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Airfreight Prices Reach New Heights Ahead of the Holidays

airfreight

Airfreight Prices Reach New Heights Ahead of the Holidays

Numerous analysts agree that the upcoming holiday season could bring numerous supply chain challenges resulting in sold-out products, delayed replenishments and disappointed customers. Airfreight cost rises are already emerging as an obstacle in the mix.

Capacity Shortages and Rising Demand

Insights from airfreight logistics professionals and other people in the know suggest that reduced capacity on flights coupled with surging demands are two factors contributing to the current conditions.

An analysis of air cargo rates for September 2021 illuminates how all regions could experience the effects of more logistics professionals availing of air cargo services when they can. The push to secure spaces has pushed some major brands to invest in their own planes. However, smaller retailers are often left out because they lack the resources to cope with higher rates, let alone dedicated aircraft.

Global demand levels were up by 9.1% compared to figures collected for September 2019. Unfortunately, available capacity is 8.9% below pre-COVID-19 levels. However, other sources clarified that although volumes are up, not all planes are full.

When the report drilled down into regional situations, it revealed that Asia-Pacific airlines saw international cargo volumes rise by 4.5% compared to September 2019 figures. European carriers saw a similar 5.3% volume increase, and demand went up by 6.9% for the North Atlantic trade lane.

African, Middle Eastern and Latin American carriers felt even more intense pressure during the studied period than in September 2019. African airlines coped with a 34.6% jump in international cargo demand, while those in the Middle East and Latin America had overall upticks of 17.6% and 17.1%, respectively. The capacity shortage was particularly pronounced for Latin American air cargo specialists, with availability down more than 24% on 2019 levels.

Air Cargo Still an Appealing Option

Since goods often travel incredibly long distances to reach their destinations, intermodal transportation is increasingly necessary. It involves using at least two methods, such as a ship and a truck, to get cargo to the right places. However, it’s not always easy to choose the best options. That’s because airfreight is not the only sector saddled with extra demand.

In the United States, March 2021 container volumes for the Long Beach and Los Angeles ports were up 97% on the previous year, resulting in the busiest March recorded so far.  Also, the United States, Europe and Great Britain are among the places dealing with truck driver shortages.

While facing those obstacles, logistics professionals may understandably conclude air cargo carriers are among the best options, provided they’re willing to pay the associated rates. One issue is that many experts believe port backups won’t resolve anytime soon. A proposed solution to keep some United States ports open 24 hours may not be enough to make significant impacts, either.

Those realities have pushed more people to consider air cargo as a possibility. Bruce Chan, a senior analyst at investment bank Stifel, said, “Terminals and container yards are full. Drayage capacity is tight due to structural driver supply issues, as well as compounding disincentives to pick up from ports as a result of the delays.”

He continued, “As such, we believe there is a contingent of inventory that will not arrive in time for the seasonal rush via ocean and that freight may be converted to air.” Numerous logistics professionals have nonetheless warned consumers to expect product shortages this year. Some have recommended that shoppers take pictures of items and put them into holiday cards in case the actual products show up late.

A Few Things to Know Before Considering Airfreight Options

Shipping things by air is often the most desirable method when speed is a priority. Plus, delicate items, such as electronics and designer clothing, are among the products that most commonly travel in planes.

Airfreight cost averages were typically higher than other transportation methods even before these recent rises. Therefore, shipping more expensive items by plane was a popular choice because the hope was that the higher product revenue would justify the expenses.

However, carriers don’t accept goods in all cases. For example, aerosols with an aggregate weight of more than 150 kilograms cannot travel in a passenger aircraft. People should take the time to verify that cargo specialists will accept their products rather than assuming that’s the case. All forms of product transportation require considering things like weight and flammability to ensure safety.

It’s also more complex to prepare products for shipment by air versus sea. The cargo gets loaded onto a pallet in a warehouse, wrapped with plastic, and secured with cords and ropes. Packing the products together as tightly as possible is critical because shifting significantly during a flight could cause the plane to crash.

These details mean that even if someone is prepared to deal with rising airfreight costs, they must take the time to check that plane-based shipments are right for their products and their overall needs.

Passenger Air Travel Increases Could Decrease the Crunch

Even if there are no significant airfreight cost decreases on the horizon, an expected bump in passenger flights could ease the current capacity issues. For example, the United States recently reopened its borders to many international travelers who can show proof of their COVID-19 vaccinations.

The largest cargo holds in passenger planes’ bellies accommodate the equivalent of two 40-foot freight containers. At one time, they carried as much as half of the total air cargo capacity. Many airlines expanded their cargo space during the pandemic, but it still did not compare to levels seen previously.

Part of the reason was that airlines most dedicated to expanding cargo capacity limited the changes made. Representatives worried that demand could dry up in the future, meaning any efforts to expand cargo space might only bring short-term payoffs. However, the anticipated passenger flight boom won’t universally affect available areas.

Logistics professionals expect the most benefits to come from planes carrying people between the United States and Europe. However, the effects will not be as notable for transpacific flights.  For example, many pandemic-related travel restrictions remain in effect for China. Plus, more passengers originating in Europe traveled to the U.S. than to Asian destinations even before the pandemic.

Airfreight Logistics Are Continually Complex

People considering shipping goods by air have many pros and cons to weigh, and that was the case before rates began climbing. Being aware of those aspects will help them conclude whether the cost is worth the money when considering all other factors.

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Emily Newton is an industrial journalist. As Editor-in-Chief of Revolutionized, she regularly covers how technology is changing the industry.

charter

Chapman Freeborn Charter Over 20 Flights Carrying COVID-19 Test from China to Austria

Over the past few months, Chapman Freeborn has worked with their client in Austria, Gebrüder Weiss, to transport COVID-19 test kits on over 20 charter flights.

A variety of aircraft have been used for the different transports, but a journey last week saw 110,820kg of test kits (equal to 804 CBM) traveling on an AN225, the largest aircraft in the world.

The journey started at Tianjin Binhai International Airport (TSN) where the test kits were loaded, and then onto two stopovers at Almaty International Airport (ALA) in Kazakhstan and Istanbul Airport (IST) before reaching their final destination of Linz Airport (LNZ).

 

 

The Chapman Freeborn team utilized their close network within China to ensure the handling at TSN went to plan, working with the Austrian Embassy in China to ensure the test kits would arrive in Linz on time.

Tim Fernholz, Cargo Charter Broker at Chapman Freeborn Germany, explained, “Linz Airport is perfect for the AN225 as it has an extra-wide runway measuring 60m, due to its former usage as a military airport. This was just the second time that the AN225 has landed here – the last was 18 years ago”.

After their timely arrival in Linz, the test kits were distributed to pharmacies all across Austria by Gebrüder Weiss, who is the oldest transport and logistics company in the world.

Gebrüder Weiss said, “After initially working with Chapman Freeborn on this task and noticing how successful every charter was, we decided to work with them on an ongoing basis to distribute test kits across the country. They work with us closely, but also with all their contacts, meaning we can trust them to find solutions that ensure all our flights are just as successful as the last. There have been around 20 so far with more to come – this week more kits were transported on a B747F. We would not hesitate to recommend Chapman Freeborn.”

blockchain

The Impact of Blockchain Technology and COVID-19 on the Global Banking Industry

Over the past few years, the transformation and digitalization of the banking and financial sector have been among the most-discussed topics. Most industries have adopted blockchain technology and it’s slowly making its way towards the global banking industry. It can be said that the future of the global banking world could be shaped by the emergence of blockchain technology.

Blockchain technology, also known as the Distributed Ledger Technology (DLT), is being peddled as the next-big-thing after the creation of the internet. The major benefit of this technology is that it provides a way for untrusted parties to come to an agreement on the state of a database, without any need of a middleman. One area where blockchain technology is likely to have a major impact is the banking & financial sector. Though the technology has disrupted the banking industry, it has also benefitted it. According to a report published by Research Dive, the global blockchain market is expected to greatly benefit the banking and financial sector in upcoming years, mainly because banking & financial service providers are increasingly utilizing blockchain applications in payment procedures to secure transfers and offer international exchanges at lower costs.

Impact of Blockchain Technology on Banking Industry

Blockchain technology in the banking industry has the potential to outshine the need for manual processes involved in the banking fund transfer system and assure clients a safer way of fund transfer. Although blockchain technology is currently not well accepted in the banking industry, the idea is slowly changing. This is mainly because blockchain technology has shown success in many industries and it has the potential to provide numerous benefits to the banking and financial sector. Listed below are some reasons how blockchain technology is impacting the banking industry.

1. Saving on Transaction Costs

Blockchain technology has the capability to enable banks to save a lot of money in terms of transaction costs. Blockchain is offering the option of fund transfers from one region to another without any paperwork and extra costs that banks apply. This has been the source of the upsurge of blockchain implementation by various banks since the savings on transaction cost can result in profits of millions.

2. Fraud Reduction

The heavy jump-in into blockchain technology in the banking industry can be because of the increasing rate at which normal transactions are being exposed to fraudulent activities. Blockchain technology has the capability of reducing fraudulent activities through the removal of intermediaries. Money laundering is one of the most fraudulent activities that happen within the transaction system where intermediaries, such as the stock exchange, play a major role. Blockchain technology is projected to have a great impact on the banking industry where it will also protect banks against fraud and cyber-attacks on bank databases.

3. The New Millennial Customers

Current and future generations are expected to rely heavily on technology compared to millennials. At present, the young generation of clients is growing in a well-networked environment with enough knowledge of online transactions and crowdsourced funding. This has made the banking industry adjust to Fintech in order to deal with millennials. With blockchain technology in banking and financial sector, millennials will be able to perform their business transactions easily.

4. Trade Finance

Trade finance activities mainly compose of paperwork transactions in the banking industry, such as billing and factoring with some international transfers in imports and exports. This area is witnessed to be most efficient when transactions are done with blockchain technology. The movement of trading and financial transactions all around the world can be quickly accelerated using blockchain technology under the smart contracts that overpowers the role of documentation and digitizes the transactions.

Impact of COVID-19 on Banking Industry

The lockdown imposed by various governments across the globe to prevent the spread of the COVID-19 has halted economic activity across many sectors. The banking sector is majorly affected but in an indirect way. While banking services do not rely on direct consumer contact and can be provided remotely, the connection of the sector with the real economy as provider of payment, credit, savings, and risk management services extends the adverse effect of the COVID-19 pandemic to banks and other financial institutions. Listed below are some negative effects of COVID-19 crisis on the banking sector.

1. Revenue Loss

Firstly, firms that have stopped working miss out on revenues, and thus these firms might not be able to repay loans. Likewise, households with members who are furloughed have less income or lost their jobs during the COVID-19 crisis might not be able to repay their loans. This has ultimately resulted in lost revenue and losses and has negatively affected banking capital and profits. And as rapid recovery becomes less likely, banks can presume further losses that will result in the need for additional provisions and will further destabilize their profitability & capital position.

2. Lost Value of Bonds and Trades

Secondly, banks are negatively affected during the COVID-19 crisis as bonds & other traded financial investments have lost value, which has resulted in further losses for banks. Also, there might be some losses from open derivative positions where the derivative has moved in unpredicted directions due to the crisis.

3. Increasing Demand for Credit

The banking industry has faced increasing demand for credit during the pandemic, as particular firms require an additional cash flow to meet costs in unprecedented times of reduced or no revenues. In some cases, this rising demand has presented itself in the drawdown of credit lines by borrowers.

4. Lower Non-interest Revenues

Lastly, the banking industry has faced lower non-interest revenues mainly due to lower demand for their different services during the crisis. For instance, there are fewer transactions and payments to be done with lower economic activity, and lesser security issues by corporates cuts down the fee income for investment banks.

However, blockchain technology can be adopted by and rescue the banking industry during the COVID-19 crisis. According to the World Economic Forum, although at very least, blockchain could tortuously help to mitigate the COVID-19 pandemic’s impact by refining the visibility of supply chains that have been hugely disrupted. The sharp increase in the number of employees accessing enterprise data and systems remotely will amplify concerns of data security, confidentiality, and privacy, creating a need for vigorous authentication and access control. This can be possible with blockchain, as the technology can protect data from being tampered with or stolen. Banks invested in blockchain technology can now leverage it to secure data & applications on their network.

Moreover, banks that find it difficult to provide financing on their own in the unprecedented times can participate in a blockchain technology-based shared lending network. Banks also have an option to use their blockchain trade finance platform in order to provide remote or distant advisory services to corporate customers that need assistance with meeting their current loan obligations, or other sources of financing.

A Step Forward with Blockchain Technology

Blockchain technology is steadily advancing into the world of payments to change the transaction environment. It has reshaped the financial services by:

-Driving efficiency and removing incorruptibility by establishing new financial processes & services infrastructure.

-Enabling the inflow of liquid cash and allowing participants to convert fiat currencies to support foreign exchange through smart contacts.

-Instigating cross-border payments in real-time

Blockchain technology has made small payments reasonable, taking the required labor out of the process, which makes broker intervention pointless with shrinking processing time. In the trade finance market, blockchain technology can boost the efficiency of import/export by streamlining access to documents related to trade, quicker settlement, and better capital efficiency.

The Bottom Line

The banking industry is one of the major sectors that is going to be impacted by blockchain technology. This technology will continue to impact the banking industry due to the increase in innovation in the IoT, which is revolutionizing many industrial sectors. Blockchain seems to open up new opportunities for cost reduction. It can vividly improve the customer journey and facilitate a more secure form of data transaction & identity. However, solving all the regulatory and technological hurdles required to fully realize the potential of the blockchain technology in banking industry seems only to be a matter of time.

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Abhinav Chandrayan has worked in the Writing industry for 2 years, gaining experience in Media & Advertising and Market Research Industry. As a seasoned writer, he is passionate about advancing his writing skills by reading and working on versatile domains. In addition to writing, he is also involved in filmmaking, where his film has won the Gold Film of the Year Award in the year 2016 at India Film Project. Outside of the office, Abhinav enjoys traveling, sports, and exploring different movie niches.

nanofibers nano acrylic

How the COVID-19 Pandemic is Supporting Nanofibers Market Progression

A new class of polymers and advanced materials used for an array of applications – nanofibers, are gaining more and more prominence by the day. The market is all set to record prolific gains over the span of 2020 to 2026, currently massively driven by the demand for potential, result-driven PPE kits in light of the ongoing COVID-19 pandemic.

Speculations have it that typical cloth masks have the ability to restrict or block only about 50% of the virus particles, leaving people vulnerable to coronavirus infection. In this case, various researches and studies have been going on across various institutions and universities to develop technologies or masks that could provide maximum security and safety from dreaded SARS-CoV-2 infection.

A team of engineers from BYU Engineering announced introducing a new technology that can help protect against COVID-19 via traditional face masks. As per news reports, the team created a new filter by electrospinning nanofibers- fibers posing an electric charge that attracts coronavirus particles. Moreover, the filter when placed in typical face masks would restrict up to 95% to 99% virus particles, while also being easy on breathability and air circulation. This move is expected to offer lucrative growth opportunities to the overall nanofibers market, which is currently fueled by massive applications in vivid industries including the medical, pharmaceuticals, and electronics sectors.

Insights into the medical and pharmaceutical use of nanofibers

Industry experts recently put forth an assumption stating that nanofibers can help protect against unintended pregnancies and HIV-1, emerging as a perfect solution for producing contraception devices. It was in 2012 that a team from the University of Washington came up with the idea of developing a versatile platform to offer contraception and prevent HIV via the use of an electrically spun cloth with nanofibers. It was reported that these fibers can dissolve to release drugs, offering a platform for discrete, reversible, and economic protection. The idea in fact was so well acclaimed that the Bill & Melinda Gates Foundation announced providing a grant of USD 1 million to pursue the technology.

Nanofibers also help in healing wounds and injuries in joints while also looking after blood clotting. It is worth noting that across the United States, about 54 million people suffer from arthritis, which might or might not lead to joint injuries. Also, more than 1 in 4 adults with arthritis report severe joint pain or joint injury, raising demand for nanofiber solutions and bandages.

While considering bandages, it would be important to mention that wound healing in people above the age of 60 years takes relatively more time than in the younger population. In this case, the geriatric population is looking for products that could heal their clots or wounds in a reduced time span. In accordance, the Swiss Federal Institute of Technology, in partnership with the National University of Singapore, developed a bandage made of superhydrophobic hemostatic nanofiber composites that help blood clot faster while also easing detachment after clot shrinkage.

As per news reports, the novel innovative bandage is based on an SHP surface with immobilized carbon nanofibers which accelerate fibrin growth and convey anti-bacterial properties. Such innovations have opened growth opportunities for nanofibers in the medical and pharmaceutical realm.

The latest trend in the nanofibers market

The globe is currently witnessing the dreaded impact of COVID-19, which has to date claimed umpteen lives and left several businesses on standstill. However, the nanofibers industry has been observing huge growth over the past few months, mainly due to the product’s use in developing protective face masks to combat the spread of SARS-CoV-2 infection. Although normal cloth masks are being highly preferred across the globe by almost everyone, children are still struggling with such masks. This has indeed prompted various companies and research institutions to go nine yards for the production of face masks that are made especially for children and offer potential protection from viruses.

In one such incidence, the Korea Advanced Institute has recently developed a nano-particle face mask specially designed for pediatric use. Claimed to filter about 97% airborne particles, the AirBon mask is manufactured via an insulation block electrospinning process and is considered to be water-resistant, with no deformation in nano-membrane structure, even post 20 repeated washes.

Trends like these indicate positive growth dynamics for the nanofibers market over the foreseeable time frames.

supply chain

Rethinking the Supply Chain During COVID-19

For decades, labor cost differences have been a primary influence in the continuous shift of manufacturing production from the U.S. to China. In 1980, the cost of labor in the U.S. was more than 30 times of that in China. As China became less agrarian and more of its population migrated to large cities to work in new factories, wages rose dramatically. By 2018, the U.S.-China wage gap had closed to only four times, rising approximately 200% in the U.S. but over 2,000% in China over nearly 40 years. Yet, despite the sharp rise in Chinese manufacturing wages over the last 20 years, offshoring continued. The U.S. manufacturing industry suffered, including millions of lost jobs, stagnant inflation-adjusted wages and a decline of the middle class.

Change in wages in U.S. and China from 1980-2018

Predictable wage increases in China do not tell the whole story of America’s declining status as a factory for the world. The establishment of special, quasi-free market Special Economic Zones, seemingly endless supply of relatively inexpensive labor, and fully globalized shipping networks allowed China to capitalize on the high cost of manufacturing in the U.S., but perhaps a more important development was the world’s relentless march toward automation and robotics.

The replacement of manual labor by machines and software may have had just as much influence on the decline of the American manufacturing industry as foreign labor costs, domestic labor unions, and international trade policy. Whether attributable to man or machine, parts of the American manufacturing industry have struggled for decades to be competitive and relevant, leading the industry to focus the remaining competitive advantages on the manufacture of niche, value-add, or raw material-dependent products.

Despite a steady increase in their workers’ productivity, most American manufacturers have not been able to automate or reduce logistics costs enough to remain competitive—and offshoring, primarily to Asia, became an unfortunate reality for corporations of all sizes. When any company established a manufacturing presence in China and built a global supply chain, pressure was applied to its remaining competitors in the U.S. to either innovate or follow suit. Among some of the first U.S. manufacturers to offshore en masse were labor-intensive sectors, such as furniture and textiles, followed by manufacturers with relatively low transportation costs, such as pharmaceuticals and semiconductors.

Approximately a decade ago, several institutions in the U.S. converged on a theory that significant changes in U.S. manufacturers’ cost-benefit analysis were occurring and could create a tipping point toward reshoring certain products. The average hourly wages for reliable, competent labor in China and the cost of transporting manufactured goods safely and efficiently to consumers had shifted to such an extent that American manufacturers could potentially reshore their operations to the U.S. or near-shore them to Latin America. Their tipping point theory, predicated on higher Chinese production wages and increasingly complex and expensive global transportation and logistics costs, asserted that over a dozen manufacturing sectors showed formulaic probability of reshoring.

Today, nearly 10 years after the tipping point theory was first publicized, the American manufacturing industry may be on the precipice of another large surge in activity. Through the Great Recession and recovery, American manufacturing was kept buoyant by high-margin, low-volume products. Factoring in the current public health emergency and the current Administration’s response, the U.S. manufacturing sector could regain some of its prior job losses in impacted industries.

The U.S. manufacturing industry is at a unique and unprecedented crossroads. Of the dozen or so manufacturing sectors that previously showed potential for being reshored by rising labor costs and comparatively steep transportation and logistics costs, the tipping point has further shifted, and justification for domestic manufacturing appears stronger. As the world struggles to contain the coronavirus and understand its long-term implications on our social, medical, educational and economic systems, Duff & Phelps has created a new analysis of the prior tipping point theory and integrated several key strategic factors that carry more (or at least equal) weight in a post-COVID-19 world.

To refresh the study, Duff & Phelps adjusted for new global economic conditions, plotted current data for all major production categories and determined a new tipping point for sectors across the manufacturing industry. We began our analysis by identifying, measuring, and weighting key metrics for companies with manufacturing operations in China, including cost (labor + logistics), automation (labor productivity), innovation (R&D, IP, patents, etc.), quality and safetysustainability (environmental regulations and pollution), and national security (critical/essential designations). Specifically, our “reshoring analysis” used six objective criteria to analyze 28 sectors of the American manufacturing industry, identified by North American Industry Classification System (NAICS) codes, which were ultimately ranked according to which showed the greatest potential for re-shoring

The following six criteria and circumstantial factors show the highest probability of a given sector to reshore:

Cost: sectors with low labor costs and high logistics costs

Level of Automation: sectors that have seen a major increase in labor productivity

Innovation and Intellectual Property: sectors with relatively high R&D spending, particularly valuable intellectual property embedded within the manufacturing process or significant patent applications

Product Quality and Safety: sectors with stricter quality and safety regulations (e.g., food, drugs)

Essential Business Designation: businesses, sectors or products officially designated as critical or essential by the U.S. Department of Homeland Security or other governmental authority

Environmental Regulations: sectors whose cost of capital justifies capital investment in real or personal property improvements that allow production to meet or exceed U.S. emissions or pollution regulations

In our analysis of the six primary criteria and 28 sectors, a composite of the eight highest-scoring production categories emerged as the most probable candidates to reshore to the U.S. They share the characteristics of relatively low labor and high transportation costs and feature some of the most advanced robotics, automation and manufacturing techniques across all technology-enabled industries.  Their manufacturing processes are more compliant with and conducive to U.S. environmental regulations, labor laws, intellectual property protections and consumer safety standards. Their profit margins and global demand also tend to alleviate concerns associated with reshoring investment costs. Given the U.S. government’s renewed focus on homeland security and essential goods and services in the wake of COVID-19, the following industry sectors will have to reevaluate their manufacturing costs, supply chain reliability and risk of significant business interruption even while the pandemic is still ongoing:

-Automobiles, bodies, trailers and parts

-Other transportation equipment (e.g., boats, rail)

-Navigational, measuring, electromedical and control instruments

-Basic chemicals

-Semiconductor and electronic components

-Medical equipment and supplies

-Communications equipment

-Aerospace products and parts.

U.S.-China trade flows and top candidates for reshoring

Today, cost isn’t the only significant factor influencing U.S. corporations’ manufacturing footprint. Based on the following factors, manufacturing in the U.S. may become economically feasible for more sectors and the U.S. may experience active and passive reshoring effects as companies consider these variables:

Economic

-Rising cost of labor in China

-Increasing transparency into foreign working conditions and safety measures

-Rising logistics costs

-Corporate supply chain risk mitigation and the identification of critical supplies

-Internet/information-driven consumer awareness and sentiment

-Cost and threat of intellectual property theft

Environmental

-Enforcement of environmental laws and regulations in China’s manufacturing sector

-Sustainability and a global shift away from fossil-fuels power

-Reduced consumerism among millennials and younger generations with increased spending power for durable and non-durable goods

Geopolitical

-U.S.-China trade war and tariff impacts

-Anti-globalization and nationalist political, social and cultural trends across the world

-Consumers’ increasing demands for transparency of product content and origin

-The Trump administration’s calls for U.S. companies to reduce China-centric supply chains, even before COVID-19

-U.S.-China tensions over democracy protests in Hong Kong, origins of COVID-19, military escalation along the Indian border and in the South China Sea

-Human rights abuses of millions of ethnic Uyghurs in Chinese detention camps

Domestic Policy

-U.S.-Mexico-Canada Agreement ratification

-COVID-19 related essential business, industry and product designations by various U.S. agencies

-Potential for new legislation, regulation or designation of previously outsourced or offshored products and services that are now deemed critical to the U.S. economy or economic infrastructure

Regardless of COVID-19’s impact to the global economic structure, many large American manufacturing operations will likely remain anchored in China since production in the U.S. continues to be labor-intensive and/or global distribution is still so cost=efficient. However, our analysis suggests that additional factors beyond economic ones are being weighted more heavily and that many products historically made in China and destined for U.S. consumers or other markets around the world show high potential for being reshored.

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Gregory Burkart is managing director and global leader of Duff & Phelps’ Site Selection and Incentives Advisory practice. Kurt Steltenpohl is a managing director in Duff & Phelps’ Transaction Advisory Services practice and leader of Operations Consulting.

Duff & Phelps’ Danielle Dipietra, Meegan Spicer, Anthony Schum and Wesley Michael also contributed to this article.

A version of this article was previously published in IndustryWeek.

manufacturing

Out of Asia: Promise from Pandemic of a Manufacturing Renaissance in North America (Part 1)

The COVID-19 pandemic has exposed the weaknesses of supply chains on which nearly half of the population relies on for life-saving medication. Countries have enforced restrictions on the flow of essential medical supplies in a bid to save their own populations. States competed with the Federal government for ventilators in the market, paying multiples of the devices’ usual prices. Doctors, working in painfully under-supplied hospitals, folded plastic sheets to make their own protective masks. Many U.S. hospitals have had to connect multiple patients to devices meant to sustain the life of one. Hospital doctors and administrators have already been asked to decide who should live and who should die.

Understanding the need to transform the current supply chain, the following is the first part in a three-part series that examines how the promise from the COVID-19 pandemic is a manufacturing renaissance in North America. This first installment will lay the groundwork for understanding the current deficiencies within the supply chain and then pivot to explore the dangers of over-reliance on foreign exporters and what challenges U.S. companies are continuing to face in China.

The Current State of the Pandemic Supply Chain

It is late March 2020. In New York’s Presbyterian hospital, doctors are wrangling to accomplish something that “hasn’t really ever been done before,” at least not according to Dr. Jeremy Beitler, a pulmonary disease specialist. The hospital, one of the world’s largest, is affiliated with two Ivy League institutions and routinely ranks as one of the top five health centers in the U.S. Inside its contemporary art-clad walls doctors are connecting two people to a ventilator designed to sustain a single set of lungs. The process, which had been only tested in animals before, carries with it a host of risks because sharing does not double ventilator access, and many victims need their own device. Moreover, the two patients need different volume and pressure levels, – which means that often one or both cases are kept in sub-optimal settings.

Professionals, including the editor in chief of the journal Respiratory Care, have warned against ventilator sharing, arguing that “the time to try an untested treatment not previously used in humans is not amid a pandemic.” For the doctors in charge of triage at New York’s Presbyterian, however, the other option was death. As Dr. Charlene Babcock, an emergency doctor in Detroit puts it: “If it was me, and I had four patients, and they all need intubation, and I only had one ventilator, I would simply have a shared discussion meeting with all four families and say, ‘I can pick one to live, or we can try to have all four live.’”

This technique has now expanded across the country, as state governments fought to outbid each other to purchase one of the few ventilators left in the market. The machines went to the highest bidder. It has been four months since that day in March, but the situation that led doctors to attempt an untested off-label procedure in one of New York’s top hospitals stems from issues that run much deeper.

Foreign companies made close to 50% of the intensive-care ventilators in the U.S., where at the time, there were fewer than 12 manufacturers with the capabilities to produce them. As the COVID-19 pandemic advanced, even these U.S. manufacturers found it impossible to sharply increase their supply since the hundreds of parts that make up these complex devices were sold by companies across the world. It would take at least eight months for St. Louis-based Allied Healthcare Products to revamp its supply chain and meet the rising demand, according to the New York Times. In less than seven months, there have been close to 150,000 reported COVID-19 deaths in the United States.

This fragile state of U.S. healthcare supply was exposed by an inadequate manufacturing base that had been deteriorating for years. The toll of COVID-19 has revived efforts to overhaul the capabilities of manufacturers in the U.S. – an issue that had been dormant for decades, as manufacturers moved to jurisdictions outside the U.S., principally to Asian countries in pursuit of lower costs. Just last week, newspapers heralded the “end of an era” in U.S. manufacturing as Intel, the largest chipmaker in the country, announced it was finally considering outsourcing its production to Taiwan and South Korea. This policy was embraced by Intel’s competitors but shunned by the Silicon Valley giant for decades.

The COVID-19 pandemic has triggered an unprecedented new consciousness among the U.S. business elite of the potential risk of over-reliance on a supply chain substantially based in Asia. This new consciousness, in the midst of the pressure of COVID-19 on supply chains, the rising public support for economic rescue measures, and the recent signing of the United States–Mexico–Canada Agreement (USMCA) can collectively act to usher in an era of renewed manufacturing in North America.

The USMCA buttresses the free market access among the three North American economies and ensures U.S. producers access to low-cost labor in Mexico. Importantly, it locks in Mexico’s 2013 energy reform, which allows foreign companies to invest in the country’s energy sector and eliminates barriers to trade in energy commodities. Together, these provisions pave the way for more fully integrating the cost­-competitive production base in Mexico with the technical know-how of U.S. manufacturers – a combination with the potential to shift the manufacturing center of gravity out of Asia.

Dangers of Overreliance

Heavily relying on a global supply chain for crucial products is costly. COVID-19 has underlined the dangers of relying on China and other foreign nations for essential supplies and compounded the anti-globalist sentiment that had been developing in the U.S. in the last few years. Close to 68% of Americans surveyed by Pew Research Center supported trade and growing business ties with foreign countries in 2014. In contrast, only 47% said globalization was good for the United States in May of this year.

The U.S. imported close to $472 billion from China in 2019, down from $559 billion in 2018, according to the Bureau of Economic Analysis (BEA). In absolute terms, the most significant component of these imports is consumer products, followed by capital and industrial goods. In relative terms, however, electronics and pharmaceuticals are the sectors on which the U.S. is arguably most dependent on China. In 2019, the U.S. imported close to 70% of its consumer electronics from China. Mexico, Korea, and Vietnam: the next three largest contributors, together, accounted for 19%.  The extent of this dependence is underscored by executives in the auto industry, who told The Wall Street Journal that “they could run out of certain parts used in U.S. factories in coming weeks, with particular concern over potential shortages of electronic components,” as the pandemic forced Chinese factories to temporarily close their doors in February.

Emergent consciousness of the U.S.’s lack of self-sufficiency is perhaps most starkly obvious in the healthcare sector. According to consulting firm A.T. Kearney, close to 70% of protective masks in the U.S. are made in China, as well as 80% of the country’s antibiotic supply – including 95% of ibuprofen and 91% of hydrocortisone. Moreover, some widely used blood-pressure medications and antibiotics are no longer produced in the U.S. at all, and experts warn that China is the only known producer of certain key ingredients in antibiotics used to treat diseases like pneumonia. As of April 2020, 79 countries had imposed export bans or restrictions on essential medications and medical supplies to the U.S. market. India alone banned exports of 26 critical active pharmaceutical ingredients. The resulting undersupply in the U.S. may have already endangered national health. In the U.S., roughly half of the population is dependent on prescription drugs, and the majority use over-the-counter medicines on a regular basis.

Building manufacturing expertise in critical sectors such as healthcare as soon as possible should be a strategic policy goal. Unlike other industries, manufacturing pharmaceuticals requires knowledge and capacity that cannot be built in the short term. According to A.T. Kearney, some types of ventilators and antiseptics are among the easiest products to utilize cross-industry capacity to produce. This, of course, contrasts with the critically low supply of ventilators described above, and the government’s unsuccessful 13-year attempt to shore up that supply. Moreover, even if companies could be outfitted to assemble these complicated machines in the short term, replacing the global supply chain of parts may take much longer.

COVID-19 is testing supply chains across the whole economy. According to A.T. Kearney, close to 82% of companies surveyed indicate the pandemic has profoundly disrupted their supply chain. In comparison, only 5% of U.S. manufacturers indicate the disruption has been minimal. Similarly, according to consulting firm McKinsey & Company, material shortages were the top COVID-19 operational challenge for corporations, with close to 45% of respondents agreeing. This option comes ahead of drops in demand (41%) and cash-flow issues (22%). McKinsey indicated advanced industry, including auto-manufacturing, was the sector most affected by the supply shock, “primarily due to interconnected supply chains spanning multiple geographies.”

The U.S.’s reliance on Chinese imports contrasts with China’s self-sufficiency. According to the United Nations Comtrade data compiled by Goldman Sachs, the only segment where China acquires more than 50% of its imports from the U.S. is in aircraft (63%). Moreover, the only sectors where China imports more than a third from the U.S. are seeds and agricultural products.

U.S. Companies in China Face New Challenges

The current crisis brought into public view the dangers of depending on other countries for essential products. Discontent among U.S. companies operating in China, however, had been developing for months. Several companies now indicate they are ready to reshore out of Asia. In the most recent survey by the U.S. Chamber of Commerce in China (“Chamber”), close to 9% of member companies have already started relocating out of China, and an additional 8% are thinking about doing so. In the resource and industrial (R&I) sector, a full quarter of respondents indicated they are already relocating or considering doing so – the highest proportion across industries. For some producers, remaining in China does not make commercial sense anymore. According to Lei Wang et al., for example, it is already cheaper to produce metal and oil products in the U. S. after the U.S. imposed 25% tariffs on Chinese products.

“An uncertain policy environment, rising costs [in China] and U.S. tariffs are the top three factors influencing relocation considerations,” according to AmCham China. Close to 45% of companies relocating or thinking about doing so cited an uncertain policy environment as one of the top three reasons to relocate in 2019 (up from 9% in 2018). Similarly, 40% cited rising costs, including labor costs (up from 17% in 2018), while 38% pointed to U.S. tariffs on products exported from China.

Companies that are delaying or canceling investments in China cite similar worries. About 37% of firms surveyed by the Chamber, the largest proportion since 2013, indicate they are delaying additional investments in 2020 or looking to reduce their footprint in China. This trend is even more pronounced in the R&I sector, where 43% indicate they will not invest further in the country in 2020. This group of companies also point to the tense U.S.-China bilateral relationships as the most significant barrier to investment, followed by expectations of a slowing Chinese market, rising labor costs,  and uncertain local regulations.

Among the most longstanding concerns of U.S. firms in China are intellectual property (IP) protection and technological sharing. AmCham China suggests this is a lesser concern among firms than it was in past years, and that protections are improving. Close to 69% of U.S. firms surveyed indicated in 2019 that IP enforcement had improved over the past five years – with only 2% reporting that it has deteriorated. Similarly, the percentage of firms that indicated the risk of IP/data security leakage is higher in China dropped 10 percentile points year-on-year to 44% in 2019.

Despite the reported improvements, a significant portion of U.S. companies are still dissatisfied with the state of IP protection. Intellectual property and data leakages are still the second most cited barrier to increasing investment in China (38% of respondents), behind transparency and fairness of the regulatory environment. It is important to note, however, that industries differ widely about their uneasiness with IP protections. Within the technology sector, 49% of companies indicated that IP protections remain an obstacle to additional investment. R&I corporations are not far behind, with 48% reporting IP as a hurdle to investment.

Few empirical studies have examined China’s IP litigation outcomes, in part because the relevant data became available only after 2014. The longstanding notion among U.S. commentators is that the Chinese system systemically discriminates against foreign patent plaintiffs and that this phenomenon is more pronounced outside of large coastal cities. Gaétan Rassenfosse et al. supports this thesis in a paper that looks at how foreign IP litigants are treated by the China National Intellectual Property Administration (CNIPA) in the context of patent applications declared as standard essential to 3G and 4G LTE technology. Based on this subset of cases, the study finds that foreign applicants’ patents are granted between 8.8-9.3% less often than Chinese applicants’ patents and that it takes between 8.5 to 12.6 months longer for foreign applicants to obtain patents than for their Chinese counterparts. Some other scholars, however, have recently challenged the discrimination hypothesis advanced by Rassenfosse.

Regardless of their reasons for discontent, one thing is clear: U.S. firms are making less in China – a trend many industry leaders expect to continue. More than a fifth of respondents indicated that they experienced yearly revenue drops in 2019, up from only 12% in 2017. This drop was even more striking within the R&I group – in which 30% experienced sales declines, and an additional 36% remained flat. Companies in this sector were also the least optimistic about 2020, with close to 40% of firms surveyed not expecting their market to grow this year. Profitability across industries has also plunged to historic lows, with 38% of companies indicating they recorded losses or broke even.

U.S. Investment in China has Steadily Declined

Foreign direct investment (“FDI”) and bilateral trade data also support this reshoring narrative. According to research provider Rhodium Group, U.S. foreign direct investment in China rose to $14 billion in 2019, up from $13 billion in 2018. This number, however, does not tell the whole story. The uptick in investment was mostly driven by projects that had been in the works since at least 2018, including Tesla’s Gigafactory in Shanghai. In contrast, the value of newly commenced (greenfield) projects declined from $2.4 billion in 2018 to $1.4 billion in 2019,  supported by an expansion of GM’s Chinese joint venture. U.S. FDI in China has been falling since approximately 2012 in many industries. For instance, between 2005 and 2011, U.S. firms channeled roughly $1.27 billion per year into machinery. In contrast, they only invested $104 million per year on average in that sector between 2018 and 2019. Likewise, investment in basic materials was $1.84 billion per year on average between 2005 and 2011, but only $321 million between 2018 and 2019.

As U.S. companies have moderated their investments in China, the U.S. has also reduced its imports form the Asian nation, partly as a response to new U.S. tariffs on Chinese goods. Imports of manufactured goods from low-cost Asian countries (“LCA”) into the U. S. dropped for the first time since 2016 in 2019– recording a decline of 7.2% to $757 billion. Last year also marks the first-time imports from LCAs fell as a percentage of domestic manufacturing output since 2011. This contraction has mainly concentrated in China, where exports to the U.S. slid 17% between 2018 and 2019 to $90 billion. This trend has continued into the first few months of 2020. Imports of goods from China fell 29% year-on-year in the first quarter of this year, according to the BEA. Imports of consumer goods from that country shrank by close to 30%, while those of vehicles and automotive components, industrial supplies, and other capital goods diminished between 20% and 30%. This decline has been partially offset by a $31 billion expansion in imports from other LCAs. In particular, 46% of this amount was absorbed by Vietnam, which is also a popular choice for Chinese businesses looking to cut costs. After this shift, China accounted for 56% of U.S. manufacturing imports from LCA’s, down from 67% in 2013.

trade uncertainty

A WORLD OF TRADE UNCERTAINTY

The U.S.-China trade war and Brexit have generated quantifiable uncertainty in the marketplace, but the impact of those events is being eclipsed by the uncertainty generated by the global pandemic.

Taking an Economic Pulse

If you search the Internet for the term “economic uncertainty” or close variations, you’d find what you already know just living through the current times. It’s the default word to describe the uptick in political and trade tensions and in the precarious health of the national economy as well as our personal economic lives.

Even prior to COVID-19, the U.S.-China trade war and Brexit — to tick off current major stressors — Stanford economist Nicholas Bloom, along with his colleagues Scott Baker from Northwestern University and Steven Davis of the Booth School of Business at the University of Chicago, sought to quantify the impact of uncertainty and its impact on business, consumer and policy decisions and vice versa.

Rising levels of political and policy uncertainty are perceived to have a dampening effect on commercial investments, hiring, and economic growth, and appear to be reflected in stock market volatility. Policy uncertainty – including uncertainty in trade policies – doesn’t only manifest as risk aversion by companies, it may effectively raise the cost of capital for investing. Companies may freeze hiring and begin to rely on attrition to thin their employment ranks or begin layoffs in anticipation of slower growth. This behavior in turn may diminish the returns from government stimulus spending, itself designed to induce firm investments by offsetting some of their risk. Stimulus works better if policy and economic uncertainties are reduced.

“Uncertainty” is often described as the intangible or “X factor” in economic forecasts. Bloom and his colleagues wanted to find out whether uncertainty is more tangible and evident than we think.

Stress Testing

Bloom, Baker and Davis constructed an index to measure policy-related economic uncertainty. They used data from search results from newspaper coverage by 10 large publications including the Miami HeraldChicago Tribune and Dallas Morning News, looking for mentions of economic uncertainty within certain parameters. Their work included a measure of fiscal uncertainty as represented by the number of federal tax code provisions set to expire in future years and drew on disagreements among economic forecasters as a proxy for uncertainty.

From the Headlines

An “Echo” Report

First, some caveats:

Newspaper coverage is of course dependent upon the reporting choices made by editors at these papers and weighed against what else is driving the news of the day that may eclipse trade policy. The media mirrors uncertainty it observes and may also generate uncertainty through its own reporting.

And while the stock market has shown patterns associated with political elections, the market doesn’t make significant swings in close proximity to political elections. Politicians like to suggest that party majorities across government is good for the markets. But it would appear that political gridlock offers more stability and is considered more “market friendly” than when one political party has both houses of Congress and the White House.

That said, the Economic Policy Uncertainty index (EPU) created by Bloom and his colleagues maps the impact of “uncertainty” such that we can see clear stock market volatility associated with other types of major political events and policy developments – most recently, flare-ups in the U.S.-China trade dispute and the unfolding of Brexit.

EPU Index Based on the News

The impacts of uncertainty generated by the global pandemic are clearly much higher than the trade uncertainty associated with the U.S.-China trade war and Brexit.

Furthermore, when comparing key words associated with the four different categories of health, fiscal, monetary and trade policy, trade policy uncertainty had been the highest among the four with a spike in 2019, but it is now low and the lowest among these four – again, due to overriding concerns driven by the pandemic.

Bloom has cautioned that trade uncertainty as a driver may have receded in comparison with other concerns. However, the open-ended nature of the current U.S.-China trade conflict and the looming Brexit deadlines mean that trade uncertainty may be more of a sleeping than a slayed giant.

Trade Policy Component of Uncertainty

In general, Bloom, Baker and Davis find that, as measured by the EPU index, current levels of economic policy uncertainty are at “extremely elevated levels.” Since 2008, economic policy uncertainty averaged about twice the level of the previous 23 years.

Pile on the Social Anxiety

Bloom, Baker and Davis have also extracted Twitter data on economic uncertainty and compared their findings with the results reflected in the EPU index. Twitter chatter does reflect much of the same heightened sense of anxiety over the uncertainty of Brexit and U.S.-China trade tensions, but the levels of anxiety generally track lower. This could be largely attributed to the sheer breadth and inconsistency of posts by the millions of people tweeting. It’s hard to find the signal in all that considerable and often frivolous noise.

From 9/11 to SARS to El Niño: An Entire World of Uncertainty

In a broadening of this approach to tracking events and impacts associated with economic uncertainty, Nick Bloom has worked with economists Hites Ahir and Davide Furceri of the IMF to develop the World Uncertainty Index (WUI). They used a series of regular country reports produced by the Economic Intelligence Unit as basis for quantifying references to economic uncertainty across 143 countries.

World Uncertainty Index Global Average

On a global basis over the last two decades, the WUI shows spikes around the 9/11 attacks, the SARS outbreak, the second Gulf War, the Lehman Brothers failure, the Euro debt crisis, El Niño, the Europe border-control crisis, the UK’s referendum vote in favor of Brexit, the 2016 U.S. presidential election and recent U.S.-China trade tensions. The WUI tends to rise closer to political elections – like the consequential one in two weeks. The authors point out that the index captures uncertainty created by specific near-term events but also long-term concerns such as tensions between North and South Korea.

The authors say global uncertainty has “increased significantly” since 2012. Notably, that uncertainty has not, however, translated into stock market volatility, perhaps because the political news has increasingly become difficult for investors to interpret.

Uncertainty tends to be synchronized among advanced economies, especially among the euro area countries. And, as countries move from regimes of autocracy towards democracy, uncertainty increases but declines as the degree of democracy increases and as the quality of institutions improves. The WUI offers an interesting window into what drives uncertainty in individual economies, as well. For example, China experiences higher levels of uncertainty in association with key leadership transitions. The UK experienced a spike in uncertainty at the time of the Scottish referendum.

When Flat-Lining is Good

Trade as a component of the World Uncertainty Index has been low and nearly flat for most of the last twenty years, but has experienced a major spike in uncertainty over the last four years, in particular due to the U.S.-China trade dispute and the setbacks in negotiating a smooth UK exit from the European Community. As Nicholas Bloom has put it, the United States, UK and China have been “exporting uncertainty”.

Trade Component of World Uncertainty Actual

Trade Versus COVID-19

For close to an entire year now, COVID-19 has been dominant and pervasive in our lives and the global economy. COVID-19 is novel by definition. The unknowns and uncertainty it wreaks show up everywhere – in stock markets, on Twitter and in the news. It should not be surprising, then, that the spike in uncertainty caused by COVID-19 far outstrips that caused by the U.S.-China trade war.

But global trade tensions are not receding and the aftershocks of COVID-19 will continue to be felt in supply chain restructuring. That restructuring will take place in an environment of increasing restrictions on foreign investments, export controls, sanctions, and blacklisting of entities and individuals that multinational corporations can do business with. Long-established supply chain relationships may be less disrupted, but new relationships may not be initiated at the same rate or in the same way in times of high economic policy uncertainty.

While measuring the real impacts of economic uncertainty in still a relatively new concept, central banks and government agencies are beginning to pay attention, and to that end, it will be interesting to continue to take our collective pulse using indices like the EPU and WUI.

Hear Nicholas Bloom explain in his own words in this webinar presented by the Clayton Yeutter Institute of Trade and Finance at the University of Nebraska. Images are drawn from the slides used by Nicholas Bloom and accessible here.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

Reinforcing Your Technology Infrastructure to Handle the Unexpected in the New Normal

The COVID-19 pandemic has impacted virtually every area of our personal and professional lives. The virus has changed everything from the way we shop for groceries to the methods used to perform our jobs. In some sectors like the restaurant and retail industries, the immediate effects on businesses and the workforce have been devastating. If these establishments can continue to operate, many new restrictions and practices need to be adopted to keep both employees and customers safe.

Many businesses that do not rely on face-to-face contact with their customers were able to rapidly shift and continue operations by instituting remote work. These companies have not been negatively impacted to the same degree. This is not to say that there haven’t been substantial challenges to implementing and supporting a remote workforce. In many cases, flourishing corporate cultures were upended overnight by travel restrictions and social distancing guidelines put in place by local governments.

As the initial panic over COVID-19 settles down, businesses are faced with navigating a new normal if they hope to survive. From the look of the current global landscape, it appears like this new normal is here to stay and that we are not likely ever fully return to a pre-pandemic mindset. There is a strong possibility that the new normal will just morph into the regular normal leap-frogging the way things were in the past into a future full of virtual collaboration, global cloud platform enabling business processes and expecting the unexpected.

Winning Technology Enablement Strategies for the New Normal Virtual Organization

We were well on our way to virtual organizations before the pandemic; however, COVID-19 certainly accelerated us further down this path. There are tremendous technology options available to assist companies that have transitioned to a nearly 100% virtual organization. Major business application cloud platforms such as MS Dynamics, Salesforce and ServiceNow enable global collaboration and business process enablement.

Analytics platforms such as Azure and AWS provide robust solutions that enable improved visibility and better decision-making. Collaboration suites like MS O365 and Google’s G-suite allow global teams to operate effectively. However, these platforms all have very different capabilities and require a robust implementation and support plan. Selecting the right platform that is the best fit for your needs and proceeding with a robust implementation and support plan can make a huge difference in the business outcomes. At the very least, using the wrong solution will require retooling at some point to address a lack of features or provide enhanced functionality. This type of change can adversely affect productivity, as everyone needs to become familiar with new tools and processes.

Three characteristics are critically important when implementing technology solutions in the business world. Ensuring that these criteria are met will go a long way toward allowing a business to compete during a pandemic or economic downturn and handle the uncertain times that lie ahead. These characteristics are essential in providing the tools for a remote workforce and will continue to demonstrate their value as the future unfolds.

1.  Flexibility and Scalability

Solutions that are adopted to meet the challenges brought about by the pandemic should be flexible enough to handle the current circumstances, as well as any permanent changes in the way business will be conducted. They also need to be highly scalable, in order to scale up and down efficiently to handle the possibility that offices may reopen and then be forced to close again in favor of remote work. Employees should be able to use the same set of tools to get their jobs done whether working from their cubicle or a home office. As business needs evolve, so too should the toolset used to meet new requirements.

2.  Reliability

Technology solutions are always important. This importance is heightened by the difficulties of supporting a remote workforce. Unreliable tools will hinder productivity and hurt morale as businesses and employees struggle with negotiating the challenges of the new normal. The beleaguered IT departments of small businesses will be hard-pressed to address the problems of applications that fail to provide the promised functionality to a workforce spread out over multiple locations.

3. Security

Security needs to be the top priority in any technology solutions that are introduced to enable a remote workforce. There are the normal concerns associated with having data resources available remotely. These include the increased potential for misuse of sensitive data and providing new and possibly unsecured access to enterprise IT systems.

An additional security risk is that hackers are actively using COVID-19 as a lure for phishing campaigns designed to gain entry into corporate systems by preying on the reduced defenses of remote workers. A breached network can lead to ransomware or other forms of malware that can cripple a business.

Evaluating Technological Solutions and Choosing the Right IT Partner for Your Business

While some companies were well-prepared for the shift to the new virtual organization, many had to scramble and implement ad-hoc solutions to keep their businesses running. In many cases, this resulted in less than optimal security and choosing software tools that may be inadequate for long-term enterprise usage. Stop-gap measures and decisions that needed to be made quickly may now need to be reevaluated and modified. Since it seems as if COVID-19 and its impact on society will be with us for the foreseeable future, now is the time to conduct this evaluation.

Public cloud providers offer numerous solutions that furnish the security, flexibility, and reliability needed to successfully negotiate the challenges of operating a business in these challenging times. Their expertise can help augment a company’s IT resources or provide them to organizations that lack technical skills. Making wise use of cloud computing services enables an enterprise to be ready for whatever the future holds. As the corporate world attempts to cope with COVID-19, taking advantage of cloud computing offers a promising strategy.

While these enabling are robust solutions, it’s not just about the product you select, but also the implementation methodology you follow. For example, Salesforce and MS CRM are both great CRMs, one which may be a better fit for certain types of businesses than the other.  However, the most important key to success is choosing an implementation partner that has a robust methodology that will enable the changes you seek. Most failure happens due to a poor implementation process, not because an organization chose the wrong product.

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Tim Britt is the CEO and co-founder of Synoptek, a global consulting and IT services firm focused on delivering results for its customers. Britt has served as a strategic executive in the capacity of CEO and CIO for the past 25 years. He has provided strategic consulting both in his current role at Synoptek and with dozens of prior strategy and operational consulting firms serving Disney, Levi Strauss, Home Depot, Jusco, and others. 

Britt holds an industrial engineering degree from Georgia Institute of Technology and an MBA from J.L. Kellogg Graduate School of Management, Northwestern University. He lives in Irvine, California with his wife and four children, and enjoys skiing, hiking, biking, running, fishing, and other outdoor activities as well as dedicating himself to philanthropic interests in the areas of conservation and education.

manufacturing

How to Gain an Advantage in Manufacturing Facilities During Post-Crisis Times

In the United States today, as many manufacturers have entered post-crisis phases in their facilities, some have a much different business model than they did entering 2020. Others, such as those who manufacture medical supplies, craft supplies, and pet supplies, don’t look much different than they did at the beginning of the year, outside of a backlog of orders that they are doing their best to fill in a timely fashion. 

Some manufacturers were surprised at how well their products did during crisis times earlier in the year. For example, LumenAID, a manufacturer of portable, solar-powered lanterns that double as a phone charger, has seen a huge uptick in sales. It seems with people preparing for times unknown, emergency supply manufacturers of this type can’t fill the shelves quickly enough. Other manufacturers were well aware of the need for their products, like office chairs, school supplies, and pet training products. The comforts of home for those stuck at home became the quick front-runners in sales, and suppliers with stored inventories were pleasantly surprised with their sales numbers. 

Yet, for some manufacturing facilities, especially in the hardest-hit areas of the country, it wasn’t a lack of demand that shut down the product lines. It was the lack of production associates able to make it to the facility. Quarantine, public transportation being shut down, mandatory stay at home orders, and a lack of child care left some facilities looking much like a part of a ghost town. The most prepared of those production facilities put that time in the hands of their plant engineers and maintenance managers, and for good reason. 

In an industry where it is often common for machines to run in 72-hour cycles or longer to meet production needs, the downtime came as a blessing in disguise to many engineers and mechanics. They strapped on their tool belts and began performing preventative maintenance that had been put off, in some cases, until the machinery refused to operate any longer. While many production associates were home by no choice of their own, skeleton crews of mechanics and engineers quietly worked behind the scenes to ensure that the production lines that these associates returned to were repaired, lubed, and ready to run for another 100,000 rotations. 

While You Were Out…

Although we’re not positive what the “new” normal will look like, manufacturers are doing their best to get back to business as usual.  One key element is ensuring that their facility can handle the workload, and well-maintained production lines are a fundamental part of that process. Even those production facilities that did not have to implement the Emergency Contingency Plan and were still able to run socially distanced production shifts were finding difficulty in getting the parts necessary to perform preventative maintenance on their production machinery. 

Facilities with CMMS systems that handled their maintenance parts rooms were seeing just how much those systems did for them, possibly for the first time ever. These manufacturing facilities were able to perform preventative maintenance as normal, because of the reorder point set in the CMMS, ensuring that the parts to perform the maintenance were, indeed, stocked in the parts room. Due to the human element being removed by CMMS, the moment the last technician performed the PM and took the part off of the shelf, the system already issued a purchase order and had a replacement on the way. 

Full Speed Ahead

As manufacturers are getting back into the swing of things, especially those fortunate enough to have orders that they need to fill, the appreciation for well-maintained machines is at an all-time high. With most of the country able to return to work, and production lines full of associates thankful to be back on the line, returning to a facility with newly maintained machinery is just another day in manufacturing. However, from the mechanics and engineers who worked solo overnight shifts to prepare for firing the production lines back up, there is a nearly audible sigh of relief when the conveyor belts start running. 

Preventative maintenance was, in some facilities, the only items that could be completed during the height of the crisis, and production managers are reaping the benefits of those overhauls at the moment. In notoriously under-maintained facilities, the quietly operating, well-oiled machinery that is producing post-pandemic inventory is a sign of moving into stronger financial times. 

As A Post-Crisis Model

If your production facility is running at a pre-pandemic rate, you’ve more than likely gotten back into the normal preventative maintenance schedule, less a few adjustments. For those facilities that don’t have the need to run full production shifts at this point, investing labor dollars into machine maintenance is a smart move. Although the need may not be there at the moment, when the orders do come in, the ability to perform full production runs without stopping because of unperformed routine maintenance will be one more way to stay competitive. 

Well maintained machinery produces to specification, which reduces scrap and reworks exponentially. By producing a consistent and reliable product, your facility develops a reputation for quality, and that is priceless in post-crisis America. By ensuring that your production facility is adhering to a preventative maintenance schedule, you’re committing to running products that are manufactured to strict standards at a time when they’re more valued than ever. A CMMS is another tool in a manufacturer’s facility to ensure that they’re producing items that meet or exceed the expectations of their customers. 

In addition, maintenance costs are decreased by 5-10 percent by having a preventative maintenance program in place in a manufacturing facility. It also decreases the time spent repairing machinery by 20-50 percent. In terms of looking out for the bottom line as manufacturing facilities try to push forward in uncertain economic times, a strong preventative maintenance program makes sense. In saving both time and money long term for manufacturing facilities, preventative maintenance can help manufacturers get a leg up in the post-crisis American economy. 

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Co-Founder and CEO of Redlist. Raised in a construction environment, Talmage has been involved in heavy equipment since he was a toddler. He has degrees and extensive experience in civil, mechanical and industrial engineering. Talmage worked for several years as a field engineer with ExxonMobil servicing many of the largest industrial production facilities in the Country.

optimistic

In this COVID-19 World, Be realistic, But Optimistic.

As business leaders, our goal is always to lead our teams to success. During these challenging COVID-19 times, it’s critical to strike the right adaptive mindset and not over- or under-react. We need to find a way not to be pessimistic, but also balance realism with optimism. As William Arthur Warn said: The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. The balance of optimism with realism during these challenging times is the way business leaders can win.

James Stockdale, the United States Navy Vice Admiral and aviator was awarded the Medal of Honor in the Vietnam War, during which he was a prisoner of war for over seven years and survived when so many others did not. Stockdale explained his significant insight as the following: “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

This is indeed a paradox. Although we’re not prisoners of war, we relate to Admiral Stockdale in not knowing how long we’ll be wrestling with the challenges brought on by the COVID-19 Pandemic.  As business leaders, if we ignore the challenges on our teams, the leader will be naïve and out of touch. If the leader mires in the challenges, they risk creating a culture of pessimism that will demoralize and demotivate the team and undermine its effectiveness.

To promote Stockdale’s prevailing mindset as leaders of a team there are two helpful strategies.

The disruptive nature of working remotely 100% of the time while balancing personal and family challenges during COVID-19 requires a team to learn how to ruthlessly prioritize with more structure and pace without slowing the team down.

Rally team members around short-term goals to ensure “quick wins” and build morale.

Realistic business leaders will excel by keeping emotion out of the equation in business decision making. Adding optimism to realism allows leaders to see the brighter side of things demonstrating to team members that things will get better day by day. As Edwin Bliss stated: “Success doesn’t mean the absence of failures; it means the attainment of ultimate objectives. It means winning the war, not every battle”.  

Winning leaders and teams make things happen, plan, and prepare instead of hunkering down and waiting. Winning leaders see potential were the less successful dwell on the past. Winning business leaders might not know “how” they will excel and achieve their goals, but they always believe that they will figure it out. They know that effort is the great equalizer. If they do not already know what to do, they will learn it and perfect it. Successful leaders during this COVID-19 pandemic understand that worry, fear, action, and gratitude are all choices you get to make and that apathy is the enemy of achieving something great. Use the difficult times to realize as a leader of a business, this is the second chance your team has always been asking for. It’s critical to make decisions quickly during this difficult time. However, a business decision that is easy or guaranteed is bound not to be highly successful in the long run.

Overly optimistic business leaders believe in their soul that nothing — absolutely nothing — is impossible. However, unrealistic optimism and accepting that you are more likely to experience pleasant events, and less likely than others to experience negative ones can lead to disengagement of a team and hamper trust. A team that is blinded by optimism will not be able to change course when trouble is encountered. Therefore, it’s critical to ensure realism keeps optimism in check.

Pessimist business leaders tend to believe that bad situations are the fault of others or the internal team, and that good business outcomes are not caused by anything they or others have done, and most likely cannot be repeated.

So, when it comes to optimism or pessimism, “hope for the best, prepare for the worst” is an ideal motto. To achieve that, you must be honest with yourself about your approach and outlook.

Whether you believe the world is conspiring against us, or if you believe that the world is conspiring in our favor, it doesn’t make it any more or less realistic.

A business leader can be optimistic or pessimistic, but there is a also third state of mind called, Being A Realistic Optimist. This means that in general and for most business situations, a leader is an optimistic thinker. However, in particularly challenging conditions (e.g., before and during very complicated negotiations with many unknown and unfavorable variables) a leader might apply a more conservative style.

Optimism balanced by realism shines when faced with extreme challenge. Optimists choose to look for positivity in the situation, and most importantly, they always take action towards a better outcome, regardless of the problem.

Let’s take a moment to define optimism:

A tendency to look on the more favorable side of events or conditions and expect the most favorable outcome.” -Courtesy of Dictionary.com

What’s so unrealistic (or unhealthy) about that? Optimistic leaders believe that things will work out because in their minds believing in the alternative makes absolutely no sense. No matter what a leader’s goal, they have no control over the future. There is no one reading these words which can predict the future. And because of that, we have a genuine choice that we need to make about our expectations.

Since none of us know what will happen next, wouldn’t it make sense to always focus our expectations on what we want to happen in our lives instead of what we do not want to happen?

The word “Optimism “is originally derived from the Latin optimum, meaning “best.” Being optimistic, in the typical sense of the word, ultimately means one expects the best possible outcome from any given situation.

There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle (Albert Einstein).

Research has found that positive, i.e., optimistic thinking can aid in coping with stress, in becoming more resilient, in being more courageous, and plays a significant role in improving one’s health and well-being.

According to Martin Seligmann, people with a so-called optimistic explanatory style tend to give themselves credit when good things happen and typically blame outside forces for bad outcomes. They also look at adverse events as temporary and atypical.

Albert Bandura, one of the founding fathers of modern psychology, argued decades ago that optimism is the basis for creating and maintaining motivation to reach goals. And that an individual’s success is mostly based on the fact of whether they believe they will succeed. The results of his findings have yet to be proven wrong.

Unrealistic optimists (I also refer to them as naive realists), on the one hand, are convinced that success will happen to them almost automatically and that they will succeed effortlessly. Some of them even think (and hope) that only by sending out positive thoughts, the universe might reward them by transforming all of their wishes and aspirations into reality.

Realistic optimists are vigorously optimistic, too. They firmly believe that they make things happen and that they will succeed. They do not doubt it. Saying that, on the other hand, they perfectly know that in order of being successful, they have to plan well, to access all necessary resources, to stay focused and persistent, to evaluate different options, and to execute in excellence.

Being both optimistic and realistic, i.e., combining the two into one behavioral style of realistic optimism, creates a special breed of very successful people. Natural optimists stay positive and upbeat about the future, even – and especially – if and when they recognize the challenges ahead. As such, realism and optimism are not diametrically opposed. The contrary is true: They compellingly complement each other!

In case of doubt – and mostly if you want to achieve something very unique and impactful – the optimist in you should outwit your realist. Why? The realist might be too prone to anxiety. The optimist, however, if stimulated and guided well, will activate your fantasy, imagination, and boldness.

But there is an important caveat: to be successful, you need to understand the vital difference between believing you will succeed and believing you will succeed easily. Put another way, it’s the difference between being a realistic optimist and an unrealistic optimist.

Realistic optimists believe they will succeed, but also believe they have to make success happen — through things like effort, careful planning, persistence, and choosing the right strategies. They recognize the need for giving serious thought to how they will deal with obstacles. This preparation only increases their confidence in their ability to get things done.

Unrealistic optimists, on the other hand, believe that success will happen to them — that the universe will reward them for all their positive thinking, or that somehow they will be transformed overnight into the kind of person for whom obstacles cease to exist. (Forgetting that even Superman had Kryptonite. And a secret identity that took a lot of trouble to maintain and relationship issues.)

Believing that the road to success will be rocky leads to tremendous success because it forces you to take action. People who are confident that they will succeed, and equally confident that success won’t come easily, put in more effort, plan how they’ll deal with problems before they arise, and persist longer in the face of difficulty like the COVID-19 Pandemic.

Unrealistic optimists are only too happy to tell you that you are “being negative” when you dare to express concerns, harbor reservations, or dwell too long on obstacles that stand in the way of your goal. In truth, this kind of thinking is a necessary step in any successful endeavor, and it’s not at all antithetical to confident optimism. Focusing only on what we want, to the exclusion of everything else, is just the naïve and reckless thinking that has landed industry leaders (and at times, entire industries) in hot water during this difficult period.

Cultivate your realistic optimism by combining a positive attitude with an honest assessment of the challenges that await you. Don’t visualize success — visualize the steps you will take to make success happen.

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If you have any questions or would like help in the area of Compliance and Controls please do not hesitate to contact Frank at frank@ationadvisory.com or visit my website at www.ationadvisory.comAtion Advisory Group has expert financial and operational experience in development, manufacturing, distribution, and sales spanning 55 countries and, six continents, delivering individualized, proven methods to build out and implement highly successful and sustainable country-specific goals.  All executed with 100% FCPA (Foreign Corrupt Practices Act) compliance.