All about the Harmonised System Code

All about the Harmonised System Code (HS Code), how to find the correct code for the product along with their importance, correct uses & the consequences of incorrect usage

If you are in the business of exporting and importing goods, you would be familiar with the Harmonised Commodity Description and Coding System, better known as the Harmonised System (HS) or Harmonised System of Nomenclature (HSN). It is a universally accepted method of classifying traded goods. Its main function is to help customs authorities identify products and assess the right duties and taxes on them. In the Harmonised System, each product is assigned a unique numerical code called the HS code. This code has a minimum of six digits and can typically go up to 10 digits (though China has a 13-digit code). While exporting or importing, it is mandatory to include your product’s HS code in your shipping documents, such as your commercial invoice, packing list and shipping bill. And as an exporter or importer, it is your legal responsibility to correctly identify your product’s HS code. Incorrect classification can lead to problems that you’d be better off avoiding.

 

Given the importance of the Harmonised System and its correct application in international trade, this article contains the below information you require, including:

What is the Harmonised System?

What is an HS code?

Why are they important?

What is the ITC (HS) code?

How do you use HS codes correctly?

What happens when you use them incorrectly?

What is HS Code under GST - New rule?

How to find the HS code for your product  

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What is the Harmonised System?

The Harmonised System was a solution to the complications and costs associated with having different product classification systems for different countries. Before its creation, a single product could be classified as many as 17 times in a single transaction, according to this report. The Harmonised System came into effect on January 1, 1988. It is administered and updated every five years by the Belgium-headquartered World Customs Organisation (WCO). The system is used by more than 200 countries and economies and covers more than 98% of goods in international trade.

 

The Harmonised System comprises more than 5,000 groups of goods. These are grouped into 97 Chapters and 21 Sections. Each chapter is divided into headings and, where appropriate, sub-headings. As a rule, goods are arranged in order of degree of manufacture – raw materials first, then unworked products, semi-finished products and, finally, finished products. So, Chapter 1 is “Live Animals”, Chapter 41 is “Raw Hides and Skins (other than Furskins) and Leather” and Chapter 64 is “Footwear”.          

 

In the Harmonised System, each product is identified by a six-digit code, arranged in a legal and logical way based on certain rules. The six digits of an HS code can be broken down into three parts:

 

The first two digits identify the chapter the goods fall in. Example: 09 (Coffee, Tea, Maté and Spices)

The next two digits identify a heading within that chapter. Example: 0901 (Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion)

The last two digits denote a sub-heading that makes the classification even more specific. Example: 090111 (Coffee, not roasted, not decaffeinated). In the absence of a subheading, the last two digits will be indicated by zeroes.

HS Code Structure

Source: World Customs Organization

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There are certain rules that govern the Harmonised System and HS codes. These are:

 

1. General Rules for the Interpretation of the Harmonised System: These ensure a specific product is universally associated with a single heading (and subheading) and not with any other. There are six general rules of interpretation (GRI) and they are hierarchical, as in GRI 1 takes precedence over GRI 2 and so on.

 

GRI 1 states that “classification is determined by the terms of the headings and of the section or chapter notes”. If classification cannot be thus determined, then GRI 2 to GRI 5 are applied.

GRI 2 has two parts. GRI 2 (a) extends the scope of a heading to cover not just finished products but also “incomplete”, “unfinished”, “unassembled” or “disassembled” products, provided they have the “essential character” of the finished product. GRI 2 (b) extends the scope of a heading to cover mixtures or combinations of materials or substances, which must then be classified according to GRI 3.

GRI 3 lays down the rules for classifying goods that fall under more than one heading. GRI 3 (a) calls for classification under the heading with the most “specific description”. But if two or more headings refer to only a part of the materials or substances in the composite product, then these headings are regarded as “equally specific”. In this case, GRI 3 (b) applies, which says the product will be placed in the “heading applicable to the material or component which gives them their essential character”. If the product cannot be classified on the basis of GRI 3 (a) and GRI 3 (b), then GRI 3 (c) provides for its  classification “in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification”.

GRI 4 applies to goods not specifically covered by any heading (perhaps because they are newly introduced). These will then fall in the “heading appropriate to the goods to which they are most akin”.

GRI 5 applies to the classification of boxes, containers and cases in which products are packed (cases for cameras, guns, jewellery, etc). The classification of any packaging that doesn’t fall under GRI 5 is left to the discretion of countries.

GRI 6 applies to the classification of goods in the sub-headings.     

                              

 

2. Section, chapter and subheading notes: Certain sections, chapters and subheadings of the Harmonised Systems come with notes. These notes help interpret the specific sections and chapters by precisely defining their scope and limits. Like the GRIs, these notes are legally binding and are therefore also called “legal notes”.      

 

Importance of the Harmonised System ‍

The primary function of the Harmonised System is to act as a basis for customs tariffs worldwide. But it has other uses as well, such as:

 

The collection of international trade statistics

The collection of internal taxes such as excise duties and value-added tax (VAT)

As a basis for freight and transport tariffs

As a basis for rules of origin (which are the criteria to determine the national source of a product)

As a basis for the setting of preferential tariffs and MFN (most favoured nation) tariffs under free trade agreements

As a basis for governments to decide their trade policies

For the monitoring of controlled goods (narcotics, chemical weapons, endangered species, waste, etc)

As a facilitator of customs controls and procedures such as risk assessment and compliance

What is the ITC-HS code? ‍

As mentioned earlier, an HS code can go beyond the WCO-prescribed six digits. This is because countries are allowed to add more digits to the original six-digit code for further classification. These additional digits typically vary from country to country.

 

The United States uses a 10-digit code where the first six digits are the WCO-provided HS code. The US code is called a Schedule B number for export goods and a Harmonised Tariff Schedule (HTS) code for import goods.     

 

Similarly, in India, goods for export and import have an eight-digit code called an ITC (HS) code, where ITC stands for Indian Trade Classification and/or Indian Tariff Code. This system has two schedules – Schedule I for imports and Schedule II for exports. Schedule I has 21 sections and 98 chapters. The chapters are further divided into headings and subheadings. Schedule II has 97 chapters. The ITC (HS) codes are developed, maintained and updated by the Directorate General of Foreign Trade (DGFT).

 

An ITC (HS) code comprises the six-digit HS code plus a two-digit national “tariff item code”. For example, if the ITC (HS) code is 09011111, then

 

09 – Coffee, Tea, Maté and Spices

0901 – Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion

090111 – Coffee, not roasted, not decaffeinated

09011111 – Arabica plantation: A Grade

ITC (HS) Code Structure India

Source: Indian Customs

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How to use HS codes, and the consequences of incorrect usage

HS codes are used by governments, customs authorities, statistical organisations, regulatory bodies and traders. As an importer/exporter, you are legally bound to classify your goods correctly and enter the correct HS code in your shipping documents.

 

Using the correct HS code ensures:

You pay the right duty

You receive the benefits you are eligible for, such as a suspension of customs duty

You are informed of whether your product attracts anti-dumping duty, requires a special licence to be shipped or comes under a trade quota 

Incorrect HS code usage means you end up paying a higher or lower rate of duty. When discovered, this can result in:

Steep fines and penalties imposed by customs authorities

Denial of import-export privileges

Denial of refund or a lengthy process to claim a refund if you have paid a higher rate of duty

Payment of duty difference plus interest if you have underpaid

Confiscation of goods if you have underpaid, which is the practice in some countries. The goods are released only after the fine has been paid and certain documents submitted       

Rejection of input credit tax (ITC) claim under the Goods and Services Tax (GST)

Shipping delays and the effects of that on your business

Additional expenses (demurrage/detention/storage charges, etc) as a result of the delay            

HS Code under GST – New rule

As of April 1, the Indian government has made it mandatory for Goods and Services Tax (GST) taxpayers with a turnover of Rs 5 crore or more to include the international six-digit HS code in invoices they issue for the sale of taxable goods and services. The earlier requirement was a four-digit code. Similarly, taxpayers with a turnover of up to Rs 5 crore must include a four-digit HS code on B2B (business to business) invoices. The earlier requirement was a two-digit code. Thus far, many GST taxpayers have been voluntarily including six-digit HS codes on their invoices and GST returns. The objective behind the move, according to this report, is to make taxpayers furnish a more precise HS code so that tax officials can “arrest tax evasion from fake invoices and irregular tax credit claims”.

 

 

How to find the right HS code for your product

Use search tools: In India, you can use the ITC (HS) code search tools on Icegate, which is Indian Customs’ electronic data interchange platform, or on the Indian Trade Portal, which is the property of the Commerce Ministry. In both search tools, you need to enter part of the ITC (HS) code, if you know it, or a brief description of your product. Similarly, to move goods in and out of the US, you can use the US Census Bureau’s Schedule B search tool or the US International Trade Commission’s HTS search tool. For the UK, you can use the Trade Tariff tool, provided you  know the type of your product, the material used to make it, and its production method.

Go through HS code lists: A simple Google check is all it takes to find one of these lists. The current version of the Harmonised System, which is the 2017 edition or HS 2017, is available on the WCO website. In India, you can search the DGFT website or several non-governmental portals for the ITC (HS) code list. In the US, you can look up the Harmonised Tariff Schedule on the ITC website. Once you get to the list, click on the relevant chapter and search through the headings and subheadings to find the right HS code for your product.

 

 

Important points to remember

HS codes vary from country to country. If you are exporting, for example, find out the correct HS code for your product in the country of import, as it might be different from the HS code for the same product in your country. A single digit might be all that is different but it could lead to your goods getting stuck, delayed or even rejected.

HS 2022 has been approved and will come into effect from January 1, 2022. With 351 amendments, it makes several major changes to HS 2017. Rules governing the classification of certain goods – including electronic waste, tobacco and nicotine-based products and smartphones – will reportedly change. Traders must familiarise themselves with these changes before the new system kicks in.

Look out for updates and amendments. In June 2020, for example, the Indian government made amendments to Appendix 3 of Schedule II of the ITC (HS) Classification system, which deals with the export of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) items. These include controlled substances such as nuclear material, toxins, aerospace systems, electronics and even computers. The amendments included changes in headings, new entries, the deletion of some entries and the addition of some notes, among others.

Most traders leave the classification of their products to their customs agents. Make sure you pick a professional with experience in this field. Remember, customs will hold the owner of the goods (exporter or importer) and not the agent responsible for any classification violation.

Just-in-time (JIT) and just-in-case (JIC)

Just-in-time (JIT) and just-in-case (JIC)

Just in Case, often referred to as Just in Case Manufacturing or (JIC), is the traditional production model in which finished goods are created in advance and in greater quantities than expected demand. The excess is produced and stocked ‘just in case’ demand suddenly rises or the supply of raw materials and components dries up. JIC is also an inventory management strategy – inventory levels are kept as high as possible.

Just-in-time (JIT) and just-in-case (JIC) are on opposite ends of the inventory philosophy spectrum: One aims for lean operations, the other makes stockpiling a priority. Both are commonly employed in manufacturing and distribution, but any business providing tangible products, such as retail or food and beverage, falls somewhere on the JIT versus JIC curve.

No matter the industry, making the most of inventory requires planning and a solid grasp of current and future customer demand. There are several points about JIT and JIC inventory management that companies should understand to successfully carry out either just-in-case or just-in-time inventory learning objectives or a combination of both.

Choosing Between Two Inventory Management Strategies

Companies committed to just-in-time inventory focus on making the supply chain as lean as possible. It’s a reactive strategy, where inventory purchasing decisions are based on current conditions.

In contrast, those that prefer a just-in-case inventory approach are proactive. Purchases are made to maintain a healthy stockpile and avoid running out of raw materials or work in progress items and slowing or stopping production.

A JIT model is something to aspire to because it aims for a sustainable process, with reliable suppliers and stable demand. JIC is suitable for cases where having adequate inventory is nonnegotiable. JIC companies are often more agile and able to respond to sudden demand increases.

For both JIT and JIC, the term "inventory" refers to raw materials and supplies used in production, unfinished items in various stages of the manufacturing process and final products.

Examples of unfinished, or work in progress, items include motherboards with CPUs installed that are ready to have memory modules attached in the next stage of building a laptop.

What is just-in-time (JIT)?

In inventory management, "just-in-time" means having inventory arrive precisely when needed, no sooner. Another way of referring to JIT inventory management is as a "pull" system. A pull system means supplies are replaced as goods are consumed rather than proactively.

Just-in-time inventory management consists of two core principles:

Materials must arrive when production is expected to begin.

Materials should not arrive before production is expected to begin.

These are important distinctions because production can't go forward without inventory, but the business can incur storage costs if the inventory arrives too soon.

The goal of a JIT inventory strategy is to balance production volume with inventory levels and ensure the company keeps only the stock that's necessary for near-term work on hand. It's an effective method for attaining high production levels with minimal inventory holding and supply costs.

This inventory strategy works best when a company works with reliable suppliers that provide consistent quality, doesn't experience shipping disruptions and pens long-term contracts that minimize price fluctuations.

One of the most significant downsides to just-in-time systems is that unexpected supply chain interruptions in any area can derail the entire process. For example, a sudden shortage of raw materials or bad weather that slows shipments may have a dramatic effect on production.

What is just-in-sequence (JIS) vs. just-in-time (JIT)?

Just-in-sequence (JIS) inventory management is a variation on JIT. The main differentiator between just-in-time and just-in-sequence (JIS) is that JIS ensures inventory arrives in the specific order in which it is used in production. JIS is associated with assembly lines, such as automotive or large appliance manufacturing, where items arrive at the line position at the time they’re needed.

What is just-in-case (JIC)?

Just-in-case inventory strategies are based on expected sales and require companies to purchase supplies proactively to meet any level of demand, within defined parameters. Businesses that use JIC may avoid the effects of common inventory management challenges such as supplier delays, unexpected increases in demand or spikes in the cost of a material or component.

Just-in-case inventory prioritizes preparedness over the cost and cash flow implications of holding stock in reserve. It protects businesses from falling behind in production or losing revenue because they couldn't meet demand.

This inventory management strategy pays off when demand is difficult to predict or a raw material or component is subject to sudden surges in price or going out of stock. It's also helpful in environments where suppliers aren't reliable.

A significant weakness of the JIC method lies in the fact that these systems can be wasteful if demand slows down and inventory stagnates. You’re also tying up cash.

Just-in-Time vs. Just-in-Case: Pull vs. Push

Companies use just-in-time inventory to reduce excess supply and create a lean production process, while just-in-case inventory is used to avoid running out of stock due to a sudden increase in demand. Both strategies provide companies with benefits, but there are drawbacks, as well.

Just-in-time

Just-in-time inventory management optimizes the supply chain, but there are caveats.

Advantages

Just-in-time inventory benefits those with efficient operations and is good for the bottom line. This strategy also prevents overproduction and minimizes transport costs. Other benefits:

Efficient use of resources: JIT inventory management reduces the risk of overordering and having supplies sit idle. This allows the company to divert resources from that inventory to other business areas.

Less waste: There is less waste as businesses keep only the stock they need for production. That is particularly helpful for businesses depending on perishable supplies.

Reduced costs: Eliminating overbuying reduces supply costs directly since companies only purchase what they use immediately. Eradicating stagnant inventory also cuts warehousing expenses, including labor and administration.

Increased agility: Using JIT reduces the amount of time it takes to change over inventory when fluctuations in demand occur or products change.

Disadvantages

Just-in-time inventory management can increase issues in some key areas. For example, when using JIT, companies order bare minimums of items based on projections. However, if there's a sudden, unexpected surge in demand, there may not be enough products or supplies on-hand. Other downsides:

Supplier stability needed: The success of a just-in-time inventory strategy relies on the timeliness and consistency of suppliers. However, companies have little control over supplier operations, and even previously reliable partners can experience disruptions that ultimately cause delays for the receiving company. Then there are unforeseen shipping delays to consider.

Inability to meet unexpected demand: The just-in-time inventory method also requires few to no fluctuations in demand. Some variations are predictable and planned for, such as seasonal trends, but unexpected spikes or valleys make it difficult to maintain the necessary stock stability.

Pricing risks: A JIT strategy can be more expensive than JIC if materials cost less during certain parts of the year, meaning stocking up would be prudent. Businesses may also lose out on savings because they don't take advantage of bulk-buying discounts.

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Just-in-case

Companies that employ a just-in-case inventory strategy enjoy several benefits, but it is not without downsides.

Advantages

Just-in-case inventory management can facilitate growth and profitability in a few ways.

Increased competitiveness: Companies can keep up with most any level of demand, increasing their competitive edge and even boosting market share if they can meet demand when a competitor is out of stock.

Fewer lost sales: With JIC, companies reduce the risk of lost sales due to a lack of inventory. JIC inventory allows companies to continue production while waiting for stock to be replenished.

More wiggle room in demand forecasting: There is less need for precise demand projections because inventory levels are high enough to keep up with demand.

Savings: Companies can take advantage of bulk discounts or make large purchases when prices are lowest, decreasing direct procurement costs.

Disadvantages

Just-in-case doesn't address all inventory issues and creates a few of its own.

Additional storage costs: Companies incur more carrying costs to maintain the excess inventory. These costs can be high, equaling 20% to 30% of total inventory value.

Increased opportunity costs: Capital is tied up in inventory. That takes flexibility away from other aspects of the business and increases opportunity costs.

Wasted stock: There is an increased risk of stock spoiling or becoming obsolete if items don't sell. This risk is particularly significant if the goods are perishable, seasonal or part of a flash-in-the-pan trend.

jit vs jic inventory on netsuite

Just-in-Time vs. Just-in-Case: What's the Difference?

Just-in-Case Just-in-Time

A "push" system where inventory purchases are not based on actual current demand. A "pull" system where inventory is essentially purchased to order.

Focuses on maximizing flexibility with less concern for capital application. Focuses on minimizing inventory and using capital efficiently.

Excess inventory is kept on hand to avoid running out due to supplier delays or demand spikes. Inventory is purchased only to meet immediate production or sales needs.

Companies generally make larger, more expensive inventory orders Less working capital is required because inventory purchases occur in smaller batches.

Valuable when demand is unpredictable or suppliers are unreliable. Works best when demand is stable and suppliers are highly dependable.

Demand forecasting is less critical as long as there is enough inventory to meet the highest demand. Requires accurate demand forecasts to avoid over- or under-buying inventory.

Choosing the Right Strategy for the Right Time: A Hybrid Model

There are more cons than pros from hewing strictly to either a JIC or JIT inventory management strategy. In the real world, they work best in tandem. Companies that develop a hybrid inventory management model that combines the buffer of just-in-case inventory with just-in-time's conservative use of capital can have the best of both worlds.

Employing a hybrid system

A standard method of employing a hybrid push-pull inventory system is to have some stages of the supply chain operate as pull systems while others operate in a push model. This strategy requires a more accurate demand forecast than a JIC system but doesn't aim to keep standing inventory at zero, as in JIT systems.

The main objective is to address long- and short-term production and sales needs by keeping inventory levels low enough to be cost-effective but high enough to withstand supplier or production delays or meet increased demand.

The first step is an inventory analysis exercise, where you classify items as, for example, vital, essential or desirable and then consider how scarce an item is and how easily you can acquire it, as well as the likelihood of spoilage or obsolescence.

Companies can employ JIC inventory for vital, quick-turnover items, ensuring stock is always available but constantly consumed. JIC can also be helpful for scarce items that are available only from unreliable suppliers or that are often out of stock or have long lead times.

Of course, you might also look to find a more reliable or backup supplier.

Companies use JIT inventory for less popular items or those that sell in small batches. For example, the customization stage of a personalized t-shirt order would benefit from a JIT approach since there is no need to keep a stockpile of made-to-order items. However, a JIC approach should manage the inventory of plain t-shirts awaiting printed designs.

Economic order quantity

Knowing how much inventory to purchase is essential to apply a push-pull inventory system effectively. The economic order quantity (EOQ) formula helps this hybrid method of inventory management determine the optimum amount of stock to purchase.

It's written as:

EOQ = √KM/H

"K" represents the costs of inventory orders, "M" represents the amount of inventory used in a given period and "H" represents total inventory expenses — including warehousing, depreciation and opportunity costs — within the same period.

The resulting figure is the amount of inventory that a company should order.

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Successful companies integrate just-in-time and just-in-case inventory methods to achieve efficient, agile supply chain operations. This strategy creates a buffer allowing for an adequate response to unexpected demand or supplier issues while maintaining a minimal amount of inventory and keeping costs low.

However, ensuring that demand forecasts are accurate and optimizing the supply chain to ensure reliable operations is critical to either approach.

Modern enterprise resource management (ERP) software supports both JIT and JIC inventory to account for both push and pull. It provides granular and birds-eye views of current inventory levels, inventory in the pipeline and future demand. Look for a system can also gather and analyze supplier, inventory turnover and demand data to generate more reliable forecasts.

Agility, cost savings and the ability to meet demand are three pillars of effective inventory management. Getting the balance between JIT and JIC right can overcome many challenges, from shifting customer demand to limited visibility to poor production planning.

Challenges of Just-In-Time & How To Overcome Them

 Challenges of Just-In-Time & How To Overcome Them

Many global companies, most famously Toyota with its renowned Toyota Production System, have been using just-in-time (JIT) to improve efficiency and reduce waste. JIT refers to a management strategy that aligns the production of goods precisely with customer demand. It aims to create an ideal factory scene – every product is made just when it needs to be, resulting in zero wastage and zero surplus inventory.

However, the fragility of the JIT inventory system became apparent when the COVID-19 pandemic caused dramatic fluctuations in demand across industries, making it difficult to maintain appropriate inventory levels. In some cases, businesses were left with severe product shortages, while in others, they found themselves with an oversupply of products that were in low demand due to lockdown restrictions.

Moreover, the just-in-time model depends heavily on the reliable and swift transportation of goods. When lockdowns and workforce shortages disrupted global logistics, it caused significant delays and disruptions in the supply chain. With limited stock on hand due to the JIT approach, businesses were unable to fill the gaps with stored inventory and faced production shutdowns in some cases.

Now we are in 2024, and the question of whether JIT is still a good approach is not easy to answer. Read on as we look at the current difficulties with just-in-time inventory management and how best to handle these challenges!

Table of Contents

What are the challenges of JIT supply chains in 2024?

How businesses are adapting their JIT supply chains?

Crisis-proof supply chains are the key to business success

What are the challenges of JIT supply chains in 2024?

Working on an ‘as-needed basis’, JIT inventory systems are designed to closely sync with the manufacturing process, while keeping inventories as close to zero as possible. However, this tight alignment can sometimes prove challenging. Let’s take a look at some of the most significant challenges facing just-in-time supply chains.

Unpredictable consumer demand

Cutout paper appliques of hand with a glass magnifier

The first challenge of JIT systems is the volatile nature of customer behavior. According to a survey by Accenture involving 1,700 global C-suite leaders, a staggering 95% of executives from both B2C and B2B sectors perceive that their customers’ needs and expectations are evolving more quickly than their companies can adapt.

This rapid alteration in consumer behavior is hardly startling in today’s world, given that consumers are comprehensively connected via social media platforms. They are perpetually exposed to a myriad of new products, trends, and ideologies, which propels their appetite for novelty and transformative products. 

For instance, the latest iPhone model becomes obsolete the moment speculations arise about a new version’s launch. Similarly, the prevailing fashion trend can lose its appeal within just a few weeks.

The Just-in-Time (JIT) inventory system is intended for consistent, scheduled operations and doesn’t maintain additional stocks as a contingency to counter sudden shifts in demand. Consequently, if a product experiences an unforeseen surge in demand, companies may find it challenging to meet orders promptly, causing delayed deliveries and potentially missed sales opportunities.

Cost fluctuations

Wallet with coins, banknotes, and a credit card for payment

Since JIT relies on procuring materials exactly when needed in the manufacturing process, it becomes heavily susceptible to variations in supplier prices. A Boston Consulting Group (BCG) study reveals that raw materials often face market volatility due to supply disruptions, high demand, or significant price changes. This can impact production costs unpredictably.

Businesses using just-in-time (JIT) inventory systems may experience a sudden increase in operational expenses when raw material prices surge, as they lack a stock buffer to cushion against these fluctuations.

For example, a fashionable brand depending on cotton for their t-shirt line operates with a JIT system and orders cotton to save on storage costs. Unfortunately, severe weather affects global cotton supplies, causing prices to skyrocket. 

Without pre-purchased cotton, the brand’s cost of goods sold (COGS) rises, hurting its profit margins. They face the dilemma of either passing the costs to customers or damaging their profits.

Raw material shortages

In addition to the pressure caused by rising prices, the need for raw materials is set to become two times greater by the year 2050. However, these materials are becoming increasingly harder to get. This is particularly true for lithium, cobalt, nickel, and rare earth elements.

Think about technology companies like Apple, which use rare earth elements to make their products. In the JIT system, these elements should arrive at factories just when they’re due to be added to the products. 

But if something unexpected occurs, like a political issue or a natural disaster, and disrupts the supply of these elements, what happens then? The production of iPhones wouldn’t just slow down – it could stop completely if key parts are missing.

Overdependence on automation

Automation is the backbone of lean manufacturing as it increases productivity and reduces operational costs. However, when a JIT supply chain heavily depends on automation, technical glitches can disrupt the operations and cause major delays. 

For instance, a relatively small issue in an automated assembly line can stop production.

Furthermore, automation is rigid when dealing with sudden changes, such as an unexpected surge in orders, a shortage of materials, or an equipment failure.

Consider a food processing facility that uses automated machines for packaging and shipping. If there is a sudden change in packaging regulations or new labeling requirements arise, such as for allergens, it can create problems. In this situation, the machines need to be reprogrammed to include new information or adapt to different packaging, which can be both challenging and time-consuming.

How businesses are adapting their JIT supply chains?

After understanding the challenges of having a zero inventory system, let’s explore how various businesses are adjusting and strengthening their JIT supply chains to become more resilient.

Switching to Just-In-Case (JIC)

Many companies are turning to the just-in-case (JIC) inventory approach. JIC is a safety net. It involves keeping extra stock ready to counter unexpected scenarios, like sudden surges in orders or hiccups in the supply chain.

Even though this strategy may lead to increased inventory costs, the benefits of the JIC method often outweigh its costs:

Customer satisfaction: Keeping a sufficient inventory means a company can always meet its customers’ needs promptly. It avoids running out of stock and ensures timely delivery of orders, leading to satisfied and loyal customers.

Price stability: Holding surplus inventory protects businesses from short-term market price swings. They can buy and hold stock when prices are low, which helps maintain stability in costs.

Market adaptability: Having surplus inventory enables businesses to adapt to market changes quickly. Whether it’s a demand surge or a disruption in supply, companies can use their extra stock to smooth over these bumps, demonstrating adaptability and resilience.

Diversification of suppliers

Close-up photography of colorful plastic cones

Building a diversified supplier base is another strategy that businesses can use to make their JIT supply chains more resilient. In a JIT framework, any disruption from a single supplier can stop the entire production process, particularly where timing is crucial.

A great example of such mitigation in action is Toyota’s response to the 2011 earthquake and tsunami in Japan. Having learned from a previous crisis in 1997, Toyota developed a diversified supplier strategy, which enabled it to keep production going in the face of significant supply disruptions.

Creating a diverse network of primary and backup suppliers is beneficial and can be classified as follows:

1. Geography-based suppliers:

Local suppliers: These are close by, leading to shorter delivery times. If issues occur, they can be sorted out quickly due to the nearness and improved communication.

Global suppliers: These offer alternative supply options if local chains are disrupted. They can also give more competitive rates, due to lower production costs in their regions.

2. Lead time-based suppliers:

Short lead time suppliers: These are key during emergencies as they enable quick responses to unexpected demand or other supply interruptions.

Long lead time suppliers: These usually offer more affordable rates and are suitable for consistently demanded products.

Increased localization

Just-in-time supply chains relying on international suppliers can be susceptible to risks such as trade restrictions, changes in currency value, political instability, and even natural catastrophes. 

To fight these challenges, localizing production can be helpful by sourcing materials mostly from suppliers located in the same country or region. Here are some advantages of utilizing local assembly units:

Faster lead times: Local suppliers can hasten the acquisition process, resulting in businesses being more apt to fulfill customer needs.

Decreased transport expenses: Having sources closeby lowers transportation costs since components can arrive at production facilities without traveling far.

More efficient production: The closeness of suppliers to the production sites helps businesses streamline their production lines, coordinating JIT deliveries with production timetables.

Looking back at 2018, a growing trade war between the U.S. and China negatively affected many industries including the bicycle manufacturing sector. The U.S. imported a lot of bicycles from China, which underwent a hefty 25% tariff. As a result, a U.S.-based bicycle manufacturer, Huffy, saw their costs increase by millions and had to raise prices, resulting in decreased sales.

On the other hand, Canyon Bicycles, which assembles its bicycles in Germany, was less affected. Although they sourced parts worldwide, having an assembly location closer to their main European markets helped mitigate the effects of tariff disruptions. This helped keep their costs and pricing relatively steady.

In-house manufacturing

Wine bottles on an industrial machinery

“Why purchase a loaf when you can bake your own?” Making raw materials in-house, instead of outsourcing them, has become a strong strategy to make JIT supply chains that rely heavily on timing much more resilient.

In-house production of raw materials can lead to cost savings by eliminating the need for markups and transport fees charged by third-party suppliers.  Moreover, producing raw materials in-house allows businesses to control the quality of their inputs more closely, ensuring consistent standards and reducing the risk of defective products. 

While in-house manufacturing offers considerable benefits, it’s important to understand that it might not be practical, achievable, or cost-effective for all parts of a product. Therefore, it’s important that businesses prioritize the production of key components that can be manufactured internally without the need for substantial investments or drastic changes to the current production setup.

Take, for example, a chocolate manufacturer that relies on a supplier for its raw cocoa nibs, the core ingredient in chocolate production. The company could purchase raw cocoa beans and roast them in-house to create their cocoa nibs. 

Minimal investment in a roaster and basic processing equipment would allow them to have better control over the quality, flavor profile, and consistency of the cocoa nibs. Consequently, this not only enhances their chocolate products but also ensures reliable and constant availability of the crucial ingredient whenever needed.

Crisis-proof supply chains are the key to business success

In summary, recent global disruptions have challenged the once-praised just-in-time supply chains. These challenges spotlight the urgent need to crisis-proof supply chains in today’s unpredictable business landscape. 

Irrespective of the management strategy adopted, building resilient supply chains—through measures like supplier diversification, increased inventory buffers, and advanced predictive analytics—is not just a choice but a crucial requirement for survival. Explore other inventory management techniques and equip your business with the right tools to handle future uncertainties!

How can GEN AI revolutionize Supply Chain

Generative AI injects agility into your supply chain. By predicting demand fluctuations, pinpointing supply chain disruptions before they hit, and optimising logistics for cost reduction, GenAI acts as a strategic co-pilot. 

Generative AI in supply chain goes beyond basic automation, offering risk assessments, production planning, and demand forecasts, all tailored to your specific needs. This foresight allows you to make informed decisions, streamline operations, and navigate disruptions with confidence.

How does generative AI help supply chain?

By analysing vast amounts of data, GenAI can predict changes in demand and supply chain disruptions and optimise logistics networks. Generative AI in supply chain empowers businesses to make data-driven choices, streamline operations, adapt to unexpected challenges, and improve supply chain efficiency.

Generative AI (GenAI) can revolutionize the supply chain in various ways, including:

1. *Predictive Analytics*: GenAI can analyze historical data, market trends, and real-time information to predict demand, detect anomalies, and forecast potential disruptions.

2. *Smart Inventory Management*: GenAI can optimize inventory levels, reduce stockouts, and minimize overstocking by analyzing sales patterns, seasonality, and supplier lead times.

3. *Automated Procurement*: GenAI can automate procurement processes, such as identifying suppliers, negotiating prices, and managing contracts.

4. *Intelligent Logistics*: GenAI can optimize routes, modes of transportation, and warehouse operations to reduce costs, lower emissions, and improve delivery times.

5. *Supply Chain Visibility*: GenAI can provide real-time visibility into the supply chain, enabling proactive decision-making and risk mitigation.

6. *Risk Management*: GenAI can identify potential risks, such as natural disasters, supplier insolvency, and geopolitical events, and suggest mitigation strategies.

7. *Sustainable Supply Chain*: GenAI can analyze and optimize supply chain operations to reduce carbon footprint, waste, and energy consumption.

8. *Autonomous Warehouses*: GenAI can enable autonomous warehouses, where robots and drones manage inventory, picking, and packing.

9. *Dynamic Pricing*: GenAI can analyze market conditions, demand, and competition to optimize pricing strategies.

10. *Collaborative Robots*: GenAI can enable collaborative robots (cobots) to work alongside humans, improving efficiency, safety, and productivity.

11. *Real-time Monitoring*: GenAI can monitor supply chain operations in real-time, enabling swift response to disruptions and exceptions.

12. *Personalized Logistics*: GenAI can create personalized logistics experiences for customers, tailoring delivery options, and communication to individual preferences.

By transforming the supply chain with GenAI, companies can achieve significant improvements in efficiency, agility, and sustainability, leading to increased customer satisfaction and competitive advantage.

India's Trade

Despite persistent global challenges, overall exports (merchandise + services) estimated to surpass last year’s highest record. It is estimated to reach USD 776.68 Billion in FY 2023-24 as compared to USD 776.40 Billion in FY 2022-23.

FY 2023-24 closes with highest monthly merchandise exports of the current FY in March 2024 at USD 41.68 Billion.

Non-petroleum & Non-Gems & Jewellery exports increase by 1.45% from USD 315.64 Billion in FY 2022-23 to USD 320.21 Billion in FY 2023-24.

Main drivers of merchandise export growth in FY 2023-24 include Electronic Goods, Drugs & Pharmaceuticals, Engineering Goods, Iron Ore, Cotton Yarn/Fabs./made-ups, Handloom Products etc. and Ceramic products & glassware.

Electronic goods exports increase by 23.64% from USD 23.55 Billion in FY 2022-23 to USD 29.12 Billion in FY 2023-24.

Drugs and pharmaceuticals exports increase by 9.67% from USD 25.39 Billion in FY 2022-23 to USD 27.85 Billion in FY 2023-24.

Engineering Goods exports increase by 2.13% from USD 107.04 Billion in FY 2022-23 to USD 109.32 Billion in FY 2023-24.

Exports of Agricultural commodities namely Tobacco (19.46%), Fruits and Vegetables (13.86%), Meat, dairy & poultry products (12.34%), Spices (12.30%), Cereal preparations & miscellaneous processed items (8.96%), Oil seeds (7.43%) and Oil Meals (7.01%) exhibit positive growth in FY 2023-24.

Overall trade deficit is estimated to significantly improve by 35.77% from USD 121.62 Billion in FY 2022-23 to USD 78.12 Billion in FY 2023-24; Merchandise trade deficit improves by 9.33% at USD 240.17 Billion in the current FY as compared to USD 264.90 Billion in FY 2022-23.

What is a Bill of Lading? Problems and solutions

Bill of Lading 

Bill of lading is a legal document that's issued by a carrier to a shipper detailing the type, quantity, and destination of the goods being carried. A bill of lading is a document of title, a receipt for shipped goods, and a contract between a carrier and a shipper.

Types of Bills of Lading

Some of the most common types of bills of lading include:

Inland bill of lading

Ocean bill of lading

Through bill of lading

Negotiable bill of lading

Non negotiable bill of lading

Claused bill of lading

Clean bill of lading

Uniform bill of lading

Why Is a Bill of Lading Important?

A bill of lading is a legally binding document that provides the carrier and the shipper with all the necessary details to accurately process a shipment. It can be used in litigation if the need should arise and all parties involved will make a committed effort to ensure the accuracy of the document.

A bill of lading essentially works as undisputed proof of shipment. It allows for the segregation of duties that is a vital part of a firm’s internal control structure and to prevent theft.

The problem : Eliminating paper and manual intervention

The Bill of Lading (B/L) is the most important trade document in container shipping. Currently, stakeholders along complex supply chains using original B/Ls (OBLs) must physically courier the original documents to the importer so they can present them at the time of goods collection, which is inefficient, expensive and creates opportunities for fraud. Even with an electronic Telex release for OBLs or paperless Seaway Bills (SWBs), the lack of standard data formats and processes creates confusion that contributes to shipping discrepancies, operational delays, financial losses, and higher costs.  

The solution

The DCSA Digital Trade initiative was designed to facilitate universal acceptance and adoption of a standards-based electronic Bill of Lading, applicable to both original Bill of Ladings and Seaway Bills. Using open source Application Programming Interfaces (APIs), DCSA B/L standard enables straight-through processing of B/L data, eliminating paper and manual intervention from B/L processes. Standardised digitalisation of B/L data and processes will help create a more secure, agile and sustainable supply chain ecosystem. DCSA is also working closely with eBL solution providers on technical and legal interoperability to enable seamless digital transfer of original B/Ls across different platforms and stakeholders, which will facilitate the global uptake of B/L standards.  

The benefits

Optimise your supply chain with DCSA's Bill of Lading standard, enable frictionless sharing of digitised shipping data and improve efficiency of your shipment documentation and operations.

Increased efficiency

Reduce the time required for the documentation process, enabling more efficient cargo handling and customs clearance.

Reduced costs

Reduce expenses related to printing, handling, storage, and transportation of physical documents. 

Increased accuracy

Enhance the overall accuracy of shipping and logistics processes by minimising errors associated with manual data entry, illegible handwriting and lost documents.  

Fraud prevention

Enhance the security of shipping documents with digital signatures, encryption technologies and authentication mechanisms to ensure that the information in the B/L is tamper-proof.

Streamlined compliance

Adherence to B/L standards can contribute to improved compliance with regulatory requirements. 

Greater supply chain resilience

Gains to the Global Trade

In a recent study, McKinsey estimates that if the electronic bill of lading gains 100% adoption across the industry, it could unlock around $18bn in gains for the trade ecosystem through faster document handling and reduced human error (among other improvements) plus $30-40 billion in global trade growth, as digitalisation reduces trade friction.

FREE TRADE AND WAREHOUSING ZONE IN INDIA : A MINI GUIDE

Free Trade and Warehousing Zone 

Get to know all about the Free Trade and Warehousing Zone in India with our mini-guide.

The Free Trade and Warehousing Zone in India or FTWZ is an economic policy of the Indian Government. They offer strategic management and logistics platforms for the import-export of goods and services. It aims to encourage ease of doing business, generating investment and trade FTWZs enjoy special economic zone status and are considered foreign territory with regards to compliance and currency. FTWZs are deemed the quintessential global trading hubs that streamline the logistics infrastructure and drive international trade.

FTWZ : International Game Changers

FTWZs are regulated by the Special Economic Zones Act (2005) and Rules (2006) as well as the Ministry of Commerce and Industries. They enable warehousing, trading and all other activities related to these. FTWZs facilitate the partial or phased clearance of imported cargo into Domestic Tariff Areas or DTAs. Similarly, goods moving from DTAs to FTWZs are considered exports and enjoy all accruing benefits. Usually, FTWZs is located within easy access and proximity to transportation hubs, while some have their own rail operations service.

In India, FTWZs are highly competitive, offering state-of-art warehousing and trading facilities. This includes expedited customs clearance, cutting-edge technology and infrastructure, inland container depots and yards, commercial complexes, etc. Companies wishing to operate via FTWZs can do so in one of two ways:

As a Trading Unit: for the purpose of carrying out authorized operations such as trading, warehousing, labelling, consolidation, etc.

As a Service Unit: availing the services of an authorized Trading Unit.

Companies that are registered as Trading Units must be an Indian entity with a nature of the business that includes import-export, trading, shipping, etc. Authorized operations are listed in the Letter of Approval (LOA) which is granted by the Unit Approval Committee. LOAs are valid for five years with the option to extend for another five years.

Several specific activities are allowed to be conducted in FTWZs. These include:

Trading which is inclusive or exclusive of labelling.

Packaging and repacking.

Re-export, resale, re-invoicing of goods.

Warehouse storage of goods for domestic or international clients.

Value add or optimizing activities on goods.

Assembly of complete or semi-knockdown of goods.

FTWZs offer unparallel advantages to international trade. Aside from the reduction in formalities for customs and excise, other incentives include income tax and demurrage costs exemptions. Efficiencies are also increased for logistics, supply chain management and operations, adding to faster turnaround times.

Currently, India has eight FTWZs which can be found at the following locations:

Taluka Panvel, District Raigad, Maharashtra.

Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu.

Moujpur, Bulandshahar, Uttar Pradesh.

Taluka & District Nagpur, Maharashtra.

Chillamaturu Mandal, Ananthapur District, Andhra Pradesh.

Padur, Karnataka.

Thoppumpady Rameswaram Village, Cochin, Kerala.

Ponneri Taluk, Thiruvalur District, Tamil Nadu.

Contact us today to learn more about the Free Trade and Warehousing Zone in India and how you can use it for your business. 

Classification of Goods and Compliance Requirements in India International Trade

The Harmonized System (HS) is an international nomenclature of goods classification developed by the World Customs Organization in 1988. It has been adopted by more than 190 countries. The HS consists of 6-digit codes for all traded goods, which are used to satisfy customs requirements worldwide. In most cases, in order to import or export a product, it must be assigned an HS code that corresponds with the Harmonized Tariff Schedule of the country of import. Most countries have added additional digits to classify goods more specifically. A code with six digits is a universal standard (HS Code) and a code with 7-10 digits (HTS Code) is often unique after the 6th digit and determined by individual countries of import. These codes are important because they not only determine the tariff/duty rate of the traded product, but they also keep a record of international trade statistics that are used in most countries.

The Indian Trade Classification (Harmonized System) (ITC) (HS)[1] code has 8 digits (the first 6 digits are common as per WCO with an additional 2 digits for added specificity). There are two schedules to the ITC HS: Schedule 1 – Import tariff, and Schedule 2 – Export tariff.   Both tariffs are a key instrument for establishing the customs duty rate applicable to imported goods per the First Schedule. The Second Schedule incorporates items that are subject to export duties and the rates of duties thereon in the Indian Customs Tariff Act of 1975. Import permissibility in terms of Foreign Trade Policy, duties that can be levied on the goods, benefits like applicability of various duty exemption notifications, identification of applicable incentives for export goods, and determining a product’s eligibility under a trade agreement are also based on HS code classification. The classification of goods for import and export purposes has always been a challenge for corporations due to the very nature of the classification process and its interpretation between customs and corporations.

Classification is most critical when new products are introduced into a company’s trade environment because it requires in-depth understanding of the product description and use as well as knowledge of the classification system process. This is supported by a study that Thomson Reuters and KPMG conducted this year. It revealed that ambiguity in product descriptions and different classifications are the biggest challenges to performing product classification globally. Governments scrutinize HS codes and product descriptions to detect fraudulent activities.

The Comptroller and Auditor General of India, an independent Supreme Audit Institution, mentioned in its report no.12 of 2014 that the Directorate of Revenue Intelligence of India had detected 298 duty evasion cases involving mis-declaration of goods to the tune of Rs.2392.26 Crore (USD 378 Million) in the financial year 2013.

A wrong or misleading product classification brings a lot of risk to a company and can substantially erode its profitability due to increased penalties and recovery. For example, chain and sprockets used in motorcycles could either be classified under ITC (HS) Code 73151100 as roller chain in the subheading of chain and parts thereof, or under ITC (HS) Code 84839000 in the subheading of toothed vehicles and chain sprockets. The former has a preferential duty rate of 0% under the Indo-ASEAN FTA and the latter has a preferential rate of 5%. However, as for automobiles, based on the end use, these classifications mentioned above are not applicable. The product should be classified under 87141090 under the subheading of parts and accessories of vehicles, which are not eligible for preferential rates under the India-ASEAN Free Trade Agreement. Such incorrect classification could lead to a finding of non-compliance, resulting in penalties and delays in shipment clearance.

If a company is found to have misclassified commodities for import and export, the local customs authority may flag the company as needing extra scrutiny. This will lengthen the product’s review process and delay the import and export process. If misclassification is found to be a continuing problem, the government may cancel the company’s Accredited Client Programme (ACP) status and in extreme cases may cancel its Importer Exporter Code (IEC). The person responsible for classification ultimately does not want to be the source of this type of action.

Challenges faced by Exporters and Importers for classifying products:

Lack of available resources (e.g. technical information, classification data, literature, etc.)

Not having dedicated a person/expert within the organization

Inadequate description on invoice and supporting information

The risks for misclassification of goods (summaries below):

Disqualification from Risk Management System (RMS) Clearance

Over/underpaid customs duty

Under-claimed duty drawback and other export incentives

Eligibility for export, import and licensing requirements

Missed Other Government Agencies (OGA) requirements

Disqualification from Risk Management System (RMS) Clearance: Exceptional growth and complexities in international trade and increasing burdensome global security requirements have put customs in a more challenging environment than ever before. The Risk Management System wing of Indian customs plays a very important role in the Import/Export clearance process to detect fraud and drive compliance. Product classification in a Bill of Entry/Shipping Bill is one of the key parameters among many for the risk management system to alert officials for additional inspection. Inspection of Import/Export consignment could result in additional cost, time and potential delay to the clearance for the Importer/Exporter.

Over/underpaid customs duty: Customs calculates duties based on the HS code of the product declared by the importer in the Bill of Entry (BOE).  An incorrect HS code could result in higher or lower duty based on the tariff rate. The product code selected might also have a higher rate of total customs duty because of Anti-dumping (ADD) or safeguard duty or both, depending upon the origin of the goods. If the importer realizes the HS code declared in the BOE is incorrect, an amendment to the BOE is required. That can be expensive and time-consuming.

Under-claimed duty drawback and other export incentives: Availability of duty drawback (DBK) is linked to HS codes, although one DBK code could be applicable to a similar set of HS codes. For example, menthol falls under 2 ITC (HS) codes. Code 29061100 represents menthol, which has DBK under the All Industry Rate (AIR) schedule of 1.4%, and Code 30039021 represents menthol crystals which have a 1.9% DBK. However, both codes have the same export benefit rate of 3.0% in the recently announced Merchandise Exports from India Scheme (MEIS).  If the exporter is exporting menthol crystals using the code 29061100, which has a 0.5% lower DBK (AIR) available, and if the shipment has a value of USD 150,000 FOB, the exporter could lose about USD 750 on this shipment. This is a very large amount when the exporter has a high value of shipments/turnover. If a company is exporting USD 150 million in value per year it can lose up to USD 750,000 annually.

Eligibility for export, import and licensing requirements: The Directorate General of Foreign Trade (DGFT) issues a Foreign Trade Policy every five years with a focus on the country’s interest. The policy prohibits some goods from export and import transactions, linked to their product classification or HS code. Importers/exporters should be well-informed before agreeing to any contract for export or import of such goods and comply with licensing requirements as prescribed in the policy.

Missed Other Government Agencies (OGA) requirements: OGAs play an important role in international trade controls. The HS code listed in the BOE and shipping bill is one of the criteria on which the customs officer marks the documents for additional requirements, such as a No Objection Certificate (NOC)[2]. NOC is required for pharmaceutical and cosmetic products. It is issued by the Assistant Drug Controller and classified under Chapter 30, which automatically qualifies a product for ADC-NOC (Additional Drug Controller). Some products may fall under Chapters 1-10, 29 and 33 and be subject to the OGA for a wildlife NOC. The exporter and importer should be aware of the NOC requirements to avoid delays in customs clearance and meet the regulatory requirements for declarations.

Summary: In today’s complex trade environment, product classification remains a major challenge for companies and regulatory authorities. As companies are continuously developing new products that serve more than one purpose/end use, product classification becomes more challenging for trade professionals and customs officers. Companies are looking at options to reduce costs by applying relevant exemptions under certain conditions, avail themselves of export benefits etc., and be compliant with the requirements. Customs agencies are continuously enhancing their systems with additional controls to avoid fraud and protect the nation’s interests. In both these conditions, having a good product classification approach plays a major role in avoiding conflicts.

Automation of product classification and other tools to keep trade professionals up-to date on regulatory changes could assist in driving compliance and cost benefits.

To learn more about import or export, visit our ONESOURCE Global Trade page

[1] ITC (HS) codes are better known as Indian Trade Clarification (ITC) and are based on Harmonized System (HS) of Coding. It was adopted in India for import-export operations. Indian custom uses an eight digit ITC (HS) code to suit the national trade requirements.  This schedule has two parts – First schedule with an eight digit nomenclature and the second schedule with description of goods chargeable to export duty. The first schedule is based on H.S code system. The Indian Tariff Code has 8 digit which has been designed in such a way without any modification of first 6 digit as per H.S code system, but followed by another two digit classified as ‘tariff item’. So ITC has been classified as first four-digit code called ‘heading’ and every six digit code called ‘subheading’ and 8-digit code called ‘Tariff Item’. This addition is done, within the permissible limit of World Customs Organization – WCO, without any changes in H.S. code system.

[2] A type of legal certificate issued by any agency, organization, and institute or in certain cases, an individual, which does not object to the covenants of the certificate.

Six warehousing trends for 2024

Six warehousing trends for 2024

There has been unprecedented pressure placed on global supply chains in recent years due to the global economy shifting, some prolonged consequences of the COVID-19 pandemic, as well as multiple political conflicts that have profoundly changed global markets and decreased the global race for more warehousing space.

Today, in-person shopping and e-commerce coexist seamlessly, according to the customer’s preferences, where warehousing is servicing orders day and night, to keep up with delivery promises as short as “next hour”. Despite all these challenges, as customers' demand rises, companies are currently looking for ways to build supply chains that can match the pace of their business, in a way that is automated, predictable, customised, and speedy!

Now, looking ahead as businesses explore ways to plan, here are the ways in which they can take care of their end-to-end warehousing, storage facilities, and inventory management to tackle 2024 and fulfil their customers’ wishes.

What will be the upcoming warehousing trends in 2024?

Automation: In recent years, automation has transformed the warehousing industry by revolutionising operations and redefining how goods are handled, stored, and distributed. The most used automation technologies that will still take centre stage in 2024 will include Autonomous Mobile Robots (AMRs) to manage automated fulfilment activities and enhance the efficiency of order picking. Autonomous robotic arms will be increasingly used for example to unload containers, minimising workplace injuries connected to depalletisation and support with repetitive tasks. These smart machines can empower businesses by efficiently moving products throughout the distribution centre and packing orders with precision and speed by using advanced localisation algorithms, computer or machine vision and digital interfaces with existing systems. In the rapidly evolving omnichannel landscape, speed will be paramount, and integrating multiple automation technologies in a fast way could present itself as challenging for companies. However, when executed right, warehouse automation will yield substantial long-term rewards and will be essential to address the escalating demands of e-commerce, continuing to boost the deployment and use of robotic and autonomous solutions throughout the next year (and beyond).

Stock merging: 2024 will see more businesses asking warehouses to structure themselves to allow for businesses to keep their products in one stock. While today businesses usually ask warehouses to keep the stock for physical shops separated (at times in different buildings) from the online shopping one, “the trend now seems to be to merge stocks, allowing brands to pull orders and returns from the same stockpile servicing all the different ways in which they manage their omnichannel offering” says Charlotte Petersen, Global Head of Business Product Warehousing at Maersk. This trend, giving brands flexibility, can also be helpful in the management of buffer stock (the extra amount stored just in case orders exceed predicted amounts) which in turn supports the reduction of extra production, impacting the environment.

Visibility: Has it been packed? Has it been shipped? Today, the amount of information a brand needs to provide to its end-consumer is augmented, as people get more experienced in ordering online and they also expect more transparency on their orders. 2024 will see visibility being offered as a “need to have” and not a “nice to have”. This information will be necessary for warehouses to gather and distribute to their partners, also on product returns, reducing the number of calls to customer service which can be of help to both consumers and businesses.

Sustainability: As most businesses are currently focused on creating strategies to lower the environmental impact of their facilities, they will lean more on their integrated logistics service providers to reduce Scope 3 carbon emissions from warehousing operations. This is done by improving building new warehousing infrastructure using sustainable materials and servicing it with sustainable energy sources. Next year, we will see integrated logistics service providers making increased use of emissions visibility tools to help reduce GHG emissions within supply chains. These tools are already in use by fourth-party logistics (4PL) providers to overall increase the visibility of logistics but will be directed as well to have a better view of emissions. This would be a great asset for businesses that have set ambitious decarbonisation targets which can be achieved via continuous improvement. Customers are actively embracing circular economy principles to minimise waste. Improving Circularity with the help of reusable pallets, and disposable and/or reusable packaging can drastically help reduce carbon footprint within a warehouse. So far recyclability has been pursued by LSPs at the behest of customer requests but going forward waste management will become an important criterion for customers to ;.

Data optimisation: “In the dynamic world of warehousing, digitalisation plays a crucial role as the enabler of automation and speed, for future growth” confirms Nitesh Mandal, Global Head of Growth, Strategy and Solution Design for Fulfilment at Maersk. 2024 will see more businesses adapt to digital processes and modern warehousing operating systems. The upcoming advancements will include optimisation platforms that allow for simulations of both existing and potential environments to enhance business operations. A prime example of these is the Internet of Things (IoT) devices mounted on various pieces of machinery as well as other artificial intelligence (AI) operated tools that through the use of data, will enable forklift operators to work safely, by providing real-time safety alerts (e.g.: if people are in the path or when forklifts are in no machine zones). Data-led digitalisation will also enable equipment such as Automated Guided Vehicles (AGVs), conveyor systems, and robotic pickers to speed up precision and movements. The result will be a seamless flow of goods from arrival to shipment, minimising the risk of human error, and significantly increasing the overall productivity and capacity of distribution centres. Finally, data-driven decision-making, using analytics and predictive maintenance for machinery and equipment, is expected to increase in 2024 for warehouses to reduce downtime.

Restoring and customising: Warehouses that are deemed “old” by today’s standards will be retrofitted to meet the needs of modern logistics e-commerce operations. The new year will also bring a deeper level of industry-specific customisation, based on the needs of targeted markets such as e.g., pharmaceuticals or automotive. This customisation trend will be one that will keep evolving in the years to come.

What is in sight for warehousing?

For businesses worldwide, keeping up with the rapid evolution of technologies is no easy task, and a careful analysis of each option is necessary before committing to large investments. As the economy is not picking up yet, and businesses keep a focus on costs, looking into optimisation makes sense. In order to keep up with faster fulfilment needs, 2024 will see the warehousing world speed up its innovations for quicker supply chain management, particularly focused on automation, better data management, and decarbonisation. On par, this will be done while implementing the latest safety measures and refurbishing older facilities so that brands can keep their integrated logistics flow smooth and resilient for what is to come. And such re-thinking and re-assessing can be done through strategic partnerships with integrated logistics providers that can support a fast flow – powered by innovation and digitalisation - whilst keeping in mind sustainability and safety.

Singapore port Congestion forces MSC to opt for Indian ports for Transhipment operations

Congestion-hit Singapore force Mediterranean Shipping Company to rely on Indian ports for transhipment

Container terminals at India’s eastern and southern ports such as Visakhapatnam and Kamarajar are reaping the benefits

 Mediterranean Shipping Company (MSC), the world’s largest container carrier, has increasingly started using Indian ports such as Kamarajar and Visakhapatnam for its transhipment operations as congestion in Singapore force some containers lines to omit calls at the world’s second busiest container port.

“MSC is dropping containers in terminals at India’s eastern and southern ports for transhipment. It’s huge,” said a shipping industry executive.

For instance, the Visakha Container Terminal Pvt Ltd, run by J M Baxi Ports & Logistics Ltd, handled some 70,000 twenty-foot equivalent units (TEUs) in May for the first time.

“This is mainly due to transhipment (because it is counted twice - you discharge and load back the same container). MSC is not getting space/berths in Singapore and Colombo ports (two big transhipment hubs in the region). So, they are bringing bigger ships to Indian ports and dropping their boxes; wherever they have space in Indian ports they are putting the boxes, and they will get smaller vessels to take the containers out to final destinations,” the industry executive said.

This has helped boost volumes at the container terminal run by Adani Ports and Special Economic Zone Ltd (APSEZ) at Kamarajar port, where a unit of MSC has recently acquired a 49 percent stake. As a result, the Kamarajar container terminal is almost full.

APSEZ’s flagship port at Mundra is also gaining from the congestion in Singapore.

On May 26, Mundra docked ‘MSC Anna’, the largest container ship yet to call an Indian port. The vessel having a length of 399.98 metres (roughly the size of four football fields) can carry 19,200 TEUs. During its visit, the ship loaded and unloaded 12,500 TEUs.

Last week, the international container transhipment terminal at Vallarpadam run by Dubai’s DP World at Cochin Port, berthed the 15,934 TEU capacity ‘MSC Mara’, the largest container ship to dock at the facility.

Port congestion has returned to haunt the container markets, with Singapore becoming the latest chokepoint, shipping consultancy Linerlytica said.

“Berthing delays at the world’s second largest container port of up to 7 days with the total capacity waiting to berth rising to 4,50,000 twenty-foot equivalent units (TEUs) in recent days. The severe congestion has forced some carriers to omit their planned Singapore port calls, which will exacerbate the problem at downstream ports that will have to handle additional volumes. The delays have also resulted in vessel bunching, which is causing spillover congestion and schedule disruptions at downstream ports,” Linerlytica said.

“Indian ports would also get jammed. Already terminals are seeing high inventory levels of laden units,” said an executive with one of the world’s top container shipping companies.

The congestion at Singapore port is chiefly a fallout of ships diverting via the longer Cape of Good Hope route (instead of the shorter Suez Canal passage) to help avoid attacks by Iran-backed Houthi militants in the Red Sea since October last year.

While the volumes have started seeing a small dip since April at some of the container terminals in India, transhipment by MSC is coming to the rescue, the industry executive mentioned earlier said.

Singapore is a transhipment port (with very little local cargo) and a berthing delay of 6-7 days for a ship on the East West trade plying from US/Europe to the Far East, will have a “cascading” effect.

“Instead of keeping the vessels waiting for a week to ten days in Singapore, some lines such as MSC are preferring to drop the boxes in Indian ports which have space for bigger vessels and take the containers out on smaller ships to final destinations,” he said.

The congestion in Singapore has a significant impact on the reliability of Asia-Europe container services, he added.

The congestion will also likely exert upward pressure on rates ahead of the hikes planned by lines in June as the busy season for container shipping starts in July.

Supply Chain's Unsung Hero: The Wooden Pallet

The impact that wooden pallets and containers have on the supply chain as an important and sustainable stakeholder, especially how it impacts up the chain of supply and demand for the industry’s customer base, is a message that cuts across the cluttered decision making process that companies are faced with when choosing their distribution packaging.

We gathered insights from experts in the supply chain particularly around their ideas, concerns, questions, and what’s remaining top of mind. While most of these professionals didn’t “see” the pallet, they did see real challenges that needed to be addressed. Areas such as:

Sustainability

Reusability and recyclability

Strength, durability and customization

As we dreamt up and debated the components of a resilient supply chain, we found that most supply chain professionals didn’t take into consideration the invisible heroes that keep supply chain intact. We are working to change this perception, and enlighten supply chain architects that the wooden pallet was designed to fulfill a real need – not just a want. And that’s largely why, for many years, it has served as the sustainable solution for supply chains across the globe.

The good news coming out of the COVID landscape is that this unfortunate situation has significantly helped to raise the profile of the wooden pallet, as almost every supply chain is being reimagined in the process. But, we still have plenty of work to do.

Facts

As an industry, it is important that we demonstrate to our partners the value wooden pallets provide as a key resource to the supply chain.

Using an industry comparison, take an auto manufacturer vs. a Wal-Mart – two very different supply chains with a vast range of products that needed to be transported. A standard 48x40 pallet is not going to get every job done. Perhaps Wal-Mart may be able to use a 48x40 more often, given the lighter CPG products they’re bringing in. But they’ll still need to customize pallets for transporting electronics and other heavier goods. In fact, only one-third of all pallets are the 48x40 size!

And an auto manufacturer may need something more durable for shipping different parts of their vehicles that weigh hundreds of pounds. Our industry serves the unique needs or retailers with shipping solutions that meet their specific requirements because the pallet helps “move the world” efficiently and sustainably. From wide and thin to overly massive, we’ve broken down the customization of pallets to an exact science based on what products are coming in and going out.

We must continue to share this message whenever possible to bring awareness, to ensure that we maintain our seat at the supply chain table at all times.

Here are some great talking points to share with your partners as opportunities arise!

Wood Pallets are ubiquitous: Not only are pallets customizable, but they’re everywhere. By setting the example in terms of sustainability, we are giving the supply chain expert an opportunity to make their operations greener, more efficient and more effective.

Wood Pallets are environmentally friendly: The NWPCA relationship with the forestry community is one of our biggest priorities, and we have even gone out of our way to adhere to the International Standards for Phytosanitary Measures (ISPM) standards that protect forests and ensures our work does not put the health of our ecosystem at risk.

Wooden Pallet industry supports sustainment of the forests: In fact, each year, nearly 2 billion trees are planted in the U.S., which is more than five trees for every man, woman and child in America. Even better, our industry is a leader in sustainable forest practices. Forest certification involves independent third-party assessment that companies are operating in accordance with the principles of sustainable forest management that value the socio-economic and environmental contributions of forests. When you look at the four certification programs used in North America, we’re talking about more than 1.6 billion acres of trees. We’re proud to be a part of the progress happening with our forests, and when suppliers choose wood, they too can be a byproduct of that progress.

Wood Pallet numbers speak for themselves: There are more than 1.8 billion pallets in service every day. Think 90/90 – 90% of all products shipped on pallets, 90% of all those pallets are made of wood. We can often get caught up by the bright, shiny objects and techy innovations that wow us and paint a picture of a robot-driven future. But for the tens of BILLIONS of products that move across the U.S. every single day, it’s one simple material that makes it happen – wood.

Wood’s Role in Today’s Supply Chain

Pallets are often overlooked as an essential piece of the supply chain, but it is more than that. They are essential to the efficiency of the supply chain and its overall sustainability. As companies from every industry seek to shift their business models to further incorporate sustainability, pallets are a potential solution, not a roadblock.

At its most basic level, the supply chain includes five steps:

Sourcing new materials

Manufacturing materials into basic parts

Assembling basic parts into finished products

Selling products to end users

Delivering products to consumers The role of the pallet is within the whole chain:

Delivering raw materials for assembly

Shipping out goods

Distribution to retailers

Warehouse storage

Direct-to-customer delivery

So, what is it about wood that makes it the “lifeblood” of the global supply chain? There are several reasons, and most of them have to do with sustainability, reusability and recyclability, and customization.

The numbers tell the wooden pallet story:

Wooden pallets are a $31 billion industry in the U.S.

93% of pallets in the U.S. are made of wood

More than 90% of all products in the U.S. move on wooden pallets

95% of wooden pallets are recycled as of 2016 (in 1998, not even two-thirds of pallets were recycled).

Furthering a Sustainable Supply Chain

The investment cost, the time it takes to train colleagues and gain knowledge, the regulations you must play within, the lack of industry buy-in … all of these are factors that outweigh going all-in on a sustainable supply chain, right? Wrong!

Despite growing stakeholder pressure, many companies still do not have a comprehensive understanding of the performance, risks and sustainability impacts of their supply chain. It’s becoming increasingly clear that a sustainable supply chain develops positive return for companies. And wooden pallets can play a key role. A recent supply chain study reveals this:

“Overall, the study demonstrates that by improving environmental, social and governance (ESG) performance throughout their supply chains, companies can enhance processes, save costs, increase labor productivity, uncover product innovation, achieve market differentiation and have a significant impact on society.” – The State of Sustainability Supply Chains: Building Responsible and Resilient Supply Chains, EY & UN Global Comact.

When making improvements on the supply chain, it is important to note that using wood is good for the environment, despite some perceptions. In fact, every cubic meter of wood used as a substitute for other building materials reduces C02 emissions to the atmosphere by an average of 1.1 ton C02 (CEI-BOIS). If this is added to the 0.9 tons of CO2 stored in wood, each cubic meter of wood saves a total of 2 tons CO2. Based on these figures, a 10% increase in the percentage of wooden houses in Europe would produce sufficient CO2 savings to account for about 25% of the reductions prescribed by the Kyoto Protocol5.*

Illustrating that “wood is good,” as an industry we must continue to share with our partners facts such as:

According to the U.S. Forest Service, there were 119 percent more hardwood trees in 2007 than in 1953, with the growth-to-removal ratio of 2.00 (tow new trees for every one removed).

Each year, 1.7 billion trees are planted in the U.S., which is an average of 4.8 million seedlings each day.

Another point in supply chain development to be aware in building a reusable and recyclable supply chain using wooden pallets is that, according to McKinsey, 90% of a company’s impact on the environment comes from supply chains. Let’s look at the value pallets bring to the chain.

The wooden pallet life cycle is significant. In fact, we should be proud as an industry that 95% of them are recovered, refurnished and recycled. They become mulch, biofuel, animal bedding and more at the end of its long service life. According to the research by Virginia Tech and the USDA Forest Service, 508 million new pallets were manufactured in 2016. In the same year, 341 million pallets were recovered, out of which only 35.39 million wooden pallets were landfilled.

Are you familiar with Walmart’s Project Gigaton? Their sustainability pledge to remove a gigaton of CO2 emissions between now and 2030 is ambitious. In fact, it’s equivalent to taking 211 million passenger cars off the road in the U.S. for an entire year.

So, how do pallets stack up with that? As an industry, we have been proactive to design a carbon calculator that estimates for every 10 wooden pallets that are recycled, just under 1 car is taken off the road. The USDA estimates that 357 million pallets are recycled every year. So, the exact number of cars that would be taken off the road is more than 34.2 million. Simply put, pallets can do what Project Gigaton is aiming to do in 13 years … in eight.

Strong, Durable and Customizable Supply Chain

In conclusion, we would be remiss to point out the high standards and tools that are set and available in this industry. One tool to gauge any organization’s carbon footprint impact based on pallet usage is found at naturespackaging.org where supply chain partner companies can assess their organizational carbon footprint on pallet usage.

Also, it is important to note that both softwood and hardwood lumber are used in wooden pallets, which have been graded for structural performance and can be customized to specific sizes to for the end-product requirements. Lumber used to construct wood pallets is graded according to quality rules by the American Lumber Standards Committee, National Hardwood Lumber Association, and the Canadian Lumber Standards Accreditation Board, where grades are codified as to their performance and appearance characteristics.

As mentioned earlier, one of the biggest needs for the supply chain is having a pallet that’s truly customizable. With so many different products and shipment specifications out there, the standard 48x40 pallet is not a one-size-fits-all solution for the entire industry.

As the industry’s resource, we’ve developed proprietary software that helps pallet designers work directly with the supply chain to meet their very specific pallet needs. From a pallet’s specifications to its design, PDS is the resource that delivers the supply chain everything they need to implement the most sustainable option in the industry.

As we continue to focus on what’s most important to our supply chain partners – sustainability, reusability, recyclability, strength, durability and customization – I believe the solution is right in front of us. It’s humble, it’s ubiquitous, and it carries nearly every object through the supply chain. It’s up to us and you to make the business case to suppliers