Episode Transcript
[00:00:04] Speaker A: Welcome to the Freight Buyers Club. I'm Mike King.
Now, a year ago on this podcast, we asked whether the world was entering a new era of trade chaos. A year on and it doesn't feel really like chaos anymore so much as a a new, more fragmented normal, if that's not almost a cliche These days, the US has placed tariffs on 60 countries over forced labor and it's quietly rebuilding its own picture of who's actually trading.
At the same time, it's purging millions of importer records. In the process, the EU has ended its own duty free threshold for cheap parcels and is still watching Chinese platforms root around the new rule while pushing ahead with its own customs data hub to try to see it all a bit more clearly in future.
Neither is waiting on the other or on anyone like the World Trade Organization, the WT to agree on what the rules should be. So is this genuinely a new global trading order or is it the same old protectionism with a new label on it? And do we have the tech and the data to adopt all of these new changes smoothly? To help me work through it, I'm joined by three people who see this from very different angles.
First up is Stephen Tracy. He's General Manager for Customs product Europe at WiseTech Global, where he leads the strategy and rollout of CargoWise's customs capabilities across Europe's complex and diverse markets. An entrepreneurial business leader with almost 30 years experience in trade compliance and technology, Stephen built the customs software business, later acquired by Wise Tech, and he brings a powerful combination of hands on customer experience, commercial insight and experience in delivering technology that simplifies international trade. Welcome back to the Freight Buyers Club, Stephen.
[00:01:57] Speaker B: Thanks, Mike.
[00:01:58] Speaker A: Next up, we have a returning favorite. Cindy Allen is CEO of Tradeforce Multiplier and a former executive director at U.S. customs and Border Protection where she led the agency's ACE modernization program. She spent 30 years moving between government and industry. And if you want to know what's actually happening inside CBP right now, what rather than what's being announced? Well, honestly, you could do worse than give her a call. Welcome back, Cindy.
[00:02:25] Speaker C: Great to be back, Mike. Thanks.
[00:02:27] Speaker A: You're always welcome, Cindy. And Roald Geves is a professor in the Department of Transport and Regional Economics at the University of Antwerp, an academic director of the Master in Global Supply Chain Management at Antwerp Management School. But on top of his excellent academic background, Roel has also worked closely with multiple retailers and today is one of Europe's leading researchers with and what actually happens to cheap e commerce parcels once they Land on the continent. Welcome Roel.
[00:02:56] Speaker D: Thank you Mike, for the invitation.
[00:02:59] Speaker A: You're very welcome. I'm coming straight to you Rol in one minute. How does the global trading landscape look right now compared to five years ago? And where is it heading? Is this more fragmentation, more confrontation or do you see something different?
[00:03:14] Speaker D: No, if you look back on five year time, it's especially more fragmentation, more, more conflicts. And I sometimes Joe, I mean joke. It's not joke, not something to laugh about. But I always tell to my students that in the last five years things were happening that normally take 50 years and 50 years before minor things happened. I mean if you look back, the introduction of the, for example the maritime container in the mid-60s made that world started globalizing. The world was our garden.
Globalized economies, usa, China, Europe, all dealing quite well with each other. But since five years time, first Covid and then all the things happening with tariffs is really putting the whole thing under pressure. And we are now going from a globalized world to a continentalized world, back more to the continents, but potentially having huge impacts on inflation and that you will see in the next couple of months and years is my, my opinion.
[00:04:16] Speaker A: Yeah, it's almost like the before and after Covid, in a sense, Steven, you say data is becoming the new border. What does that mean for a shipper trying to move goods reliably?
[00:04:26] Speaker B: Thanks, Mike. So for most of my career the border was a place.
Now it is a data set. Goods move when the information behind them answer four key questions. What are the goods, where are they from, who is responsible and have the requirements been met?
If we look at the scale, last year Europe had 5.9 billion low value parcels were imported. That's about 16 million a day. That's 98% of what EU European customs officers see by count, but only 2% by value. The EU Commission estimates that up to 65% of those goods were undervalued. So the border is no longer a place, it is a data set.
Every freight buyer now clears goods into that environment. So if your invoice says parts and there's no origin of evidence, the transport can be perfect, but nobody can clear the goods in the appropriate time frame. So think about customs when you actually raise an order for your product, not when the truck is at the gate. Good information, bad early Is this cheapest reliability you'll buy?
[00:05:37] Speaker A: Exactly the sort of thing that Cindy gives a lot of advice on. I know we're going to get into that in a bit more depth shortly, Cindy, but before we get into that last month we had the very somber 25th anniversary of 9 11.
In many ways, that pushed US trade policy towards national security.
But you've said the priority now is economic security, as it's being told expressed to you from the likes of CBP and the administration.
So before we get deeper, what does that actually mean for how forwarders and shippers do business?
[00:06:09] Speaker C: I think it, you know, to. To build on what Steve said, it's the data understanding where the data came from, but also where the goods themselves came from, not just that last supplier point that we've all been used to. You know, we're used to knowing what comes across the border and where it came from. But what we need to know now is much more in depth. How was that product built? Who built it? What borders did that good move in the past?
So it's understanding your product level all the way back to the origin of the components, which is a major change.
And if you look at, you know, 9 11, as somber as it was, it really drew the country together and helped us all focus on physical security. And everyone was willing to play their part and give more information about those parties in the supply chain that were actually touching the physical goods.
They're trying to affect a similar change on an economic environment, on a commercial environment, without really having a triggering event like 9 11. So this has not been as accepted as some of the security initiatives in the past, but it all centers around the ability to have that data.
[00:07:28] Speaker A: Sydney, I was listening to one of your own very excellent trade podcasts, and you were explaining that at a recent CBP conference, you were being told that an importer now means understanding geopolitics and the Trump administration's intent, rather than just tariff classification. And you were getting this message that trade is a team sport.
And I was like, what does that mean? If the US Is one team? And that was my understanding of it, who's the. You have to have an opposition, right? Is it Canada? Is it the eu? Is it China? Is it everyone?
[00:08:03] Speaker C: Well, I think it depends on the day and it depends on the mood of our president. Unfortunately.
We've definitely watched where the US has pulled into almost a protectionist measure. Like you said, we are talking about massively building up our own industries within the US and protecting the domestic producers that are here, spurring investment.
But what does that really mean? That means that we in the US are the team and everyone else is the opposition.
And we have to determine how we're going to deal with that opposition, what tools we have, what plays do we have in our book, whatever sport you want to analogize with that. But you know, what. What plays do we have? What can we do to ensure that that opposition team moves in the way that we want it to move in? And the overall impact is that the administration wants to spur investment in the United States. And, you know, certainly the tariffs and some other trade actions, we've seen that.
Some are a little bit nonsensical, in my opinion, and we'll get into that later. But some of them, when I look at all of the different authorities that the Congress has given the President, 232. Section 232 authorities which are to help national security, some of them make sense to me. We saw in Covid some of the pharmaceuticals that we could not import. We could not get them into the United States. And I think, similarly, other countries saw that as well. Well, that's kind of a big deal. We need to make sure that we have enough medicine, enough goods to take care of the people in a time of economic and major disruption like that.
So Those targeted Section 232 tariffs kind of make sense to me. The other tariffs, you know, kind of don't. But what does that mean for an importer of record?
An importer of record in the United States takes authority for everything it imports. That means they certify to the government that what they are, are actually claiming is accurate and true to the best of their ability and belief. And that to the best of their ability and belief has always been kind of the basis of that understanding. And CBP is really seeking to change that. They want to ensure that the importers of record who are bringing goods into the United States not just know what those goods are, but how they were made, who made them, how many borders they crossed, what the value is, what the country of origin of those components are. And that's where it gets really complicated for an importer, because that's way beyond the information that they've been required to have. It's beyond the information a lot of importers even have access to. A lot of those downstream suppliers don't want to give that information because they're afraid they'll lose business. There's real business concerns, real confidentiality issues.
So we're looking at a requirement or desire to have a requirement from the government that these importers of record take a larger role in the entire supply chain. And as shippers and as, you know, freight companies, you have to make sure that your importers have that information. So if you're a shipper, you want to make sure that you've gathered as much information as you can and given that to your importer client. If you're a freight forwarder, you want to make sure that all of that information is there. Because the worst thing that can happen is those goods get to the United States, they're held, it costs your shipper, it costs your importer a lot of money. It's tying up equipment in the United States, it's tying up space at the carrier's facility.
So understanding that data overall is going to be really key. And that's really where I see the massive change that's coming. And how we can meet economic security is understanding where all of those goods come from, how dollar they produced. Are there enough goods coming into the United States to meet our demands? And what does that mean for us as a country? Do we need to then supplement that with domestic manufacturing?
[00:12:24] Speaker A: I'm sure we'll get Stephen to come in later on how you look at upstream risk and supplier risk. But just if we can zoom in on, let's call them tariff plays, to use your team language.
In July, we had some big changes in tariff policy. Just for someone who maybe gets a little bit confused or hasn't followed the maelstrom, the minutiae of U.S. trade policy and tariff policy, what are the key things they need to know about what happened in the summer and what's in the pipeline.
[00:12:52] Speaker C: So the President has four different authorities that allows him to assess tariffs. IEPA is not one of those four, however, that was used. That's why it was overturned by the Supreme Court. So IEEPA is not a true authority that was given to the President to actually assess tariffs. Section 122 is a different type of authority that was given to the President. It has a cap 15% for six months. So when IIPO is found to be unlawful, the President immediately assessed section 122 tariffs. When that ran out, those section 122, he reached into another authority that he has, which is section 301. And in using 301, there has to be a basis for that assessment under 301. And what they used is forced labor. Section 301 for forced labor, he assessed it on over 60 countries at a rate of 10 to 12 and a half percent, with some caveats for certain products and some caps for certain countries.
So what does that mean? That means if you're importing into the United States and you're from one of those countries, you have section 301 on top of other assessments.
The other two assessments are section 232, which I talked about, that's targeted for national security for specific industries, and then a new section that had never been used before, which is section 338.
That is the fourth authority that was given to the president. And he assessed that against Canada, of all things. So, you know, you might think that, you know, Canada, we thought they were in our league. You know, Canada, Mexico, US We're a little league. We might have had some, you know, rivalries, but together we all come together.
And this was really a shock to a lot of folks in the United States and in Canada, but it was an escalation of some of the provincial tariffs, some of the limitations on liquor by some of the.
The liquor control boards on the provinces and Canada and what most of us have seen as an overreaction to what's going on in Canada.
I get a lot of questions. Why? Why Canada? What did they do to us? They're very polite people. Why them? And really, you have to look at what this administration wants out of Canada.
It wants Canada actually to limit the amount of component goods from other countries.
So at the beginning of this administration, they talked about higher walls around the North American manufacturing.
So they wanted to limit the inputs from other countries into the North American manufacturing base so that they could revise USMCA, U.S. canada, Mexico, trade Agreement to limit some of the inputs to encourage, again, domestic manufacturing within North America. And it seems like Canada hasn't really gone along with that. They've looked at their own economy and said, this is not really something we want to. This is not an action we want to take.
So what's happened is you have this sort of retaliatory action. And right now, you know, we've seen trade dip between Canada and the U.S.
not to the degree that everyone thought, because Some of these 50% tariffs that were put on under Section 338 aren't something that we import a lot of into the United States. But it certainly has had the effect of chilling trade. So we have, for the first time in the history of the United States, we have tariff actions on those four sections. 122, which is gone now. 232 on specific products. We have section 301 on forced labor, and we still have the section 301 on Chinese goods as well. Then you have 338 on Canada. So a lot swirling around, certainly tariffs. Yeah.
[00:17:05] Speaker A: Stephen, where does trade fragmentation create the most practical difficulty for European importers and exporters? And what should freight buyers change about how they do business or their strategy.
[00:17:17] Speaker B: Okay, Mike, the difficulty is not at the border, it's in decisions that are taken months before the goods arrive.
Tariff change, as we know, they move your landed costs and they impact your cash flow.
However, sourcing origin raises new origin questions.
U.S. imports from China fell 29% last year, but that trade did not vanish, it moved. And every move now needs new origin. Evidence has to be sourced, but very importantly has to be verified within that environment.
My advice to freight buyers is price the whole route. World bank research estimated that an extra day of delivery before a shipment reduces trade by 1% on average. And that's like moving your partner 70 kilometers away.
So it is a concern in relation to moving, verifying when you actually change your data to actually verify that or change your source supply. Verify the origin and do that properly because it does have a significant impact. Landing cost we know about, but actually having the full impact with documentation, charges and everything that goes that needs to be done. So sometimes the fastest freight route is not the most economic freight route for those involved in the industry.
[00:18:44] Speaker A: I just want to zoom in on one particular reform we've seen in Europe echoes what we saw last year in the US. The end of de minimis exemptions On 1 July this year, the EU brought in a flat €3 customs duty on parcels under €150 value.
We saw a load of front loading, air cargo volumes and rates spiked and then slumped. What is that? This is a temporary charge, right? It's a three euro temporary charge.
But how should businesses plan? Well, how did business plan for this and how do they plan beyond this? Interim arrangement.
[00:19:18] Speaker B: Yeah, interim arrangements. As we know, within the tax situation, if we go way back, value added tax was a experimental charge way back. So it's very hard to tend to stick to be moved away in that regard. But the three euro in my view is not a price, it is a classification test. The duty applies per tariff category within a consignment of €150 or less. So a phone case and a charger and one box, that can lead to two charges and not one. So that test now runs about, based on last year's evidence, 16 million times a day, because that's how many low value parcels Europe imports with an average declared value of under €9. A €3 duty on a €9 item is not a rounding error.
And a second category in the box would also double that.
So the unglamorous work is suddenly commercial. Accurate descriptions, correct classifications, a landed cost the customer can trust at Checkout and not get unexpected charges post facto. I think that's important. Air freight volumes and rates roll may have a better view. But on planning, I wouldn't plan just around the interim. As you mentioned, three euro. It's around the direction the interim mechanism gives way to the normal tariff and duty on low value. E Commerce is now the policy and closer oversight comes with that.
[00:20:52] Speaker A: Just a two pronged question, Stephen. Does anything around the implementation of this policy accelerate the shift towards, let's call it like a genuinely data led model for European customs, something we've talked about before and more generally. Where is EU customs reform actually up to including the Customs Data hub?
[00:21:13] Speaker B: If I could answer, and it's a two pronged question. There are two clocks. If I could use that analogy. There are two clocks running and business need to watch both of them. The near one says November.
The product identifiers become mandatory on the relevant import declarations and a separate €2 union handling fee is currently scheduled for the 1st of November. That is practical work on product records and who charges to what to whom. And it's only three weeks away.
The FAR clock says 2034. The reform completed its approvals in September and today an importer trading across Europe deals with 27 administrations and the commissions count. There's 111 separate IT systems. The Customs Data Hub replaces that with one interface where you supply information once and reuse it.
By the Commission's own estimate, there were savings of up to 2 billion a year for member states and 2.7 billion euro a year for business.
E Commerce will use the hub from July 2028 and we speak at this moment in time every trader until March 2034. So in between traders have to live in both worlds and the homework for both clocks is the same. Know your product, know your supplier, have one person who can stand over that data. And we'll come back to that later in our discussions. And that improved clearances clearance today and exactly what the hub will ask for later.
[00:22:51] Speaker A: Where can AI make any of this? Or where can AI make customs work better with all of this going on? And where do you think that decisions still need that human or expert judgment?
[00:23:05] Speaker B: The useful applications for AI are not overtly glamorous, if I can say, but they increase in the truth and the verification that is required and I can be concrete. There are a lot live in our platform today. We have various AI features running in the platform. Turning a commercial invoice PDF into a structured data that the declaration can use and the operator can check it side by side with the source. That's really important.
Walking a broker through a classification, asking the questions a senior broker would ask and then presenting a code with the justification and the alternatives. Researching a commodity line, the goods, the parties, the control lists and returning risk rating with a reasoning written down. So you have a full audit trail matching suppliers invoice to the job. So finance only touches by exception and manages by exception.
So this is the frame we operate in. So the European Commission are estimating 65% of low value parcels are undervalued if most of what reaches the border is wrong in relation to its data compliance. The first job for AI is not necessarily speed, it's truth and it's actually verification of that. A fluent wrong answer is the most expensive thing in costops. So AI reads researches, writes down and a person makes a call and we call it a system and we have to be very careful with that. That it is assistive technology in relation to what it can do and we judge any deployment on less rework and fewer avoidable errors. Manage by exception is really important.
[00:24:53] Speaker A: I just want to get into Stephen, a little bit about your strategy here. Wisetech bought FRDM AI in July and I believe the idea is you roll this into VerifyWise, your compliance and risk product.
What are you building with Verify Wise and where does FRDM help businesses understand risks beyond their immediate suppliers? It's really what we were talking about earlier with Cindy.
[00:25:17] Speaker B: Sure, most businesses know their supplier, but far few know their supplier's supplier. McKinsey's latest risk survey puts it precisely 95% of companies can see their Tier 1 supply chain risk, but only 42% can see Tier 2 or beyond. The gap is where the risk lives and increasingly where the law is starting to look. And that's really important. The published direction for Verify Wise is to bring supplier risk intelligence together with our trade compliance capability. So decisions about who you trade with and the decision about how you clear the goods come from the same picture and the same single source of truth, which is very important.
FRDM brings the ability to map relationships beyond direct supplier and surface risk further up in the chain.
So if we picture a buyer who's sourcing from a supplier they've used for years, a Signal 2 tier should trigger a question and a request for evidence before the order goes in and not after the shipment has been detained. So it's about advance checking and advance cargo screening in relation to what we're doing to ensure that the goods move correctly through the supply chain. So we so the value it tells you where to look. It supports the business judgment. It doesn't guarantee compliance. Staff responsibility still vests and stays with the business.
[00:26:48] Speaker A: Cindy, can I bring you back here? We touched on it before. These forced labor tariffs introduced in July. They effectively replaced the IPA tariffs Supreme Court struck down earlier in the year. Chris has pointed out that the rates, those tariff rates, they're not that much different to what we had under IPA by country. And they don't seem to tally with what most normal people would sort of think about as the forced labor enforcement record of that country is there.
You've been in these talks with cbp. How do they explain this tariff? Or is it just how it feels to me, which is the AIPA tariffs dressed up with a new label?
[00:27:27] Speaker C: I think most of us believe it's just ayipaterifs dressed up with a new label.
There is a current court challenge to the section 301 forced labor tariffs and that looks at two different things which I think are the really all the questions that we have. One is the authority that the government has to assess broad scale tariffs on an entire country for failure to enforce forced labor within their own country and does not tie it specifically to an importation into the United States. So the fact that we said you country act, you have 10% on all of your goods because you aren't actually enforcing forced labor requirements within your country, seems to be a vast overreach of the authority that Section 301 gives the president. So that is an open question. The other is the amount of the assessments. If you have a 10% or a 12.5%, which most of them are, how did you come at that calculation?
How is that rooted in the data that you have? So that that can be prov proven as the impact to US Businesses, which is what this is supposed to cover. Actually it's supposed to cover the risk that US Businesses have in competing with countries on products that are perhaps produced with forced labor. And there just is no real visible correlation to any of that data back. And Mike, if I could just touch on the AI question really quick.
[00:29:04] Speaker A: Sure.
[00:29:05] Speaker C: You know, in the U.S. aI is a very hot topic. And I think it's a hot topic because there was a customs ruling that came out from US Customs and said how importers and customs workers could actually use AI, which was a little bit more limiting. They have since come out and talked about the fact that AI is a very useful tool. And as a matter of fact, I think the government is one of the largest users of AI in the U.S. certainly U.S. customs and Border Protection. They have taken 30 years worth of ACE data, which is the system that collects all the international transactions in the United States, put that into an AI tool and done analysis and mapping. So essentially the US Government has a a global map of all of the transactions that are coming in and out of the United States and some based in foreign and we're seeing a lot of requests for information go out for cbp and some of us believe it's to fill in that map, to fill in the gaps. So CBP has come out and said, hey, we understand you're going to use AI. We use it ourselves for analysis. We think there's a lot of data there, but you do have to have that human in the loop. So I think it's just really important that we understand the broad scale use of AI tools by the government themselves.
[00:30:35] Speaker A: Thanks Cindy Roel I'll just bring you in on this. The view from Europe how when you're talking to people in the business or policymakers or maybe how you're explaining it to your students, how does this look being tariffed by the US around forced labor?
And a secondary question.
Let's call them Chinese E tailors. I've faced quite a few accusations over the years about forced labor in their supply chains, including allegations tied to Xinjiang cotton.
With the EU's own forced labor regulation and corporate sustainability due diligence directive coming into force, is human rights exposure shaping up to be a bigger long term threat to these platforms European growth than maybe the de minimis duty ever was? If we throw that as a comparison
[00:31:28] Speaker D: to come back on your first question, so how in Europe it is looked to that forced label thing labor thing. Now you need to know that most Europeans and also the European Commission and European Parliament they reacted that they are not completely not happy with it it and you need to know, I mean in the old days we always joked that USA innovates, Europe regulates, Asia replicates. That last one is not anymore true, they also are very innovative. But it's still a fact that in most cases Europe is quite heavy with legislation looking to gdpr all kind of acts, very strict, very legal wise heavy one. And indeed if you look to our legislation, we are already more protected in forced labor than in the usa. So let's be honest, the forced labor legislation, it's just another way of let's say putting an extra layer on complexity, putting an extra layer there and making sure making sure as well that some of the Chinese players you were referring to that they would not use Europe as an Import base for having a local stamp here and then bringing it in. But overall in Europe it's considered a bit as just an extra taxation method more than the legislation on itself. Because if you dig a bit deeper, the forced labor, yeah, you can say a lot about it, but Europe has stricter rules there. On your second question, will in the future, like platforms like Dmushin and some other ones, will the forced labor and all the directives in relation to it, will forced labor gain more and more impact on these platforms?
Potentially, yes. The big difficulty nowadays with those legislation on forced labor is that you are fully dependent on whatever you put in the legislation, on checking the local activities and proving that. And you can make a very clear regulation and legislation, but proving it. And afterwards, if a company goes to court and says I was not aware or it's not true what has been said there from audits or whatever, it's always very hard to win that game. In my opinion, in my pure opinion, if it would be really not about tariffs, but about product quality, because that's about a bit of thing you speak about product quality and labor, forced labor, etc. If it would really be about the product and product quality and product safety, there is a way easier and you don't need to make changes there. Both in USA and Europe we have very strict regulation on chemical contents of products. If you would check these when arriving, you can easily immediately go and stop and block imports there. But in my opinion, the forced labor legislation, is there a bit more pressure mean to make sure that they can control it a bit and that companies try to be in line with it? Because I mean, the legislation is one thing, but proving that there would be forced labor, that's another ball game and not that easy, to be honest.
[00:34:47] Speaker A: Looking just beyond forced labor as well, for a wider view, you've got this foot, one foot in academia, another one in retail. Is there any precedent for this rate of change of these rules and regulations? And how are retailers and other shippers coping or how can they cope?
[00:35:02] Speaker D: Well, what you need to know is that on a global scale there are not that many examples, let's be honest, the last 10 years. But in Europe we had a kind of similar example, which was the Brexit. In a certain way, it was not fully about taxation, not the Brexit word, it was not the taxing system, but it was more the paperwork. And what is allowed, what is not allowed? Can that driver leave? Can it not arrive? Can it? Is it not okay? Is it not okay?
So that's a bit but that was, let's say a small toy or a little minor issue compared to what you see happening now. But it's in a certain way a bit similar. But you saw also retailers there not being sure if products would arrive, not arrive, what would be the taxation scheme, etc. But it's not the same ball game, but at least it's a bit similar.
[00:35:53] Speaker A: So bigger Brexit, Big Brexit. I don't know, we'll have to tag this somehow. I think we'll have a lot of commentators in the UK wouldn't like the idea that anything could could be bigger than Britain or Brexit.
Let's looking at China, we've got these platforms t machine AliExpress, take your pick. What's been the response from Chinese customs or Beijing more broadly? Has there been any sort of retaliation or are we expecting any.
[00:36:17] Speaker D: Yeah, so they reacted of course that they don't like that setup.
They don't like the fact that specifically Chinese products are text or that they are looking into Chinese products.
But one thing the Chinese itself, they did not do big changes there. I mean when the USA taxed electronics and that kind of stuff, China immediately came with a taxation as well on certain American products and for example on iPhones and that kind of stuff or the export burns. But in this case China did not react fully because of course what is another thing they know as well, if you ban all these Chinese cheap products, they know as well that in the whole world and especially in the USA nowadays you will see inflation increasing and they just think, let's be honest, if they don't want to have the cheaper products, fine by me. And have the President waiting a little bit more and going to higher inflation, it will solve itself.
[00:37:17] Speaker A: Interesting way of looking at it. How are the E tailors responding? We've seen a bit of that and we've discussed it on this podcast what happened in the US as well and how those supply chain strategies changed around after the end of de minimis exemptions there. We've had a similar sort of rule change in Europe on the 1st of July. What's been the reaction from those E tailers in terms of supply chain planning and serving Europe?
[00:37:41] Speaker D: Well, what you saw of course in the US was that it was more at a certain moment, USPS the United States postal services at a certain moment they had to call two or three times back a press message stating we will not not accept any more Chinese parcels then saying yeah, we will accept again, not accept. So it was in the usa it Was all of a sudden and there were already some preparations. It was expected that some was going to happen. But it was immediately, at a certain moment, Timo and Sheen at the serve, the moment they communicated. We will stop for a period shipping to and from. I mean to the US In Europe, of course they could prepare themselves. Sheen opened a huge warehouse in Poland.
Temu signed with almost every postal incumbent player in the whole of Europe. Contracts, renting spaces. They prepared themselves quite well. There was almost not one day when Temu Ashin products were not available in Europe, while in the US it was all of a sudden and a stop. But let's be honest there as well. The moment that Shein and Temu were stopping imports, you had Amazon hall which launched the. A kind of similar solution with also Chinese products, but with the Cohort stamps, let's say that way. But in Europe it was well better planned in that way that there was a bit more time and that it was known that the introduction would take place as from July. And so they prepared very well.
[00:39:06] Speaker A: So this is like a new approach to last mile logistics is more ocean. It's fulfillment from Europe.
[00:39:12] Speaker D: Yeah. So what they did, they did. What they did first was for sure making sure that all the inventory from China was shipped before June, that before June, July, that the volumes were already local warehouses. And nowadays you see more movement where it is moving partly to maritime indeed like traditional setups, like other retailers are doing, like H and M et cetera. The other thing what you also see is that and that you see for example in the numbers that were published by here in Belgium, by Liege Airport, one of the the biggest freighter airports for Chinese E Comm. Is that you see the number of cheap or let's say parcels below €150, that volume is going down and drastically. But the number of let's say bigger shipments above €150. So under traditional taxation schemes that is going up. So you see there as well that they do more combination. More combination consolidation and they play with statistics, AI and forecasting. That type of product should follow that flow. That type of product should follow that flow. But they prepared quite well.
[00:40:22] Speaker A: The old cliche cargo always finds its way. Just getting some sort of context around this. You've said it might have been when we were both in Liege for the E Commerce conference. In fact, I think you said that European retail risks following the same path as European car making.
So essentially losing on cost and then losing on quality too.
Do you still feel that way and do you think these policies this. I guess let's call it protectionism. Is this good for the eu? Is it good for EU citizens? Is it good for inflation? Is it good for globalization or global trade as a whole? What's your personal feeling?
[00:40:59] Speaker D: Well, to be honest, to endo on your last part for the inflation. We all see what's happening with inflation nowadays and in the old days when there were cheap imports, we had far less inflation, let's say that way. So it's impacting anyway.
But indeed, if you look a bit from a bigger perspective as professor supply chain, what you see and that's something Chinese players are very well in what I call building up ecosystems. They build up the whole production of the raw materials, the production of the good itself and the logistics and the supply chain and the infrastructure all around it. In Europe we used to do that. If you look to the chemicals, to the car industries, we used to do the same. We built a small pieces, the whole car, the whole infrastructure around it. But as from let's say 10, 15, 20 years ago, we started to offshore the small parts. USA did the same by the way, offshore the small parts and we keep the value added, the big stuff, the quality stuff. But you see now that China is also growing in these, these parts as well. So on the long term that's something that we should be aware of that competing on the low quality ones with China is today very difficult because they just operate cheaper. But on the long term we might lose as well, the more quality basis as well. Because if you look to a supply chain, to be honest, I tell to my students whether we like it or not in Europe, but if we look to the supply chain of shein how they produce their goods and I'm not speaking about quality, but I'm speaking about the efficiency, the designs, the speed of production and the speed of shipment. That's one of the most agile and well thought supply chains ever built in the world for apparel and clothing. So yes, we should be aware that we are there a bit stuck in the middle as Europe and there is a risk there that we both might lose. We already lost the cheap production but that we might be under pressure as well for the more quality basis as well.
[00:42:56] Speaker A: And just a quick one roll before I want to ask Cindy about tariffs again. But where do you think global customs reform is actually going with all of this? I mean, are we seeing the wto, the World Customs Organization? Are they becoming redundant, do you think?
[00:43:09] Speaker D: What you see as well, and that we already touched upon that a bit earlier, but the whole customs reform will be potentially A bit more unionized based or union, I mean by European Union, usa, China, all that kind of stuff. And they will try to solve it within their own structures with a lot of data forecasting, the European Union doing the full reform their database. But on the long term it might be indeed a tricky part for the World Trade Organization because I have the feeling everybody is doing a bit what they try to think is best for themselves, but not always looking to the bigger picture. So that's a risk. Yes.
[00:43:47] Speaker A: Cindy, we mentioned Brexit there. One of the fallouts that really struck me around Brexit was it was SME importers and exporters that actually found themselves the least able to cope with things. The increased complexity they didn't have, the economies of scale to manage the extra paperwork and get it right consistently. How's that playing out in the us Particularly around managing new tariffs as they come in and getting refunds on those that have expired?
[00:44:13] Speaker C: Well, I think you're seeing a lot of people in my industry, a lot of jobs opening up. When I go on LinkedIn every day I see new jobs posted for customs and trade compliance individuals because companies are understanding they need that expertise in house. Larger companies have always had that. They built their trade compliance programs over the last 30 years. But some of the medium and small companies have actually relied on their customs brokers or their freight forwarders to help them with the compliance aspect. And now they're understanding they're going to actually have to make that investment themselves and bring that expertise in house. It's been more costly. It's driving the cost of goods up because it's more costly. Not just the tariff tariffs but the processes and the people to actually manage the different tariffs. It's not like there was just, you know, a fundamental, oh, we're changing our structure to be this and we're going to collect this amount.
It's really complicated in understanding all of the different authorities, all of the different acts, all of the different processes that the government has imposed and then interpreting that into what does that mean for my product.
I was joking at a conference this week or earlier last week that, you know, every time there's a truth social post or something comes out, Customs brokers get 20 to 30 phone calls within an hour. How is this going to impact me? What's this mean? Is that going to mean that I pay more? Please help me understand this. And we normally don't have the details yet, so it's been a huge impact on those smaller and medium businesses. Customs brokers have stepped up to the plate and helped. And consultants like myself have tried to fill that gap on the refunds. This is where we've seen it have a massive impact, actually. If you were a small or medium sized importer and paid IEEPA money in, and you filed in that first capability, very simple, we paid this, we want our money back. That was less costly. But as we've gone along and those first types of refund processes have closed, it's become more complicated and more costly. Many times involving attorney fees, filing in the Court of International Trade. So many of those companies have looked and said, you know, I'm gonna, I paid $30,000 in. It's gonna cost me $30,000 to get that $30,000 back. The juice is not worth the squeeze. So we're just gonna wait. I think one of the great things that we heard late last week was the Court of International Trade, which has jurisdiction of all of the tariff assessments and challenges, actually certified a class action for those small to medium importers. We don't know what that mean yet. Means yet. We don't know how an importer is going to be actually included or not included in that. We do know in that order. They said anyone who's filed a court action is excluded, but it seems that everyone else is included. So this might offer some relief for those small to medium sized importers and hopefully they'll just be able to get the money that they've paid back in their bank accounts.
[00:47:29] Speaker A: Stephen, when a customs rule changes at short notice, which seems to be happening more and more frequently, what needs to happen between the announcement and maybe a software update that works?
[00:47:42] Speaker B: Maybe just before I address that, just what Roel and Cindy said, just to maybe come in on that, the pivot to do with legislation and how, as Roel mentioned, how large E tailers have actually changed from B2C to B2B2C. So they're actually a very significant shift in a very fast time frame for different requirements within the supply chain. So all of a sudden warehousing and inventory management becomes part of the portfolio, be it to their service provider or be it themselves if they take ownership as importer of records. So having the. Again, just pulling on the thread that's going through this whole podcast is the single source of truth. And having the data and the upstream data in a precise format and in a verifiable format and in an accurate format as early as possible allows that pivot. And it is a very significant pivot, and I think it's backed up by European Commission statistics In relation to the fall off in relation to what would be referred to as e commerce H7 messages, there's been a very significant drop off on those, but Europe has not stopped buying. Okay, so it has been just changed the direction but in relation to the change that you've asked. So the Global Trade Alert counts more than 3,000 harmful trade interventions per year. There's a massive increase from 2017, it was only 600 and that's more than eight a day. So you can't build software on announcements.
So the announcement starts the clock, which is very important. The legal text would indicate what you need to build. The measure is very important and its effective date. And then the implementing instructions, they often arrive after the headline. So the first job is scoping and which goods, which countries, what exceptions, what happens to the goods already on the water. So you need to run scenarios in relation to what happens there and then what kind of change it is. You know, to Cindy's point, that knowledge and that sort of intellectual capital from trade compliance is extremely important and it's not necessarily being outsourced now as it used to be. I think the shippers of the goods and the brand owners and the beneficial cargo owners are looking at that as a core competence. But again, if the change is a tariff data change or a tariff update, a calculated change, a new declaration field or a workflow field, there are lots of different implications and jobs associated with what happens. We as a service provider we need to be up and high and early in relation to what happens. And based on our membership of various trade bodies, it does help us getting these alerts. And we're looking at the scenario testing in relation to what may impact and what may happen. We get notice out to our customers advising them in that particular space of what impact that can be. So our aim is to get the correct rule live when a legally applies with a clear record of why.
[00:51:02] Speaker A: Thank you, Stephen. Yeah, single source of truth, I suspect that might come into the question. I would like you all to ask, if you don't mind, but starting with Stephen, five years from now, can trade remain operationally connected even if governments trade policies continue to, well, diverge, evolve at a faster rate than we've seen previously?
[00:51:25] Speaker B: Yeah. In looking at that, last week's World Trade Organization numbers showed why. I suppose so. Despite US tariff Middle east conflict and disrupted straight hormuz situations that we all know about, the WTO revised its goods trade growth to 3.9% this year. Okay, so trade routes and the trade reroutes and the plumbing holes so as you said earlier, cargo always finds a way and that certainly happens.
Rules will diverge.
Data standards do not have to. And if we think about it, the same data is required in every trading party in the world. And that's really important. Origin, classification and valuation are the three legs to really good customs compliance. They are absolutely key and they are standard across everywhere. So governments can disagree on tariffs, but they still need to agree on how to identify product name the parties reliable exchange of information.
And the test for a business, I suppose, is whether it can reuse that information across the markets and see what extra ones are required. So diversion is manageable and not every new rule is a crisis.
[00:52:44] Speaker A: Rol thoughts?
[00:52:46] Speaker D: Yeah. So when you're looking into it, if you look into the next, I mean five years, will they continue to diverge? I think they will keep on diverging. But, but I think more and more countries and nations and unions and also the US they will see that at a certain moment there might be a limit on how much you can diverse. Because let's be honest, the appliances where we are doing this podcast with or our cell phones, they are all coming from one certain area in the world, whether we like it or not. And if we want to still receive them in the future, probably there will be a limit. If you keep on diverging and they are costing so much at a certain moment where inflation will skyrocket, at a certain moment there will be a moment where everybody will see that it will slow down a bit. But diverge, yes, but potentially at a slower speed depending on what's happened in November, after elections.
[00:53:42] Speaker A: After the election. Cindy?
[00:53:44] Speaker C: Yeah, so it's funny, Mike.
I think one of our first conversations was on the demise of de minimis where we talked about the E commerce industry moving from B2C to B2B2C and it's just kind of of been funny to watch watch that happen in real life.
You know, I think in the US the only constant is change. We'll continue to experience that change through the midterm elections, through the next presidential election.
I look at the executive order that was issued this summer on enforcement and I look at that kind of from the lens of what's happened over the past 40 years.
Many of those things that came out in that executive order from the president giving customs new direction and new author are things that they've wanted for two decades. So I think we'll continue to see the US go to a more enforcement oriented posture, a more protectionist posture, and watching the rest of the world kind of Adjust to that and adjust trade flows. Like my fellow panelists have said here, trade is not going down. It's just maybe not happening in the US to the degree that it did before and it's definitely not the same manner that it has before. And I think we'll continue to see this rapid change over the next few years.
[00:55:04] Speaker A: Yeah, and you know the last podcast that we put out as well as a containerization special and the forecasts for container trade, they're still pretty strong this year and next year.
Just as we tie up. Guys, a quick one.
In the framing of our conversation today about the future of trade and customs, what's the one thing a business this needs to get right when we look forward over the next year or. But you can go a little bit further than that as you'd like.
[00:55:31] Speaker C: Cindy, you have to know your data. You gotta know your data, collect it, put some analysis on that. Because if you don't know your data, customs does, and not only U.S. customs, but they're sharing that information globally with other customs authorities. So I think we're gonna see a more coordinated customs enforcement opportunity on a global basis.
[00:55:56] Speaker A: Big customs as big brother globally. Ro.
[00:55:59] Speaker D: Yes, I'm thinking next to indeed what Cindy said. I also believe from a supply chain point of view in what you call optionality. In the old days it was efficiency and cost. One flow from China to Europe, from one China, from China to usa. One focus, one flow, all lean, all efficient, low costs. I think to the future with what is happening, the divergence of legislation and customs. I think optionality. What if that country does this? What can I do? Optionality in supply chains. More expensive, more complex. Yes, but more options to still ship and receive.
[00:56:37] Speaker A: And Steven to finish.
[00:56:39] Speaker D: Sure.
[00:56:40] Speaker B: Focusing on the data side of it, I do think responsibility is really important. So. So within an organization and a freight buyer, give one person clear ownership of the quality of your product and supplier information, not a committee. I think that's really important.
Start with your most important products, your most important lanes.
Can you stand over the classification in origin? Can you get the supplier evidence when you actually need it? And does the information reach the person preparing the shipment without being retyped three times? So my pivot on the single source of truth is really important. So get the right systems, get that data in and make someone responsible for verifying that that data with using correct systems that can aid and assist with utilizing AI and utilizing other tools in assisting that your data is as clean and as verified as possible.
[00:57:35] Speaker A: Steven Tracy, Cindy Allen Rolgavez, thanks so much for joining me today on the Freight Buyers Club.
[00:57:42] Speaker C: Thank you.
[00:57:43] Speaker A: And that's it for today. As ever, thanks to Karen Ball and Tom Matthews for their excellent production skills. If you enjoyed this episode, please subscribe wherever you get your podcasts. And, well, why not share it on social media or like or comment? It all helps us keep providing you with free business takeaways. Am I king? This is the Freight Buyers Club. See you next time.
