Russia stumbles in global price surge, importers upset over forced labor bans, ocean freight issues
Monday Morning Wake Up Call
June 28, 2021
Russia Stumbles in Bid to Fight Global Price Surge With Duties
(Bloomberg) Russia’s answer to the surge in global commodity prices has been a mass experiment with duties, export curbs and price controls.
It’s not working. Inflation has spiked to the highest level in four years and even officials admit relief is months away at best.
Steel, nickel, aluminum and copper last week joined the long list of goods that are subject to export duties as Vladimir Putin seeks to soften the burden on consumers. Since Putin first ordered the government to do something about surging prices late last year, restrictions have spread from wheat to cooking oil to sugar and the key Russian staple buckwheat.
With polls showing inflation is a top concern, the Kremlin needs to show it’s trying to get the problem under control, even if its roots are in a global raw materials rally that Russia can’t do much about. But as more and more duties are added, risks are rising that the measures could end up undermining central bank policy and Russia’s dominance in global commodity markets. “It’s a populist approach that’s aimed at creating an illusion of control over prices and social assistance,” said Elina Ribakova, deputy chief economist at the International Institute of Finance in Washington. “Taken to the extreme they risk contaminating price indexes and making monetary policy less effective.”
Bank of Russia Governor Elvira Nabiullina is already struggling to control inflation that recently surged above 6%. The central bank has increased interest rates by 125 basis points since March and warned that more monetary tightening will be necessary as soon as next month as price increases veer out of control. Duties and controls on key food staples have shaved about 20 basis points off inflation this year, Nabiullina said at a news briefing in April. She has warned repeatedly that such measures can only ever be effective in the short term, and may increase inflationary pressures in the longer term due to shortages and increased trading on the black market.
The government, which is already facing discontent over a drop in incomes, insists the tariffs are necessary to protect consumers. Putin said last month that new measures need to be taken “promptly” to avoid price volatility on “socially-significant” goods. Discussions have already started about steps to curb a rise in the cost of fertilizers, with suggestions including freezing domestic prices and imposing a floating duty. “Our economy just isn’t ready for the kind of avalanche-like shock that we’ve witnessed in the past year,” First Deputy Prime Minister Andrey Belousov said last week after the new metals tariffs were introduced.
Analysts at state-owned VTB Capital in Moscow point to a softening of prices for some foodstuffs to show that the measures are working. They also note that inflation is accelerating much faster in Brazil, which hasn’t implemented price controls, than in Russia, though that could be attributable to other factors, such as a severe drought. Brazil has responded to the price surge by ramping up interest rates. Argentina has imposed restrictions on beef exports and Ukraine has implemented some soft restrictions on sunflower oil exports. China has started selling some of its vast metal reserves in a bid to cool global prices.
Russia consumes just 10% of the nickel, one third of the aluminum and about a half of the steel it produces, so the latest measures won’t have much impact on overall inflation, according to analysts at BCS Global Markets in Moscow. A spokeswoman for NLMK PJSC, Russia’s biggest steel producer, warned tariffs will deny investment plans of low-margin producers, which could end up hurting consumers via their incomes.
Bans on Forced Labor Goods From China Fuels Disputes With Importers
(WSJ) Surging enforcement by Customs and Border Protection officers of import bans on products made from forced labor is producing disputes over halted cargo and complaints from importers about the delays and a lack of transparency.
Enforcement has accelerated over the past year, according to customs data, as Washington issued multiple orders banning cotton and tomato products and other items from China’s Xinjiang region, where the government is conducting mass detentions of Uyghurs and other largely Muslim ethnic groups.
Caught in the sweep are apparel companies like retailer Uniqlo Co.—which had a shipment of men’s shirts stopped early this year—and other importers of cotton products, which have to show that their often multilayered supply chains are free from forced labor. Importers have three months from the time a shipment is detained to prove the products are clean, under rules that trade lawyers and business groups said require a high burden of proof. Otherwise, the cargoes must be exported or abandoned.
“I have heard anecdotally that some shipments have been released but most have been either denied or have not been decided,” said Richard Mojica, a trade lawyer with Miller & Chevalier in Washington, D.C. Trade lawyers and business groups expect more import bans and disputed shipments to come as Washington puts more emphasis on human rights in its intensifying rivalry with Beijing and CBP steps up enforcement.
While the bans on cotton and tomato products were issued by the Trump administration, the Biden administration this past week blacklisted products made from them. A Senate panel also passed bipartisan legislation called the Uyghur Forced Labor Prevention Act that could expand import bans to cover other products.
CBP plans to increase staffing and improve the way cases are handled, an official said, acknowledging the difficulties the agency has experienced working with importers as enforcement stepped up.
“Even many well-intended importers who have good social compliance programs weren’t quite tracing back their supply chains far enough to where the risk is,” said Ana Hinojosa, executive director of the CBP’s forced labor division.
Customs officers targeted 1,255 shipments arriving in the U.S. carrying $765 million worth of goods suspected of being made by forced labor since the start of the current fiscal year started in October, according to CBP statistics. Nearly half—623 shipments—were detained, while the rest ultimately didn’t enter U.S. ports. That marks a sharp increase from the 324 cargoes detained during fiscal year 2020 and just 12 shipments in the year before.
CBP doesn’t provide details on detained cargoes, including their origin or contents. Trade lawyers said detained shipments ticked up after the bans—known as “withhold release orders” or WRO—on cotton and tomato products were issued in December and January.
For Uniqlo, the Japanese clothing giant with retail stores across the U.S., customs officers at the ports of Los Angeles and Long Beach detained the shipment of men’s shirts in January. According to internal CBP documents viewed by The Wall Street Journal, the officers suspected that the shirts violated the December ban and were produced in part by the Xinjiang Production and Construction Corps, a state-owned paramilitary organization that runs a network of farms, factories, industrial parks and other businesses.
Uniqlo protested and submitted a cache of documents to show that the raw cotton used to make the shirts came from Australia, Brazil and the U.S., not China, according to the CBP documents. While CBP officials accepted that, they rejected Uniqlo’s request to release the cargo, saying the company failed to prove that the shirts, which were sewn in eastern China far from Xinjiang, weren’t made with forced labor, the documents showed.
Uniqlo said in a statement that it submitted all appropriate documentation and that CBP previously allowed imports of goods manufactured through the same process. “No cases of forced labor have been found in the supply chain of our products,” the company said.
CBP cited “numerous deficiencies” in Uniqlo’s submission, including illegible purchase contracts and unsigned and undated Chinese customs declarations. The agency had asked Uniqlo to provide documents such as time cards and pay stubs of workers who picked the cotton.
Apparel industry representatives said CBP is placing an undue burden of proof on importers without providing clear guidance.
“It turns U.S. jurisprudence on its head. As opposed to innocent until proven guilty, it is now guilty until proven innocent,” said Nate Herman, senior vice president of policy at American Apparel & Footwear Association. ”Companies don’t know what they are trying to prove because they don’t know what part of the shipment triggered the detention or why it was in violation.”
One problem, all sides said, is CBP’s lack of manpower.
A Government Accountability Office report in October said CBP’s shortage of staff “limits its ability to pursue forced labor investigations.” In a March report, the congressional watchdog urged the agency to be more transparent about the criteria and evidence that it uses to modify and withdraw its detention orders.
Ms. Hinojosa said that with an increased budget, the agency is in the process of expanding its forced labor enforcement capabilities, including doubling the staff of the forced labor division, and providing more resources to the public about its withhold and release orders.
“Everything about our program has been an evolution. We have been maturing our program over the last several years,” she said.
To Read More: https://www.wsj.com/articles/bans-on-forced-labor-goods-from-china-fuels-disputes-with-importers-11624881600
AHFA Logistics Conference: Dealing with the ocean freight dilemma
(FurnitureToday) Grappling with supply chain costs and constrictions dominated conversations at the AHFA Logistics Conference here earlier this month, and ocean freight took up more than its share of those.
The high cost of landing a spot on crowded container ships is likely to last well into next year, according to Gulfstream Shippers Assn. CEO Freddie Davis and CV International Director of Pricing and Procurement Rachel Shames, who discussed navigating a challenging ocean freight environment at the conference.
With the holiday season approaching followed by Chinese New Year shutdowns, they don’t expect relief until 2022’s second quarter in a best case.
Contracts aren’t counting for much in a lot of cases when it comes to getting goods on the water, and Davis said shippers should be in constant communication with carriers. Right now, though, it’s “what you’re willing to pay.”
“If you have direct contracts and (carriers) aren’t honoring them, fight, fight, fight as much as you can,” he said.
Shames noted that the Federal Maritime Commission has made it clear they won’t get involved in the rate situation. “Congress is talking about pushing carriers to take agricultural export loads,” she said, in order to fill containers to get them back to Asia quicker. She added it’s also discussing enforcement of guidelines to ease port congestion, “but on rates, no.”
The only way the situation will change soon, Davis said, is if “the American people quit buying, and if the government keeps handing out money, it will keep going.”
How do shippers keep customers loyal during these long delays? Davis said it’s important to keep the long game in mind: “If I called my pricing guy and said I was taking my (container) rate up $1,500, people would pay it, but I play the long game. Be honest; be transparent about problems. Do not take advantage of your customers in this situation.”
Better, more frequent forecasting of ocean freight needs can help shippers right now. “Bookings need to be requested a full month ahead, but your forecast should be for the full quarter,” Shames said. “Looking at what you’ll need is critical for carriers to plan, and if they can see those trends, they can make changes to help” even if capacity stays tight.
“You’ll have more success if you can be more consistent on a weekly basis of what you’ll need,” she said. For example, ordering 20 containers one week and five the next “is not good.”
Davis said shippers should not worry right now about high inventory levels. “Even if you have a lot of product right now, keep ordering it, and if you’re placing orders from the factory, you tell us,” he said.
Shames added that with inventories at record lows, it’s critical to keep ordering even if demand drops: “Inventories will still need rebuilding.”
She also anticipates more variable costing models on carriers’ part moving ahead, and that can be expensive. “It comes down to whether you can wait” on the product, Shames said. “You have to prioritize between what you need now and what you can wait for.”
It’s not worth shippers’ time to force carriers to comply with contracts: “They have more money than you can spend,” Davis said, noting that foreign ship registrations complicate any legal proceedings from the States. “Unfortunately the U.S. doesn’t own ships that ship; we own ships that shoot at you.”
He did single out Maersk — the only ocean carrier that showed up at the conference — as a line that was trying to help the situation. “Maersk told the truth when they said they try to measure their business and pay attention to allocations. We need more carriers to do that.”
To Read More: https://www.furnituretoday.com/industry-issue/ahfa-logistics-conference-dealing-with-the-ocean-freight-dilemma/
Do You Need Customs Brokerage Help? You can contact us at firstname.lastname@example.org