Countering Amazon’s supply chain takeover; Staying current on U.S.-Iran sanctions.
Countering Amazon’s supply chain takeover
Amazon’s global takeover has taken a different direction, and just about everyone in the shipping and logistics industry is watching—and worrying.
On the high seas, the Seattle-based conglomerate has been granted a license for ocean container shipping from the U.S. government and a similar license from the Chinese Ministry of Commerce. Meanwhile, in the skies, Amazon has signed a deal with Air Transport Services Group to lease 20 Boeing 767 aircraft to transport merchandise around the United States as part of the online retailer’s efforts to reduce high shipping expenses.
Amazon’s aggressive moves by sea and air undoubtedly spell bad news for freight forwarders, who will almost certainly see a decline in revenue, and could find themselves out of business.
This fresh competition comes amid a well-documented decline in revenue for shippers in the past several years. In 2014, revenue decreased 3 percent compared to 2013, following a 5 percent decline from 2012. As of 2015, industry revenue remains more than 16 percent below its 2008 peak of $200 billion.
No wonder forwarders are scrambling to figure out what they can do to combat Amazon’s latest gambit. The company’s entry into forwarding brings both additional capacity and another rival to compete against.
Air cargo companies have had fewer apparent issues, with both UPS and FedEx reporting strong growth in 2015. However, the purchase of aircraft by Amazon is only the tip of the iceberg for Amazon’s expansion plans. As the company explores the most efficient route from factory to doorstep, it will be looking for additional ways to cut out the middleman.
Yet there is hope for forwarders and air cargo companies. Even with Amazon’s abundant resources, the company will have a steep learning curve as it tests out different pricing strategies. Although Amazon quickly dominated the B2C retail market in the United States, learning to adapt to the freight and air cargo business models will be a more challenging endeavor. It is notoriously difficult to operate efficiently in an industry that must deal with everything from maintenance and insurance to the complicated logistics of profitably loading goods on ships and planes.
These factors will unquestionably prove to be a challenge for Amazon.
The best strategy for air cargo and freight companies is to focus on using predictive analytics, developing segmented pricing strategies, and seizing opportunities.
One way to accomplish this is by implementing pricing and revenue management strategies based on data and analytics. Historically, forwarders have taken a tactical approach on a project-by-project basis. Given Amazon’s expected impact in the market, it’s clear that those that continue to follow this approach will be squeezed out of business.
Staying current on U.S.-Iran sanctions
Why should you be concerned about U.S.-Iran sanctions? The short answer is most of the United States’ primary Iranian sanctions applicable to U.S. individuals and companies have not been suspended and remain in effect. Violations of those sanctions will continue to expose U.S. individuals and companies to fines and penalties.
The U.S. and international sanctions involving Iran have had a convoluted history and are at best confusing for those involved in international trade and transportation. The relatively recent actions by the European Union, Germany, France, the United Kingdom, China, Russia and the United States under the Joint Comprehensive Plan of Action (JCPOA) with respect to sanctions against Iran have further muddied the compliance waters and left most in the international trade community confused, or at least wary about what can or cannot be done with respect to trade with and shipment to Iran. Removal of sanctions issued by the United States is much more complicated than with U.N. and EU sanctions because the U.S. government has issued myriad and overlapping sanctions against Iran since the early 1980s. Those fines and penalties can be substantial.
U.S. international traders and shippers must take care to fully understand these changes in the U.S. sanctions to avoid the continuing fines and penalties that remain in place.
Under the JCPOA blueprint, the United States is poised to unravel some of the sanctions it has placed on Iran. However, under this plan the United States is lifting only its so-called “nuclear-related secondary sanctions,” specifically, those sanctions targeting foreign companies who did business with the United States and Iran and related to Iran’s nuclear program.
U.S. businesses that provide civil aircraft, parts, or services may, under JCPOA, apply for a special license to do business with Iran. However, these U.S. businesses will have heavy competition from EU-based aviation businesses that will not have to go through a lengthy waiver or licensing process.
What remains? The JCPOA does not, however, commit the United States to suspend the primary U.S. sanctions that apply only to U.S. individuals or companies or persons physically in the United States or to suspend application of those sanctions imposed because of Iran’s support of terrorism or its human rights abuse. Accordingly, the following activities are generally still prohibited for U.S. individuals, U.S. companies and persons physically in the United States.
•Direct or indirect export or re-export of U.S. goods, technology or services to Iran or to Iranian companies without separate authorization from the Office of Foreign Assets Control (OFAC).
•Transferring funds to, from or through U.S. financial systems.
•Investing in Iran.
•Trading in Iranian oil or LNG.
•Generally, facilitating any of the above, with certain exceptions.
If Iran fails to adhere to the JCPOA, OFAC is authorized to snapback the suspended/terminated sanctions into place. Thus, contracts regarding Iran which are entered into during the period of sanctions relief would not be grandfathered or allowed to continue. Also any activity conducted after the snapback could be subject to new sanctions, fines and penalties.
General License H authorizes an entity owned or controlled by a U.S. person and established or maintained outside the United States to engage in most transactions directly with the Iranian government or any person subject to the jurisdiction of the Iranian government that would otherwise be prohibited by Iranian sanction regulations. Under this exception, no U.S. person or company can be involved in the Iran-related day-to-day operations, management or decision-making for the non-U.S. subsidiary.
In General License H situations, it is permissible for a U.S. parent company to make available to a non-U.S. subsidiary any “automated” and “globally integrated” computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information related to any authorized transactions. So, by way of example, it would be OK for a U.S. parent and non-U.S. subsidiary to share an enterprise resource planning (ERP) system that uses a U.S.-based server to generate a purchase order initiated by a U.K.-based, non-U.S. person employee if there was no human intervention in the United States. However, it would not be OK if the ERP system required the intervention of an individual located in the United States to complete a request initiated by a U.K.-based, non-U.S. person employee of a U.S.-owned or -controlled foreign entity, such as a U.S. person performing data entry or internal processing for the creation of a customer record.
In conclusion, JCPOA has generated worldwide business anticipation of new opportunities. While there may be some possibilities for certain U.S. business segments, for the most part the U.S. sanctions regime against Iran is still in place. U.S. persons and businesses must still exercise extreme caution in their potential dealings regarding Iran.
Brent Alan Helms,
Energy, Environment, and Natural Resources Industry Team,
Jones Walker LLP,