CBP SENDING LETTERS FOR UFLPA

CBP made news this week as the ramp-up to the enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) signed by the President late last year comes into force on June 21st.

CBP posted an announcement on April 12th of its intention to issue “Known Importer Letters” before June 21st, the effective date of the rebuttable presumption under the Act. As a reminder, goods that are mined, produced, manufactured wholly or in part in China’s Xinjiang Uyghur Autonomous Region (XUAR) will be considered by CBP to be in violation of the forced labor statute under the UFLPA and prohibited entry into the US by the Section 307 of the Tariff Act of 1930.

There are certain circumstances where exceptions will apply. In these cases, the CBP commissioner will determine if:

The importer has fully complied with guidance to be established under the UFLPA and has completely substantively responded to all associated CBP inquiries.
By clear, convincing evidence, that the goods were not produced, wholly or in part, by forced labor.

CBP will also be issuing letters to parties identified as having previously imported merchandise that could be subject to the UFLPA. Those parties are encouraged to examine and address any forced labor issues in their supply chains with due diligence.

Regardless if they received the letters, the announcement also states that all importers are expected to review their supply chains and institute reliable measures to ensure that imported goods fall under the UFLPA guidelines. So if any goods are wholly or partly made with convict labor, forced labor, and/or indentured labor, including forced or indentured child labor, these goods are to be examined and addressed accordingly.

Intending to strenuously enforce the UFLPA, CBP’s issuance of “Known Importer Letters’’ serves as the latest reminder to importers that they are expected to put into practice supply chain programs that address raw material acquisitions, including the production process.

The agency held a hearing and solicited testimony a week ago on April 8th, and June 21st is fast approaching. Importers who have not already done so should urgently communicate with their suppliers and ask whether or not the goods they are purchasing are manufactured, partly or in whole, with anything sourced from Xinjiang province and risk being detained or denied entry upon arrival.

If you are uncertain as to where to start this process, please contact your Future Forwarding representative today and we can help you get to the source and clarify anything that may be prohibiting you from getting answers.

Omicron Variant Bullrushes China

While China’s zero-tolerance policy is among the strictest approaches in the world, a recent surge in Omicron COVID-related infections have hit the mainland hard, forcing it to reconsider how it deals with the pandemic. The omicron variant has run rampant through the country, causing the latest jump in daily cases. With tens of millions of people in China, including the entire north-eastern province of Jilin and the tech-hub city of Shenzhen infected, the government has ordered them to lockdown. Trucks are being delayed due to testing of the drivers, products are piling up in warehouses – it’s a madhouse.

China’s largest city, Shanghai, has joined the list after battling the new wave for nearly a month, as makeshift hospitals and quarantine centers crop up across the country. Suspending work at electronics factories in the south and a wide variety of industrial companies in central China, lockdowns have also closed highway exits in cities near Shanghai unless each driver shows a negative PCR test. This has in turn created miles-long lines of trucks trying to carry crucial components between factories.

China’s zero-COVID strategy is becoming increasingly difficult to sustain as more infections are detected. Most of China’s policy to combat this is staying the same. Such as:

Travel to and from China is limited with restrictions on internal movement
Travelers coming into China are screened then sent to a government-designated hotel for mandatory 2-week quarantine, followed by further monitoring
While regular testing programs are carried out, should infections be detected, residents can and will be evicted and sent to quarantine facilities (along with targeted area lockdowns)
All non-essential businesses have been shut, apart from food shops and essential suppliers
Schools are closed and public transport is suspended with almost no vehicle movement

While these remain the same, others have been relaxed, such as:

Those with mild symptoms no longer need to attend designated hospitals, but they still need to isolate at centralized facilities
Quarantine period rules have been reduced
City-wide testing is no longer being carried out, replaced by local community testing
Self-testing kits are to be made available in stores across the country, as well as online, but those who test positive will need to take the PCR tests

With truck traffic to the docks interrupted, ships are facing delays at the ports. Airfreight is also facing complications as the Civil Administration of China said that many of the remaining international flights into Shanghai’s Pudong airport would be suspending flights until April 1st.

Having remarkable success at containing the pandemic prior to the current outbreak, China has managed to have lower numbers than Europe or the US. Prior to March 24th, there were just over 14,000 new cases in the whole of mainland China, whereas in the UK over a similar period, there were over 610,000 new infections.

Is China’s policy working? From the numbers, it would appear so, despite the recent omicron variant hitting mainland China with a force to be reckoned with. With Future Forwarding, we’re keeping an eye on the situation in China to stay up to date on how this will affect you and your cargo. Should you have any questions about this situation in regards to how this will modify your shipping plans, please contact your Future Forwarding representative today and let us help you stay on track.

Explaining MFN and what it means for Russian Imports

As the US and European allies continue to identify ways to punish Russia for Ukraine, last week news broke that one step that governments were planning to take was the revocation of the country’s Most Favored Nation trade status, or MFN. Whether you realize it or not, MFN is what allows most importers to enjoy favorable duty rates on goods imported into the United States and losing this status not only puts duty rates at a higher level, but also sets the stage for imports to be banned entirely.

For importers, the details of MFN status are laid out in the beginning of the Harmonized Tariff Schedule, or HTS.

There are only two countries right now that do not enjoy MFN status with the United States: Cuba and North Korea. That list alone should be a significant indicator of the severity of the relationship a country would (or wouldn’t) have with the United States to be included.

When determining classification in the HTS, after the proper tariff number is located, the question then is whether or not the exporting country is eligible for Column 1 duties (the lower, preferable rate) or Column 2 duties (the higher, prohibitive rate). The idea behind the stark difference is that US buyers who want to select between identical merchandise purchased from a friendly trading nation versus an unfriendly one will find little market for a product priced far more expensively and therefore choose a country with MFN status.

Take, for example, this page from the tariff for footwear showing the difference in duty rate for Column 1 versus Column 2 countries.

MFN

Sandals from a friendly country are 3% – from a Column 2 country, 35%.

Aside from the outright prohibition for entry that the administration announced on oil, seafood and diamonds, other products such as steel, iron or aluminum will see additional duties as well. It is likely that Russia’s actions and reaction here in the United States will, by and large, eliminate a buyer’s appetite for these products unless they absolutely cannot be procured elsewhere, but that remains to be seen based on the length of time sanctions will remain in place.

The steps taken by governments continue to evolve and move rapidly, and Future Forwarding’s compliance team is committed to monitoring announcements by governments in the US, UK and EU and proactively advising our clients if products they source or ship could be caught up in trade action.

Port congestion creeps across east coast

The good and bad news of container congestion should be able to balance each other out as the US west coast finds a bit of relief while east coast ports take on diverted ships and cargo, building delays on the Atlantic side from Asia. However, the scales aren’t truly balancing at this point and there are concerns the relief on the west coast is less from actually catching up on backlogs and more from the reduction in departures from Asia during the Lunar New Year Golden Week public holiday.

According to John McCown, publisher of the McCown Report, “January was the eighth straight month where overall growth at East/Gulf Coast ports exceeded overall growth at the West Coast ports.” He attributed the trend to “shippers changing routing decisions to avoid the widely reported West Coast congestion.”

The numbers check out on his assessment. In Charleston alone, 31 ships are delayed waiting for space, the number of ships calling the port from Asia is up 12.7% over 2021 number and 47% higher than a decade ago. In the midst of more ships, carrying larger quantities of cargo, dwell time is also climbing in Charleston, now 37% above average.

The relief that the west coast saw in February came from a lull in departures during the final weeks of January – 22% below average the week of January 17, 2022, and 30% below average the week of January 24th. Fewer ships on the water, more ships headed to the east coast, more disruption on the horizon as departures in March and April are expected to be 40% higher than average.

One of the biggest problems with the unbalanced traffic is that there isn’t an equal split of work that is able to be done on both coasts. Ports like Charleston cannot compete with the number of containers that LA and LB can service. The west coast can have a record of 109 ships waiting in San Pedro Bay but their throughput speed is significantly faster than Charleston so it’s much easier for California to catch up on bigger backlogs than any other port in the United States.

When considering the best routing for cargo, we need to remember that while there are still delays on the west coast, those delays arose out of a behemoth port that has grown to accommodate massive cargo imports but wasn’t quite ready for the increase of pandemic stressors.

Early decisions by carriers to divert ships, blank sailings, and reroute cargo and PPE in early 2020 caused a domino effect of disruption and that’s the last thing we need to do now. Many shippers are looking to try reinventing the wheel, divert cargo to a different routing and completely overhaul the supply chain for the sake of saving a week here and there.

Yes, west coast delays are not going away any time soon, but we urge our ocean import customers to talk to Future Forwarding about their needs, their time requirements, equipment, and current projects before making any changes. We’re ready to assess each situation to the best of our understanding and provide real-world solutions in a workable and consistent manner to ensure the delays impact our clients as little as possible. We look forward to hearing from you and helping you keep your cargo moving.

What Is Happening in Congress

Congress has seen a major effort meant to empower the shipping industry’s regulator and strengthen the hand of shippers introduced in the Senate. The Ocean Shipping Reform Act (OSRA) has been introduced in the Senate after passing the House in remarkably bipartisan fashion, 364-60. The bill’s aim is to give more power to the FMC and take action against those engaging in anti-competitive behavior, which has resulted in a negative impact on US importers, exporters, and retailers. The proposed changes also require carriers to meet minimum service standards.

The goal of the Ocean Shipping Reform Act of 2021 (H.R.4996) is:

Establish reciprocal trade to promote U.S. exports as part of the Federal Maritime Commission’s (FMC) mission.
Require ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry.
Require ocean carriers or marine terminal operators to certify that any late fees —known in maritime parlance as “detention and demurrage” charges—comply with federal regulations or face penalties.
Shift burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier.
Prohibit ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required federal rulemaking.
Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and twenty-foot equivalent units (loaded/empty) per vessel that makes port in the United States.

Focusing on detention and demurrage that predated the pandemic, the main concern leveled on this new bill is that it misses the point of the complaints about inability to ship cargo during the pandemic. The main concerns surrounding disruption in the supply chain on a historic level have not been addressed, though the bottlenecks have moderately abated when the White House put intense political pressure on carriers and terminals to get the flow moving.

The House of Representatives also passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (America COMPETES) Act on February 4, 2022. Contained in this legislation are:

The reinstatement of the Generalized System of Preferences, retroactive to December, 31, 2020.
Providing for two cycles of the Miscellaneous Tariff Bill.
Imposing restrictions on the use of the Section 321 “de minimis” exemption for non-market economies like China.

For both bills, the Senate will face pressure from interests to water down or remove provisions from the House bill. Ocean carriers do not want to be exposed to violations for incorrect demurrage and detention bills – a common occurrence right now. With the COMPETES Act, companies have made major changes to take advantage of the de minimis rule and e-commerce platform operators and e-tailers would have a seismic shift in returning to processes that included holding inventory in the US and paying ad valorem duties and – more importantly right now – Section 301 duties on many of those items.

We will continue to monitor these two pieces of legislation and update clients on what ultimately is agreed to and passed through Congress.

Benefit ABC’s of the FTZ

When is a foreign country not a foreign country for the purposes of customs, manufacturing, and duty assessment? When it’s actually here in the United States, is called a Foreign Trade Zone (FTZ) and allows U.S. companies to perform a wide spectrum of activities, all of which can delay payment of duties, reduce costs through a single entry fee, and cap Merchandise Processing Fees. As a bonus, it allows goods of multiple classifications and ad valorem duties to be imported, manufactured, and be removed, or “exported,” as a different finished product at an even lower duty rate, or even potentially duty-free.

Foreign Trade Zones (FTZ) are secure and cost-effective options for importers who need cargo held indefinitely or have cargo that will undergo an alteration such as manufacturing, mixing, assembly or repair. Most merchandise can be imported into an FTZ without formal customs entries or duties, which aren’t required until the goods enter the commerce of the United States. In a specifically designated location under FTZ rules, goods are still considered “international commerce” which means duty can be deferred until the goods leave.

There are a number of benefits of using an FTZ:

Duty deferral – Duties aren’t due until the goods leave the FTZ.
- Inverted tariff relief – if components or raw materials have a higher duty than finished goods, an FTZ allows manufacturers to pay the lower cost. Further to this, manufacturers won’t pay duties on waste, scrap, and loss as the finished goods are all that leave the FTZ as US consumer goods.
- Duty-free re-exports – If goods are entering the US just to be reexported to another country (Canada and Mexico being exceptions with their own rules and duties) an FTZ can act as an international point because technically the goods aren’t in the US and don’t have to pay duties.
- Single entry filings – using an FTZ means that an importer only needs to file a single Customs entry each week instead of filing one for each shipment.
- Inventory storage – Goods can be held at an FTZ for an indefinite period so cargo with quota restrictions is handled and duty is deferred permanently if the goods never leave.

Enhanced security and tracking – FTZ’s by their very nature are tightly controlled.

Easier identification and classification – this can be done at the FTZ and not at a port or Customs control location.

While there are exceptions to every rule, a Foreign Trade Zone offers a number of valuable solutions across 193 active FTZ programs across the United States, at approximately 3,300 businesses, and importing over $767 billion in shipments. If you’re interested in learning more about how your cargo can benefit from adding an FTZ to the routing, reach out to your Future Forwarding representative today to discuss the benefits available to you.

COVID Keeping Delays Consistent in China

The “COVID-zero” strategy throughout China and Hong Kong threatens to drive up logistics costs by 40% and drive down capacity to one-fifth of pre-pandemic levels as cities around Beijing restrict travel in response to new cases. Airports, highways, railways, ports, and other transportation sectors in Shenzhen, which shares a border with Hong Kong, are stepping up pandemic control measures as small outbreaks of the COVID-19 Omicron variant pop up in Tianjin, Xian, and Guangdong, China.

With Cathay Pacific canceling hundreds of flights and the Port of Tianjin and airport suspending all pickup operations, the situation is stretching the supply chain to the breaking point. The omicron variant ended a three-month streak without local transmissions in Hong Kong where a two-week ban on incoming flights from eight countries is in effect until at least January 20th.

In Shenzhen (an area where previously the most recent case was in May of 2020), two confirmed cases of COVID-19 have a contract tracing footprint of 123 people, some of who are isolated on a cruise ship that is now quarantined in the harbor pending testing. The fear of silent transmission chains has seized the cities leading to travel restrictions pending a negative test within 48 hours and requiring commuters to work from home rather than move between cities.

Because authorities in Shenzhen determined that it was highly likely that exposure came from a contaminated cargo shipment extra precautions are being taken at ports and airports to protect handlers from coming into contact with COVID-19. The added security measures will further delay cargo processing in addition to the reduction in workers as companies test and adopt enhanced screening procedures.

Apart from ports and airports, highways and railways are experiencing delays, especially in the trucking sector as many warehouses turn away drivers from outbreak impacted areas. Last week, trucking operations at the Port of Ningbo were delayed by testing and this week trucking around Jinhua Yongkang is suspended pending testing results.

Because Future Forwarding is dedicated to providing individualized supply-chain solutions to a range of businesses we encourage our clients to reach out for more information and ideas on how we can mitigate the delays we are facing. We know this could mean last-minute changes to carriers or modes of transport which could come with additional costs, but will do our best to mitigate or prevent them wherever possible.

Uyghur Forced Labor Prevention Act Impact

On December 23rd, President Biden signed into law the Uyghur Forced Labor Protection Act. The legislation passed Congress by huge margins in the House and Senate and seems to be one of the few places that both sides of the aisle can find common ground – China’s human rights record.

It becomes law 180 days from the date of signing so on June 21, 2022, all products of the Xinjiang Uyghur Autonomous Region, or XUAR, will be prohibited entry into the United States based on the supposition and grounds that the goods were “mined, produced or manufactured” using forced labor.

The United States has consistently been focused on this issue across multiple previous administrations with presidents from both parties. CBP has notably been taking steps to issue Withhold Release Orders for companies and entire product groups from this province in western China and the Act is a strong, codified step that requires importers to take a closer look at their entire supply chain to determine whether any part of it runs through Xinjiang.

The Act can be read here, but in brief, a Forced Labor Task Force will be charged with soliciting comments and receiving public testimony. They will then adjudicate those comments and, in consultation with State, Commerce, DHS (CBP) and the Director of National Intelligence (DNI), develop the policy framework of how the law is to be implemented.

While many of the details are yet to be worked out, there is language in the Act which provides a means by which companies can present evidence to the government to be reviewed and, if deemed conclusively not produced with foreign labor, will be exempted and this exemption will be published no later than 30 days after the exemption determination is reached.

Importers will need to focus on three key things in the coming weeks and months.

A wholesale review of supply chains and components to determine whether or not ANYTHING on a product’s bill of materials, no matter how low, originates in Xinjiang.
If exposure to the law exists, speak with Future Forwarding to help submit comments or testimony, or refer to legal counsel to request an exclusion when the details are released.
Expand the Xinjiang component search to countries outside China because goods could still be denied entry if further manufacturing or assembly happened in a third country and it is determined the item contains XUAR-originating components.

Like everything else that companies have dealt with through 2020 and 2021, this is just another challenge in the new year. Fortunately, Future Forwarding and our team of compliance experts and outside counsel are ready to help clients conduct the necessary reviews and be ready for June 21, 2022.

Fees Suspended as Congestion Clearing Improves

On October 25th, the ports of Los Angeles and Long Beach announced the Container Dwell Fees, as well as a plan to run operations at the ports at 24/7 capacity. Carriers would have 9 days to move containers by truck and 6 days to move by rail. Each container would be charged $100 for each day lingering.

The terminals were running out of space, and the executive directors were hoping to make room for the containers sitting on the ships at anchor. There have been dozens of cargo ships anchored offshore from the two ports for months, leading to a supply chain crisis nationwide. Partly due to the shortage of warehouse workers, and truck drivers to pick up the goods, this ongoing crisis is continuing to plague the nation. However, unloading the ships has brought up new problems, such as the surrounding neighborhoods being used for storage, and trucks idling for hours in the residential streets.

Despite this, LA and LB California ports are delaying the imposing fines on the carriers for idle containers awaiting pick up, saying that there has been a significant improvement in the supply chain since last month. The executive directors of the ports said in a joint statement that since the announcement in October for the compounding fees, the two ports have seen a tremendous decline of 33% in aging cargo on the docs. Though they are satisfied with the progress so far, the directors will continue to monitor the situation and will reassess the implementation of the fee in the upcoming days after Black Friday and Cyber Monday.

The gift-giving season is here, and this development came with the supply chain squeeze that occurs every year around this time. President Joe Biden’s administration, in an attempt to relieve the pressure on the supply chain, still contends with inflation, a labor shortage, and elevated levels of COVID-19 cases.

As the crisis continues to hopefully improve, you can count on Future Forwarding to make sure your cargo is getting where it needs to go. We know each company has specific needs and we are here to make sure we meet each and every one of them. Whether by air, sea, or ground, we have the resources and expertise to work to deliver every shipment in a timely, secure manner. At Future Forwarding, we deliver personalized quality every step of the way.

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