Supply chain challenges have been rampant over the past year, touching almost every industry in one way or another....
Ratified by Canada on March 13, 2020, the USMCA will go into effect on July 1st after the parties develop uniform regulations for implementation. As many companies have been quick to dismiss the USMCA as just a new NAFTA, there are several important changes that we need to be aware of, including rules surrounding certifications of origin, de minimis, and automotive rules of origin and regional value content. Until we have the official implementation rules, due June 1, we will go by the interim implementation instructions, provided by U.S. Customs and Border Protection on April 16, 2020.
For those concerned they won’t have enough time or guidance on the implementation procedure, USCBP will be offering a help center staffed with experts from operations, legal and audit disciplines to offer guidance, clarification, and documentation for those in need to facilitate the smooth implementation of the treaty. Inquiries for the USMCA center can be directed to USMCA@CBP.dhs.gov
The USMCA updates the certificate of origin rules that importers will no longer need to submit a formal certification document. Commercial invoices can now be used as documentation of the certificate of origin and can be created by importers, exporters, or producers of the goods. According to the interim implementation instructions, “Section 202 of the USMCA Implementation Act specifies the rules of origin used to determine whether a good qualifies as an originating good under the Agreement. The HTSUS will be amended to include GN 11, which includes both the general and specific rules of origin, definitions, and other related provisions.” GN 11 can be found in the HTSUS 2014.
The goal of the USMCA is to bring manufacturing back to the United States, especially in the case of cars and car parts. The enhanced regional value content and automotive rules of origin bring the total North American content of a vehicle to 75%, up from the 62.5% needed for NAFTA. Of that 75%, the auto parts are divided into three categories: Core parts will require a 75% minimum North American content; principal parts have a 70% minimum and complementary parts require 65% content from North America. Automakers will have three years to implement these new RVC standards. In addition to the content requirements, 40% of automobiles and 45% of light trucks produced must be made using an average labor wage of $16 per hour.
Updates to the de minimis thresholds are:
Canada – $150 CAD for customs and $40 CAD for taxes
USA – $800 USD
Mexico – $117 USD for customs and $50 USD for taxes
Along with the changes, the USMCA contains a sunset clause that states the term of the agreement will be for 16 years but after 6 years it can be revisited to extend, renegotiate, or vacate it entirely.
While this in no way covers the breadth and scope of the changes, we won’t have the full requirements for implementation until June. However, we recommend everyone take a good look at their commodities, supply chains, and partnerships to ensure they’re following the interim rules as the implementation of the USMCA will bring significant changes to the way we trade with Mexico and Canada. If you have questions or concerns about the USMCA, how it differs from NAFTA or how to get started on the implementation process, please reach out to your TOC representative for guidance.
THE VIEW FROM THE SOUTHERN BORDER – April 22, 2020
Mexico needs to align startup with U.S., other trade partners automotive supply chains
As the U.S. debates how and when to reopen its economy, our large trading partner on the southern border is watching closely. It has been reported that Mexico has had fewer coronavirus cases and fewer deaths than the U.S., but has followed many of the U.S. social distancing and closure practices closely. Beginning in late March, it enacted shutdowns of “non-essential” businesses of its own, sharply impacting the border trade.
As a result, what’s currently being produced and moving from Mexico across the U.S. border are medical supplies, foodstuffs and other critically-needed consumer goods. But Mexican President Obrador’s action has resulted in temporary shutdowns of many of Mexico’s large maquiladora plants, including those producing automotive and truck parts, which are not presently classified as “essential”.
The rapid shutdown of businesses on both sides of the border has disrupted critical supply chains and created hardships for many manufacturers. Not only are ongoing changes happening at the national level of both countries, but in the states and cities on both sides of the border as well. Keeping clients informed quickly and continuously on both individual shipments and new local developments is a critical task.
Our TOC teams who manage the U.S.-Mexico border for the company are based in El Paso and Laredo in Texas and in Monterrey, Mexico. Responding to the evolving situation, they have stepped up the level of customer service and proactive communication with customers who are working remotely or from home, helping see them through this challenging time. While our team members themselves may be working from home, they are fully functional and connected to TOC’s shipment management and logistics systems. For example, we were able to quickly respond in finding secure storage locations on both sides of the border for several customers who had orders caught in-transit as shutdowns occurred.
Currently the Mexican government has a three-color coding system for the impact the COVID-19 virus has had on its cities. Cities that are “green” with no cases may be able to plan back to “normal”, which includes social distancing, by May 17. “Red” cities have active virus cases and are subject to review for a possible June 1 restart with social distancing and use of face masks. “Yellow” cities are those located near “red” ones and must also follow the same restart approval process as a “red” city. Most of Mexico’s border cities are currently classified as “red”.
That being said, Mexico’s auto plants are watching their U.S. counterparts closely. President Obrador indicated in early April that he would support a globally-coordinated restart to Mexico’s automotive and truck manufacturing operations with foreign partners, which suggests an earlier start than the dates above. Some U.S. manufacturers are said to be planning to restart plants as early as next week into early May. Of particular interest to Mexico’s automotive industry is getting reclassified as an “essential” business and being able to more easily coordinate production needs with U.S. manufacturers and customers.
Another complexity in coordinating Mexico’s automotive startup are the manufacturers and suppliers from Europe, India and Asia with active supply chains linked to Mexico. With some European countries (France, Italy, Spain) and India still having plants shut down until the third week of May, the reopening of Mexico’s automotive and truck plants may not align well, potentially creating disruptions and urgent needs for parts. These manufacturers should review their transport and supply alternatives as soon as possible, as unavailable parts may drive needs for more expensive air freight to support Mexican plant startups. Currently air freight capacity globally is very tight with rates much higher than earlier this year.
The big advantage we offer to customers is expertise with customized global logistics programs, closely adapted to customer needs. These programs promote the use of consolidations to keep customer transport costs down. With the resupply challenges involved as border industries try to coordinate re-openings, our team will aggressively monitor business conditions and ensure customers are well informed on their logistics choices and alternatives.
Chinese New Year brings factory closures, China Customs closures and blank sailings – December 27, 2019
The annual celebration of Chinese Lunar New Year, or Spring Festival, begins on January 25, 2020. The celebration, in which the largest number of people on the planet travel to go home to be with friends and relatives, means a weeklong closure for the government and closures of all factories and most businesses throughout the country.
Chinese New Year is observed for the longest period of time in mainland China. However, the Lunar New Year holidays are also observed in neighboring countries such as Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, Thailand and the Philippines who observe a handful of days during this period.
The closure of Chinese Customs is important because exporters are unable to present their documents for export clearance, so any clearances will have to be made before that date. While there are some vessel loadings and departures which take place during this time, many carriers “blank”–or remove–sailings during the holiday and in the weeks before and after because of reduced manufacturing.
Despite the government taking a seven day holiday, some factories are closed for two to four weeks. This is because it will take this long for factories to receive and plan for new orders and to resume full staffing levels because there are many people who return home who do not return, prompting businesses to hire and train new staff.
For 2020, the combined significant decrease in US imports, plus an earlier than usual Chinese New Year have led carriers to already announce reductions of 137,800 TEU of West Coast capacity and 72,000 TEU of East Coast capacity from January 25th according to information complied by Sea-Intelligence. The announced capacity reductions for 2020 are the highest amount announced in seven years.
In 2018, a total of 254,000 TEU of capacity to the West Coast was removed and experts believe that number will be eclipsed in 2020. Given the size of today’s vessels, this translates into 12.4 average-sized sailings, according to Alan Murphy, whose comments appeared in the Journal of Commerce (subscription required).
This year, our experience has been that while roll pools (the number of containers left behind from a sailing) have been nothing like 2018, the blanked sailings in the third and fourth quarter have meant that departing vessels are close to full. Some bookings made with carriers with two weeks notice or less are accepted but with the conditional statement “subject to roll.”
On lanes such as the Pacific Northwest (PNW) and Canadian West Coast (CAWC), we are seeing blanked sailings every other week.
One of three things will happen when cargo is rolled from its scheduled vessel:
- The cargo leaves on the next vessel on the same string (a seven day delay).
- Choose an alternate string with the same carrier which could incur up to a five day delay and may have an impact on cost.
- Use an alternate carrier at the spot market rate with the same up to five day delay but will definitely have an upward cost impact.
Air cargo is likewise affected because cargo into and out of the country is not moving and for the carriers operating equipment, the reduced flight schedules and frequencies impact both space and pricing because of the simple economics of supply and demand.
For TOC clients, we stress that when capacity and space issues impact our ability to move your cargo, the need to provide us with accurate forecasting to protect space and make arrangements becomes even more critical. When our allocation teams know cargo quantities, port pairs and weekly demand requirements, we can work with our carrier partners to ensure that our weekly protected spaces are utilized for your cargo.
We can certainly move cargo that we are not notified of until the last minute, but this may require us to go to the spot market to secure protected space at a different rate than we have negotiated on your behalf.
For more information about Chinese New Year and the impact it has on cargo capacity, contact your TOC representative to learn more today.
Auto parts manufacturers staring at painful transition to auto sales slowdown and transition to electric vehicles. – October 24, 2019
The automotive industry is under siege from a number of trade and economic factors. In the United States, auto makers and suppliers are awaiting a decision from the Trump Administration whether or not to take action under the same Section 301 program that currently impacting importers buying from China. In California, the first manufacturing standards for electric trucks were just announced. Now comes news that Germany’s Continental AG is reorganizing its business and taking a $2.8 billion write down, including scrapping plans for a partial IPO of stock in its powertrain division, as the company accelerates its transition from an internal combustion engine parts supplier to an electric vehicle one.
The Wall Street Journal (subscription required) reports that electrification of fleets globally is being driven increasingly not only by governments and manufacturers, but buyers as well. Global auto sales have also dropped simultaneously in the three largest markets – China, the United States and Europe. The story cites analysts predicting a fall in global auto sales of 4% to 6% this year on top of last year’s 0.5% decline in new vehicle sales. This was the first year that new vehicle sales declined since 2009.
Every major vehicle manufacturer has either launched or will be launching electric vehicles as a cornerstone of their fleets to lower overall emissions and meet consumer demand. US electric truck maker Rivian was the beneficiary of a 100,000 delivery vehicle order from none other than Amazon.
Greg Scheevel, TOC’s Director of Global Development, has been speaking with companies over the past several weeks in the wake of the GM strike and the impact it has had on the industry at large. For those in the business, this transition away from vehicles that are more software than moving parts is being felt up and down the automotive supply chain and companies are working quickly and diligently to meet both the changing demand curve and new vehicle engineering and parts demands.
DEADLINE ON THE USE OF LOW-SULFUR FUEL – October 22, 2019
TOC Logistics International would like to provide the following update regarding the deadline imposed by the International Maritime Organization on the use of low-sulfur fuel.
By now, everyone has heard of the impending deadline of January 1, 2020 imposed by the International Maritime Organization on the use of low-sulfur fuel. Throughout the year numerous stories have been reported and published on oil companies and refiners beginning production, carriers testing it on their ships and more carriers retrofitting vessels with scrubbers to clean the exhaust on the back end rather than using reduced sulfur fuel on the front end.
Everyone – shippers, carriers and economists alike – have been working to quantify and determine the additional costs that would, inevitably, translate into higher fuel surcharges for cargo. In laymen’s terms, think of this as the difference between regular, mid-grade or premium gasoline – the more the product is refined, the more expensive it gets. Low sulfur fuel is no difference. The amount of sulfur in the new bunker is reduced from 3.5% to .5%.
Because of the January 1st requirement, ships will likely be taking on their first loads of the new, lower-sulfur fuel in December, causing many carriers to evaluate the timing of changes to their surcharges.
Many carriers targeted this month – October 1st – for the initial imposition of these new low-sulfur surcharges, or LSS’s. Two of the world’s largest carriers, Maersk and CMA-CGM, have announced their plans which vary based on the duration of the contract under which cargo is moving.
- So-called “market rate contracts” with quarterly durations and expirations will have new LSS formulae implemented December 1, 2019, incorporating the cost of the very low sulfur fuel.
- Longer-term contracts, usually a year in duration such as what are seen on the eastbound trans-Pacific, will continue to use their existing BAF surcharges, however the index used to calculate fuel price will change from one based on the current 3.5% sulfur rate and to one based on the very low .5% sulfur rate.
What the trade was spared until the news reached the point of, “This is coming and will have an impact – stay tuned for greater details,” was what carriers went through to get ready. They needed to communicate and plan with global refineries to ensure a consistent formulation around the world. They needed to test that fuel at sea with existing power plants. For those who elected to go the route of scrubbing exhaust, that technology needed to be tested, procured and installed.
In short, the determinations being made on price, indices and matrices that will set dollar levels in this new environment are now coming into focus as the getting-to-market has now been sorted out.