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Transportation News Bulletins - Logistics

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Trade Tools: Missing Money
Friday, 19 March 2010 10:35
Exporters lose billions by failing to claim drawback

Drawback is one of the more arcane facets of U.S. trade law, but U.S. companies, primarily exporters, lose billions of dollars each year because they fail to take advantage of it.

Companies can obtain refunds of up to 99 percent of import duties if they meet certain standards. Those refunds would allow exporters to be more competitive because it would allow them to sell finished goods in foreign markets at lower prices.

The most common type of drawback allows companies to claim refunds on duties for imported components that they use to make U.S. goods that are then exported. Candy manufacturers, for example, can claim drawback on imported sugar used to make candy that is then exported.

A second form of drawback allows both exporters and importers to claim drawback on imported merchandise that is rejected or goes unused, provided the goods are destroyed under the supervision of Customs and Border Protection officials.

A third type of drawback, known as substitute drawback, is more complicated, but companies that use it can reap substantial rewards. Under this provision, companies can claim refunds if they produce and then export merchandise that is similar or identical to goods they import. If, for example, a manufacturer is experiencing production delays in the U.S. and is therefore unable to export goods made domestically, it could claim drawback on the imported goods that are re-exported, even if there is no domestic processing.

“It’s staggering how many companies have the opportunity to use drawback but who are either ignorant of the opportunity or who are unwilling to invest in the administrative procedures to enable them to file drawback claims,” said Patrick Gill, an attorney with Rode & Qualey, a New York-based firm specializing in customs and international trade law.

Drawback modernization and simplification is the top priority for the American Association of Exporters and Importers, says Marianne Rowden, the association’s executive director. Help may be on the way for companies that have not used drawback because of its complexity. AAEI is working with the Senate Finance Committee to incorporate simplified drawback procedures in the Customs reauthorization bill, rather than as a stand-alone bill. The House is expected to do the same.

The biggest users of drawback are in the petroleum, automotive and pharmaceutical sectors. “By modernizing and simplifying drawback, more companies, particularly small and medium companies, would be able to take advantage of it,” Rowden said.

Drawback is somewhat less important for companies today because import duties in general are substantially lower than in the past, Gill noted. Moreover, import duties have been completely eliminated or sharply reduced through U.S. free-trade agreements with other countries, most notably Canada, still our largest trade partner, and Mexico. However, the U.S. does not have free-trade agreements with China, the European Union, and other major trade partners, so drawback can be quite important in trade with those countries, says Michael Daly, a drawback specialist with Livingston International.

Rejected goods may qualify for drawback if they do not conform to specifications or if they are defective at the time they are imported. This would include cargo that is damaged while it is in transit.

To be eligible for drawback, the rejected goods must be returned to Customs within three years after they were released.

Moreover, companies must be able to document why they rejected the goods, he said.

Cargo Business News, 3/2010

 
Shippers Increase Use of 3PLs
Friday, 19 March 2010 10:32
Survey finds 88 percent outsource transportation management

Shippers this past year were more receptive to using the services of third-party logistics providers as they sought to reduce supply chain costs including transportation and warehousing.

"The outsourcing sector should do well in the current environment," said C. John Langley, professor of supply chain management at Georgia Tech University.

Langley on Tuesday discussed the highlights of the 2009 3PL survey conducted by Georgia Tech, Capgemini, Oracle and Panalpina. He addressed the annual conference of the International Warehouse Logistics Association in Coronado, Calif.

The international survey, which was conducted in a half-dozen languages, found that 88 percent of the respondents outsourced management of domestic transportation and 84 percent outsourced international transportation management.

Other popular outsourced functions included customs brokerage (71 percent), warehousing (68 percent) and freight forwarding (65 percent).

Both the service providers and their customers in large numbers said they were generally satisfied with their mutual relationships. Some 91 percent of the service providers gave a favorable rating to their relationship with their customers and 89 percent of the shippers were happy with the relationship they have with their service providers.

Shippers stressed that they look to 3PLs for strategic vision, a cultural and strategic fit with their business, effective processes, project management skills and a shared commitment to information technology.

About 82 percent of the respondents look to 3PLs to help them reduce their operational costs and 77 percent of the shippers seek assistance in improving their forecasting.

Successful service providers seek to know more about the operations of their customers than the customers know about their own operations, Langley said.

Journal of Commerce Online, 3/10/2010

 
Biden Says 10,000 Stimulus Projects Aiding Transport
Thursday, 18 March 2010 00:00
With $9.57 billion already spent, Spring construction season begins

The stimulus law is currently supporting 10,000 active transportation construction projects, and will further ramp up this spring, said Vice President Joseph Biden.

He made the remarks in North Carolina, where officials said the Sanford Bypass project that is now breaking ground will redirect commercial trucks around the heart of that town to relieve congestion and maintenance problems.

Most projects under the American Recovery and Reinvestment Act are road and bridge repairs funded through the Federal Highway Administration. The FHWA said 2,200 of its stimulus projects have already been completed, 8,000 are under way and federal funding has been obligated for more of them.

Other projects under the Department of Transportation are to address airport or transit needs, plus special accounts for rail system grants and mixed-modal surface transportation funding for projects that have special national or regional significance.

In all, DOT has $48.1 billion to spend from the Recovery Act, and says that as of March 5 it had paid out $9.57 billion to states for work already done. Yet federal officials emphasize that job-generating materials ordering, engineering and construction actually get under way much earlier, when the money is obligated or set aside for specific projects.

Biden said that on top of the 10,000 projects now in construction, “this spring Recovery Act projects will pick up the pace across the country, providing even more jobs improving America’s roads, highways and bridges.”

Some transportation stimulus projects are outside DOT’s purview. The Coast Guard is helping rebuild parts of several railroad bridges over waterways, to eliminate some obstructions they pose to barging and other navigation below. Customs funding to build new border surface facilities, Commerce Department infrastructure grants for logistics parks and Environmental Protection Agency programs to retrofit or replace old locomotives and tugs are also in the Recovery Act.

Journal of Commerce Online, 3/18/2010

 
Do not blame customers for your troubles
Tuesday, 16 March 2010 00:00
Shippers hit back at carrier claims that they took advantage of crisis

Shippers are not to blame for pricing instability and the current state of the container shipping market, according to Andrew Traill of shipper forum The Shippers’ Voice.

In response to MSC CEO Gianluigi Aponte’s assertion that shippers had taken advantage of industry overcapacity to get cheaper prices, Traill said: “It’s an extraordinary thing to say, to blame the customers for all your ills.

“There are not many companies that would set about doing that in their PR campaign.

“The response from shippers would be: ‘the rates were offered and we took them’; and that is how the market works—rates are offered and there’s no differentiation on service quality.

“It’s human nature—if you are offered low rates, you are going to take them.”

Traill added that a “more serious” debate on the industry was needed.

“How do we get new business models into the sector for the benefit of both sides?” he asked.

“Both sides need to have sustainable businesses, and we’ve got to find a better approach that will allow shippers and carriers to grow.”

International Freighting Weekly, 3/16/2010

 
Are Supply Chains Shrinking?
Monday, 15 March 2010 00:00

Rising freight rates, volatile fuel prices, fluctuating currencies, slow transits, missed vessel loadings—it’s enough to make any company think about restructuring supply chains by moving production closer to U.S. or European markets.

Shippers have a name for it—“nearsourcing”—and it has the potential to upend distribution channels and transportation networks built through a combination of low production costs and steady shipping service.

Yet, for all the talk about the flip side of offshoring, most logistics experts and shippers say nearsourcing remains just that—talk, without much in the way of action. Logistics experts say many companies are diversifying their supply bases by adding sourcing closer to final markets to reduce risks.

But they say some of that diversification has less to do with geography and direct production costs than with spreading risk around and maintaining multiple channels in case of shutdowns in any one area. For the economics of productions and distribution, they say a powerful tide continues to pull manufacturing toward China and other low-cost Asian countries.

“There is definitely no massive relocation back to near-shore,” Said David Lee, Shanghai-based partner in Boston Consulting Group, who has worked with numerous companies on sourcing. “If you want to move back, there has to be a compelling story. I really haven’t seen that for most products or companies.”

Long supply chains have been central to many companies’ sourcing strategies since the 1960s, when containerized shipping spread to international routes. Containerization reduced freight costs and improved reliability, allowing developed nations to be supplied from low-cost countries form the other side of the globe.

International outsourcing of production gained momentum after China’s 2001 admission to the World Trade Organization set off a frenzy of manufacturing investment by companies seeking lower costs. China last year accounted for 48.2 percent of the 14.5 million TEUs in U.S. containerized imports, according to estimates from PIERS Global Intelligence Solutions, a sister company of The Journal of Commerce. That’s up from 47.7 percent share in 2007, according to PIERS.

Rising manufacturing costs in China’s coastal areas are pushing some companies to cheaper inland locations or other low-cost countries in Asia, especially for labor-intensive industries such as apparel.

For some products, such as automobile parts, those cost increases and the threat of supply-chain shocks such as unexpected delays are making Mexico more attractive for outsourcing from the United States. But relatively few companies appear to be returning to the U.S., or even to Mexico or Central America, except to hedge their bets with what they call a “China plus one” strategy.

“I haven’t seen people move back for cost reasons,” Lee said. “If people are saying, ‘Oh, the renminbi has appreciated 10 percent, I have to move things back,’ I think they made the wrong decision when they first moved things over to China.”

Helping to spark shipper interest in nearsourcing alternatives are the slower deliveries of containerized freight, resulting from ocean carriers slowing vessels to save fuel and “rolling” containers to later voyages because of tight vessel capacity.

However, except for heavy commodities such as steel or bulky, low-value goods for which shipping makes up a high percentage of total costs, transportation costs are unlikely to drive broad changes in sourcing.

The mid-2008 spike in crude oil prices to $147 a barrel led some economists to predict rising energy costs would raise transportation costs enough to reverse the decades-long trend of supply chain globalization and push outsourced manufacturing back to the U.S.

That theory is “na├»ve,” said James Tompkins, CEO of Tompkins Associates, a Raleigh, N.C., supply chain consulting firm that has advised dozens of companies about sourcing decisions.

“My experience is that transportation costs are rarely large enough to reverse an intelligent sourcing decision,” Tompkins said. “Transportation is typically 5 to 10 percent total landed cost. Fuel is about 20 percent of transportation costs, which means it’s 1 to 2 percent of total landed cost. Not many are going to reorganize their supply chains to save such a small percentage.”

Tompkins said ocean transportation is much cheaper per mile than truck or even rail shipment.He said it requires less fuel to move goods to New York from Shanghai by ship than from Mexico City by truck—and that even $200-a-barrel oil won’t provide the U.S. with an edge in total delivered costs for most products.

He listed other reasons few companies are moving manufacturing back to the U.S.: domestic factories have closed, suppliers have disappeared, skilled labor has dispersed and financing no longer is available to create much of the production capacity that has moved offshore.

“Because of a long history of migrations in some industries, the near-shore supply base just doesn’t exist,” Lee said. “If you want to move the cigarette-lighter industry back to Mexico or New Jersey, it is almost impossible. You can’t find a supplier in the U.S. Or toys—if Mattel or Hasbro decide they should make all their toys in Texas, where are they going to find a supplier?”

China and other Asian countries also provide economies of scale and increasingly sophisticated design and production practices that near-shore manufacturers would struggle to match.

John Bowe, president of container shipping and logistics provider APL, said his company’s customers cite quality and scale as reasons for staying or expanding in China. “We have not seen a significant or noteworthy shift from China or other countries in Asia to places like Mexico or Central America,” Bowe said. “There obviously is some sourcing there, and it probably will continue to grow, but I’m not sure it will grow faster than in the more established areas.”

One women’s apparel shipper, speaking on condition of anonymity, said quality is a serious consideration in the company’s recent examination of potential sourcing in Central America. She said the company did not have confidence the quality of finished products would be as good as what the company gets from Chinese workers.

China’s development is following the typical path of developing nations, moving from low-tech, laborintensive products to more value-added products. Lee expects this to continue: “Instead of making toys, they will be making solar panels. Instead of making electronics for your flashlight, they may be making electronics for your (computer) router.”

Lee said China’s move into value-added production is pushing industries such as shoes and apparel to lower-cost countries. “Is everything going to be in China? No, I don’t think so,” he said. “A lot of other players are coming up—Vietnam, India, Mexico is still a very viable option, Brazil. How the new world order will emerge remains to be seen.”

But Lee doesn’t foresee a big shift back to the United States. “I think the media can always find one or two cases of companies that have moved back,” he said. “I can find a number of cases, based on my own experience, of companies that have moved back, but not necessarily because of cost.”

As companies consider what, why, where or whether to outsource, many are concluding that the nearsourcing isn’t an either-or proposition.

Lasko Products, based in West Chester, Pa., assembles electric fans and heaters at three U.S. plants with components produced mainly in China. “China has helped us maintain our business and factories in the U.S.,” said Michael Boneck, president of the company’s international unit.

Boneck said Lasko’s manufacturing balances labor and shipping costs with other factors, including costs, quality and availability of suppliers. He said U.S. assembly makes sense for products that require relatively little labor in final assembly but are inexpensive and bulky, which means per-unit shipping costs.

“Think about a 20-inch box fan that sells for $14 or $15 at Wal-Mart,” he said. “You can put maybe 1,000 to 1,400 of them in a container. Divide this by what your container rate is, throw on your duty, and there’s really not much space left to make any money.” By contrast, as many as 20,000 motors that power those fans can be packed into a container, resulting in lower per-unit shipping costs.

Lasko sourced components from Mexico in the 1970s and early 1980s but has no plans to shift production back from China. One reason is availability of suppliers. “The guys we used to buy from in Mexico 30 years ago, I don’t know whether they still exist. We’ve looked at other countries, like Vietnam, but the problem is they don’t have the allied industries to support the making of something like an electric motor,” Boneck said.

“Even though we make a low-cost retail product, there’s still a lot of precision involved in it,” he said. “About 95 percent of our products have a motor. When you build a motor, you need copper magnet wire. You need a stamped piece of electrical steel. You need a thermal protector. You need hookup wire. If you go to another country, you need to make sure you have a stream of all the components that make up a small appliance—or you have to import them to that country, and that kills your flexibility and cost.”

Another industry that relies on ready access to components is automobile manufacturing. As automaking has become globalized, countries such as China have developed clusters of suppliers like those that sprang up decades ago in Michigan and Ohio.

The U.S. International Trade Commission reported last year that more than 70 of the top 100 global auto suppliers have operations in China, and that international automakers have encouraged suppliers to set up additional manufacturing facilities there to supply the U.S. as well as in China.

China now is the fourth-largest U.S. source of auto parts, by value, following Mexico, Canada and Japan, and is gaining market share. In 2008, Chinese auto parts shipments to the U.S. increased 4.8 percent to $9 billion while Mexico’s declined 11 percent to $25.3 billion; Canada’s dropped 19.5 percent to $16.5 billion and Japan’s fell 8.6 percent to $13.5 billion.

Mexico remains a formidable low-cost competitor, especially for products with a high ratio of transportation costs to value. AlixPartners recently published an index listing Mexico as the top low-cost country for U.S. outsourcing of a basket of manufactured parts, including auto parts.

Mexico’s clusters of automotive parts suppliers rival those in China, said Ben Gordon, CEO of supply chain advisory firm BGSA Capital. “China’s may be a bit stronger but not so much it would prevent an automotive company from considering a move to Mexico,” he said.

“I think Mexico is starting to pick up some steam,” said Stephen Maurer, managing director at AlixPartners and leader of the firm’s manufacturing improvement practice. “I have four clients now that are starting to evaluate Mexico as an option for manufacturing for a range of reasons.”

There have been some notable moves toward nearsourcing in recent years. Dell put a computer plant in North Carolina a few years ago, reversing a long-held strategy toward offshoring. But the goods, of course, were of relatively high value and were being assembled, not fabricated, for final delivery in only a day or two.

Maurer said any sourcing decision requires close evaluation of specific circumstances, including electricity rates, taxes and construction costs. “At the end of the day, you still need to do the detailed work for your product and your situation,” he said.

And changing situations require flexibility. “In the past, you could be relatively comfortable that the manufacturing strategy decisions you made today would still be valid two or three years from now,” Maurer said.

“That’s not necessarily the case any more.”

The American Chamber of Commerce in Shanghai recently surveyed 369 companies and found that most planned to increase their investments in China this year. Nearly 60 percent of the companies in the survey said they were in China mainly to make goods for the local market, up from 39 percent last year.

Maurer said sourcing decisions must anticipate future competition. “It’s not just, ‘Where are my customers now and how do I serve them as efficiently as possible?’” he said. “It’s, ‘What is my customer base going to look like in five years or 10 years, and how do I set myself up to be a competitive player at that point?’”

Journal of Commerce, 3/15/2010

 
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