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."
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
The clean energy transition continuing to sweep the globe will give companies in every sector the choice to either be disrupted or to capitalize on new opportunities, a sustainability expert from Deloitte said in a session today at a conference in Orlando held by the enterprise resource planning (ERP) firm IFS.
While corporate chief sustainability officers (CSOs) are likely already tracking those impacts, the truth is that they will actually affect every aspect of operations regardless of people’s role in a business, said John O’Brien, managing director of Deloitte’s sustainability and climate practice.
For example, regulatory requirements on carbon emissions are expanding in every region, which means that even if a specific company doesn’t have to change its own practices, it will almost definitely need to flex to accommodate its partners and suppliers as they track scope 3 emissions or supply chain practices.
Likewise, companies are starting to challenge the classic concept of “force majeure” events than can cancel service providers’ contractual duties due to unforeseeable weather events. As the new argument goes, extreme weather patterns increasingly occur in accordance with climate scientists’ forecasts, so those hurricanes and wildfires are in fact foreseeable after all.
But one strategy for coping with the cost of those changes is to mine the power of the data that most companies will soon need to collect as part of their evolution. Instead of simply tracking its trucks to trim their routes and emissions, a transportation company could use the same data to manage their maintenance and fuel consumption.
“The climate management transition is going to be a massive disruption, but with that comes massive opportunity,” O’Brien said from the keynote stage at the “IFS Unleashed” show. “Don’t waste compliance efforts just on compliance, use it to create new value. You’re collecting all that new data, so use it!”
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
However, that trend is counterbalanced by economic uncertainty driven by geopolitics, which is prompting many companies to diversity their supply chains, Dun & Bradstreet said in its “Q4 2024 Global Business Optimism Insights” report, which was based on research conducted during the third quarter.
“While overall global business optimism has increased and inflation has abated, it’s important to recognize that geopolitics contribute to economic uncertainty,” Neeraj Sahai, president of Dun & Bradstreet International, said in a release. “Industry-specific regulatory risks and more stringent data requirements have emerged as the top concerns among a third of respondents. To mitigate these risks, businesses are considering diversifying their supply chains and markets to manage regulatory risk.”
According to the report, nearly four in five businesses are expressing increased optimism in domestic and export orders, capital expenditures, and financial risk due to a combination of easing financial pressures, shifts in monetary policies, robust regulatory frameworks, and higher participation in sustainability initiatives.
U.S. businesses recorded a nearly 9% rise in optimism, aided by falling inflation and expectations of further rate cuts. Similarly, business optimism in the U.K. and Spain showed notable recoveries as their respective central banks initiated monetary easing, rising by 13% and 9%, respectively. Emerging economies, such as Argentina and India, saw jumps in optimism levels due to declining inflation and increased domestic demand respectively.
"Businesses are increasingly confident as borrowing costs decline, boosting optimism for higher sales, stronger exports, and reduced financial risks," Arun Singh, Global Chief Economist at Dun & Bradstreet, said. "This confidence is driving capital investments, with easing supply chain pressures supporting growth in the year's final quarter."