Regulatory Challenges of International Logistics, Research Paper Example

Abstract

The below paper is designed to review the main challenges that international regulatory requirements create for the international logistics industry, and supply chain managers. Without considering restrictions and regulatory risks, companies would see their profits wiped away, and lose their competitive advantage over other companies offering the same services. The author of the current study would like to review related literature to summarize the main issues related to international, industry-based logistics regulations and national trade (export-import) policies.

Introduction

In the changing globalized environment, supply chain managers and logistics experts need to look ahead to spot challenges in time and prepare the organization for upcoming challenges. The recent government regulations worldwide to increase companies’ sustainability and regulate the market, rewarding firms that are “greener” have already started. However, as companies are dealing with developing countries where regulations are just being formed, it is important to deal with the changes and be flexible as an organization. Developing supply chains that are easy to adapt to new requirements is essential to succeed in the competitive landscape of international logistics.

Review of Regulatory Challenges

Hollweg & Wong (2009) categorized the regulatory challenges of the international logistics industry as: customs documentation (export-import regulations and fees), customs broker license regulations, restrictions in the hours of operation, cargo-handling licenses, and the change in cargo reservation laws. Further, the authors also state that future government monopoly changes can affect the profitability of international shipment. Examining six ASEAN countries’ regulations regarding shipment of goods, the study found that in every individual country, international cargo regulations were significantly higher than those that applied to domestic shipment. Many of the countries examined, such as China, Vietnam, and India are active international trading countries, therefore, their restrictiveness should be considered when planning logistics operation. As an example, the authors mention that “in China trucks are not allowed daytime access in almost all major Chinese cities” (Hollweg & Wong, 2009,  p. 21). This could have an impact on supply chain management, logistics efficiency, and profitability.

Dey, LaGuardia & Srinivasan (2011) state that increasing sustainability within supply chains is just as important as reducing costs and improving sales. The authors conclude that “Unsustainable practices hidden in the supply chain has the potential to become public information extremely quickly, leaving a company’s brand value damaged and shareholders displeased” (p. 1238). However, maintaining the company’s reputation is only one of the reasons why companies should consider introducing sustainable practices. Being prepared for government intervention is likewise important. According to the authors (Dey, LaGuardia & Srinivasan, 2011, p. 1242), many EU and developing countries have developed or are in the process of creating policy guidelines to reduce pollution, waste, and are exercising more control over the industry than ever before. Several new and improved international standards of regulations exist regarding logistics and transport. While many of these frameworks and protocols are not yet compulsory for international companies, the authors suggest that governments – due to public pressure – are going to turn them into industry standards and regulations. One of these frameworks mentioned by the authors  (Dey, LaGuardia & Srinivasan, 2011, p. 1242) is the The United Nations Framework Convention on Climate Change (1992). Further protocols, such as the Kyoto Protocol of 1997, the recommendations of the Copenhagen Summit (2009), and “cap and trade” guidelines are likely to result in related restrictive regulations. The introduction of “cap and trade” agreements would affect logistics companies in particular. According to the approach, every company would have an emission allowance, and this would be recorded on their permits. If the company wishes to extend their allowances, they would need to “buy” further units at a price set by the regulator. As the authors summarize: “If a new cap and trade system is implemented internationally, the US Chamber of Commerce estimates that diesel fuel could increase by as much as 88 cents per gallon. For the freight industry, which the cost of fuel purchased today to make deliveries may not be recouped for 30, 60, or 90 days; such fuel cost increases would potentially have a devastating impact”  (Dey, LaGuardia & Srinivasan, 2011, p. 1243). This would create a great regulatory challenge for logistics companies. It is important that companies consider the risk of new regulations in order to maintain their competitiveness and profitability.

Examining maritime international transport, Widdowson & Halloway (2009), research has found that security of transport services has been tightened continuously since September 11, 2001. The authors find that in many cases governments and regulators are not effective enough in communicating compliance requirements with international companies. While the OECD recommends that governments and international regulatory bodies shift from the “from a culture of control to a culture of client service” (Quoted in: Widdowson & Halloway, 2009, p. 19), compliance assessments could be introduced by individual governments without consultation with industry representatives. The study recommends that organizations introduce measures to make their supply chain more visible. This would allow governments to engage in collaborative policy-making consultation, provide recommendation for improvements, and help international logistics companies create internal guidelines, measures, and standards. Aligning self-regulation with government policies is the best approach towards full compliance and regulatory risk reduction, according to the findings of the research (Widdowson & Halloway, 2009, p. 26). The study also mentions some currently considered regulatory initiatives that might be turned into compulsory regulations for all international logistics companies. One of them is the “10+2 Rule”,  setting a minimum of ten pieces of information included in import documents. The other one is 100 per cent container scanning requirement within the US for overseas cargo.

A recent OECD report (2002) highlighted international challenges of transport logistics. The paper, prepared for regulators, governments, and international organizations provides important details about the future of the industry’s global regulatory environment. One of the areas that were not covered by previous articles reviewed was training requirements and qualifications. The study recommends that this is one of the areas OECD is focusing in the future when making policy recommendations. As the document states: “It is important that both policy makers and company executives pay attention to logistics studies and practice, and make training of personnel a top priority” (OECD, 2002, p. 45). The above statement indicates that new training and qualification standard requirements are going to be introduced in the international field of logistics on a global and national level. Regarding policy-making, the report’s recommendation states that “Governments need to develop the framework to encourage private sector involvement in the financing and operation of infrastructure, while recognising the negative effects of infrastructure use by applying “correct” pricing policy” (OECD, 2012. p. 39).

Another forum held about the global logistics and supply chain industry (World Economic Forum, 2013) found that the main vulnerability of the industry lies in over-regulation and the vulnerability of trade agreements. The analysts of the forum state that many international companies have to meet various requirements and norms set by different governments. The lack of harmonization between countries’ standards and measures would increase “trade costs more

for foreign than domestic suppliers” (World Economic Forum, 2013, p. 11). “Building risk resilience” (World Economic Forum, 2013, p. 20) is also mentioned as one of the activities companies should be focusing on in order to maintain their competitive advantage. The authors, mentioning the 2011 earthquake in Tokyo state that companies should be prepared to changes and challenges, by making their supply chain flexible and creating risk assessments and contingency plans.

Conclusion

The above examined publications and research studies have revealed that international logistics companies are extremely vulnerable to policy changes, regulatory standard and protocol introductions, and environmental challenges. Supply chain managers should study national and intergovernmental initiatives and create active collaborative agreements with representatives of international organizations, such as OECD in order to successfully prepare for the challenges ahead. Becoming more sustainable, while creating an effective, flexible, and cost-efficient supply chain is important for every company that is trying to maintain their competitive advantage and achieve a hundred percent compliance on the national and international level. Without being aware of regulatory changes, taking part in collaborative consultation, companies could lose out. Actively seeking guidance from government agencies and industry organizations is essential to create the supply chain management model of the 21^st century.

References

Dey, A.,  LaGuardia , P. & Srinivasan, M. (2011) Building sustainability in logistics operations: a research agenda. Management Research Review. Vol. 34 No. 11, 2011 1237-1259

Hollweg, C. & Wong, M. (2009) Measuring regulatory restrictions in logistics services. Working Paper.  ERIA Research Project Working Group

OECD (2002) Transport logistics. Shared solutions to common challenges. Retrieved from http://www.internationaltransportforum.org/pub/pdf/02LogisticsE.pdf

Widdowson, D. & Halloway, S. (2009) Maritime transport security regulation: Policies, probabilities and practicalities. World Customs Journal. Volume 3, Number 2

World Economic Forum (2013) Outlook on the logistics & supply chain industry 2013. Global Agenda Council on Logistics & Supply Chain Systems 2012-2014