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Trade and the Impact on Imports and Exports in 2020

trade

Trade and the Impact on Imports and Exports in 2020

Significant and sustained increases in the world trade index (an index measuring the number of times the word uncertainty or its variants are mentioned in Economist Intelligence Unit (EIU) reports at a country level) should be a worry for many as “the increase in trade uncertainty observed in the first quarter could be enough to reduce global growth by up to 0.75 percentage points in 2019”[1]

In August, the US Institute for supply management[2] latest report shows a contraction in production, purchasing, and employment indices.

Ahir, H, N Bloom, and D Furceri (2019), “The global economy hit by higher uncertainty”, VoxEU.org. https://voxeu.org/article/trade-uncertainty-rising-and-can-harm-global-economy

 

Uncertainty generated from Brexit, the US-China trade war, Japan – South Korea trade wars, and general discontentment with global trend towards widening income inequality is creating a toxic mix for politicians to deal with. The irony is the conventional approach of blaming your trading partners for your problems is only likely to exacerbate a general lack of confidence and increase further uncertainty.

The current round of the G7 summit in Biarritz concluded with support “to overhaul the WTO to improve effectiveness with regard to intellectual property protection, to settle disputes more swiftly and to eliminate unfair trade practices.” In essence, it’s signaling a need to strengthen the capabilities of the WTO to act faster and more decisively in resolving disputes that are even more political than structural in nature, requiring a more multi-faceted engagement approach. Whilst this may help in the long-run, in reality, companies will have to contend with uncertainty in global trade for some time to come as well as the impacts on the real economy from these disputes.

And all of this is happening as IMO 2020 approaches, the January 1, 2020, date by which the International Maritime Organization mandates a switch to lower sulfur fuels in order to achieve an 80% reduction in sulfur emissions leading to significant cost increases in the shipping goods via ocean freight (initial estimates between 180USD – 420 USD per TEU dependent on routing, base fuel costs, carrier).

So given the significant uncertainty around global trade agreements, the increasing use of trade as a political football, the increasing costs to trade and the shortening of product lifecycles as customers want faster, newer more differentiated offerings. Is it still worth it?

Of course this is very much dependent on what industry you are in. Whether you’re a global manufacturer or a wholesaler sourcing goods, your perspectives may be different based on investments made, sensitivity to current trade/tariff measures, customer demands, your markets, and the degree to which you are exposed to political debate and targeting.

However, I would offer that the benefits of specialization, economies of scale and unique factors of production that have underpinned global trade still exist as Adam Smith put it in 1776:

“By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?”[1]

Today this simple analogy still holds true in skills, competences, capabilities, and access to markets and insights so that over time the expectation is that trade will prevail.

While the recent outlook has been gloomy, opportunities for 2020 include a resolution to a number of ongoing disputes and a final settlement on Brexit (we hope). Additionally, the maturation in technologies such as blockchain, process automation, forecasting and demand management solutions can also offset costs associated with IMO and support greater agility in the uncertain supply-chain world that we currently live in.

Indeed, if 2019 was the year of trade uncertainty, 2020 could be a restorative year in our ability to execute global trade.

Partnering with an experienced supply chain leader will be essential to minimizing cost increases while ensuring the efficient flow of your company’s goods and services.

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[1] World Economic Forum:https://www.weforum.org/agenda/2019/07/how-trade-uncertainty-is-impacting-the-global-economy/

[2]https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1

[3]Adam Smith: Wealth of nations 1776

Neil Wheeldon is the Vice Presidents Solutions, BDP International.

demand

Adapting Supply Chains for Increased Consumer Demand and Same Day Shipping

Same-day and next-day shipping options are increasing, and consumers are beginning to desire expedited shipping options with minimal delay. Through new technologies, space optimization, and supply chain auditing, there are various ways companies can adapt to this demand.

There used to be a tattered cartoon taped to every dry cleaner’s cash register. There’s a man laughing — holding his stomach, actually, as the joke is so funny — with a bold face caption that reads: “YOU WANT IT WHEN?!”

Faced with minimal competition, it was a time when companies held production and delivery control, with consumers at their mercy to indeed receive their press garments at a time of the dry cleaner’s choosing.

Those days are long gone. Armed with just a digital device, consumers have numerous options in finding suppliers who can provide things whenever they desire. As such, they expect — rather, demand —products and services on their terms.

As a result, companies must either adapt their supply chains to accommodate these expectations or find themselves with diminished market share. Below are key areas that companies must address to compete in today’s on-demand environment.

Take inventory of your inventory

As a first step, perform a comprehensive audit of your entire supply chain, even hiring a third-party specialist to develop the critical assessment. Such a deep-dive look will measure delivery accuracy, on-time performance, worker productivity and even call center effectiveness, all significant contributors to the overall efficiency of your suppliers and their impact on your supply chain.

Find a better mousetrap

Once the audit is complete, it’s time to take action, which may mean making fundamental changes to your supply chain. If you’re currently operating with a hub-and-spoke distribution model, for instance, the feedback may point to achieving greater efficiencies by adopting a decentralized distribution model (and vice versa). Especially when it comes to last-mile delivery, partnering with a third-party provider can also help, providing you with the fast turnaround that your customers expect without straining your existing operations.

Get your house in order

Any fundamental change to the supply chain must include enhancements to warehouses, adopting technological advances that deliver greater efficiencies. For some, this may mean incorporating a short-interval waving warehouse management system (WMS), which allows orders to be dispatched in clusters or waves. Other advances automate the sizing and selection of cartons, which makes packing more efficient while streamlining costs.

Taking things personnel-ly

Until supply chain logistics can all be outsourced to robots, bottom-line performance ultimately depends on the availability and performance of your employees. To those ends, leverage technology to minimize labor supply disruptions, especially during holiday seasons when demand peaks. (This is increasingly important as unemployment reaches record lows, further diminishing the labor pool.) Technology should also be used for scheduling and training, which delivers greater efficiencies and even job retention, as greater scheduling flexibility leads to increased employee satisfaction and loyalty.

Consumer demand for ever-shrinking delivery timelines makes ongoing supply chain refinements no longer optional, but mandatory. Your long-term success depends on it.

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Neil Wheeldon is vice president — solutions at BDP International in The Hague, Netherlands.