Global Trade Archives

Bonded Warehouses Can Save Global Companies Money

Global Trade Management Solutions | By Steve Banker • 11/16/2010

If you import goods, bonded warehouses can save you money. When you exports goods to Europe, you usually have to pay a tariff on those goods. By storing goods in a bonded warehouse, you can delay payments of the duties until the goods are released from the warehouse. In other words, bonded warehouses improve a company’s cash flow.

For example, consider an American company with a bonded warehouse in Rotterdam. The company ships goods to its warehouse and stores them for three months. When a customer order comes in, the company then pays the duties and ships the goods to the customer. In short, the bonded warehouse allows the company to delay payment on those duties for three months.

I recently spoke with Peter de Groot, Product Strategy Manager at Descartes (an ARC client) about its solution in this area. During our conversation, I thought we were delving pretty deeply into the complexities of setting up a bonded warehouse in the European Union. But from Peter’s perspective, we were actually talking about it at a high level. Clearly, logistics and compliance folks don’t speak the same language. I won’t go into the complexities of what we spoke about (I’m not even sure I could), but here are my main takeaways from our conversation.

The value of bonded warehouses can extend beyond delaying the payment of duties. For example, you can reduce lead times for goods flowing through a warehouse deemed by customs to be under “administrative control”. If you can prove to customs that you are “in control” of your customs processes—i.e., that you have good inventory control and are diligently keeping all of the records customs requires—then customs moves away from frequent physical inspections of your warehouse and shipments towards something called “administrative control,” which basically means customs trusts you. Customs is more apt to conduct frequent inspections of costly goods, high tech goods, and food products if a warehouse is not under control, which ultimately results in delayed shipments.

Imagine two semiconductor companies with goods arriving at the same time, at the same European port, and headed to the same customer site. One of these semi companies, however, consistently gets its goods to the customer one day sooner because it flows the goods through a bonded warehouse under administrative control. It’s this kind of performance that can lead your customers to prefer working with you instead of your competitors.

Bonded warehouses can also reduce “transit declaration” fees. If goods need to be transported without being cleared a transport declaration must be made. The goods remain under the supervision and control of customs and companies must pay a 25 to 50 Euro fee for that declaration. If you are running a JIT production environment and are making hundreds of shipments per week, these fees add up. A bonded warehouse, which eliminates these fees, saved one Descartes customer more than $100,000.
The concept of “virtual warehouses” can help companies centralize their customs department in one nation and reduce their administrative overhead. For example, imagine goods coming into Rotterdam and being shipped to various nations in the EU. The Rotterdam warehouse can serve as the nexus of a virtual warehouse that extends to warehouses in other EU nations. Import and export fees are paid to the Netherlands, but not to the other EU nations. This means you don’t need customs experts for France, Germany, Spain and so forth, just trade compliance experts for the Netherlands.
The Descartes solution is not a warehouse management system (WMS); it integrates with and complements a WMS. Because WMS solutions give you virtually perfect inventory control, they help companies establish administrative control. The Descartes solution provides the kind of documentation and logic required by the EU customs authority. Perhaps the best form of integration between the bonded warehouse solution and a WMS, for the purposes of establishing that you are in control of your goods, would be for the WMS to block and unblock transactions. For example, when the WMS receives goods, it could bloc put-away and send a message to the customs solution to verify that all the data on the inbound order is complete and all customs-related formalities have been taken care of. Once the customs solution sends an “all is OK” message, the WMS unblocks the put-away tasks, thus allowing workers to put the goods away.
Descartes’ solution can be fairly easily modified to support bonded warehouses in North America. The company is looking for beta customers in this region.

In conclusion, bonded warehouses can save companies money. But collaboration between trade compliance, finance, and logistics will be necessary to maximize the value of these investments.

What’s New in Supply Chain Risk Management Software?

Global Trade Management Solutions | By Steve Banker • 06/15/2010

Supply chain risk management solutions must encompass process, content, and connectivity. Even before the economic downturn, large enterprise software vendors like SAP and Oracle had begun to introduce Governance, Risk, and Compliance (GRC) solutions in response to a growing customer requirement: the ability to respond to risks more efficiently.

Initially, these solutions were largely process based—i.e., they created process flows for dealing with specific compliance requirements. Companies would define tasks that needed to be completed by a certain time, by the pertinent company personnel. These tasks were monitored for completion and certain types of events could get escalated to high-level executives along with relevant information.

More recently, these solutions have become a lot more interesting. SAP, for example, has an end-to-end solution for food and beverage manufacturers to proactively manage food safety. It starts with recipe formulation and goes through raw material procurement, production, sales and distribution, and recall management. In short, it encompasses the entire end-to-end process and it embeds safety across the organization in order to minimize risk while reducing the cost of safety.

The recent economic downturn forced many companies to provide financial support to their key suppliers. As a result, solutions that can help companies detect potential supply disruptions have gained added attention, and new types of web-based content solutions have emerged in this area. For example, Panjiva provides a central database of supplier data gathered from credit reports, black lists, and customs data that companies can search. Why customs information? If customs entries from a foreign supplier decline sharply, this could indicate the supplier has a greater risk of bankruptcy.

For companies that import and export goods, Global Trade Management (GTM) solutions fall under the GRC umbrella. Here the large enterprise suppliers have process-based solutions like those described above, but ARC is particularly interested in best-of-breed solutions that combine process, content, and connectivity (see “Beyond Software: The Role of Content and Connectivity in Global Trade Management”).

Management Dynamics’ GTM solutions, for example, are powered by its Global Trade Content database. The company claims that it has the industry’s most comprehensive and up-to-date database of global trade content, based partly on the number of people it has focused in this area. The database contains content for tariff and contract rates, preferential duties and taxes for calculating total landed cost, import and export controls, restricted parties lists, and all trade documents required for cross-border commerce. And the content is created in a hierarchy that mimics the process trade lawyers go through to classify goods. In short, Management Dynamics excels in the content portion of GTM.

Descartes Systems Group, on the other hand, excels at connectivity. How does connectivity come into play? Connectivity is necessary because many different parties are involved in global trade—e.g., carriers, customs agencies, freight forwarders, logistics service providers, and regulatory agencies—that need to communicate and collaborate with each other. In addition, information entered by one entity often needs to be leveraged my multiple parties in the end-to-end process. For example, a waybill is necessary for an air freight shipment. But customs also needs advance notice before a shipment can be loaded for departure. The pertinent data should flow to customs without rekeying. Having to rekey information is not only time consuming, but can also introduce errors. Descartes’ connectivity solutions have data quality capabilities to help ensure the required data is entered and in the correct format.

When it comes to GTM, there is still no perfect solution. The content required is so vast that no single vendor can provide it all. And although Descartes has a very large global logistics network, the company concedes that its work is not done and more acquisitions are possible. Descartes recently completed its acquisition of Porthus, which increases its connectivity to several European customs agencies.

In short, there are both new solutions in supply chain risk management, as well as solutions that are maturing in their breadth and depth.

(Note: Descartes, Oracle, and SAP are ARC clients)

The Audiovox Global Supply Chain

Global Trade Management Solutions | By Steve Banker • 09/29/2009

Audiovox Corporation is a publicly-traded company (NASDAQ: VOXX) headquartered in Hauppauge, New York. The company generated about $600 million in revenues in its last fiscal year. Audiovox started in the car radio business but its product portfolio has expanded over the years to include satellite radio, vehicle security, remote start and other mobile products. The company has made several significant acquisitions, including Thomson’s Americas consumer electronics accessories business (the RCA brand) in 2007.

Audiovox’s supply chain usually starts in the Pacific Rim where it purchases goods for sale, largely to North American customers, from overseas manufacturers. The company works directly with its suppliers to design and test the products. A large percentage of its products are sold to the automotive OEMs.

Following the acquisition of the RCA products, Audiovox recognized that it needed to streamline its global supply chain. Pat Moffett, Vice President of Global Logistics & Customs Compliance at Audiovox, helped to initiate two changes to streamline their processes. First, the company initiated nonstop, long-haul, team driving from its primary port of entry (Seattle-Tacoma) to its main distribution centers in Indianapolis and Memphis. Prior to this, the company relied primarily on rail shioments from the port to its DCs. However, because ship and rail schedules did not always sync up, lead times were often unacceptably long. This led the company to spend too much on costly air freight. Today, of the 4,000 forty-foot ocean containers Audiovox imports each year, 500-600 trailers now move by road.

Secondly, Audiovox implemented a global visibility solution called POET (Purchase Order Expediting & Tracking System) from E2E. Visibility for goods shipped by ocean (the company is not using POET for air shipments) begins with the purchase order and ends with delivery of the goods to a DC in the U.S. A foreign manufacturer notifies the freight forwarder when the goods are ready for pick up. The freight forwarder is in charge of entering the key data that drives end-to-end visibility into the system, and it also knows how long it will take to move the goods from port to port. It is the freight forwarder’s responsibility to keep track of schedule changes and enter the new data into the visibility solution. According to Pat, POET is a good solution that is reasonably priced, but having freight forwarding partners with the right “discipline” is critical to making this solution work.

POET is both a trade and visibility solution, as key information entered into POET is also used for Importer Security Filings (“10 + 2”) with customs.

Visibility from POET has given Audiovox more flexibility in how it routes goods from the port to the final destination. Planners can now make routing decisions later in the process. For example, if it looks like a ship-to-train shipment will take too long, a planner can changeover to a truck shipment as long as he notifies the ocean carrier 72 hours in advance. This process allows Audiovox to move goods from Hong Kong to Memphis in just 14 days. There are also rare instances when air freight from Asia is still necessary. Having advanced visibility allows Audiovox to marry up a 500 piece air shipment into Seattle, for example, with inbound ocean freight and then consolidate these into one truck shipment to Indianapolis. Or, if it looks like securing a timely rail shipment out of Seattle will be a problem, a planner might chose to ship to Los Angeles instead and use rail from there.

These changes have led to two main benefits: First, even though shipping by truck is more expensive than shipping by rail, the reduction in air shipments (along with other factors) was a major contributor in logistics costs dropping from 15 percent of revenues in 2002 to just 4 percent in 2009. Secondly, logistics personnel are now spending about half as much time answering the “when will this shipment arrive” question.

Audiovox has been a highly acquisitive company and its product line continues to expand. For example, the company will introduce a handheld TV in October. However, Pat is convinced that POET will scale and allow them to respond flexibly to whatever situations arise in the future.

Americans Not Turning Inward: Opinions on Global Trade & Cap-and-Trade

Global Trade | By Steve Banker • 05/27/2009

I generally leave the discussion of political issues that affect logistics to my colleague Adrian Gonzalez. But one issue that I have been tracking is the “reset economy,” the idea that once we emerge from this recession, certain industries may not bounce all the way back. In other words, they may not have the same growth and profitability they had before the recession. One scenario that could negatively affect both the logistics industry and the electronics industry (which conducts a large percentage of its manufacturing in Asia) would be public opinions turning inward, turning against global trade as a way of protecting and growing their home economy. You might expect that attitudes against global trade and for imposing more restrictions would increase during a global recession. Surprisingly, according to recent research by the Pew Research Center, this is not occurring.

Support for free trade agreements has actually increased over the past year (from 35% to 44%) among Americans, based on a survey conducted between March 31 and April 21 of over 3,000 adults. In some ways, it is surprising that the U.S. has continued to be a free trade nation for as long as it has. If you examine historical data from the Pew Research Center, you discover that many more Americans say that free trade destroys American jobs, rather than creating them, or that it lowers wages, rather than raising them. However, the past several Presidents have resisted rolling back free trade, perhaps in the belief that a strong economy is more important to their long term electoral prospects than short term gains in popularity. When one looks at these historical survey results, it is surprising that more presidential candidates have not come out against free trade.

Cap-and-trade also has global trade implications. In early March, Energy Secretary Steven Chu suggested the possibility of instituting a “carbon tariff” on countries (e.g., China) that do not mandate greenhouse gas emission reductions. Frankly, I was surprised that it took so long for this trial balloon to drop. Not surprising, Li Gao, China’s top climate change negotiator, thinks such a tariff would be a “disaster” that could trigger a trade war. In short, as Adrian wrote in “The Road to Cap and Trade,” the prospect of a carbon tariff compounds the trade concerns already sparked by “Buy American” and the current NAFTA dispute with Mexico.

This March, when Pew asked respondents “Do you favor … or oppose… setting limits on carbon dioxide emissions and making companies pay for their emissions, even if that means higher energy prices,” 59 percent of Americans favored setting limits on carbon dioxide, while only 33 percent opposed it. However, in the latest survey results, it appears that the recession is causing environmental issues to slip lower on Americans’ list of priorities. As the Pew report states, “In the new poll, 51 percent agree that protecting the environment should be given priority even if it causes slower economic growth and some job losses, down from 66 percent in 2007. At the same time, the share saying that people should be willing to pay higher prices in order to protect the environment has dropped from 60 percent in 2007 to 49 percent currently. This represents a 17-year low point on this measure.”

Politicians analyzing these survey results are apt to conclude that restricting trade using trading partner carbon tariffs is not likely to be a winner in the political marketplace, at least not at this point in time.

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