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Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains In Detail- Part Five

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With this posting, we will wrap-up our Supply Chain Matters series outlining in more detail, 2016 Predictions for Industry and Global Supply Chains. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as helping our readers and clients to prepare Supply Chain Matters Blogsupply chain management and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.

Our predictions series includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year.

Readers are welcomed to review our complete listing of all ten 2016 predictions for industry and global supply chains.

In our Part One posting, we dived into Prediction One that addressed what industry supply chains should anticipate in global chain activity and Prediction Two, what to expect for inbound commodity and component costs as well as unique challenges for sourcing and procurement teams in the coming year.

Part Two of our in-detail predictions explored Prediction Three, turbulence and continued change in global transportation / logistics, and Prediction Four, the growing supply chain talent and skills gap requiring organizations to be more innovative and resourceful.

Part Three reviewed our prediction of certain industry-specific challenges occurring in 2016.

Part Four dived into Prediction Six, S&OP processes morphing into broader forms of integrated business planning, and Prediction Seven, how Internet of Things initiatives will dive further into line-of-business deployment realities.

In this posting, we further explore into our final three predictions.

 

2016 Prediction Eight: Geopolitical Developments Centered on Global Trade Agreements Will Present New Concerns and Challenges for Specific Industry Supply Chains.

Major developments surrounding global trade will occupy the attention of many industry and regional geographic supply chain organizations in 2016. They will impact current tactical and to some extent, strategic plans related to the import and export of goods. The most prominent will be the ratification process involving the proposed Trans-Pacific Partnership (TPP), China’s potentially competing One Belt, One Road (OBOR) initiative, Transatlantic Trade and Investment Partnership (T-TIP) and the Country of Origin Labeling (COOL) directive. All of these combined will require industry supply chain teams to allocate dedicated management attention to each, along with implications and/or conflicting strategies implied by each.

Details of the recently adopted Trans-Pacific Partnership will continue to unfold in 2016 while individual sponsoring countries undertake the process of ratification. Supply Chain Matters published a first look at TPP elements in November. As TPP details continue to emerge, industry supply chains will begin to uncover certain strategic and tactical impacts related to current global sourcing strategies. Some of these impacts will relate to specific industries and include either current or potential future global value-chain strategies that exist in China, Vietnam, Japan, the Eurozone or other countries. China will continue to drive and influence its One Belt, One Road (OBOR) initiative placing additional political and specific industry pressures on certain TPP participants. Industry supply chain teams will thus be caught in the middle of geopolitical pressures and forces in relation to pending strategic sourcing or value-chain design strategies.

The original COOL legislation had good intent, requiring meat products sold in supermarkets and grocery stores to specifically indicate where the animal was born, raised and slaughtered.  Reports indicate that the original law was prompted by the lobbying of U.S. ranchers who compete with the Canadian cattle industry, and later garnered the interest of consumer watchdog interests. In 2015, the World Trade Organization ruled that the U.S. efforts was anti-competitive to Canadian and Mexican animal ranchers. This issue will need resolution in 2016 along with potentially conflicting standards coming from The Transatlantic Trade and Investment Partnership (T-TIP). T-TIP is a trade agreement among the 28 European Union member countries and the United States. It addresses increased access to both member markets for goods and services but it comes with certain definitions as to product branding and country of origin.  For instance, parmesan cheese can only originate from certain regions of Italy, and other products of a similar nature have to be labeled or termed differently. The measure further calls for singular approval processes for products, standardized customs and border forms and fees.

Global trade advisory firms such as Livingston International and others are advising industry supply chains to prepare for a number of potential scenarios involving the ongoing trade dispute process invoked by COOL. We certainly concur. While industry supply chain teams might perceive that legislation affecting packaging disclosure of meat products has little to do with service parts, chocolates and wine, it indeed does.

All of these global trade issues will percolate in the coming year and they well may get complex and confusing to sort out.

 

2016 Prediction Nine: Alibaba and Amazon Will Expand Their Presence in Customer Logistics Fulfillment.

There are stronger indications that online giants Alibaba and Amazon will expand their presence in last-mile customer fulfillment. Increasing transportation rates and surcharges from both FedEx and UPS in 2015, and in the coming year, along with building frustrations over service arrangements make this prediction more viable for the most influential online retailers as well as more evidence pointing to such capabilities.

In late 2015, social media including Supply Chain Matters picked-up a report indicating that an undisclosed major retailer was piloting its own chartered air freight services.  An initial report of Amazon’s involvement in secretive air freight services came from a posting by Motherboard which referred to operation “Aerosmith” launched in September from an unknown corporation and run by Ohio-based aviation services provider Air Transport Services Group (ATSG). The report indicated that the unnamed company had leased four Boeing 767 air freight aircraft and was operating out of the Wilmington Air Park near Columbus Ohio, a former DHL air freight hub. As we went to press with these predictions in the middle of December 2015, The Seattle Times reported,  citing cargo industry executives that Amazon was separately negotiating to lease 20 Boeing 767 air cargo jets for its own air-delivery service. Similarly, The Wall Street Journal, citing more than a dozen current and former executives from both Amazon and UPS, literally confirmed that the online retailer is taking steps to move closer to last mile delivery.  The reason, Amazon’s shipping costs were reported as being 11.7 percent of total revenues, up from 10.7 percent a year ago. According to the WSJ report, Amazon’s spending with UPS exceeds $1 billion alone.

Another data point was Amazon itself which at a holiday focused shipping event, disclosed that it has acquired and deployed thousands of its own Amazon Prime branded fleet of tractor-trailers for transportation needs among its various customer fulfillment and logistics sorting centers.

These three separate but related developments, dedicated surface and air freight capabilities, coupled with well-timed holiday announcements on advanced drone delivery vehicles all lead to our prediction that all of these capabilities will unveil themselves in a more end-to-end contiguous customer fulfillment and premium last-mile delivery capability for Amazon Prime members in 2016.

Similarly in 2015, Alibaba conducted one of the largest online shopping events to-date. According to China based Alibaba, this year’s Singles Day online event recorded a record 91.2 billion yuan ($14.3 billion) in one-day gross sales.  Volume was reported as surpassing last year’s $9.3 billion in sales after 12 hours. For the sake of comparison, 2014 and 2015 online Black Friday and Cyber Monday volumes do not come close to that of this year’s Singles Day event for the Chinese online retailer and its other associated online sites.   Because of the last-mile delivery challenges within China, Alibaba continues to invest in its own last-mile customer delivery capabilities, and in 2015, came reports of expanding relationships with other global parcel delivery entities such as the U.S. Postal Service.

Amazon and Alibaba will continue to move upstream in last-mile parcel delivery capabilities and this will serve as a wake-up call for remaining online retailers with dependence on higher customer fulfillment and logistics costs. Free Shipping policies have consistently attracted online consumers in buying decisions and offsetting costs will remain the determinant of profitability of online orders in the months to come. Consequently, existing parcel delivery service providers will experience more shipper pushback regarding rate structures.

Needless to state, the industry dynamics of B2C online last mile customer fulfillment are about to change in 2016.

 

2016 Prediction Ten: A High Visibility Supply Chain Snafu or Event with Business Implications

This is a prediction that we are obviously reluctant to publish for readers and clients. However, our observation of industry supply chains being whiplashed with unprecedented business change and growing global chain risks leads us to this prediction.

The potential for supply chain disruption, whether from natural disasters, political or other unforeseen or unexpected events has greatly increased.  The significant explosions and fire that occurred in the proximity to the logistics complex at the Port of Tiajin in 2015 were the latest reminder.  Some firms are dealing with the financial and business effects of that event.

Continued pressures to reduce overall supply chain costs in 2016 leads us to conclude that there may well be one or more high visibility supply chain or key supplier breakdowns in the coming year. Industry supply chains that have already undergone multiple years of cost or staffing reductions are likely candidates. Also are industries with highly extended value-chains without adequate risk mitigation. Significantly reduced resources, capacity or product quality assurance and monitoring will likely be casual factors, although public statements will indicate otherwise.

Suppliers will continue to experience pressures to reduce costs but at the same time provide more agility and responsiveness to changing needs. As we approach 2016, there is already an uptick in product recall incidents along with certain supplier quality shortfalls. We believe that the wide scale adoption of zero-based budgeting techniques increases the overall supply chain risk profile.

As to what industries such a snafu will occur, consumer product goods, food, retail, high tech consumer electronics and perhaps medical equipment are likely profiles.  We hesitate to add commercial aerospace to this prediction, but that could be possible.

 

This concludes our series of deep-dives into all ten of Supply Chain Matters 2016 predictions.

All of the content presented in this series along with added detailed perspectives will be incorporated in a comprehensive research report available for complimentary downloading in early January in our Supply Chain Matters Research Center. Look for an upcoming announcement as to availability.

In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com.  We have already received other insightful predictions and look forward to accumulating others.

We will share all contributed predictions in a supplemental predictions commentary at the end of December.

We take this opportunity to thank all of our readers and designated sponsors for their loyal following throughout 2015.  Please take the opportunity to review the capabilities of each of our sponsors.

We extend a Happy Holidays wish to all and best wishes for the coming New Year.

Rest-up, renew and re-generate during the holidays and let’s collectively tackle various industry and global supply chain challenges throughout 2016.

Bob Ferrari, Founder and Executive Editor

©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.

Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.

 


Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains

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Once a year, just before the start of the New Year, our parent, the Ferrari Consulting and Research Group along with Supply Chain Matters provide a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as Supply Chain Matters Bloghelping our readers and clients to prepare supply chain management and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.

Our process includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year. Readers are welcomed to review our scorecard series of our 2015 predictions that occurred in late November.

In this initial posting, we will unveil our complete listing of our ten predictions for the coming year with summary descriptors. In subsequent postings spanning the remaining weeks of December we will dive further into each of our predictions. In early January, we will publish the complete Ferrari Consulting and Research Group research report, 2016 Predictions for Industry and Global Supply Chains that will incorporate all of our predictions along with even more details and supporting data related to each prediction. This report will be made available to all of our consulting clients and will further be made available for no-cost complimentary downloading in the Research Center of Supply Chain Matters.  Anticipate general availability in mid-January with an announcement on this blog.

Let’s therefore begin the process with the unveiling our ten 2016 predictions.

 

2016 Prediction One: A Year of Uncertainty and Continuous Challenges Related to Global Supply Chain Activity

Our first prediction related to global activity is that industry and global supply chains should anticipate another year of uncertainty in planning product demand and supply needs on an individual geographic region or country basis.  From our lens, there will be a need for lots of contingency and various scenario planning options, and sales and operations planning will be very engaged and challenged throughout the year to meet expected business outcomes.  Even more production overcapacity across China’s industry sectors will add to downward global pricing pressures affecting specific industry supply chains.

 

2016 Prediction Two: Favorable Outlook for Inbound Component and Commodity Costs but Procurement Teams Need to Step-up Supplier Management

Global commodity prices, the raw-material of industry supply chains, declined sharply during 2015.  The World Bank’s Commodity Markets Outlook published in October 2015 generally called for slightly higher non-energy commodity prices in 2016 including categories of Agriculture, Raw Materials, Fertilizers Metals and Minerals. We believe that may be too optimistic and that continued overcapacity will drive inbound prices generally lower. The most significant commodity price trend remains that of oil, as the price of crude oil has reached seven year lows amidst of global glut of supply and little demand growth.

Due to the uncertainty and the heightened supply risks expected in 2016, procurement teams will need to re-double their efforts focused on supplier assessment and monitoring.

 

2016 Prediction Three:  Turbulence and Continued Change Surrounds Global Transportation and Logistics

As we enter 2016 we are once again compelled to predict another year of turbulence and continued change surrounding global transportation and logistics with particular emphasis in the third-party/fourth-party logistics, global ocean container and air freight segments. We are predicting more consolidation and mergers to occur among ocean container shipping lines and one North America based rail merger to occur in 2016.

 

2016 Prediction Four: Widening of Supply Chain Talent and Skill Gaps Will Require Organizations to be More Innovative and Purposeful in Recruitment, Career Planning and Training Efforts

We predict that the existing widening skill gaps will compel industry supply chain executives to be more creative and purposeful in recruitment and training. That includes facing the realities of competitive compensation and purposeful career planning for individuals. We expect organizations and recruiters to more broadly define supply chain related jobs in skill dimensions and in expected performance parameters for both current and future organizational needs. Individuals who possess required cross-functional hard and soft skills, including in-depth technology prowess will continue to experience a seller’s advantage.

 

2016 Prediction Five: Noted Supply Chain Industry-Specific Challenges

In 2016, challenges will remain in B2C Online Retail, Commercial Aerospace, Consumer Product Goods (CPG) and Automotive industry sectors.  We have added a further 2016 industry challenge, that being current efforts to deploy more sustainable and health conscious agriculture and food based supply chains.

 

2016 Prediction Six: Certain Industry S&OP Processes Will Morph to Broader Forms of Integrated Business Planning and Product Management.

The term integrated business planning is often depicted as a specific technology vendor term but in reality, it is a desire that all functions of a firm are aligned at a single set of financial, business, supply chain and operational outcomes.  As multi-industry business challenges continue in speed and complexity, S&OP processes will need to foster more agility to effectively deal with change. In 2016 we anticipate that certain S&OP teams, those experiencing high levels of value-chain complexity and business change, will begin to morph S&OP process and decision-making with broader information and contextual decision-making components and begin to identify and address obstacles for incorporating key information integration from product management and financial systems.

 

2016 Prediction Seven: Internet of Things (IoT) Initiatives Continue to Dive into Realities of Line of Business Strategy and Deployment

In 2016, we anticipate that B2B focused manufacturers and services providers will broaden their perspectives on connected devices and services, especially in the notions of the realities for being a software-driven vs. a hardware-driven enterprise. That includes leveraging intellectual property and software knowledge into more innovative products and services that result in new revenue streams. Thus, the value of products will increasingly be defined by the embedded sensors, software and consequent added services that products provide for customers.

 

2016 Prediction Eight: Geopolitical Developments Centered on Global Trade Agreements Will Present New Concerns and Challenges for Specific Industry Supply Chains.

Details of the recently adopted Trans-Pacific Partnership will continue to unfold in 2016 while individual sponsoring countries undertake the process of ratification. As TPP details emerge, industry supply chains will begin to uncover certain strategic and tactical impacts related to current global sourcing strategies. China will continue to drive and influence its One Belt, One Road (OBOR) initiative placing additional political and specific industry pressures on certain TPP participants. Industry supply chain teams will thus be caught in the middle of geopolitical pressures and forces in relation to pending strategic sourcing or value-chain design strategies.

 

2016 Prediction Nine: Alibaba and Amazon Will Expand Their Presence in Customer Logistics Fulfillment.

There are stronger indications that online giants Alibaba and Amazon will expand their presence in last-mile customer fulfillment. Increasing transportation rates and surcharges from both FedEx and UPS in 2015, and in the coming year, make this prediction more viable for the most influential online retailers as well as more evidence pointing to such capabilities.

 

2016 Prediction Ten: A High Visibility Supply Chain Snafu or Event with Business Implications

This is a prediction that we are obviously reluctant to publish for readers and clients. However, our observation of industry supply chains being whiplashed with unprecedented business change and growing global chain risks leads us to this prediction.

 

Keep your browser pointed to Supply Chain Matters as we dive into each of the above 2016 predictions in more detail. In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com.  We will share all contributed predictions in a final predictions of this 2016 series.

Bob Ferrari, Founder and Executive Editor

©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.

Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.


A Trans Pacific Partnership Agreement Implies Impacts to Some Industry Global Sourcing Strategies

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Over the past month, business and general media has been reporting on leaked and other types of information stemming from the ongoing Trans Pacific Partnership (TPP) talks currently underway concerning a proposed trade agreement among 12 nations including several Pacific Rim countries and the United States. The stated goals of the TPP are to “enhance trade and investment among the TPP partner countries, to promote innovation, economic growth and development, and to support the creation and retention of jobs.” The latter portion of job creation is the most political and most impactful to industry global sourcing strategy.

The latest round of negotiations that occurred in Hawaii at the end of August ended without any sense of major agreement and the ongoing process remains politically charged among potential partner countries. What has been capturing the interest of Supply Chain Matters is the consideration and weighting that has been placed on global supply sourcing for certain key industries.

Automotive Supply Chain Impacts

Much of traditional business media reporting has been concentrated on the implications to the automotive industry. Major automotive OEM’s do not want this agreement to upend existing global sourcing strategies for component supply. Both Bloomberg Businessweek and The Wall Street Journal have recently reported that Mexico’s primary automotive industry group, which has been booming from continued new sourcing of production announcements from various global auto producers, has thrown a wrench into the current talks.

Mexico overtook Japan to become the second-largest exporter of vehicles to the U.S., primarily because existing free-trade agreements have attracted new plant investments from various global brands.  In essence, the country wants to protect its interests in the definition of “rules of origin” and what would be classified as duty-free imports to the U.S.  Under the North America Free Trade Agreement (NAFTA), 62.5 percent of component sourcing must come from within the NAFTA free-trade area to qualify as duty-free. Bloomberg reports that Washington tentatively agreed that Japan based automotive producers should be allowed to ship vehicles duty-free to the U.S., even if upwards of 50 percent of component sourcing comes from non-TPP countries. Component suppliers from both Mexico and Canada are reportedly lobbying for negotiators to stand pat with NAFTA guidelines. Meanwhile, autoworkers in all three NAFTA countries are voicing the need for fairer standards, and not allowing Asia-Pac car companies to game the system in favor of more job creation among lower cost manufacturing regions.

U.S. based automotive OEM’s have been similarly vocal as well, declaring that they rely on global supply chains to be able to competitively manufacture vehicles in the U.S. Nations such as Malaysia and Vietnam anticipate that the TPP will provide an incentive for each of these countries to increase their presence in supply of automotive supply chains, but Thailand is now an important component sourcing hub for Japan based OEM’s.

Dairy Industry Exports

Another area of dispute is that of dairy based imports, which are the basis of supply for other food related producers. New Zealand’s economy is dependent on exports of dairy products, which is prompting that country to lobby for broader access to markets of TPP member countries including Canada. Dairy imports into Canada currently invoke a tariff in excess of 200 percent, and that country’s politicians fear a backlash in the upcoming federal elections in October if they dare agree to cutback current tariffs that protect Canadian dairy farmers. New Zealand reportedly is holding firm that the country will not sign any new trade agreement that does not open new dairy related markets.

Apparel and Textile Sourcing

For the apparel and textile industry, only clothing that is wholly sourced and produced within TPP nations qualify for duty-free sales. A recent report from Time points out that Vietnam, currently the second-largest exporter of apparel to the United States, is only able to produce a fifth of the fabric it needs to supply finished apparel to global markets. Vietnam currently imports nearly $5 billion of fabric from China, a non-TPP country, and that scale of fabric sourcing must shift. However, current U.S. tariffs of Vietnam sourced apparel which are currently 32 percent would be eliminated, perhaps adding some impetus for finding new TPP-centric sources of fabric.

High Tech Sourcing

Similarly, high tech and consumer electronics producers have a current high sourcing content dependency on China and Taiwan, and to some extent, the Philippines and Thailand for component supply. Some high tech companies have initiated their own political lobbying to insure any TPP agreement does not impose a competitive or cost disadvantage for their products. Consider how much of the value-chain components of an iPhone or iPad are sourced from non TPP regions.

Clock is Ticking

The clock is ticking on whether a final agreement on TPP can be reached soon. The U.S. Presidential sweepstakes is well underway, and member nations have their own political events that will hold legislators to task.  In the end, it would appear that any TPP agreement will have some direct and probably indirect impacts on global component sourcing strategies for multiple industries.

Bob Ferrari


WTO Moves Closer to Tariff-Free Classification of IT Products: Supply Chain Opportunities and Impacts

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Late last week, the World Trade Organization (WTO) reached a landmark $1.3 trillion deal that addresses the categorization of 201 information technology products that will be freed from import tariffs. Among the products covered in this agreement are new-generation semi-conductors, GPS navigation systems, medical products which include magnetic resonance imaging machines, machine tools for manufacturing printed circuits, telecommunications satellites and touch screens. Once approved, the agreement will update an Information Technology Agreement that has not been updated for the past 18 years.

According to the WTO, the tentative accord reached by 54 of its members was confirmed as the basis for implementation work to begin. Ministers from the participating members will now work to conclude their implementation plans in time for the WTO’s 10th Ministerial Conference which will be held in Nairobi this December. Five of the total number of countries needed for final signoff has thus-far not signed up.  Those countries include Colombia, Mauritius, Taiwan, Turkey and Thailand. The Director of WTO has indicated to news sources that approval from the remaining countries is due to process delays, and expects the required additional countries to sign-up soon.

This latest categorization is being billed as the first global tariff-cutting in 18 years with the implication that globally-based consumers should eventually benefit in purchases of computers, game consoles, touch-screen devices and other consumer electronics products.  All 161 WTO members are expected to benefit from this agreement, as they will all enjoy duty-free market access in the markets of those members who are eliminating tariffs on these high tech products. According to the WTO, the terms of the agreement will be formally circulated to the full membership at a meeting of the WTO General Council on 28 July.

A published Reuters report indicates that high-tech manufacturers General Electric, Intel, Microsoft, Nintendo and Texas Instruments are among those firms expected to benefit from the free-up tariffs. A U.S. trade representative indicated to Reuters that more than $100 billion in U.S. exports alone would be covered by the updated agreement.

The implication to hi-tech and consumer electronics industry supply chains is significant.

A considerable amount of new products and product categories have been added since these tariffs were originally created 18 years ago, and with over 200 products designated to be free of import tariffs and duty-free trade, the industry as a whole stands to benefit by increased global market access and more streamlined, direct flows to end markets. The notions of offshore and near-shore production as well as new opportunities for push-pull customer fulfillment strategies can well benefit from this development of tariff-free components and products. On the other hand, the competitive landscape of regional brands competing with global brands will magnify.

By our Supply Chain Matters lens, the agreement will have implications to current manufacturing sourcing of high-tech and consumer electronics products since the assumptions concerning added tariff costs will obviously change.  Supply chain strategy teams should therefore plan on a refresh supply chain network design models in light of these tariff-free assumptions to uncover any new opportunities for more efficient or enhanced customer fulfillment focused manufacturing and sourcing of end-products.

Bob Ferrari

 


Country of Origin Legislative Actions for Food Has Broader Industry Supply Chain Implications

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In June, The United States House of Representatives voted to repeal country-of-origin labeling (COOL) for beef, pork, and chicken and social media commentary regarding the move continues to dominate as an ongoing trending topic.  The reasons are obvious- consumers demand and expect knowledge as to the specific sourcing origins of food products. Consumers are right to be concerned and watchful, and the impact of these actions continue to impact food, beverage and consumer product goods focused supply chains.

The original COOL legislation had good intent, requiring meat products sold in supermarkets and grocery stores to specifically indicate where the animal was born, raised and slaughtered.  Reports indicate that the original law was prompted by the lobbying of U.S. ranchers who compete with the Canadian cattle industry, and later garnered the interest of consumer watchdog interests.

But this current ongoing process now involves the political and economic implications of other supply chains, in addition to food.

The broader issue involves the World Trade Organization (WTO) which after the initial U.S. legislation was passed, ruled that the labels regarding animal origin would have a discriminatory impact against the two U.S. border countries, Canada and Mexico, and thus a barrier to free trade.  Both border countries indicate that the law requires that animals be segregated by country of origin, a costly process that has U.S. wholesale buyers avoiding the buying of export origin meat products.

Both countries are seeking permission to impose what is described as billions of dollars in added tariffs on U.S. goods in retaliation.  And there lies the supply chain impact which threatens to change the existing economics and stakeholder interests of cross-border trade.

U.S. legislators are thus caught in what is described as a damned if you do, or damned if you do not conundrum regarding the existing COOL repeal legislation which has now moved to the U.S. Senate for consideration.

In order to seek additional insights regarding the implications of COOL, Supply Chain Matters had the opportunity to recently speak with Candace Sider, vice-president of regulatory affairs, Canada, at international trade compliance services provider Livingston International. Ms. Sider has a significant background in understanding Canada’s regulatory processes involving interaction with federal and provincial officials, regulatory agencies and policymakers.

She explained that Canada viewed the original U.S. COOL labeling requirements as having a $3 billion impact on that country’s cattle and hog industry.  During the current arbitration period, decisions are expected to be made as to what commodities would remain on the original impacted list. If the surtax were to be implemented, importation from the U.S. of the subject products could ultimately passed on to consumers. The U.S. government has indicated to the WTO that it disputes Canada’s figures.  However, Canada is preparing to lift tariffs on U.S. imports that include in excess of 100 different commodities including products such as range and refrigerator parts, wine, and yes, chocolates.

The WTO is not expected to rule on the U.S.’s latest appeal to the threatened tariff increases until early August, or possibly September. Meanwhile, the implication of the ongoing dispute actually impacts more than just meat-focused supply chains.

Livingston is currently advising its clients to prepare for a number of potential scenarios involving the ongoing trade dispute process invoked by COOL.

Where all of this eventually ends-up is subject to many viewpoints.  After all, this is very much a process driven by economic, multi-industry and lobbyist forces.

However, one aspect is clear. The complexity of today’s globally based supply chains takes on many different dimensions and implications.  While you might have perceived that legislation affecting packaging disclosure of meat products has little to do with service parts, chocolates and wine, it indeed does. The takeaway is to nurture contacts and resources that can alert your team to ever changing developments and multi-industry implications.

Bob Ferrari

 


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