BOC’S ANNUAL INNOVATIVE · 2017. “Trade growth is slowing sharply” –IHS Markit chief economist Nariman Behravesh. • “The container industry is suffering at the moment

WELCOME TO

BOC’S ANNUAL INNOVATIVE

SUPPLY CHAIN SUMMIT

w w w . b o c i n t l . c o m

BOC’S ANNUAL INNOVATIVE SUPPLY CHAIN SUMMIT AGENDA

9:00 9:20 Welcome Remarks: BOC Leadership and Massport Port Director Lisa Wieland

9:20 10:05 Keynote Address: Peter Tirschwell

10:05 10:35 General Average, Vessel Fires and Preparedness: Rick Bridges

10:35 10:50 Networking Break

10:50 11:50 Trade Innovation 2019: Paula Connelly

11:50 12:40 Lunch and Entertainment

12:40 1:40 View from the Top: A Roundtable Discussion Lead by Peter Tirschwell

2:00 5:30 Post Summit Reception at BOC’s Office

BOC’S ANNUAL INNOVATIVE SUPPLY CHAIN SUMMIT

www.boc in t l . com

Peter Tirschwell

© 2018 IHS Markit. All Rights Reserved.

Big themes in international

logistics

Presented by:

Peter TirschwellBOC’s Annual Innovative Supply Chain Summit

March 15, 2019, Boston, Mass.


Tension between polar opposites

5


Money pours into startups, but to what end?

• This deluge of money is not by itself changing the industry – Flexport is not yet a disruptor for example.

• But it’s making everyone more open to the reality and potential for technology to create value

• And even without money, headway is being made by smart innovators

6


Tech driving major industry wagers

• Technology is a driving force behind one of the major restructurings and strategies being implemented in the market today

• Idea is that controlling assets and linking assets to data can deliver untapped value to customers and to themselves

• Moving into traditional 3PL space, influencing other carriers, and combined with carrier consolidation, is this helping drive 3PL consolidation?

• But the existential question remains: Can Maersk, CMA CGM, others outrun commoditization?

7


The ultimate disruptor spots international logistics

• Huge and growing DC footprint, over 160 sorting and logistics centers, 135 million square feet

• 40 Boeing 767 aircraft in Amazon Air currently

• Marketplace, i.e. non-Amazon products, make up over half of sales; shows Amazon is, among other things, a large and rapidly growing 3PL

• Big moves to take logistics in-house; XPO’s “largest customer” withdrew $600 million of postal injection, brokerage, intermodal, and contract logistics

• “Transportation and logistics” is now deemed a competitor

• Will Amazon seek to create a full-fledged 3PL product?

8


But the Amazon story has not yet played out

• Amazon is opaque by design; its strategy is intentionally disguised

• All 3PLs manage through lack of control of assets and unless it buys ships and terminals, Amazon would be no different from K+N, DHL, DSV etc.

• But Amazon essentially created cloud computing with AWS; they are visionary and must be taken seriously

9


Going back to the basics

• Improving core data quality is becoming a key area of technology development

10


Is blockchain making headway?

• Blockchain is making headway in finance, food supply chains but is it transformational?

• But it has fragmented and it’s unclear who is friend and foe among the current players

• Big questions remain about data quality, security, cost, adaptation, interoperability

11


The debate on Blockchain rages on

12


13


How IMO could play out in the container sector

• In the container sector (60% of waterborne trade by value) there is concern that as the industry is intensely competitive it may fail to pass along $13-15 billion in annual fuel cost increases to customers as of Jan. 1 2020

• Containers is competitive and asset-driven with a priority on filling ships; over the 20 years from 1995-2016, average ROIC for container carriers was 2.6 percent

• Container lines have a credibility issue in proposing fuel surcharges; there is a history of formulas being vague and suspected revenue sources, not pass throughs

• Carriers also have a poor record of passing along fuel cost increases; 2018 was the latest example:

> CMA CGM, #4 carrier in capacity deployed (11% market share), saw a 91% drop in 2018 profits due to 41% increase in bunkers (to $3.61 billion)

> “The data we have does not give a huge amount of confidence about higher fuel prices being passed along” Neil Glynn, Credit Suisse at TPM last week

• “My sense is if the carriers don't get a satisfactory outcome with regard to mechanisms that allow them to recover all or part of their fuel surcharge, they're going to take a very hard look at deployed capacity.” Matt Cox, CEO, Matson

• This harkens back to 2010, when faced with $20 billion in losses, leading to 12% of capacity being idled as of early 2010 which caused massive supply chain disruption

• 2019 is a year when global trade is slowing; Maersk made this point during its last earnings call in February. Thus, could a meltdown happen again? We think yes

14


2019-2020 will be a moment of truth for carriers

• Carriers have significantly consolidated, 8 major carriers taken out of the market as independent entities or via bankruptcy, leaving 12 operating in the East-West trades

• The question is what impact that will have on the ability of the remaining carriers to exert greater control over the market

• Last year saw significantly increased discipline around capacity management in terms of withdrawing of individual sailings

• “We are seeing the strongest sign of discipline among the carriers since 2010.” Drewry at TPM last week

• Carriers were unified at TPM that they will demand that fuel be broken out in surcharges rather than being folded into an all-inclusive rate

• But with carriers having a history of undercutting each other in pursuit of volumes and market share, this year will be a moment of truth for the industry

• If they aren’t able to pull this off, large scale capacity withdrawals and possible further consolidation may be what comes next. This year will thus be a moment of truth for the container shipping industry.

15


Fear that US might try to interfere with IMO 2020 implementation

• Group supported by big energy: ExxonMobile, Marathon, BP

• FT: Impetus is that US energy groups “stand to dominate the low-sulfur business”

• FT: IMO 2020 “represents a significant competitive advantage for the American energy sector”

• Dan Yergin at TPM said: “IMO 2020 is going to happen, but I have one caveat."

• “I’ve seen firsthand the immediate impact of his tweets on wanting low oil prices has had around the world."

16


In general what does 2019 look like?

• It’s a muddled picture, with both positives and negatives for carriers

• More frequent instances of blanked sailings last year, indicating growing capacity discipline by carriers

• Drewry at TPM said: “the era of double digit rate reductions is probably over. Now the balance the momentum is shifting the other way.”

• Drewry: “In nearly all cases we have seen double digit increases so far.”

• But these are still early rounds in negotiations, not the final numbers

• Outlook is more conservative this year

• Maersk said it expects global container growth of 1-3% this year, down from just under 4 percent in 2018 and much weaker than the near 6 percent growth seen in 2017. “Trade growth is slowing sharply” – IHS Markit chief economist Nariman Behravesh.

• “The container industry is suffering at the moment and prospects of recovery are far away,” said Sydbank analyst Morten Imsgard, told Reuters

• IHS Markit sees global GDP growth falling: 2019 forecast is 2.8%, versus 3.2% in 2018 and 3.3% in 2017

• The IHS Markit PMI for new exports has been falling for six months in a row

17


18

Thank you!



Rick Bridges

General Average, Vessel Fires and Preparedness

Presented by:

Richard W. Bridges, Vice President

Roanoke Trade

Fire!

• Hapag-Lloyd Yantian Express - January 2019

• Sincerity Ace - January 2019

• Maersk Honam - March 2018

• Maersk Kensington - March 2018

• Barcelona Ferry Excellent - October 2018

• Hyundai Auto Banner - May 2018

• MOL Prestige - February 2018

• Caribbean Fantasy - June 2018

2019

So far this year – to date – there are a number

of notable fire cases with most resulting

General Average!

Yantian Express

Year built 2002, 100,003 dwt

Date of loss: 1/3/19

Part loaded with 4,000 teu (capacity 7,551 teu.)

198 total loss, 462 damaged required survey

LOF salvage - security 32.5%

GA - security estimate 28%

ER KOBE



GA declaration on

March 12, 2019

NO SEPARATE SALVAGE CLAIM

GA – security estimate 10%

APL Vancouver



Part loaded with (capacity 9,200 teu.)

947 containers affected

LOF salvage - security 15-20%

GA - security

General Average – An Introduction

Think of it this way… an airplane you are traveling on incurs some

damage, luckily no one was hurt but the destruction is evident.

Before exiting the aircraft, the captain announces that no one can

leave the plane until they’ve paid for a percentage of the damage

based on their net worth, and if you can’t pay, the airline will sell

you to the highest bidder..

General Average - The Concept

• Origin first formulated by the Ancient Greeks to deal with

situations where cargo has been jettisoned.

• Basic principle – that which has been sacrificed for the benefit

of all shall be made good by the contribution of all.

• Applies to maritime claims only.

• Is declared by the captain when there is imminent danger to the

vessel, voyage or crew.

• You are contractually obligated to it via the Bill of Lading for

unknown and undetermined costs.

General Average – How Does it Work?

• All freight is seized!

• Value of the voyage is determined (vessel value plus value of all cargo on

the vessel.)

• Participation is determined (the percentage that the value of your cargo

bears to the value of the voyage.)

• The loss amount is determined.

• Participation percentage is applied to the loss amount to determine

security deposit.

• Shipper or their cargo insurer pay twice, for the initial contribution then for

a bond covering future adjustments to that estimate.

General Average – Hidden costs

• The great unknown (is my cargo OK?)

• Delay - finding a port, unloading & sorting.

• LCL Freight - has everyone in my container paid?

• More delay - has my shipment missed delivery deadlines?

• Lost profit, lost opportunity - is my profit covered?

Containership Fires - Problems Facing the Industry

• Recent cases have reopened the conversation about the difficulties of preventing and extinguishing fires on the open sea.

• Ships are larger with more varied cargo.

• Crew are ill equipped to deal with these fires.

• Fire-fighting tugs are often days or weeks away.

• Prevention is difficult, with rising problems with misdeclared cargo.

• IMDG Code is evolving to impose stricter rules on dangerous goods (DG.)

Containership fires - Problems Facing the Industry

• Stricter rules on DG will lead to higher costs and more incentive

on the part of shippers to avoid proper declarations

• Ship owners and shipbuilders need to improve fire-fighting capabilities with CO² systems being shown to be inadequate.

Cost benefit analysis – are potential losses greater than the

prevention costs?

• National Cargo Bureau in NY found in 2017 that of 1,721

stowage plans inspected, 20% showed errors with DG

Major Fire Cases in Recent Years

No. Vessel DWT TEU Date of Loss Region

1 MSC Flaminia 85,823 6,750 14-Jul-12 North Atlantic

2 Amsterdam Bridge 54,405 4,380 09-Sep-12 Arabian Gulf and approaches

3 Hansa Brandenburg 23,493 1,740 15-Jul-13 Indian Ocean

4 Zim Rotterdam 116,499 10,062 23-Aug-13 Red Sea

5 Maersk Kampala 93,617 6,802 28-Aug-13 Red Sea

6 Northern Guard 53,860 4,319 06-Apr-14 Arabian Gulf and approaches

7 Maersk Londrina 99,778 8,700 25-Apr-15 Indian Ocean

8 Hanjin Green Earth 140,973 13,092 01-May-15 Suez Canal

9 Maersk Karachi 94,769 6,690 14-May-15 British Isles, North Sea, English Channel, Bay of Biscay

10 Kamala 29,277 2,011 11-Jul-15 Japan, Korea and North China

11 Maersk Seoul 108,344 8,401 19-Jul-15 Arabian Gulf and approaches

12 Cape Moreton 37,883 2,742 12-Sep-15 South China, Indo China, Indonesia and Philippines

13 Safmarine Meru 61,392 4,154 08-May-16 Japan, Korea and North China

14 CMA CGM Rossini 73,235 5,782 15-Jun-16 Arabian Gulf and approaches

15 CCNI Arauco 113,174 9,000 01-Sep-16 British Isles, North Sea, English Channel, Bay of Biscay

16 APL Austria 72,807 6,350 13-Feb-17 East African Coast

17 MSC Daniela 162,867 13,798 04-Apr-17 Arabian Gulf and approaches

18 Maersk Honam 162,051 15,226 06-Mar-18 Arabian Gulf and approaches

19 SSL Kolkata 13,784 1,118 13-Jun-18 Bay of Bengal

20 Yantian Express 100,003 7,506 03-Jan-19 United States eastern seaboard

21 APL Vancouver 115,050 9,200 31-Jan-19 South China, Indo China, Indonesia and Philippines

22 ER Kobe 68,196 5,762 24-Feb-19 Hong Kong and China

NO. VESSEL DWT TEU LOSS - DATE REGION

What’s the Solution?

• Self regulation by the industry? Maersk is already doing it.

• Government regulation? Think SOLAS VGM or 24hr Rule!!

• Further DG restrictions?

General Average will never go away, so how do we make that less painful?

• Awareness across all business units that losses & delays are part of any

supply chain. Mission critical shipments need more risk analysis to

determine transport mode.

• Understanding of what to do when General Average occurs. This is best

led by your cargo insurance provider meeting with your ‘team,’ not just the

risk manager or CFO. BTW, when was the last time your insurance

provider did this for you? Do they know how to handle a GA claim?

• Have a contingency plan or at least an understanding of how the event will

unfold.

Questions?



Networking Break



Paula Connelly

Trade Innovation 2019

An Overview for BOC InternationalMarch 15, 2019

Law Offices of Paula M. Connelly

100 Trade Center, Ste. 660

Woburn, MA 01801

781-897-1771

[email protected]

What’s new

China Tariffs – where we stand now.

GSP – India and Turkey.

Section 232 Actions.

Enforce and Protect Act cases/antidumping and countervailing

duty update.

Increase in CBP enforcement.

Copyright 2019 Law Offices of Paula M. Connelly 36

What is NOT new

Importer’s responsibility to use reasonable care in its dealings

with Customs.

Internal controls – risk management.

Informed Compliance.

Establishing written import procedures.

Having a good working relationship with your Customs broker.


Centers for Excellence and Expertise

Currently all Import Specialists are assigned to a specific CEE

and report directly to the CEE and no longer report to the port.

All entries will be assigned/processed through the CEE based

upon the commodity.

This is a change from traditional filing/processing at the port level.



How does this affect trade community?

Traditional interaction with local import specialists may no longer

be an option.

CEE’s will respond to inquiries, etc. but the established

relationship may no longer exist.

CEE’s should ensure that all import specialists are very

knowledgeable with the commodity involved.

Should also reduce possible issues with differing opinions among

ports and redundant inquiries from different ports.


Section 301 Investigation – China products

USTR investigates and finds that China is conducting unfair trade practices

related to technology transfer, intellectual property, and innovation.

7/2018 –List 1: $34 billion of imports (mostly machinery, mechanical

appliances, and electrical equipment) subject to 25% tariff.

8/2018 – List 2: $16 billion of imports subject to 25% tariff.

9/2018 – List 3: $200 billion of imports subject to 10% tariff (increase to 25%

delayed until further notice)


Section 301 Exclusions

Currently two deadlines for submission of exclusion requests have closed.

List 1 – deadline was October 9, 2018

List 2 – deadline was December 18,2018

List 3 – Congress has told the USTR office that they must initiate an

exclusion process for List 3 items. This was included in the appropriations

bill. The process is supposed to be announced within 30 days of the bill’s

implementation.


Section 301 – China product Exclusion

requests

Requests must address the following:

Whether product is available only from China and, if so, whether a

comparable product is available from sources in the United States

and/or in third countries;

Whether the imposition of additional duties on the product would

cause severe economic harm to the requester or other U.S.

interests; and

Whether the product is strategically important or related to “Made in

China 2025” or other Chinese industrial programs.


China Exclusions, cont.

Following public posting of a request on Regulations.gov docket, public will

have 14 days to comment on a product exclusion request.

After the close of the 14-day response period, interested persons will have an

additional 7 days to reply to any responses received in support of or

opposition to the request.

If granted, valid for one year, retroactive to date of implementation of specific

List, and refunds are available.


Section 301 Exclusions Granted

On December 28, 2018, 984 exclusion requests were granted.

Exclusions are retroactive to July 6, 2018 which allows importers to file Post

Summary Corrections to obtain refunds – NOTE: During government

furlough, ACE was not updated to allow for the reporting of exclusions on

entry documents nor to process refunds.

These exclusions involved specific products as well as specific HTS

provisions.

NOTE: These exclusions are NOT specific to the importer and can be used

by anyone importing the item.


Excluded HTS provisions

HTSUS 8412.21.0075

HTSUS 8418.69.0120

HTSUS 8480.71.8045

HTSUS 8482.10.5044

HTSUS 8482.10.5048

HTSUS 8482.10.5052

HTSUS 8525.60.1010


Exclusion Process Continued

The USTR’s office will continue to review and process exclusion requests.

List 1 covers over 10,000 items with 1200 denied and 984 granted.

List 2 covers approximately 2500 items with none granted to date.

USTR was closed briefly during the furlough and this may delay processing

and potential granting of additional exclusions.

Keep in mind, even importers who did not file an exclusion request for a

specific item can use a granted exclusion.


Potential Mitigation Options

There are generally four areas of opportunity for mitigating Customs

duties and tariffs:

1. Classification

2. Valuation

3. Country of Origin

4. Duty relief (Duty Drawback, Foreign Trade Zones, Bonded

Warehouses, Temporary Importation under Bond and ATA

Carnet)


Classification-Tariff Engineering

Adding/modifying a specific item to change its classification.

This is acceptable by CBP as long as it is not a “disguise or artifice”

Many footwear importers will add flocking to the sole to help reduce the duty

rate.

Apparel importers may use different percentages of textiles for lower rates –

cotton generally has a lower rate of duty than manmade fibers.


Country of Origin – Section 301 China

Tariffs

Many companies are looking to shift all production or some production to a

third country to avoid a product being determined as “Chinese origin”.

It is important to ensure that goods are actually manufactured in the third

country and not merely being transshipped after Chinese production.

When production occurs in more than one country, the origin will be based

upon the country in which a substantial transformation takes place.

Substantial transformation is not simple assembly.


Substantial Transformation

Extent of operations performed and do the components lose their identity and

become integral part of the new article.

Resources spent on product design and development.

Extent & nature of post assembly testing and inspection.

Worker skill required during manufacturing.

This can be a very subjective determination.

May want to consider obtaining a binding ruling from U.S. Customs.


Recent Case

Client importing cable assemblies from China wanted to shift some

production to Vietnam and also include a significant component that is U.S.

origin.

U.S. Customs determined that the additional work performed in both China

and Vietnam was not considered a substantial transformation.

Origin of the product, upon reimportation from China, is U.S.

Product is not subject to the China tariffs.


Caveats for Origin

Determination/Declaration

Do not rely on your supplier in China to make origin determination or to set up new

production outside of China.

Review bill of material, components, pricing to determine if it is feasible to move production.

Be prepared to support the “new” country of origin claim if questioned by U.S. Customs.

Do your homework – visit new facility to ensure production is being done there.

Seek guidance from expert and/or obtain a binding ruling from U.S. Customs.

Customs will be reviewing import records for changes.


Final Thoughts on China Tariffs

Retaliatory Duty collection is a priority area for CBP.

CBP has hired 60 additional auditors to focus on duty

collection.

Import Specialists will be looking for anomalies to

importers’ entry data.

China has lowered some tariffs on U.S. products, easing

concerns for some exporters.

Always use reasonable care when looking to change

classification, origin, value.


Section 232 – Aluminum/Steel

No changes to the current additional tariffs on the aluminum and

steel products.

Exclusion process is available – exclusion requests are still being

processed slowly.

Exclusion order is limited to party filing the request.


Additional Section 232 Actions

Autos and auto parts – currently under review by President

Trump.

Uranium and titanium sponge are under investigation.

According to government, there may be 8-10 more investigations

during President Trump’s tenure in office.


GSP - India

The United States launched an eligibility review of India’s

compliance with the GSP market access criterion in April

2018. India has implemented a wide array of trade barriers that

create serious negative effects on United States

commerce. Despite intensive engagement, India has failed to

take the necessary steps to meet the GSP criterion.


GSP - India

“GSP withdrawal will not have a significant impact on India's

exports to the US. The benefits in the absolute sense and a

percentage of trade involved are very minimal and moderate.

India mainly exports raw materials and intermediate goods such

as organic chemicals to the US", said Commerce Secretary Anup

Wadhawan in New Delhi. (India Times)


GSP - Turkey

The United States designated Turkey as a GSP beneficiary

developing country in 1975. An increase in Gross National

Income (GNI) per capita, declining poverty rates, and export

diversification, by trading partner and by sector, are evidence of

Turkey’s higher level of economic development.


GSP, cont.

By statute, these changes may not take effect until at least 60

days after the notifications to Congress and the governments of

India and Turkey, and will be enacted by a Presidential

Proclamation.

Possibility remains that the countries may be able to come to

some type of agreement to allow GSP to continue.

Copyright 2019Law Offices of Paula M. Connelly

60

Special 301 Process

Congress mandated this report in which USTR must designate as

Priority Foreign countries those with the most “onerous or

egregious acts, policies, or practices and whose acts, policies, or

practices have the greatest adverse impact (actual or potential) on

the relevant U.S. products.”


301 Process, cont.

Current focus is on IP protection and enforcement.

Also looks at market access issues affecting IP sensitive

industries.


Priority Watch List1. Algeria

2. Argentina

3. Canada

4. Chile

5. China

6. Colombia

7. India

8. Indonesia

9. Kuwait

10. Russia

11. Ukraine

12. Venezuela Copyright 2019 Law Offices of Paula M. Connelly 63

301 Process, cont.

The Trade Facilitation and Trade Enforcement Act of 2015 requires USTR to

develop “action plans” for each foreign country that USTR has identified for

placement on the Priority Watch List and that has remained on the list for at

least one year.

USTR may apply sanctions if a country fails to implement such measures

satisfactorily.

There could be more Section 301 cases similar to the China situation in the

future.


USMCA

Signed by 3 parties on Nov. 30.

Trade Promotion Authority requires the USITC to analyze the potential

effects on the U.S. economy.

There are reports that President Trump has indicated that he will soon be

presenting Congress with a draft of implementing legislation for

consideration.

Enters into force on the first day of the third month after the last of the 3

countries notifies the others that they have completed their domestic

legislative approval process.


USMCA, cont.

Biggest changes are in rules of origin for automobiles – must be

75% originating components (up from 62.5%)

Section 232 tariffs remain in place for steel and aluminum from

Mexico and Canada.

Democrats still object to certain parts of the agreement (labor,

enforcement, drug pricing, and environmental issues)which may

be a problem getting it approved.


Antidumping & Countervailing Duties

According to President Trump’s recently issued trade report, there

were 84 new investigations initiated in the first year of his

administration.

This is a 59% increase from the last year of President Obama’s

administration.

High priority area for the government, including CBP.


Antidumping, cont.

Administration is receptive to petitions filed by U.S. industries who

are being harmed by foreign producers.

In addition, the Dept of Commerce initiated its own investigation in

one case.

Importers need to be aware of new cases early in the process.


Enforce and Protect Act

19 CFR Part 165 describes the nature of EAPA investigations

Investigations are conducted by CBP’s Trade Remedy Law Enforcement

Directorate (TRLED)

New administrative proceeding to investigate allegations of evasion by

importers of the antidumping duty and countervailing duty laws

CBP can investigate allegations by the public or requests by other

Federal agencies with respect to the evasion of AD/CVD orders


EAPA, cont.

Multi-party proceeding: “parties to the investigation”

the interested party who filed the allegation of evasion

the importer who allegedly engaged in evasion

“On the record” proceeding

Both business confidential and public versions of documents

Adverse inferences

Established deadlines


EAPA, cont.

Interim measures can be initiated against the importer which can

result in ADD/CVD duties being assessed on all unliquidated

entries.

This can have devastating affects on a business who is

unprepared for the financial implications.

Many of these investigations begin with a CF 28 Request for

Information.


Best Practices

Keep informed of changes, updates.

Visit the CBP website – www.cbp.gov

Keep open line of communication with your foreign suppliers.

Document your import procedures.

Keep open line of communications with your Customs broker.

Review your entry documents.


http://www.cbp.gov/

QUESTIONS?




Lunch with entertainment provided by:

Goulding School of Irish Dance



Panel Discussion

Moderator: Peter Tirschwell/ JOC/HIS

Panel Members:

•Kevin Laffey- Director of Cargo Marketing, Massport

•David McLaughlin- COO & CFO, RoadOne

•Michelle Darling- Director International Transportation, BJ’s

•Richard Higgins- Head of Logistics, 1A Auto

•Stephen Aborn- Director, Aborn & Co.

•Richard Bulman-Global Business Development Manager, BOC

BREAKING THROUGH WITH INNOVATIVE


SOLUTIONS

Documents

BOC’S ANNUAL INNOVATIVE · 2017. “Trade growth is slowing sharply” –IHS Markit chief economist Nariman Behravesh. • “The container industry is suffering at the moment