Courtesy of Supply Chain Brain American Shipper | January 27, 2011 A bipartisan handful of senators have introduced legislation to support Congressional passage of several pending U.S. free trade agreements and calls to end anti-competitive supports for the country’s sugar manufacturing industry. Sens. Rob Portman, R-Ohio, and Joseph Lieberman, I.-Conn., proposed the so-called 2011 Creating [...]
Courtesy of Supply Chain Brain
American Shipper | January 27, 2011
A bipartisan handful of senators have introduced legislation to support Congressional passage of several pending U.S. free trade agreements and calls to end anti-competitive supports for the country’s sugar manufacturing industry.
Sens. Rob Portman, R-Ohio, and Joseph Lieberman, I.-Conn., proposed the so-called 2011 Creating American Jobs Through Exports Act, which calls for congressional passage of U.S. free trade deals with South Korea, Colombia and Panama. The bill would also reinstate President Obama’s trade negotiating authority.
“Passage and adoption of the three pending trade agreements would be an immediate action to spur economic growth by opening up markets for U.S. businesses,” said Portman.
Sens. Jeanne Shaheen, D-N.H., and Mark Kirk, R-Ill., announced the Stop Unfair Giveaway and Restrictions (SUGAR) Act.
“The sugar support program costs consumers $4bn a year to disproportionally benefit a limited group of wealthy sugar producers,” Shaheen said. “We must stop sugar’s sweet deal.”
A survey conducted by a large North American foreign exchange provider found that 80% of the corporations surveyed acknowledged that their businesses were exposed to significant foreign exchange risk. However, only 42% of these corporations indicated that they currently employ currency hedging techniques to manage their risk.
Managing Risk Should be Strategic
Our friends at Western Union Business Services have published a paper titled, Foreign Exchange Risk Management: Protect Your Profits and Prosper in an Uncertain Economy. While this is an area that I have no direct experience handling, I found it interesting and relevant for this site because it address’ how the act of managing foreign exchange risk can be strategic for an organization.
It is worthy to note that according to their paper:
A 2006 survey conducted by a large North American foreign exchange provider found that 80% of the corporations surveyed acknowledged that their businesses were exposed to significant foreign exchange risk. However, only 42% of these corporations indicated that they currently employ currency hedging techniques to manage their risk.
Financial Risk Management is part of the ‘F’ in FACTS based approach
This suggests that there is a lot of risk left on the table with regards to Foreign Exchange, that would be one of the areas of focus under a FACTS based approach of an Integrated Trade Compliance Strategy. The FACTS based approach is a way to view the tactical detail of reviewing aspects that relate to your trade compliance program. The letters represent that broad categories that we have found you should consider in your review Financial, Advisory, Compliance, Technology, Service. Rick Riess, President of GHY International shares his vision of this “unpacking the facts” approach in the following excerpt from the GHY International website:
Key to our approach is a comprehensive “360 degrees” trade assessment that examines your entire supply chain as an integral cycle encompassing various Financial, Advisory, Compliance, Technology and Service aspects of your business (that we collectively refer to by the acronym “FACTS”).
After having explored the FACTS to discover potential opportunities to increase your cash flow, compliance, supply chain visibility, etc., and/or decrease your exposure to the risk of non-compliance, the cost of excessive duty payouts, etc., we then develop a heuristic plan customized to your specific situation that allows you to “test drive” proposed solutions and evaluate them before proceeding further.
This road map is more clearly articulated on the GHY International web site where we share this vision as part of our approach with importers and exporters in order to define a GAP. You can read more about this offering here.
Foreign Exchange Management Expertise
In the white paper from Western Union Business Services they address the top 3 myths about currency hedging, which includes;
- Currency hedging is speculative and risky.
- Currency hedging is only for the short-term; in the long run exchange rates always average out.
- I don’t need to hedge currency risk if I operate in US dollars and conduct foreign business in US dollars—I’m not exposed to other currencies.
They also cover the 3 key components of managing risk with a hedging program. This and other great tips can be found in the white paper, you can check it out here.
A large Canadian manufacturer was forced to comply with complex, new US regulations with potentially dire consequences. The company designed an integrated information management system to track trade-related information throughout the sourcing, production, and export stages. They were able to successfully avoid costly penalties or potential forfeiture of merchandise, resulting in cost certainty, and uninterrupted service to their US clients
Trade Compliance and the Lacey Act
A large Canadian manufacturer, was able to add value to their organization by utilizing a comprehensive, integrated trade risk management strategy. With the legislation of the Lacey Act in 2008, regarding illegal wood harvesting, additional regulations were imposed on to the organization. Partnering with their customs broker, the company was able to develop a cohesive technological program designed to reduce risk and ensure compliance. By integrating their trade strategy throughout the entire organization with use of technology, this company was successfully able to create flow with trade processes, reduce time and costs, reduce risk, and heighten compliance assurance. The organization was able to save approximately $96,000 a year and reduce their production time by approximately 92%. Also, the organization is able to avoid penalties due to violation of the Lacey Act ranging up to 5 years of imprisonment and a $500,000 fine per violation, as well as forfeiture of merchandise.
The Lacey Act is a very complex program that is designed to manage species and origin of wood materials from cradle to grave to protect the US domestic market. It was a modification to the Farm Act that included a broadening of the definition of plants that the act covered. To read more about this program and it’s details, click here.
Example of how far reaching this could be: Country Time lemonade that is contained in a plastic bottle, with a plastic cap and covered with a plastic wrapper contains, among other things, glycerol ester of wood rosin. Glycerol ester of wood rosin is a common food additive and is prepared from resin acids of wood rosin harvested from the stumps of the longleaf pine. It would be covered by this law.
Integrated Trade Compliance Strategy Wrap up
The issue is clear that for manufactures of wood products it was of great concern to understand their sourcing trade data and link it to the export (sales) trade data. In this case it was a critical given the fines and penalties extended beyond financial but also prison time. This is a clear-cut case for an Integrated Trade Compliance Strategy, where the linkages between sourcing and growth were directly related and significant impact on the organization and understanding its tolerance for risk.
