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.”
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
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.
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.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.