The nationwide fight continues between Chrysler owner Stellantis and the United Auto Workers Union (鈥淯AW鈥�) and its local chapters regarding the UAW鈥檚 threats to strike if Stellantis does not move forward with planned investment in its U.S. operations. In December, both the UAW and Stellantis filed similar but dueling motions, in which the parties request the Eastern District of Michigan transfer the venue and consolidate the 12 similar suits Stellantis filed, but each requests transfer and consolidation of the cases on opposite coasts. The UAW requests that the case filed in the Eastern District of Michigan be transferred to the Central District of California, where the first case was filed, and Stellantis seeks to have the other 11 cases pending around the country transferred and consolidated with the case pending in the Eastern District of Michigan. It is unsurprising that the UAW seeks to consolidate the cases in the Central District of California given the Ninth Circuit and California courts have a widely known reputation of being more employee friendly. Whereas Stellantis鈥� motion suggests it seeks a homecourt advantage given it is headquartered in Michigan, the majority of the witnesses reside in Michigan, and the actions giving rise to the suits occurred in Michigan.

Procedural History

In October 2024, in a coordinated attack, Stellantis filed 12 lawsuits alleging the UAW and its local chapters breached the 2023 Collective Bargaining Agreement (鈥淐BA鈥�) and acted in bad faith by attempting to force planned investments through work stoppages contrary to the language of Letter 311, a component of the CBA. Letter 311 provides that planned future investments are conditioned on specific business contingencies. On November 4, 2024, the UAW filed an answer denying many of Stellantis鈥� allegations and asserting 16 affirmative defenses, including improper venue.

UAW鈥檚 Motion

On December 2, 2024, the UAW filed a motion arguing that under the First-to-File Rule, the Eastern District of Michigan case should be transferred to the Central District of California, or alternatively be dismissed or stayed pending the outcome of the Central District case (鈥淯AW Motion鈥�). The UAW filed a nearly identical motion in each case that is pending outside the Central District. The First-to-File Rule is a practical rule arising from the need to manage overlapping litigation across multiple districts. It provides that when actions involve nearly identical parties and legal issues, the court in which the first case was filed should handle the litigation to maximize judicial resources and prevent conflicting court rulings. The UAW Motion argues the Eastern District of Michigan action should be transferred to the Central District of California under the First-to-File rule because the first of the 12 lawsuits was filed in the Central District and the parties and legal issues substantially overlap. The UAW alleges all 12 lawsuits are nearly identical because they all involve similar parties and are all based on the UAW鈥檚 plan to 鈥渁ssert identical grievances under the national CBA and take strike votes against Stellantis based on Stellantis鈥� alleged violation of Letter 311.鈥� The UAW also emphasizes the Central District action is further developed than the Eastern District case because a dispositive motion has already been filed in the former.

Stellantis鈥檚 Counter Motion

On December 10, 2024, Stellantis fired off an opposing motion in which it also seeks to transfer venue and consolidate all of the pending suits, albeit in the Eastern District of Michigan (鈥淪tellantis Motion鈥�). The Stellantis Motion is based on a similar, but distinct legal doctrine, from the First-to-File Rule. Stellantis argues that under 28 U.S.C. 搂 1407, all 12 cases should be transferred and consolidated in the Eastern District because doing so will minimize the burden on the parties and witnesses and promote judicial economy given that Michigan is where Stellantis and the national UAW are headquartered, and is home to the key witnesses and records relevant to the negotiation and implementation of Letter 311. Stellantis rejects the UAW鈥檚 First-to-File argument, retorting that the only reason Stellantis first filed in the Central District of California is because it was 鈥渟wiftly responding鈥� to the local UAW鈥檚 call for a strike vote in that location, which had yet to occur in any other jurisdiction, thereby 鈥渇orcing鈥� Stellantis to file in the Central District. Stellantis also argues that the dispositive motion the UAW filed in the Central District is 鈥渁 poorly disguised strategic maneuver to argue that proceedings in California are more advanced than in other jurisdictions,鈥� but that motion will not be heard until January 30, 2025.

The Eastern District鈥檚 ruling is forthcoming. 麻豆直播 is closely following this matter and will report further when the Eastern District issues a ruling regarding the parties鈥� dueling motions.

For more reading on this topic, see our October article here.

I am pleased to begin my tenure as chair of the 麻豆直播鈥檚 Manufacturing Sector by sharing our 2024 End-to-End Manufacturing Manual, a compilation of essays focused on the most pressing legal challenges that manufacturers currently face, as well as those that lie around the corner. As your team navigates the rapidly-evolving manufacturing landscape, the pace of change 鈥� from digital disruption to supply chain resiliency to the ubiquity of AI 鈥� has never been greater. To succeed and thrive, manufacturers must be keenly attuned to these trends and the legal intricacies that follow. In our Manufacturing Manual, authors from diverse practices and perspectives provide a comprehensive 鈥渆nd-to-end鈥� analysis of the manufacturing industry鈥檚 legal landscape.

麻豆直播鈥檚 Manufacturing Sector takes a holistic, end-to-end approach to provide legal, business, and strategic insights at every point in the manufacturing lifecycle. We help protect your intellectual property during product conception, assist in siting and developing your manufacturing facility, provide strategic guidance and best practices for your supply chain management, manage the regulatory, compliance, and human capital challenges of your manufacturing process, help you go to market, and tackle the product and compliance issues that arise after sale.  Our manufacturing client base and broad sector expertise enable us to identify emerging trends early on and share best practices. Whether you are a traditional manufacturer or a start-up, 麻豆直播 is the go-to trusted advisor as your business grows, evolves, and innovates. While we can help any manufacturer, we have a particular focus in core areas, including Automotive, Consumer Products, Electrified Mobility & Infrastructure, Equipment & Industrial Product Manufacturing, International Trade & National Security, Product Distribution, Smart Manufacturing, Supply Chain, and Sustainability & Product Stewardship.

Our passion is empowering manufacturers to navigate a rapidly changing world with confidence and agility by providing the knowledge, insights, and legal strategies you need to flourish. We hope this Manufacturing Manual helps you unlock new opportunities for growth, innovation, and success.

In October 2023, the Department of Justice (DOJ) announced a new Mergers & Acquisitions Safe Harbor Policy (鈥淪afe Harbor Policy鈥�) designed to encourage acquiring companies to voluntarily disclose criminal misconduct discovered at acquired companies in exchange for certain benefits and protections. Under this policy, there is a presumption that the DOJ will decline to charge acquiring companies that disclose criminal misconduct in the acquired company within a specified 鈥淪afe Harbor鈥� period and cooperate in an ensuing investigation.[1] This Safe Harbor Policy requires the disclosure of misconduct in a 鈥渢imely manner,鈥� which generally means within six months of the closing date of the acquisition (regardless of whether the wrongdoing was discovered pre- or post-closing), and fully remediating the misconduct in a 鈥渢imely manner,鈥� which generally means within one year from closing. To qualify, the acquiring company also may be required to pay restitution or disgorgement, depending on the underlying conduct.[2]

In announcing the new Safe Harbor Policy, Deputy Attorney General (DAG) Monaco 鈥渋nstruct[ed] that this Safe Harbor policy be applied [DOJ]-wide. Each part[3] of the Department will tailor its application of this policy to fit their specific enforcement regime and will consider how this policy will be implemented in practice.鈥�[4] Pursuant to DAG Monaco鈥檚 instruction, in March 2024 the Antitrust Division implemented changes to its Leniency Policy and Procedures (the 鈥淟eniency Policy鈥�) that could impact companies that uncover criminal antitrust violations as part of a merger transaction. Since the U.S. government enforces its antitrust laws against foreign entities where there is a direct, substantial, and reasonably foreseeable effect on commerce in the U.S., even when the conspiratorial action takes place outside of the U.S., multinational corporations should be aware of how the Antitrust Division has implemented the DOJ鈥檚 Safe Harbor policy and its interaction with the Antitrust Division鈥檚 longstanding Leniency Policy.

What is the Antitrust Division Leniency Program?

The Antitrust Division offers leniency[5] to organizations or individuals that promptly[6] and voluntarily self-report their participation in criminal violations of Section 1 or 3(a) of the Sherman Antitrust Act,[7] such as price or wage fixing, bid rigging, and market allocation agreements. A company may receive either “Type A” or “Type B” Leniency depending, respectively, on whether it self-reports conduct before the Antitrust Division has opened an investigation or after the Antitrust Division has opened an investigation but before the Antitrust Division obtains sufficient evidence against the company to be likely to result in a sustainable conviction. The company also must satisfy other obligations to receive leniency, such as prompt reporting, full cooperation, harm remediation, and paying restitution.[8]Once a company (or individual) self-reports a violation, the Antitrust Division issues a 鈥渕arker,鈥� which precludes another applicant from receiving leniency for the same conspiracy while that marker is pending.[9]

What Are the Safe Harbor Updates to the Antitrust Division Leniency Policy?

As noted, the Antitrust Division updated its Leniency Policy in March 2024 to comply with DAG Monaco鈥檚 directive that each part of the Department 鈥渢ailor its application of [the Safe Harbor] policy to fit their specific enforcement regime.鈥� In doing so, the Antitrust Division has imposed requirements for reporting potential criminal antitrust misconduct that appear more challenging to satisfy than other types of criminal conduct discovered in the context of an acquisition.

The updated policy, as implemented by the Antitrust Division, impacts acquirors in a merger or acquisition that discover a potential antitrust violation before closing the deal. Pursuant to the Antitrust Division鈥檚 policy:

When an acquiror discloses illegal activity by the acquired entity, a presumption of declination (i.e., a presumption against criminal charges) under the Safe Harbor Policy can only be met if the parties:

1. Satisfy the requirements of the Antitrust Division鈥檚 leniency policy.
2. Voluntarily disclose the misconduct to the Antitrust Division (and the Federal Trade Commission (FTC) if the FTC is reviewing the transaction) before the deal closes.
3. Agree to suspend any review period until a conditional leniency letter is issued or the marker lapses, or otherwise commit not to close transaction for a period of time determined by the Antitrust Division (and, when relevant, the FTC). [10]

Additionally, pursuant to the Antitrust Division鈥檚 implementation of the policy, 鈥渢he presumption of declination applies only to the acquiror, not the acquired entity.鈥�[11]

Notably, the Antitrust Division鈥檚 implementation of the Leniency Policy differs from the DOJ鈥檚 announced Safe Harbor Policy in at least two significant ways: It requires the acquiror to (1) disclose the alleged conduct before closing the transaction when the conduct is identified prior to closure (as opposed to within six months of closing), and (2) hold open the transaction while the applicant navigates the leniency process (which can take many months and often years) and for some unspecified period after a conditional leniency letter issues or the marker is allowed to lapse.[12] Only when the Antitrust Division concludes that the parties have satisfied these requirements will the Antitrust Division provide a presumption of declination 鈥渇or potential violations of the Sherman Act by issuing a conditional leniency letter or its functional equivalent, pursuant to the Division鈥檚 leniency policy.鈥�[13]

How Will This Leniency Policy Impact Potential Mergers and Acquisitions?

The Antitrust Division鈥檚 implementation of the Safe Harbor Policy as part of its Leniency Program raises several questions and challenges for companies that discover potential criminal antitrust violations during an acquisition. Prior to closing a deal, the acquiring company may be unable to report such conduct due to nondisclosure agreements or other contractual limitations. An acquiring company likely would not have the authority to conduct an internal investigation for the target company and may have limited access to information that may only suggest the potential of wrongdoing, and no access to witnesses to verify the allegations. If an acquiror does not report, however, and the Antitrust Division determines that the acquiror had sufficient knowledge of the potential wrongdoing, the acquiror may not be eligible for protections under the DOJ Safe Harbor Policy for failing to report promptly (i.e., before the deal closed) and may not meet the prompt reporting requirements of the Antitrust Division鈥檚 general leniency policy.

The Antitrust Division鈥檚 implementation of the Safe Harbor Policy also may cause transactions to face substantial delays, should either the acquiring or acquiree company choose to report potential criminal conduct. This uncertainty results from the Antitrust Division鈥檚 requirement that acquirors report the suspected conduct prior to the deal closing, coupled with the requirement that the transaction remain open and the parties agree to suspend any review periods under the Hart-Scott-Rodino Act until a conditional leniency letter is granted.

Similar safe harbor policies have not been widely adopted in non-U.S. jurisdictions; however, multinational corporations should be aware of relevant leniency policies and how to comply with the various requirements of each (as well as the potential implications) when reporting misconduct in the U.S. discovered during a merger.[16]

How Can 麻豆直播 Help?

麻豆直播鈥檚 International Government Enforcement Defense & Investigations Team is well equipped to help multinational corporations navigate any due diligence and disclosure processes. This Leniency Policy requires companies to act quickly and thoroughly to receive its benefits, and companies should not hesitate to reach out for assistance if they believe they may have knowledge of a potential criminal antitrust violation and to explore whether seeking leniency is advisable in their circumstances.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your 麻豆直播 & Lardner attorney. If you would like to see future updates regarding 鈥淲hat Every Multinational Company Needs to Know鈥� about operating in today鈥檚 complicated international trade world, please sign up for our biweekly email list. .

---

[1] U.S. Department of Justice, Deputy Attorney General Lisa O. Monaco Announces New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions (Oct. 4, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self [hereinafter Safe Harbor Policy Announcement].

[2] U.S. Dep鈥檛 of Just., Just. Manual 搂 9-28.99 (2024) [hereinafter Justice Manual].

[3] The Department of Justice includes eight divisions and/or litigating offices: the Antitrust Division, Civil Division, Civil Rights Division, Criminal Division, Environment and Natural Resources Division, the National Security Division, and the Tax Division, as well as U.S. Attorneys鈥� Offices and the U.S. Trustee Program.

[4] Safe Harbor Policy Announcement, supra Note 1.

[5] Justice Manual, Supra note 2 at搂 7-3.300.

[6] The Antitrust Division defines 鈥減romptly鈥� in an FAQ on the Leniency Program to be based on an 鈥渁ssessment based on the facts and circumstances of the illegal activity and the size and complexity of operations of the corporate applicant. It is the applicant鈥檚 burden to prove that its self-reporting was prompt.鈥� U.S. Dep鈥檛 of Just., Frequently Asked Questions 露 22 (Jan. 3, 2023). In some instances, a company may need to self-report prior to concluding an internal investigation of the conduct.

[7] 15 U.S.C. 搂搂 1, 3.

[8] Justice Manual, Supra Note 2, at 搂搂 7-3.310, 7-3.320.

[9] Justice Manual, Supra Note 2, at 搂 7-3.340.

[10]Justice Manual, Supra Note 2, at 搂搂 7-3.340, 9-28.900 (A)(3)(c).

[11] Id. at 搂 9-28.900 (B).

[12] Justice Manual, Supra Note 2, at 搂 7-3.330.

[13] Id. at 搂 9-28.900 (B).

[14] Justice Manual, Supra Note 2, 搂 9-28.900 (B)

[15] An acquired company would still be eligible for leniency outside of the Safe Harbor provisions. But the Antitrust Division did not address whether merging co-conspirators could both participate in the leniency program.

[16] To name a few, the European Union, Singapore, South Korea, Argentina, Mexico, Brazil, and Germany all have leniency provisions in their antitrust regimes.

The U.S. Consumer Product Safety Commission (鈥淐PSC鈥�) is an independent federal agency that regulates consumer products, including a variety of products made and sold by stakeholders in the Apparel industry, by providing education, regulations via the Code of Federal Regulations (鈥淐FR鈥�), and enforcement.  In addition to the CPSC, other agencies involved in regulating apparel products include, but are not limited to, the Federal Trade Commission (鈥淔TC鈥�) and the U.S. Department of Homeland Security.  While these agencies have extensive regulatory paradigms, including for apparel companies, below are five key topics on which to focus to remain compliant:

• Flammability.[1]听 The CPSC has established flammability requirements for wearing apparel 鈥渢o keep dangerously flammable textiles and garments out of commerce.鈥澨� The standards provide methods of testing the flammability of clothing and textiles intended to be used for clothing.
  • Testing.听 For flammability testing, fabrics are put in two main categories that determine which classification (1, 2, or 3)[2] must be met:
    • Plain surface fabrics.听 Does not have intentionally raised fiber or yarn surfaces and commonly includes oxford, chambray, jersey cotton, and stretch knit.听
    • Raised surface fabrics. Intentionally raised fiber or yarn surfaces such as terry cloth, fleece, corduroy, and flannel.听
  • Exceptions. 听Exceptions to the flammability testing requirements include[3]:
    • Hats that do not cover the neck, face, or shoulders;
    • Gloves that are unattached to a garment and are 14 inches or less in length;
    • Footwear that is unattached to a garment and has no hosiery; and
    • Interlining fabrics when intended or sold as a layer.
  • Exemptions.听 Fabrics that consistently show acceptable flammability results and are exempt from testing include certain plain surface fabrics[4]:
    • That weigh 2.6 ounces per square yard (or 88.2 grams per square meter, regardless of fiber content); or
    • Are made of acrylic, modacrylic, nylon, olefin, polyester, wool, or any combination of these fibers (regardless of weight).
  • Uncovered and/or exposed parts of clothing. 听Must also be tested for flammability such as rolled cuff sleeves and exposed lining in jackets.

• Children鈥檚 clothing.听 The CPSC has special rules and testing obligations for children鈥檚 products generally and children鈥檚 clothing specifically:
  • 尝补产别濒颈苍驳.听 All children鈥檚 clothes[5] must have a permanently fixed tracking label that identifies the manufacturer, importer, or private labeler name; the location and date of production; detailed manufacturing information such as the batch or run number; and any further information to source the product.听
  • Testing.听 Must be completed by a third-party, CPSC-accepted laboratory, unless registered and qualified as a small batch manufacturer.[6]听 Following testing, a Children鈥檚 Product Certificate (鈥淐PC鈥�) must be issued by the supplier.听
  • Flammability.听 Specific requirements and cautions for children鈥檚 sleepwear are covered by 16 CFR part 1615 (child sizes 0 through 6X)[7] and 1616 (child sizes 7 through 14)[8].听
  • Drawstrings.听 Applies to the neck, waist, or upper outwear areas that includes jackets, ski vests, anoraks, sweatshirts, and ties.听 These do not apply to underwear, inner clothing layers, pants, shorts, swimwear, dresses, skirts, and belts (although some state and local laws and regulations do extend these requirements to these types of clothing).听 Sizes 2T through children鈥檚 size 16 hood and neck areas may not have drawstrings unless narrow requirements are met. 听Alternative closures for these clothing sizes such as snaps, buttons, Velcro, and elastic are allowed[9].
• Lead and phthalates testing.  Certain clothing and accessories products must be tested for lead and phthalates (a chemical containing plastic).  Commonly tested components are buttons, zippers, snaps, screen-printing inks, and 鈥渢ight-fitting鈥� sleep wear for children inclusive of diapers.  These are all subject to phthalates testing as well as lead testing and meeting the requirements of not containing more than 90 parts per million (鈥減pm鈥�) of lead for children 3 years or younger, and 100 ppm for children 12 years or younger.⁹  
• General labeling requirements.  In addition to CPSC requirements, the FTC sets out certain rules for clothing, including rules that require listing the fiber content, country of origin[10], the identity of the manufacturer or other businesses involved in the handling of the product, and the care and cleaning instructions on the label.  For fur products, there are specific size, durability, lettering, and ordering of the information used for labeling.[11]  The FTC also has specific rules around 鈥淢ade in the USA鈥� labels which generally employ the 鈥渁ll or virtually all鈥� of the components standard.[12]
• Ports.听 Clothing being imported through ports of entry get tested by CPSC鈥檚 Office of Import Surveillance (鈥淓XIS鈥�) that works closely with the U.S. Customs and Border Protection (鈥淐BP鈥�) at the ports.[13]听 Questions around whether the product is hazardous will trigger the importer being asked to provide test records within 24 hours. 听If a CPSC violation is found, whether through testing or untimely test record responses, the shipment product(s) in question will be detained or conditionally released with samples taken for further testing.听 One sample is always permanently maintained with CPSC for record keeping and later additional testing if necessary.听 It is highly stressed that importers provide detailed and accurate contact information in the event testing records are needed.听 Supplied test reports must be for the exact item and encompass all components, be completed by a laboratory that is CPSC-accredited, and for children鈥檚 products, must be less than one year old. [14]听

麻豆直播 has created a multi-disciplinary and multi-jurisdictional team that is prepared to help clients accomplish their legal and business strategies with respect to CPSC and other agency compliance.[15]  To discuss how  CPSC and related regulatory requirements may impact your business, contact Erik Swanholt (eswanholt@foley.com) or Rachel Pauley (rpauley@foley.com).

---

[1] .

[2] There are three main flammability classifications based on the speed of burning consisting of Class 1 (normal flammability), Class 2 (intermediate flammability), and Class 3 (rapid and intense burning). 

[3] 16 CFR 搂1610.1(c).

[4] 16 CFR 搂1610.1(d).

[5] Typically defined as clothing for ages 12 years or younger.

[6]

[7]

[8]

[9]

[10] See also chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.cbp.gov/sites/default/files/assets/documents/2020-Feb/ICP-Textile-Apparel-Rules-of-Origin-2004-Final.pdf

[11]

[12]

[13] .

[14]

[15] /sectors/manufacturing/consumer-products/

In the contemporary landscape of manufacturing, a silent revolution is taking place, driven by the integration of artificial intelligence (AI) into various processes. As factories become smarter and more interconnected, AI is poised to revolutionize the way manufacturers operate. However, understanding its impact requires a nuanced approach. In this article, we delve into the emerging role of AI in manufacturing and outline key considerations for manufacturers to navigate this transformative journey.

The Rise of AI in Manufacturing

AI’s presence in manufacturing is not new, but recent advancements in machine learning, robotics, and data analytics have accelerated its adoption. From predictive maintenance and quality control to supply chain optimization and autonomous production lines, AI is reshaping every facet of manufacturing operations.

Enhanced Efficiency and Productivity

One of the most significant impacts of AI in manufacturing is its ability to enhance efficiency and productivity. Through predictive analytics, AI algorithms can anticipate equipment failures, minimizing downtime and optimizing maintenance schedules. Furthermore, AI-driven automation streamlines production processes, reduces errors, and increases throughput.

Quality Assurance and Defect Detection

Maintaining high product quality is paramount in manufacturing. AI-powered systems excel in quality assurance by analyzing vast amounts of data to identify patterns and anomalies. Computer vision technology, coupled with machine learning algorithms, can detect defects with precision, ensuring that only flawless products reach the market.

Supply Chain Optimization

The complexity of modern supply chains presents numerous challenges for manufacturers. AI offers solutions by providing real-time insights into demand forecasting, inventory management, and logistics optimization. By analyzing data from multiple sources, AI algorithms can identify inefficiencies and recommend optimal strategies for cost reduction and risk mitigation.

Workforce Augmentation, Not Replacement

Contrary to popular belief, AI in manufacturing is not about replacing human workers but augmenting their capabilities. Collaborative robots, or “cobots,” can work alongside human operators, handling repetitive tasks and improving ergonomics. AI-enabled tools empower workers by providing actionable insights and decision support, ultimately enhancing productivity and job satisfaction.

Anticipating Legal Challenges

As manufacturers embrace AI, they must grapple with a myriad of legal issues stemming from its adoption and deployment. From data privacy concerns to liability and regulatory compliance, navigating the legal landscape of AI in manufacturing requires careful consideration and proactive measures.

Data Security and Privacy Concerns

As manufacturers embrace AI, data security and privacy emerge as critical considerations. The interconnected nature of smart factories creates vulnerabilities that malicious actors may exploit. Therefore, robust cybersecurity measures and data governance frameworks are essential to safeguard sensitive information and maintain trust among stakeholders.

Regulatory Compliance and Ethical Considerations

The deployment of AI in manufacturing raises questions about regulatory compliance and ethical implications. Manufacturers must ensure that AI systems adhere to industry standards and legal requirements regarding safety, environmental impact, and labor practices. Moreover, ethical considerations, such as bias mitigation and transparency in decision-making algorithms, are crucial for fostering trust and accountability.

Investment in Talent and Infrastructure

To fully harness the potential of AI, manufacturers must invest in talent development and infrastructure upgrades. Building a workforce with expertise in data science, machine learning, and robotics is essential for driving innovation and maximizing ROI. Additionally, upgrading legacy systems and integrating AI-compatible technologies lay the foundation for a future-ready manufacturing ecosystem.

Data Privacy and Security

The interconnected nature of AI systems raises concerns about data privacy and security. Manufacturers must safeguard sensitive information collected by AI algorithms to prevent unauthorized access or data breaches. Compliance with data protection regulations, such as GDPR and CCPA, is essential to maintain consumer trust and avoid legal repercussions.

Liability and Accountability

In the event of AI-related errors or accidents, questions of liability and accountability arise. Who is responsible when an AI-driven system makes a faulty decision or causes harm? Manufacturers must establish clear guidelines for accountability and ensure that AI systems adhere to safety standards and regulatory requirements to mitigate legal risks.

Ethical Considerations

The ethical implications of AI in manufacturing extend beyond regulatory compliance. Manufacturers must grapple with questions of bias, fairness, and transparency in AI algorithms. Ethical AI principles, such as fairness, accountability, and transparency (FAT), should guide the development and deployment of AI systems to uphold ethical standards and social responsibility.

Conclusion

The emergence of AI in manufacturing heralds a new era of innovation and efficiency. By embracing AI technologies and understanding their impact, manufacturers can unlock unprecedented opportunities for growth and competitiveness. However, success in this transformative journey requires a holistic approach, encompassing technological adoption, workforce empowerment, and ethical stewardship. As AI continues to evolve, manufacturers must remain adaptable and proactive, leveraging its potential to shape the future of manufacturing for generations to come.

The Suez Canal and Panama Canal connect critical international trade and supply chains across continents. The Suez Canal (completed in 1869) routes ships between Europe and Asia directly linking the Red Sea and the Mediterranean Sea. The Panama Canal (completed in 1914) connects ships traveling between the Pacific and Atlantic oceans, reducing shipping around South America by 15,000听km. Given that between 80鈥�90% of the world鈥檚 goods are transported by sea, global supply chains rely heavily on these two maritime 鈥渟hortcuts.鈥�

Freight volumes passing through each of these important shipping passageways decreased dramatically in recent months on account of distinct emergencies in the area affecting safe and orderly passage. The ultimate duration of these interruptions is unknown. However, the impact on trade in January 2024 is clear. Companies in the U.S. and around the globe will likely feel ripple effects, if not more serious interruptions to supply chains in the coming months. This comes at a time when global supply chains are already reeling from the increasing freight costs, delivery delays, and inflation that mounted over the last three years. To anticipate, prevent, and address additional challenges and fallout, manufacturing companies should consider the steps outlined below to reduce their risk related to transportation costs and delays.

Recent Problems Impacting Global Trade

Governments, commercial businesses, and economic experts are monitoring at least two major crises in the global supply chain. First, since December 2023, commercial vessels traversing the Red Sea to reach the Suez Canal鈥攁 crucial trade route between Europe and Asia鈥攂egan suffering from sustained attacks by Houthi rebels in Yemen. The rebels claim the attacks respond to the ongoing war between Israel and Hamas in Gaza and that ships targeted are connected to Israel. Many of the vessels hit, however, have had little to no apparent link to Israel.

Nearly 15% of global shipping traffic is estimated to pass through the Suez Canal in a given year. The volume of freight traversing the Suez Canal decreased dramatically since December 2023 due to the Houthi militant attacks. According to the United Nations Conference on Trade and Development, the number of ships transiting the Suez Canal dropped by 39% since December, resulting in a 45% decrease in freight tonnage. For example, on January 2, 2024, a large Danish shipping company, Maersk, ceased all operations in the Red Sea until further notice after one of its vessels was attacked. Maersk now routes its cargo ships around the Cape of Good Hope鈥攁n alternative path that adds weeks and thousands of dollars of expense to each journey. Other companies still braving the Red Sea face skyrocketing costs for shipment containers. To illustrate, in December 2023, the price per container was approximately $1,400. By January 18, 2024, the price for the same container was nearly $3,800鈥攁 more than 150% increase.

The Panama Canal鈥攚hich ordinarily carries approximately 40% of all U.S. container traffic鈥攊s simultaneously experiencing interruption due to an unprecedented drought. Drought conditions have decreased water levels of the canal to well below normal levels and forced canal authorities to decrease the amount of traffic navigating the canal each day by more than 36%. This reduction increases shipping delays, which in turn, increase freight costs. And, as with the reroutes from the Red Sea to the Cape of Good Hope, the use of alternate routes exacerbates these delays and costs.

How long each crisis will last is uncertain. The interruptions at the Panama Canal are likely to improve as soon as the region receives rainfall. The current conditions may persist for the near term because the Panama dry season is just beginning and rainy season does not begin until May. The situation in the Red Sea is even less certain. Though, many world governments, including the United States, are supplying various forms of military support to deter the rebels and decrease further attacks in the area.

While little can be done to control these urgent situations, manufacturers can take steps to reduce their risk from unexpected transportation costs and delays. These steps may not prevent unexpected supply chain challenges from arising, but preparing for the unexpected can reduce its adverse impacts.

Reducing Risk Related to Transportation Costs and Delays

As we have previously written about on this blog, several approaches exist to reduce risk related to transportation delays and increased freight costs. Companies may: (1)听assess options for a consistent supply by dual sourcing goods using geo-diverse suppliers; (2) consider moving production locations to reduce the distance the product must travel; and (3) evaluate insurance policies and commercial contracts to better allocate delivery delay.

Dual Sourcing

Dual sourcing (i.e., using one or more suppliers to source a material) may yield a more stable supply of materials for their products. Ideally, the key suppliers are located in diverse geographic locations so that a weather issue or other local interruption does jeopardize the entire supply chain. Dual sourcing presumes alternative suppliers exist, which is not always the case. Assuming they do, a company must evaluate the cost of alternative suppliers in comparison to the impact of delivery delay and freight costs in a global supply chain disruption. Assessing the alternative sourcing options and doing the work to identify and qualify additional suppliers is good preparation for the inevitability of supply disruptions.

Onshoring and Nearshoring

Onshoring means moving overseas production to the domestic company鈥檚 location. Nearshoring refers to moving overseas production nearby the domestic company鈥檚 location, usually in a neighboring country on the same continent. Moving some or all production closer to consumer markets almost always results in reduced transportation costs, though those reductions must be balanced against the cost to move production and related costs, such as the cost of labor. Often companies find that the reliability that comes with onshoring or nearshoring outweighs any associated cost increase. For more information and analysis on this consideration, see听Accelerating Trends: Assessing the Supply Chain in a Post-Pandemic World.

Insurance Coverage

Companies should consider insurance to transfer risk for goods lost or delayed in transit. For each day the Ever Given, a quarter-mile-long ship, became lodged in the Suez Canal in March 2021, the blockage prevented cargo worth $10 billion from moving through the canal.¹ Companies with adequate insurance found recourse for their losses by making claims.

Many insurance products offer protection against disruption, like the drought at the Suez Canal. These include cargo insurance, contingent business interruption (CBI) insurance, and supply chain risk insurance. Cargo insurance generally protects shipments of goods from losses, damages, or theft sustained during transit. CBI insurance generally protects against lost profits and extra expenses incurred as the result of an interruption of business suffered by a customer or supplier. Supply chain insurance also typically protects against financial losses arising from your supply chain and covers a broader swath of events than CBI insurance. Some negative events that supply chain insurance could cover include government-related disruptions, pandemics, labor issues, and financial problems.

Commercial Contract Review

Whenever there is a significant change in tide that affects business, companies should consider whether their contracts should be adjusted to further hedge against risk or to take advantage of the current business climate. Some points of analysis with respect to addressing delivery delays and freight costs include:

1. Shipping Terms. Regardless of whether a company is on the buy-side or on the sell-side, it should evaluate whether the Incoterms provisions or related shipping terms in its contracts are up-to-date. Common updates include ensuring the Incoterms referenced (a) are the most recent version (Incoterms 2020), and (b) reflect the business鈥� current practice for delivery. If the current business climate supports a shift, companies may evaluate whether the Incoterms provisions could be updated to further minimize risk of incurring unforeseen transportation costs. In an ideal world for buyers, buy-side Incoterms would be Delivery Duty Paid (DDP) at the buyer鈥檚 destination, meaning that the seller is required to pay all import duties, taxes, execute customs formalities, and pay for all transportation costs.² In an ideal world for sellers, sell-side Incoterms would be Ex Works (EXW) at the seller鈥檚 dock, which places the least burden on the seller, only requiring that the seller make the goods available and suitably packaged at the specified point of delivery.³
2. Shipment Costs. Every contract for the purchase and sale of goods should explicitly define each party鈥檚 responsibility for packaging and shipping costs. Buy-side companies typically prefer transportation costs to be included in the price of the good or fixed. Sell-side companies usually elect to pass transportation costs to the buyer, or for pricing to adjust if transportation costs increase.
3. Delivery Delay. Contracts should include detailed delivery terms and companies should ensure their agreements accurately reflect their expectations. Consider:
   1. Are delivery dates approximate (as is typically desired by the seller)? Or is time of the essence as to delivery (as is typically desired by the buyer)?
   2. Who will be responsible for arranging and paying for expedited freight in the event of a delivery delay?
   3. What remedies are available to the buyer in the event of a delivery delay? Are these remedies exclusive (as is typically desired by the seller) or cumulative (as is typically desired by the buyer)?
   4. Will liquidated damages be imposed if a delivery is delayed (as is sometimes desired by the buyer)? If so, is the liquidated damage provision enforceable in the governing jurisdiction or might it be deemed an unenforceable penalty?
   5. Would it be more beneficial to have liquidated damages or contract damages? Although a liquidated damages clause helps provide clarity to the parties on damages, it also acts as a cap on damages.
   6. How do limitation of liability provisions affect the recovery of damages in the event of a delivery delay?
4. Force Majeure. Companies should review their force majeure provisions and ensure that the terms address transportation delays caused by continued supply disruptions. Some questions to consider when evaluating force majeure provisions include:
   1. Do transportation delays, inability to obtain goods or materials, and supply chain constitue 鈥渇orce majeure events鈥�?
   2. Is there catch-all phrasing that would cover transportation delays, inability to obtain goods or materials, and supply chain issues?
   3. In the event of a force majeure event, does the buyer have the right to suspend or terminate any purchase orders, and/or terminate the entire agreement under the force majeure clause? Is there a time period after the seller declares force majeure that the buyer must wait before suspension or termination?

No one can say for certain when the situations interrupting transportation through the Suez Canal and Panama Canal will subside, nor what future events will impair other key transportation points. Companies should plan strategies now to reduce the risk of financial loss in the event of persistent or new transportation delays and freight cost increases.