Supply Chain Logistics 101

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.

Environmental Issues

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.