Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Editor at CSCMP's Supply Chain Quarterly. and Senior Editor of SCQ's sister publication, DC VELOCITY. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
Cross-border trade bonds between the U.S. and Mexico will remain strong and sustainable despite concerns arising from President Trump's protectionist rhetoric, according to a top Mexican trade official.
Kenneth Smith Ramos, head of the Mexican Embassy's Trade and NAFTA (North American Free Trade Agreement) Office, said the two countries aren't "operating in a vacuum," and the trade balance frequently cited and criticized by Trump "does not reflect the level of supply chain integration" between the U.S. and Mexico's agricultural and manufacturing industries. For example, U.S.-produced components are found in about 40 percent of Mexico's exports to the United States, he said.
Mexico buys $23 billion of U.S. exports per year, Smith told the Coalition of New England Companies for Trade (CONECT) 21st annual Northeast Trade and Transportation Conference, held last week in Newport, R.I. Smith said that Mexico, the world's 15th largest economy, is not entirely dependent on the U.S. for its trading activity. He noted that Mexico, the world's 10th largest exporter and 9th largest importer, has trade agreements with 46 nations.
What about NAFTA, another frequent Trump target? Smith said the Mexican government's position is that the 23-year-old treaty would benefit from "modernization" that is based on a "fact-based assessment that reflects reality and avoids political rhetoric." The outcome of any renegotiation must be a win for all three countries involved, and it must maintain the integrity of the integrated supply chains that NAFTA created, he said.
Smith did raise concerns about the so-called Border Adjustment Tax (BAT) provision written into a House tax-reform bill, noting that the proposal "could certainly affect relations within NAFTA." The proposal would exempt U.S. exporters from taxes but would tax the sale of imported goods. It also would prevent U.S. importers from deducting the cost of their merchandise, thus effectively taxing them on the full selling price of the goods rather than just on their profit. For example, an exporter that spent $80 on a product that it sold overseas for $100 would pay no tax on its earnings. However, a company that imported goods worth $80 from abroad and then sold them domestically for $100 would pay tax on the full $100.
In theory, such a revision would give U.S. exporters a leg up in world markets and would deliver a big boost to the U.S. dollar. A stronger dollar, in turn, would make imports into the U.S. price competitive, offsetting the impact of the tax hit. However, should the dollar not rise to anticipated levels, importers with thin profit margins could get severely hit, critics contend. U.S. retailers that import much of their goods could experience double-digit cost increases, which they would try to pass on to consumers in the form of higher selling prices.
Concerns over the proposed border tax cast a pall over the panel on which Smith spoke, billed as "Trade, Transportation, and Trump." Besides threatening to raise prices on essential items like food, apparel, and fuel, the proposed border tax could provoke trade retaliation by other countries "on a scale we've never seen before," said panelist Hun Quach, vice president, international trade for the Retail Industry Leaders Association (RILA). Indeed, representatives of approximately 35 embassies have been meeting in Washington to discuss the tax's potential impact on their relations with the U.S., according to Smith.
Along with other provisions in the House tax bill, the border levy would almost certainly result in a higher tax rate for retailers that could reach 50 percent or more, Quach said. RILA is a founding member of the Americans for Affordable Products coalition, a business group formed to fight the BAT.
China is another of Trump's trade bugaboos, and although the recent meetings and phone calls between the U.S. president and his Chinese counterpart, Xi Jinping, appear to have calmed the waters somewhat, tensions remain high. China's government and U.S. businesses are very concerned about the BAT, said Erin Ennis, senior vice president for the U.S.-China Business Council, which represents more than 200 companies that do business with China.
Even if the border tax is not implemented, she said, there are other ways the U.S. could make things more difficult for China, such as imposing short-term duties, bringing more antidumping cases, restricting Chinese investment in U.S. businesses, and (although it appears to be off the table for the moment) designating China as a currency manipulator, among other tactics.
Ennis cautioned that sourcing decisions and transportation could be directly affected by the new administration's policies and actions. Heightened tensions with North Korea, for example, could force ocean carriers to redraw shipping lanes serving neighboring China, and changes in trade policy could accelerate a shift in production from China to Southeast Asia, she said.
Ron Marotta of Yusen Logistics listens to Rick DiMaio of Ace Hardware talk about the steps Ace is taking to keep its store stocked after Hurricane Helene and during the East and Gulf Coast Port Strike.
The East and Gulf Coast port strike was the top discussion point during a panel discussion of shippers and logistics providers at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference this morning. The session, which was supposed to be focused on providing an update to CSCMP’s “2024 State of Logistics Report,” quickly shifted to addressing the effect that the strike by nearly 50,000 dockworker at 36 ports in the Eastern half of the U.S. could have on supply chains.
“The seriousness of this action cannot to be taken lightly,” said Ron Marotta, vice president of the freight forwarder and supply chain service provider Yusen Logistics (America). “It has not happened since 1977. Our lives depend on sustaining a smooth global supply chain.”
Marotta warned that for every day that the ports were not open, it would take four to five days to recover from the impact. One added concern is how the port closures would affect recovery efforts for Hurricane Helene. “There’s a huge amount of item that would normally be replenished by importers and retailers,” Marotta said.
Rick DiMaio, executive vice president and chief supply chain officer, for Ace Hardware Corp., commented that the hardware retail cooperative was doing okay for now keeping stores in stock, although he did expect the company would be “chasing generators for awhile.” “But in this recovery phase [from the hurricane], we certainly don’t need a strike right now,” he said.
The port closure will also have a knock-on effect on other transportation modes. For example, Andy Moses, senior vice president of sales and solutions for logistics services provider Penske Logistics, expects to see some companies turn to air freight as a result of the strike. This will, in turn, cause air freight capacity to tighten up and rates to rise. Furthermore, the longer the ports are closed, the more likely inflation is to rise again, according to Moses.
Nor will the effects of the strike stop at the U.S. border, according to Marotta. Many Caribbean Island nations depend on food import from the U.S. that move through East Coast ports. Additionally, some medical supplies typically are exported through the ports to Europe.
On a positive note, however, many companies took actions earlier in the year to prepare themselves for a potential strike. Ammie McAsey, senior vice president of customer distribution experience for the pharmaceutical distributor McKesson, said the pharmaceutical industry has brought in enough extra inventory that there will not be a short-term impact on the U.S. health care system due to the strike.
Government intervention?
Marotta hopes that the U.S. government takes the step of invoking the Taft-Hartley Act to stop the strike and send the International Longshoremen’s Association (ILA) and the port management group, United States Maritime Alliance (USMX) back to the negotiation table. In 2002, for example, President George W. Bush used the Taft-Hartley Act to end an 11-day lockout of union workers at West Coast ports. President Joe Biden, however, told reporters on Sunday that he would not do this.
“I hope that cooler heads prevail and that the executive branch realizes that it’s not just a labor issue, it’s also a humanitarian issue,” Marotta said.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.