery, because it can allow them to better use urban locations. It's not always easy, or possible, I should say, to find the right warehouse or DC in an urban area, because often they aren't big enough, don't have the right setup, or proper access for trucks, and because labor costs can be higher, which is a real problem for e-commerce, because it's so much more labor intensive than other operations. And so what this research really gets at is that automation can help with all of those issues, and it's something we're going to continue to see ramp up in the year ahead.
David Maloney, Editorial Director, DC Velocity 14:51
Yeah, certainly. That's interesting. What automation technologies are getting the most interest?
Victoria Kickham, Senior Editor, DC Velocity 14:57
Yeah, that's a good question. And the answer is that most companies experimenting with all kinds of automation.
But I had a conversation with Melinda McLaughlin, who's head of research for Prologis, and she said they are seeing a lot of experimentation with micro-fulfillment systems, especially in last-mile situations. And that's interesting, because typically, in those last-mile or last-touch facilities, you have goods coming in and out really quickly, you know, maybe staying less than 24 hours before they're out the door. So there wasn't really the need to sort of store and manage a lot of things. But now we're seeing companies start to put more inventory closer to customers, you know, sort of more just-in-case inventory, and that's related to a lot of the challenges we've seen in these last few months, and that's what they're saying is making micro-fulfillment—and other solutions—a much better investment, in many ways. So, you know, she said she expects to see this trend continuing to 2021. So, lots of interest and demand for automation solutions.
David Maloney, Editorial Director, DC Velocity 15:52
Certainly something we will continue to monitor as we move forward. Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 15:56
Yeah, you're welcome.
David Maloney, Editorial Director, DC Velocity 15:57
And, Ben, you reported this week about some volatility in the truckload freight sector. Can you tell us what's going on in that market?
Ben Ames, Senior News Editor, DC Velocity 16:05
That's exactly right, Dave. And we all know it's a volatile sector, so, you know, tell me something I don't know, I might reply. But it's been even more so than usual lately.
You know, a lot of this relates to what Victoria was just talking about, with rising e-commerce volumes, with hot warehouse demand. And the other side of that, of course, is the transportation of moving the inventory to and from those warehouses. So, freight came roaring back into the trucking sector in October, the latest statistics show, after, of course, midsummer lockdowns and travel bans had really crimped the economy. So that pushed the October monthly shipping volumes to beat their one-year-ago levels. And remember, that was October of 2019, when nobody had even heard of the coronavirus. These numbers come from the analysis firm Cass Transportation.
Now the reason for the busy trucking sector is that store inventories are very lean right now, following, as we mentioned, those pandemic lockdowns and some of the panic buying that we see as virus cases start to rise again, so retailers really need to refill their shelves or risk being out of stock. At the same time, consumer spending is going gangbusters right now, due to the continued reopening of the economy and other businesses, schools, starting back up, many of them. And optimism, of course, about some promising vaccine development just in the last couple weeks, Cass said. So, retailers are really worried about having enough inventory, and they're ordering record imports, at places like maritime ports, to fill up those warehouses again.
David Maloney, Editorial Director, DC Velocity 17:40
So Ben, does that mean that after the Christmas peak season, the freight sector will return to normal patterns?
Ben Ames, Senior News Editor, DC Velocity 17:46
Well, we sure hope so, but the answer is "not necessarily," and the reason, of course, is the familiar Covid-19. So, for example, there's certainly a lot of activity right now. The Port of Los Angeles said that October was the busiest month in its 114 year history, with container traffic up almost 30% over last October.
But in the same press release, the Port of LA noted that rising Covid concerns are still cramping U.S. productivity. So much so that there's a trade imbalance, where for every three and a half containers that are imported into Los Angeles from abroad, only one container leaves our shores filled with U.S. exports. So that's obviously not a sustainable balance.
And we heard a similar message from [the] trucking-equipment market, where a study found that October preliminary numbers might have set a new record for the number of semi-trailer orders, since fleets are trying to keep up with all that demand and roll more capacity onto the highway right now.
But, again, that same trailer orders report, which was from FTR Transportation Intelligence, said that rising Covid cases could slow those markets right back down again if we need to return to lockdown conditions to save lives. As the FTR report said, the industry is known for wild demand swings, and we've gone from record low orders to record high orders in just seven months. So, like we said at the top, volatility and trucking seem to go hand in hand.
David Maloney, Editorial Director, DC Velocity 19:17
Yeah, it certainly seems this way. Thank you, Ben.
Ben Ames, Senior News Editor, DC Velocity 19:20
Yep.
David Maloney, Editorial Director, DC Velocity 19:21
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Again, DCVelocity.com. Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 19:34
Glad to, Dave. Thanks a lot.
Victoria Kickham, Senior Editor, DC Velocity 19:35
Yeah, you're welcome.
David Maloney, Editorial Director, DC Velocity 19:37
And again, our thanks to Kevin Doucette of C.H. Robinson for being with us today.
We encourage your comments on this topic and our other stories. You can email us at podcast@DCvelocity.com.
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