December 2006 | Commentary | Risks and Rewards

2006: A Year of Supply Chain Changes

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The logistics industry continued to undergo fundamental changes in 2006, as shippers demanded increased services from their providers. To meet that need, numerous logistics providers contemplated expanding their core services.

One European forwarder, for example, weighed the benefits of providing domestic trucking to a company wanting an integrated service for shipping goods to the United States.

These challenges raise fundamental questions about regulations, the benefits of partnering, the effective use of trading conditions, and the need for insurance.

The answers to these questions differ from provider to provider, but many providers decided to merge, partner with other companies, or establish new entities in 2006. This trend is likely to continue.

Tackling Global Risk

Shippers in 2006 realized that conducting business over international borders can be risky, and selecting suitable partners poses challenges. In one case we discussed this year, a customs agent made a fraudulent declaration that resulted in the imposition of a fine on the importer he represented.

This prompted one reader to ask if any central resource exists, such as a Better Business Bureau, where shippers can check a prospective partner's background.

While no central body tracks the activities of transportation-related companies, resources are available for organizations seeking suitable partners.

Registries such as Dun & Bradstreet provide information on companies' background, including financial data, information about pending lawsuits, and speed of payments, which can help flag possible financial difficulty.

Security and regulatory compliance pose additional challenges for global shippers. Because our transportation system lacks unified standards, it leaves operators to their own devices when determining the extent of security measures to employ.

We examined in one article the need for greater security collaboration among shippers, transporters, and government enforcement agencies throughout the supply chain.

This prompted another reader to write: "In some instances, local law enforcement will not act on cargo security issues without regional, state, or even federal assistance. While your collaboration discussion was prudent, without a nexus of law enforcement groups, it won't bring true benefits."

The reader's point is well taken. We still need greater coordination among law enforcement units in cargo theft cases. At a recent industry conference, one FBI agent discussed this issue at great length. His particular unit had expanded its collaboration with local law enforcement agencies, he said, but conceded that there is always room for improvement.

New Rules from Uncle Sam

Compliance also remained a top priority this year as the government issued a number of new regulations designed to ensure cargo safety.

In February, for instance, the U.S. Department of Agriculture began requiring all imports—entering into or transiting through the United States—containing wood pallets, crates, and other dunnage, either be heat treated or fumigated with methyl bromide.

The regulation also requires the material to be marked with an approved logo, certifying treatment.

In mid-May, the Transportation Security Administration announced stricter air freight requirements, including background checks for off-airport freight forwarder employees, and extending secure areas of airports to include ramps and cargo facilities. These measures will be enforced by an expanded number of air cargo inspectors.

Undoubtedly, 2007 will bring new challenges to the industry. As they arise, we will analyze them and determine how they impact shippers.

Looking for expert advice about business insurance and liability? I will try to help. Send your questions to Dan Negron: dan.negron@thomasmiller.com.

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