Written by Marlysa Razak and Low May Ping
Due to the advancement of technology, the idea of supply chain has been growing over time. Today, supply chains often exist between the businesses, as it is difficult to sustain as autonomous and individual entities. This article aims to develop a simple understanding of the laws and key issues concerning supply chain logistics.
Chopra and Meindl, the authors of the book, Supply Chain Management: Strategy, Planning, and Operation, explained that, “a supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves . . .”
With regard to the term “global supply chains”, the International Labour Organisation has referred to it as “the cross-border organisation of the activities required to produce goods or services and bring them to consumers through inputs and various phases of development, production and delivery”.
Generally, a logistics company plays an important role in a supply chain for the businesses today. Logistic services may include consolidation, storage, handling, packaging or distribution of goods. The gist of logistics is that to deliver the items to where they need at a reasonable price and time via numerous modes of transportation, be it by sea, road or air.
In essence, the laws and regulations include the jurisdictions from country to country; regulations dealing with the ocean carriers, railroads, motor carriers, and airlines; regulations concerning brokers and other agents; shipping; contract law for transportation; main liability for damages and losses; cargo insurance; shippers’ and carriers’ duties and obligations; terms of sale; export and import rules and regulations; hazardous materials laws and regulations; as well as international laws and treaties.
Below are some examples of international laws and treaties in relation to supply chain:
UN Convention on Contracts for the International Sale of Goods
It establishes a substantial number of rules to regulate duties and obligations of both seller and buyer, such as the formation of an international contract, the delivery of goods and remedies for breach of contract. The objective of the Convention is to facilitate international trade and minimise any potential obstacles or difficulties when the countries have their own legal framework concerning commerce.
Trade Facilitation Agreement
This Agreement aims to simplify, modernise and harmonise export and import processes. The provisions of the Agreement include expediting the movement, release and clearance of goods, including goods in transit. The measures for effective cooperation between customs and other relevant authorities on trade facilitation and customs compliance issues are also set out.
International Convention on the Harmonization of Frontier Controls of Goods
It applies to all goods when moving across maritime, inland or air frontiers while the goods are being exported, imported or in transit. The objective of the Convention is to reduce the formalities requirements as well as the controls, be it in terms of number or duration. In particular, the Convention also governs both national and international coordination of control procedures as well as their application methods.
Customs Convention on the International Transport of Goods under Cover of TIR Carnets
This Convention aims to establish an effective framework to facilitate the international transport of goods, especially by road vehicles or containers, by simplifying the administrative formalities of border crossing. Indeed, as of now, it is the only universal Customs transit system in existence and proved to be one of the most successful international transport conventions.
UN Recommendations on the Transport of Dangerous Goods
It forms the basis for the development of national and international rules and regulations governing the multiple means of transportation of dangerous goods, which broadly refer to materials that are inflammable, explosives, toxic, radioactive or corrosive in nature.
International Maritime Dangerous Goods Code
This Code not only regulates the carriage of dangerous goods by sea, but also the carriage of marine pollutants.
Regulation concerning the International Carriage of Dangerous Goods by Rail
In the event that dangerous goods are being transported by rail, such goods will be governed under this Regulation.
IATA Dangerous Goods Regulations
It is recognised globally for reference and serves to be the only standard recognised by the airlines worldwide, in order to ensure safe transportation of dangerous goods by air.
UN Convention on International Multimodal Transport of Goods
This Convention is yet to come into force, as it will only come into force 12 months after the Governments of 30 States have either signed it not subject to ratification, acceptance or approval or have deposited instruments of ratification, acceptance or approval or accession with the depositary. However, as of August 2020, there are only 6 countries that have ratified the Convention.
Below are the key issues while dealing with supply chain at the global level.
Lack of Unification
Indeed, the law regarding transport logistics is in a fragmented state. It is worth noting that more often than not, international treaties and conventions are not ratified by all countries. For example, in relation to international carriage by air, some countries may have signed the Warsaw Convention (now replaced by the 1999 Montreal Convention), but did not proceed to ratify it. Among the countries that signed, but have not ratified the 1999 Montreal Convention include Cambodia, Ghana, Sudan and Zambia.
Sometimes, this may even cause a treaty to not have the minimum required number of ratifications, and still await to come into force. In fact, both countries/parties must be bound by the same international treaty for the clauses or terms of the treaty to be applicable to them.
In the event that either party has not ratified the treaty, the parties shall refer to other relevant laws as the treaty would have no legal effect to the party that had not ratified it. As such, the implications for not applying the same treaty are that no ‘one size fits all’ approach should any legal issues arise.
To resolve such legal issues, parties often agree on specific sets of regulations, treaties, conventions and laws applicable to their supply chain contracts for example by way of an incorporation of a choice of law clause.
Violation of Human Rights
In the global context, potential human rights issues such as human trafficking and modern slavery may arise, due to the complexity and multi-layer of companies’ supply chains. An example is that workers, especially those in developing countries, may be vulnerable where they are subject to unpaid wages, extremely long working hours and degrading treatment by the employers.
In 2013, a Thailand-based company was alleged for working with a Cambodian supplier that used child labour. With regard to the Thai seafood supply chain, it was alleged that in 2014, some suppliers of Charoen Pokphand Foods (CP Foods) are involved in slavery. A worker described the conditions they faced including 20-hour shifts, torture, and regular beatings.
Human trafficking is governed under Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children (Palermo Protocol) which supplements the UN Convention against Transnational Organised Crime 2000. However, the limitation is that the Protocol focuses primarily on prevention of crime, instead of protection of human rights.
Among the popular environmental issues include air pollution, water pollution and deforestation which potentially lead to the loss of biodiversity. All these consequences are severe if prolonged. Therefore, companies that are involved in a global supply chain should always ensure that they comply with each country’s environmental law and regulations. At the same juncture, the companies should promote greater corporate social responsibility and increase the usage of environmentally friendly materials and equipment while producing their goods or providing their services.
Dealing with Cargo Thefts
The cargo goods are vulnerable to theft when they are moving from the initial supplier to the end consumer. More often than not, theft occurs in a warehouse, at a port or even on a truck. This may disrupt the supply chain as a whole. Hence, stricter law enforcement is needed to deal with such security issues. For instance, a longer period of imprisonment or greater sum of fines should be imposed against such criminals. Likewise, in order to minimise the security issues, many logistic companies have embraced technology and incorporated it into their services, thus allowing customers to track their shipments online.
Firstly, the Customs Act 1967 by the Royal Malaysian Customs Department may be relevant to supply chain logistics. For example, if dutiable goods are involved, logistics service providers with warehouses are governed by Section 65 of the Customs Act 1967. Warehouses are also usually governed under bylaws of the Local Government.
Besides, there are other key legislations which govern various modes of transportation, such as maritime, land and air. In relation to the mode of transportation by sea, there are three important Acts of Parliament, namely the Port Authorities Act 1963, the Ports (Privatization) Act 1990 and the Carriage of Goods by Sea Act 1950. Generally, these Acts include responsibilities and liabilities of a carrier in loading, handling, storage, carriage, custody, care and discharge of goods.
The Marine Department of Malaysia also adopts various international treaties such as the International Convention for the Safety of Life at Sea (SOLAS) 1974, the International Convention for the Prevention of Pollution from Ships 1973, the International Regulations for Preventing Collision at Sea 1972, and the International Convention on Civil Liability for Oil Pollution Damage 1969. The International Maritime Solid Bulk Cargoes Code amplifies the mandatory provisions of the SOLAS Convention concerning the carriage of solid bulk cargoes and dangerous goods in solid form in bulk.
On the other hand, transportation and warehousing of goods via land are governed by both the Road Transport Division Malaysia (JPJ) and the Land Public Transport Agency. The Road Transport Act 1987 authorises transport licensing to JPJ, whereas the Land Public Transport Act 2010 regulates matters concerning land public transport including freight transport.
Furthermore, cargo transport via aviation is governed by the Malaysian Civil Aviation Authority. Carriage of goods by air falls within the Carriage by Air Act 1974 which gives effect to certain Conventions ratified by Malaysia like the Warsaw Convention.
In a nutshell, there is a trend of global supply chains in today’s world. As the law does play a significant role in supply chain logistics, the rules and regulations shall be strictly adhered to, be it national laws or international treaties and conventions signed between the countries. It is worth noting that compliance with the legal requirements can prevent commercial businesses or organisations from adverse effects such as punishment and fines. All these are vital to moving the businesses forward and achieving success.
On a side note, due to the pandemic of Covid-19, now more than ever it is important that businesses are well prepared with foreseeable or unforeseeable challenges such as geographical risk, fluctuating demand and inventory management.
- “A Review of International Agreements, Conventions and Other Instruments to Achieve Sustainable Mobility”
- “Human Trafficking & Global Supply Chains: A Background Paper”
- “IMDG Code”
- “Logistics Services: Concepts and Definitions”
- “Legal Governance Frameworks of Logistics Service Providers Companies in Malaysia”
- “New Avenues of Logistics and Transportation Laws in Supply Chain Management: Issues and Challenges”
- “Need to Know Legal Aspects of Logistics Has Never Been Greater”
- “Revealed: Asian slave labour producing prawns for supermarkets in US, UK”
- “4 Big Logistics Challenges of COVID-19 – and How to Overcome Them”
Published on 26 August 2020