Inbound Logistics | January 2023

(UFLPA), which bars imports from China’s Xinjiang Uyghur Autonomous Region into the United States. The law’s enforcement takes place, in part, through an interagency task force that provides ongoing updated guidance to importers. Under UFLPA, companies must demonstrate that goods either did not come from Xinjiang, or were produced without the use of forced labor. To prove that a product did not originate in that region, certain importers must “not only use due diligence in evaluation of their supply chain, but also to respond completely and substantively

to CBP requests for information regarding entries it may review,”

according to a U.S. Customs and Border Protection (CBP) known importer letter. This requires a company’s compliance team to work with its purchasing and logistics departments to identify the origin of all raw materials and ascertain an accurate model of their supply chain. Failure to comply with UFLPA regulations could result in the seizure or forfeiture of cargo. Even products exported from elsewhere in Asia could be subject to a withhold release order if they could have been sourced or utilized labor from the Uyghur region. “Each time it adds complexity and cost to the overall process,” says Ron Shepherd, director of cross-border trade compliance at UPS. “You start thinking, ‘The cost of my raw material was x , but because of these additional requirements, it’s now y . Is it more advantageous to source it from a different place where we might not have this issue?’”

Apple is slowly adding manufacturing sites in the United States with a focus on California, as it tries to shift more manufacturing out of China.

WORLD EVENTS WREAK HAVOC ON TRADE International traders have had their share of challenges to deal with in recent years. Just as executives were ironing out a dramatic uctuation in demand— and the supply and transportation constraints that accompanied it—war broke out between Ukraine and Russia in February 2022. Among other things, the conict interrupted the ow of grain and metal to the rest of the world. It also wreaked havoc on fuel costs. Global crude oil prices jumped from $76 per barrel in January to more than $110 per barrel by March, pushing up transportation costs, according to GEP, a supply chain software and managed services provider. Meanwhile, zero-COVID policies led to abrupt shutdowns at ports and manufacturing cities, causing shipping delays between China and the United States. For example, shipping delays between China and the United States and Europe quadrupled from March to May of 2022, nds data from project44. These policies short-circuited sourcing efforts and sent companies such as Apple to seek out new manufacturing locations. “Consumption patterns were turned

completely upside down,” says Pawan Joshi, executive vice president of product management and strategy at supply chain software platform e2open. “The pandemic reduced supply, constrained logistics, created geopolitical situations, and caused a massive uptick in demand for semiconductors. “It’s a lot to digest in three years,” he says.

COMPLIANCE: AN OPENANDSHUT CASE

Rising global turmoil has translated into increased legal responsibilities for U.S. businesses. Ongoing conicts in Eastern Europe and state-sponsored human rights violations in China have given rise to a growing web of conditions on where—and how— companies can source raw materials and component parts. One example is forced labor. Although compliance in this area is nothing new—it has been illegal to import items produced with forced labor since the Tariff Act of 1930 proscribed the practice nearly one century ago— regulatory oversight ratcheted up in 2022. In 2021, Congress passed the Uyghur Forced Labor Prevention Act

STRAIGHT TO THE SOURCE This tumult is leading some

professionals to revisit their procurement strategies. The benets of sourcing from historically low-cost countries aren’t worth the exposure to adverse events, especially for companies with only one or two suppliers. That hasn’t always been the case. In 2009, average hourly compensation costs for manufacturing employees in

180 Inbound Logistics • January 2023