Confronting Compliance: Traceability, Transshipments and Isotopic Tests
Alexandra Harrell
5 min read
While “location” may be the first three rules of real estate and retail, the same cannot be said for the apparel industry. For brands looking to stay compliant, diversified sourcing maps can create false senses of security—ultimately leading to costly consequences.
The Sourcing Journal Fall Summit panel, “Traceability Under Pressure: Compliance Risks When Transforming Supply Chains,” covered the complexities of transshipment as it pertains to traceability in supply chains, emphasizing the risks of diversified sourcing and the challenges of staying compliant.
“We find a lot of brands and retailers sometimes think that simply relocating a lot of their sourcing out of a particular country is going to minimize the risk of prohibited materials being present within their products; simply divesting your supply chain from those areas is not going to minimize that risk,” Ben Tomkins, vice president of retail sales at Oritain, explained. “That leads a lot of brands and retailers into quite a bit of exposure from a risk perspective, but it also lures them into a false sense of security.”
Take cotton, for example.
Oritain found that a “significant amount” of the fiber is exported as both a yarn and a fabric from prohibited regions to be utilized for final assembly and manufacturing in countries like Cambodia and India, among others. From a detention perspective, Tomkins continued, Oritain saw an increasing rate of detentions within Nicaragua and Mexico. The reason for more holds in these countries pertains to their trade agreements with China.
“Nicaragua entered a free trade agreement with China earlier this year and part of that agreement was raw materials and textiles,” Tomkins said. “China used to count for 3 percent of Mexico’s imports. It’s now at about 34 percent; you can really see the changing trends and how that’s rising. That’s what we mean when we’re talking about transshipments and how it impacts the industry.”
However, these detentions do not only come from China.
“Gone are the days where you can produce everything in one country—due to tariff risks, due to forced labor risks—you now have to produce in many countries but, in particular, many companies shifted from China over to Vietnam, Bangladesh and India,” Angela Santos, partner and customs practice leader at ArentFox Schiff, said. “But when that happens, your raw materials may still come from China. They may come from other places that are problematic. And sometimes, you lose that traceability when the raw materials change hands.”
In fact, the law firm recently worked with a company under a customs audit and found that one singular T-shirt offered by said company was made with cotton from 12 different suppliers. Each of those suppliers had to have documentation tracing the movement throughout the supply chain all the way through production—but often, companies “just don’t have that information,” Santos said.
“Even if their supply chain is clean, they don’t have that documentation. It can be a huge risk in that their goods won’t be released,” she continued. “The deeper the supply chain, the more entities in the supply chain, the more entities you have to vet for forced labor risk and the more documents you have to collect.”
While some brands are certainly looking away, most are “trying their best” to understand the potential risks—and how to avoid them.
“Many companies are doing everything on the checklist, right. But there are other brands who wait until there’s a detention—and that’s not because they don’t want to comply, but because there are costs to due diligence,” Santos said. “Sometimes what we see is that companies come to us when it’s too late; there’s already a detention.”
And once there’s one detention, more follow suit. Plus, a proactive approach is cost-conscious. It’s cheaper (in the long run) to train teams on protocol for if and when a detention occurs. While tens of millions of shipments a year, with about 10,000 of them detained, there will be a “massive ramp up” of enforcement with a new administration on the horizon.
“For the first time, we’re getting RASAs, we’re getting audits, we’re getting inquiries from Customs to look at companies’ forced labor procedures before a detention, so we’re expecting that to ramp up,” Santos said. “We’re also expecting detentions to ramp up; [CBP] has invested in various technologies—including Oritain—which means they’re getting better at targeting.”
This also means that certifications and documentation alone are not enough, per Tomkins.
“It’s great to collect a level of subjective information,” he said. “But having the ability to overlay a level of forensic verification as part of that to really ensure the veracity of the subjective information that’s being provided, I think, is absolutely critical.”
For Oritain, this takes the shape of isotopic testing: similar to a fingerprint comparison, but swap fingers for the stable isotopes of chemical elements like carbon, oxygen, nitrogen and hydrogen. The scientifically enabled cotton tracing company has spent “the better part of a decade” mapping over 90 percent of the world’s global cotton production as to obtain and share insights with the industry.
“Brands can’t take the position of just trying to extinguish risk once it occurs. I think we have to be very proactive in that sense,” Tomkins said. “It is simply empowering brands to communicate to their vendors and suppliers that they have the ability to overlay forensic testing—that is a significant deterrent to noncompliant behavior in the first instance.”
