Victoria Kickham started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for DC Velocity.
The United States Mexico Canada Agreement (USMCA) goes into force in less than two weeks and is adding to an already challenging supply chain environment, as companies continue to deal with disruptions from the coronavirus pandemic. Logistics and transportation companies are at the forefront of helping shippers navigate the free trade agreement’s (FTA) rules, and they say bumps along the road are inevitable, but that the longer term outlook calls for smooth sailing thanks to the modernized deal, which replaces the 26-year-old North American Free Trade Agreement (NAFTA).
“Adjusting to any new regulations can be challenging,” said David Henry, head of operations in Mexico for freight broker and third-party logistics services provider (3PL) GlobalTranz. “Most shippers have had to make adjustments recently, due to the pandemic—and now with the clarification of USMCA requirements, they are making additional changes. However, looking to the future, once shippers have met the compliance standards, we anticipate more effective supply chain operations that will benefit companies throughout North America.”
USMCA—or CUSMA (Canada-United States-Mexico Agreement) as it’s known in Canada and T-Mex (Tratado entre México, Estados Unidos y Canadáin) in Mexico—takes effect July 1 and is designed to improve and increase trade flow among North America’s three largest trading partners. The deal raises the amount of content that must be made or sourced in North America in order to achieve zero-tariff levels for some items (the “rules of origin” requirement) and also addresses environmental, labor, and enforcement issues. Rules governing e-commerce and the digital economy are also key, experts say, as they were not addressed under NAFTA.
Looking ahead to July 1, Henry and others say compliance, documentation, and navigating an already complex supply chain are the main issues facing shippers engaged in cross-border trade.
Compliance, complications
Working toward USMCA compliance requires communication and a thorough review of the rule of origin that applies to a firm’s particular goods, according to Jeff Simpson, trade policy manager for transportation and 3PL C.H. Robinson. Because content rules have changed, companies can’t assume that what they were shipping on June 30 still meets tariff requirements on July 1.
“It is important that companies review the rule of origination for their goods under USMCA and don’t make the mistake of assuming it will qualify for USMCA if it qualified for NAFTA,” Simpson explained. “Companies need to actively communicate both internally and externally to ensure all affected parties will be ready on July 1… Talk to your broker to develop a collaborative SOP [standard operating procedure] to handle the new FTA and ensure they are ready to go as well.”
Henry points out that USMCA includes important changes to the rules of origin for specific industries, including automobiles, pharmaceuticals, chemicals, and cosmetics. He adds that businesses had been lacking final guidance on many issues until earlier this month, when the federal government published information detailing how the transition to USMCA will take place. The situation exacerbated an already challenging environment many companies were facing due to the Covid-19 pandemic, which created closures across supply chains.
“That is something that many industry leaders and private organizations were waiting on,” Henry said of the updated guidance. “[This tells us], specifically, how all this will take place. Having this now really allows for planning at a high level.”
The difference is in the documents
Kevin Doucette, director of North American trade policy and compliance at C.H. Robinson, says the transport of goods across borders should look relatively the same on July 1 as it does today. The key difference is in the documentation companies will use to claim USMCA compliance. The USMCA does not require a specific compliance form, as NAFTA does, and instead allows companies to make a claim in multiple formats, including electronically.
“Since this is not a formalized form … customs brokerage departments could have a difficult time determining where this information resides,” he explained, adding that “brokerage departments and customers should be collaborating on a [procedure] to ensure that a process is in place for a smooth transition. If not, you could see missed opportunities where a certification was present but a claim was not made or, conversely, a claim being made by a brokerage department with no certification in hand, [creating] a compliance issue.”
Henry agrees that initial disruptions may occur as companies work through the new processes and shift their supply base as needed based on sourcing requirements. He also agrees that communication and careful preparation will help ensure success amid the many other challenges facing the logistics sector.
“... shippers that are working proactively to address these challenges will be better suited for effective, compliant processes across their supply chains,” Henry said. “The pandemic continues to present challenges for shippers, especially now as the U.S. continues to reopen. We’re already seeing disruptions created by a combination of pent-up demand and the industry slowly coming back online. We’re working with customers right now to share daily market updates, and how market volatility is affecting capacity. We’re also navigating new routing guides to find opportunities in volume that didn’t exist before.”
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.