Going to the Source [PODCAST]

Posted by The Tradewin Team
Blog originally posted on 10/02/2021 01:43 PM

Going to the Source-TW header

This week we feature The Expeditors Podcast with host Chris Parker. The podcast shares observations, perspectives, and discussions on front-of-mind topics impacting the logistics and freight-forwarding industry through the lens of Expeditors, a global logistics provider. Expeditors generates highly optimized and customized supply chain solutions for their clients with unified technology systems integrated through a global network of 357 locations in 60+ countries on six continents.

Everything comes from somewhere. That’s a pretty general statement, but when thinking about trade and the flow of goods, that "somewhere" plays a heavy role - especially when it comes to access, infrastructure, and for this episode, compliance and regulations. What happens when a global event has you rethinking where you’re starting the journey of your goods? Vice President of Tradewin, Michael Bellezza, talks about how recent events are raising questions around sourcing, trade compliance, and supply chain resiliency.

 

Chris Parker (Host): Hello everyone, and welcome to the Expeditors podcast, where you can hear about front of mind topics in the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker, and today's topic: Going to the Source.

Chris Parker: Everything comes from somewhere, and that's a pretty general statement, but when thinking about trade and the flow of goods, that somewhere plays a heavy role, especially when it comes to access, infrastructure, and for this episode, compliance and regulations.

Chris Parker: What happens when a global event has you rethinking where you're starting the journey of your goods? Today I have Michael Bellezza, Vice President of Tradewin, to answer a few questions about this topic. Mike, how are you doing today?

Michael Bellezza: I'm doing pretty well. How are you?

Chris Parker: I am doing well. Thanks for asking. I want to get to know you a little bit before we talk about today's topic. What's Tradewin, and what do you do as Vice President?

Michael Bellezza: Yeah, so Tradewin is a wholly-owned subsidiary of Expeditors, so we're a separate consulting division that does strategic trade consulting around projects around the world.

Michael Bellezza: I think we're in 21 countries around the world, and we also do a lot of the tactical work around trade compliance that typically falls under our customer's side of the fence. So things like classification and export controls and evaluations, things like that. But generally, we're the consulting arm.

Chris Parker: So then, what's the difference between Expeditors and Tradewin? Because Expeditors has its own trade compliance program and offerings and such, how is Tradewin different?

Michael Bellezza: Well, I think Expeditors, its own business, they have a very robust compliance program, and I think they're known for that. They're working with customers to prevent corruption, denied party screening, things of that nature.

Michael Bellezza: Tradewin, on the other hand, is a separate consulting group, regardless if an importer or exporter uses Expeditors or not. In fact, sometimes Expeditors will actually hire us.

Chris Parker: Sure.

Michael Bellezza: But we're helping customers a lot of times upstream, some of these upstream projects such as classification or assisting duty mitigation or evaluation or export controls. That's the kind of stuff we're doing.

Michael Bellezza: And often, that's really upstream in the customer supply chain and the planning process, and it's often long before a shipment or a forwarder or a customs broker gets involved. And Expeditors might recommend us a client or vice versa, but we have a very good relationship, but it's a separate standalone consultant.

Chris Parker: So then, what's your journey been like? You're now Vice President. How did you get involved with Tradewin? How long have you been with the organization? Things like that.

Michael Bellezza: Yeah, so I've been with Tradewin about 11 years. Previous to that, or about ten years before that, I was with Expeditors. I started with Tradewin in the U.S. when we were relatively small. And over the years, trade compliance has kind of continued to grow and grow, and with that, we've been able to grow that organization quite a bit from being a smaller group in the U.S. and Canada, really to all over the globe.

Michael Bellezza: So to a variety of countries in Europe, we've opened up a great deal of offices all throughout Asia. So we have this really nice cohesive global network that we've built over the years as trade compliance has grown in importance, so it's been a journey for sure.

Chris Parker: That's very cool. Starting small, getting it right, and then expanding the network and the reach.

Chris Parker: I'm curious to know a little bit more about trade compliance. It's something that I have a little understanding of, but I want to get to know it better, especially its impact and influence. So how much of an influence does trade compliance have over a supply chain as a whole?

Michael Bellezza: Well, I think it's a big part of it. The goal of trade compliance it's to get these goods that we talk about. And get them to move through the supply chain smoothly, right? And in context of that regulation, I think that's a big part of it. So we're looking at things like export regulations when a good leaves all the way to the import regulations of the country that you're going towards.

Michael Bellezza: And there's a lot of government agency and valuation and taxes. And a lot of things that we're doing is we're helping importers pay the right amount of duties, pay the right amount of taxes, mitigate their risk, and do that in a way that is beneficial for that company. And all the things within supply chain, there's logistics, there's sourcing, there's trade compliance, they all interact within themselves and together.

Michael Bellezza: And cohesively, they become what is known as supply chain. But it's one of the three main aspects of supply chain.

Michael Bellezza: One thing I would say too is, the regulations and trade compliance they're hugely important in the fact that they influence all the other pieces of supply chain, right? So when we think of the physical movement of goods and logistics of goods, well, they're designed around these regulations, and governments are crafting tariffs or trade agreements or product requirements or these export controls.

Michael Bellezza: Everything you see in the news they're all designed to have a context into the way that goods move in supply chain, right? And then my job, or Tradewin's job, is to help these companies align with those rules compliantly, but then also take advantage of the programs that exist. With any shipment, with any movement of goods, there's export regulations in the country you're leaving, and then there's import regulations in wherever you're going. And they're usually quite different. The export regulations are about security, right? Technology transfer, things of that nature. On the import, they're really about duties and taxes. To some level, the regulations around whatever foreign policy goals that the country has, our goal is to take advantage of those programs as they exist, that's most advantageous to the company.

Chris Parker: In previous episodes, I've talked with other folks about how customs or technology their roles have changed, or at least they're getting a bigger spotlight and therefore a bigger seat at the table when it comes to decisions that to be made in order to achieve supply chain resiliency.

Chris Parker: The C-suite at various organizations are now paying attention to these various aspects of supply chain. What kind of spotlight is trade compliance getting now, and how has that changed over time?

Michael Bellezza: Well, I mean, there's a really great spotlight on right now. The last four or five years have been a rollercoaster.

Chris Parker: Sure.

Michael Bellezza: And there's been so much change. I always thought trade compliance moved really at a very slow snail's pace, and that was the way that they were used to operating. And then, the last four years has been this constant barrage of new regulations and things of that nature that have really changed it.

Michael Bellezza: I was thinking back. You go back five years ago; we were talking about the TPP, the Trans-Pacific partnership, which ultimately kind of the U.S. pulled out of, and it kind of reorganized in its own way. And that was going to be the biggest thing in trade. Well fast forward five years, and most people probably don't remember all that much about it. And since then, we've had so much has happened, right?

Michael Bellezza: We've had a trade war between the U.S. and China. We've had all these export controls and sanctions. We had the pandemic; we had Brexit. I mean, Brexit would have been the largest thing and trade compliance in years. And for a little while, we forgot about it because of the pandemic, or it fell out of the news anyway.

Michael Bellezza: So I think trade compliance has been in the spotlight for the last couple of years, more so than I've ever seen it. And, and really a lot of that started with those, those 301 tariffs in the U.S. around China, but also with other countries. We had Canada, Europe. You got all these things going, and that really accelerated it. I'd say in the C-suite and particularly CFOs, it really came to a spotlight because suddenly the amount of taxes and duties and tariffs just exploded.

Michael Bellezza: And suddenly many companies – they got very educated on trade compliance very quickly. I remember coming to a head, I remember visiting my mother actually, and I remember her bringing up tariffs, and I thought, "Oh my God, we're mainstream." She knew when the tariffs were going on, I knew we were in trouble. And I looked at duty drawback, and this is something we've done for 20 years at Tradewin. And it was niche. And it's something that's run by a few dozen customs agents in U.S. customs. And suddenly overnight, every company is looking at duty drop, right?

Michael Bellezza: And so suddenly, everybody understood tariff classification and valuation, and they're all looking at how to minimize the impact or how to take advantage of it or what they can do within the constraints of the environment to kind of survive, particularly in this pandemic.

Michael Bellezza: And so I think it's been big. And then, on top of it, I think supply chains have gotten way more complex in the last six or seven years, maybe the last ten years. Like you see a lot of these A to B movements, and now it's much more of a web, particularly in manufacturing where you're moving components all around the world for assembly and testing and everything else.

Michael Bellezza: And all of that stuff was a great deal of effort on these trade compliance teams, and in doing so, I think people understand the risk and the advantage and the opportunity, but they have to do it right.

Chris Parker: I think it was one of the biggest takeaways of these interviews is everyone I seem to be talking to their families are finally understanding what they really do for work. Because of events like this. Yeah.

Michael Bellezza: Terrifying. That's the key. Yeah. It's really, it became... Sanctions became mainstream. You hear about it every day in the news, right? You know, so-and-so are now sanctioned, or new sanctions on North Korea. That's what we do, right? Denied party screening, things of that nature.

Michael Bellezza: Or you hear about all these, "Well, there's a new tariff on this," or they're complaining about these tariffs, but that's what we do every day. It's so key to what we talk about, and suddenly it's mainstream. And that was a weird thing. It was weird to be mainstream. We were happy in our counter-culture niche.

Chris Parker: Yeah.

Michael Bellezza: We're not anymore.

Chris Parker: Yeah. You went from band geek to quarterback all of a sudden.

Michael Bellezza: Yeah, that's right. You know, it's like the backup kicker. Right? So here we are.

Chris Parker: Unpredictable things, right? They happen all the time. We're going to get to COVID, but let's start with natural disasters, right? These are very localized things and focused events.

Chris Parker: COVID was different because it happened all at once globally. Right? So how did the pandemic change the dynamics in and pathways to success for trade compliance teams and programs?

Michael Bellezza: That's a good question. You know, I think the trade war coming before the pandemic in a lot of places started to prepare everybody. Right? And that brought a lot of spotlight onto some of the risks that are in trade compliance and some of the infrastructure that needs to be put in place to handle it. So I think in a lot of ways, these big multinationals, they were already on the path to preparing. Right? When this hit. And then it hit.

Michael Bellezza: And from the people within my teams, of course, but then also my customers and the importers and the exporters of the world. You know, I think that the first biggest reaction was that everybody worked from home right now; that was a big change for a lot of people. And I think that that affected what they wanted to do and what they were going to do every day.

Michael Bellezza: And things changed from these kind of long-term strategic projects. Maybe somebody wants to get into AEO, or they were looking at implementing a new system or something like that. And a lot of their programs and their effort really kind of changed to more of a tactical approach, right? Of a survival approach in some ways. "And how do we, how do we get goods through, in the lowest cost possible? How do we avoid some of these duties that are going on, or if we need to change production really quickly, what has to be done for that shipment to get through?" As opposed to these more holistic, strategic endeavors.

Michael Bellezza: And I think it takes you a year to learn your job and a year to perfect your job. And I think we've done it for a year, and everybody now is starting to get comfortable in where they're at. And they're starting to pull back into those longer term strategic initiatives that they wanted to get through. And now they're a little bit more comfortable, and they know what the new reality is. And that's when I'm starting to see that people start going more towards those strategic initiatives.

Chris Parker: So what realizations have surfaced because of this? I want to hear the good and the bad and the ugly of all of it. What have people learned?

Michael Bellezza: Well, I think they learned in a lot of ways that they need to invest a little bit, right? If you went back six or seven years ago, I think a lot of the multinationals, in particular, had maybe trade compliance is maintained at the corporate level. And that's really changed over the last maybe five years, but it really culminated in the pandemic of now you have a global team. You have somebody that runs trade compliance in Asia. You have someone in Europe; you have someone in North America. It's some kind of overarching global leadership. And I think that's what people started to put in place.

Michael Bellezza: And they were in this position in the pandemic to react to some of these really difficult tactical items that came up because of the pandemic and some of the change in their supply chain. But again, it also brought a lot of spotlight to what needs to be done and what's not being done.

Michael Bellezza: I think a lot of companies realized that they had way too much risk out. Right? And you have to look at trade compliance a lot like tax. Are you paying the right amount of duties and taxes? Are you doing it effectively? And a lot of people realized that maybe they didn't have the processes in place, or they didn't have the personnel or the checks and balances. And in the pandemic, a lot of that had to be addressed, had to be fixed. So in that regard, I think people are going to come out of this thing much stronger than they went in.

Chris Parker: Absolutely. Yeah. And I feel like that kind of takes us into our main topic, which is all about sourcing.

Chris Parker: You're talking about companies realizing that they have too much risk out there. What relationship does trade compliance have to sourcing and the decisions around establishing one's place, where they're pulling in the raw materials, and manufacturing and things like that?

Michael Bellezza: Whenever you want to change your sourcing, the buzzword in the last couple of years has been supply chain resilience, right? Being able to kind of continue doing business effectively with a change in sourcing at some degree.

Michael Bellezza: There's a lot of different ways that that can happen. There's multiple sourcing, multiple manufacturing locations; there's buffer stock, there's all sorts of different strategies. And a lot of people use kind of these overlapping strategies to do it.

Michael Bellezza: But I will say it takes a lot of preparation, right? A lot of times, you can't switch production super quickly on some commodity. Some you can. But a lot of them require capital investment. They require relationship building. It requires the understanding of logistics and the cost to source it.

Michael Bellezza: And then, there's the trade compliance, right? Of understanding the valuation of the goods. Maybe there's a related party transactions; maybe there's new classifications. It could be export controls. In a complex supply chain, you have to go all the way down to the building material of the component and see if it qualifies. That can get really kind of... Go down the rabbit hole, if you will, of what has to be done to just change sourcing. So I think that it takes a lot of upstream review before you can kind of make that decision of what makes the most sense for you.

Chris Parker: Kind of speaking more to the operational level or the step-by-steps, what are the risks of changing your sourcing strategy, whether it's your location, your providers, whoever's bringing in the source materials, the raw materials? What kind of hurdles could an organization expect to see?

Michael Bellezza: Well, I think whenever you change parts of your supply chain, it affects a lot of different silos within an organization. And this is one of the things that I think I see fairly often. A decision might be made by procurement or because they can find a better product, or maybe it's made by logistics because they can move something less expensive, in a less expensive way, or maybe it's trade compliance, but they have to have this very cohesive way in together where they're talking, and they're noting the things that affect them.

Michael Bellezza: I've seen people move production because of a lower price, but they invalidated a free trade agreement, and it cost them more. Or with the trade war, I saw a lot of people or within the pandemic, a lot of people trying to move assembly from one country to another, to avoid certain tariffs, but whatever they did in that third country didn't really confer origin or make it a new country of origin.

Michael Bellezza: So they still had to pay the tariffs. And to do something like that, you have to have the production people talking to the logistics teams and talking to the trade compliance teams holistically to make sure that the decision you're going to make is the right one, right? To not avoid a snap decision based on the limited information that may be one group. And that's the one thing I think I saw the most in the last couple of years of people making decisions, maybe without all the data or all the understanding of the implications of something that was maybe outside of their sphere of influence.

Chris Parker: Or, or just the dollar sign could impact a decision. But those could have massive ramifications, right? If you're not paying attention.

Michael Bellezza: Sure. There's direct costs, and there's indirect costs, right? And people don't always understand the indirect.

Chris Parker: Absolutely. Yeah. What's the process, then? Walk me through how an organization would go about choosing an appropriate sourcing country.

Michael Bellezza: Well, the sourcing country can be tough. I mean, things you have to look at are things like what are their capabilities to build what you're trying to make or buy, or source? What kind of infrastructures inside that country for you to do what you need to do? How transparent is it to deal business with it? Is it easy to do business there? Or is it not?

Michael Bellezza: There are a lot of, particularly in some of these manufacturing countries, there's a lot of barriers to trade that you have to understand. There's export controls that you have to worry about it. I actually think that the harder part is actually the new importing country than it is exporting country.

Chris Parker: Why is that?

Michael Bellezza: Exporting is really about security, right? And a lot of exporting countries, they're not that big on security; they just want to export. But on the importing countries, you've got duties and taxes and other government agencies – things like an FDA or a health department or something along those natures. But there's a lot more that has to be done in terms of understanding valuation country of origin classification, things of that nature.

Michael Bellezza: So I actually think sometimes it's... In the sourcing and the supply chain model, it's finding and moving into a new market can be much more complex. Maybe sometimes like finding a new origin market.

Chris Parker: What can a company be asking themselves, then, to gauge their flexibility, their level of risk, the level of preparation? Just like an overall pulse check to see if they're ready to take on a change as big as where they're sourcing from.

Michael Bellezza: I think that sometimes you have to do some modeling, some risks, right? And say, "What, if something happened in this market, what would we do, and how would we do it?" And it's hard to kind of come up with those. But I think in the last few years, we have a few different scenarios that have come up that makes it easy to war game these things.

Chris Parker: Yeah. You don't have to theorize anymore. They happened. They happened.

Michael Bellezza: What happens if a global pandemic was released in the world? Zombie apocalypse?

Michael Bellezza: I think if you had to change your sourcing or you want to go into a new market, or some of that stuff can be done upfront in terms of "What would we do? What are some of our options?" And then putting together a task list of what needs to be done, right? And then that's going to be different by vertical, right? The aerospace is not going to do the same way as retail is not going to do it the same way as tech. Every one of those is a little bit different, but they all still face similar challenges. You know, healthcare is very different than retail, for example, right? And there's a lot of other different agencies and work that has to be done. But maybe that the tariff rates are lower, right?

Michael Bellezza: So there's kind of pluses and to each one, but you have to understand and start to look at what would it take at both a strategic level and then a tactical level. So that when the time comes, you have a task list of items that you know that you as your organization need to look at.

Michael Bellezza: And chances are, you're going to have a change in your supply chain for one reason or another. I've just listed out five or six huge things that happened in 36 months, right? I mean, it's really been a wild ride. So I think taking people with experience that know what to do and putting together their plan in is as far in advance as they can, for certain changes, is a way.

Chris Parker: Without naming names. What are the qualities of some organizations that you've seen that have really just knocked it out of the park with their sourcing strategy?

Michael Bellezza: A lot of companies... They made investments, I guess, in previous years, and they recognize the importance of trigger points for a variety of reasons. Maybe they got audited in the past, or maybe they had really high tariff rates. Maybe they had a very complex supply chain, but over time they invested so that when this came, maybe they had a global team in place, they had systems, they had good parts skew databases, they had good control of their data. And they had tools that were there to automate.

Michael Bellezza: I've seen in the retail sector, as an example, some companies that had an infrastructure and... Sure the pandemic really kind of slowed them down, but when demand picked back up, they got up and running quickly. Very quickly.

Michael Bellezza: And in high-tech, I've seen kind of similar things where maybe some of the strategic longer-term audit programs, things like that. They've been kind of put on the shelf temporarily and are not being re-picked up, but when they needed to move commodities quick, they had the tools in place. They had the data at hand. And everybody still ran into challenges, but they had process, and they had people in place, and they had the right tools for them. And they did okay.

Michael Bellezza: The pandemic picked winners and losers. And that's something we have to remember, right? Retail got hit pretty hard, but if you're suddenly in the video conferencing business, you did okay. Zoom is doing okay. So that's some of the things that we have to realize; in some ways, companies with really strong e-com, omnichannel kind of distribution channels, things like that, they actually did quite well. But they had to have the trade compliance infrastructure in place to kind of take advantage of the situation that presented itself.

Michael Bellezza: And I think some did very well, and some struggled for sure. Yeah.

Chris Parker: And some will definitely be learning from this, too, over the last 36 months.

Michael Bellezza: 100%.

Chris Parker: Lots of big lessons.

Michael Bellezza: There will be case studies on this for quite some time.

Chris Parker: Some lectures and whole courses at universities.

Chris Parker: Before we close, I want to ask: the pandemic has caused this geographical impact with shutdowns and production stoppage and stuff, and tariffs and regulations have an impact on trade. How does a company kind of find harmony in 2021?

Michael Bellezza: Yoga.

Chris Parker: Lots of green tea, candles.

Michael Bellezza: Lots of tea. That's right. Yeah. Meditation.

Michael Bellezza: I think have a plan, in all honesty. Have a plan.

Chris Parker: It's as simple as that, huh?

Michael Bellezza: I mean, a lot of people are prioritizing, right? And I totally understand that. And they're prioritizing by the most critical. But I think the companies that are doing really well are also leaving some time to keep those long-term strategies and their initiatives going.

Michael Bellezza: And like I said, the shock and awe of the last year, I think it's kind of worn off. And I think we understand where we're at, but now we have to get back to business. And we have to realize that some of our priorities have changed, and we have to reevaluate. But we still have to move forward.

Michael Bellezza: And so the companies that are, I think, handling that there's tactical changes that immediate ones that need to be done today, but are also still thinking two, three years down the road of "What do I need to keep moving forward so that we're not behind the eight ball when it comes down to it?"

Chris Parker: Mike, thanks to you so much for your time. This was a lot of fun chat about.

Chris Parker: If people wanted to get into touch with you, or just to learn more about you and Tradewin, where can they find you?

Michael Bellezza: We've got a website, www.tradewin.net. You can reach out to me directly via there, or my email michael.bellezza@tradewin.net.

Chris Parker: Thanks for listening to today's episode. If you've got questions or want to learn more about today's topic, check out the show notes for more information.

Chris Parker: And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.

Expeditors Podcast

Topics: Tradewin, Sourcing, Trade Compliance

Blog originally posted on 10/02/2021 01:43 PM

The Tradewin Team

Written by The Tradewin Team

Since 1997, Tradewin has been providing expert import and export advice to clients all over the world. Combined, our skilled team of Customs brokers, lawyers, accountants and other professionals possess more than 400 years of experience. Together, we've helped thousands of clients save more than $50 million in duties, guiding them through the ever-changing and complex arena of international regulations as effortlessly as possible.