17 Dec Why Global Logistics Management Should Come Second to Trade Compliance
You’re about to expand your business. You’ve been successful in domestic sales and distribution. You now have a promising opportunity to take advantage of global markets. So what’s the next step?
Before you put a logistics plan in place, order parts or materials from a foreign supplier, or ship your first product to an overseas customer, you need to invest time for compliance. Understanding trade compliance gives you the ability to apply global trade regulations and ensure that every link in your supply chain is uninterrupted. Focusing on global logistics management at the expense of compliance can hurt your global trade with postponed shipments, customs delays, fines, penalties, and time-consuming audits. Don’t be tempted by a “we’ll just pay the fines” mentality. Getting compliance correct—from the start—opens the door to a smooth-running logistics processes—source to destination—and reduces operational expenses. In the hierarchy of business priorities, global logistics management should come second to trade compliance.
Global Trade Is Complex
Global trade rules and regulations are voluminous and complex. They vary by country, mode of transportation, and goods being traded. In the US alone, global trade is governed by rules and regulations enforced by the US Customs and Border Patrol, the Food and Drug Administration, Drug Enforcement Administration,and Directorate of Defense Trade Controls, among others. Major world economies have also developed their own set of trade regulations that must also be taken into consideration.
Compliant global trade practices begin by understanding how these rules and regulations govern the responsibilities of the participants in your supply chain. A brief listing of the key supply chain participants illustrates how pervasive regulations can be and how each line of business bears some compliance responsibility:
- Sales: Can the product (and all the components that comprise it) be sold to a particular country, or are there restrictions based on product types, components, or buyers (Sanctioned Party List)?
- Procurement: Do suppliers comply with regulations that govern sourcing, process, quality, or fair trade practices?
- Accounting: How should you calculate product valuation? How will that affect duties and total landed cost?
- Legal: Have required export licenses been obtained? Are we accurately identifying and mitigating risk?
- Production: Do manufacturing processes comply with regulations established by Partner Government Agencies, such as the FDA’s Food Safety Modernization Act? Are we updating records to reflect last-minute changes to production?
- Shipping: Has all documentation been properly completed and filed prior to shipment? Can we provide an accurate delivery date?
Compliance failure at any one of these supply chain responsibilities can throttle the efficiency of your global logistics management and hurt your financial performance. ERP software can help your employees efficiently manage logistics in accord with regulations, but employees using this software must understand the underlying regulatory requirements. Software can simplify and automate global logistics management, but improper usage spells risk.
Ultimately, You Are Responsible for Compliance
Historically, compliance regulations used to be less stringent. Responsibility for global trade compliance was shared across partners in the supply chain—suppliers, manufacturers, brokers, and carriers. Since 9/11, requirements have significantly tightened, and importers and exporters are now ultimately responsible for trade compliance. Everyone from the CEO to the shipping clerk on the receiving platform needs to be fully informed regarding the requirements of trade regulations, ensure that every link in the supply chain is compliant, and be able to demonstrate compliance in the event of an audit. There is no longer a corporate shield for anyone or any company that willfully, negligently, or naively dismisses trade compliance responsibility.
In planning your compliance strategy, evaluate those individual responsibilities to determine if there are any gaps. An experienced global trade consultant can provide invaluable guidance to help you navigate the complexities of compliance.
Not Just a US Perspective, But a Global Perspective
As a global trader, you need to understand and comply with US regulations as well as the countries you trade with. The United States has free trade agreements (FTAs) in effect with 20 countries, among them Australia, Chile, Colombia, Israel, Korea, Panama, Peru, and Singapore. The NAFTA agreement is being replaced with the United States, Mexico, Canada Agreement (USMCA), and the US and China are involved in contentious negotiations. The European Union has regulations governing member states. Trade relations are dynamic and subject to constant change. Today’s’ trading partner can end up on next week’s embargo list as a result of political machinations.
To successfully execute global logistics management for a multinational supply chain, you need to understand, comply with, and navigate the numerous rules and regulations. That can be a massive task, and we advise you to seek the guidance of an experienced global trade consultant. The time you invest in understanding the regulations, educating employees regarding the requirements, and implementing complaint procedures will pave the way for smoother global trade transactions.
Global Trade Compliance Expedites Logistics
Understandably, you want to implement your global trade activities as quickly as possible to grow business and profits. The time required to fully understand global trade regulations and establish processes and procedures that ensure compliance can seem like an unneeded hurdle. However, just as it takes longer to build a paved road than a dirt road, paving your trade routes with compliant practices will expedite logistics across your supply chain. Through compliance with global trade rules and regulations, goods move efficiently and economically. With compliant trade practices you’ll avoid:
- Deadlocked outbound shipments in your warehouse waiting for approval for export;
- Customs delays for additional information or unexpected licensing required by a PGA; and
- Fines, penalties, and exorbitant storage costs that negatively disrupt trade flow and impact revenue.
You’ll benefit from:
- A smoother and stronger supply chain, decreasing the workload of your logistics department;
- Increased predictability for delivery dates and estimated cost for you and your customers;
- Prevention of production downtime due to avoidable shipment clearance delays;
- Utilization of preferential import programs (such as Free Trade Agreements) that offer cost savings through reduced duty or even duty-free trade;
- Establishing a consistent importer profile that minimizes your chances of being audited; and
- Confidence that if audited, your due diligence to be compliant is thoroughly documented and defendable.
Trade compliance may involve significant time and effort in the beginning, but those investments will expedite global logistics management.
Compliance Creates a Firm Foundation for Global Logistics Management
Global logistics management should be built on a foundation of compliant trade practices and procedures. Involve every participant in the supply chain and every employee supporting the process. When planning your global logistics management strategy, compliance needs to be a priority, not an afterthought.
Invest the time required to fully understand how global trade rules and regulations govern your expanded trade practices. Seek the guidance of an experienced global trade consultant. Educate your employees regarding the importance of trade compliance. Implement the software necessary to translate trade rules and regulations into consistently executed processes and efficiently manage international shipments. Compliant trade practices create the firm foundation for optimized global logistics management.