New Articles

Global Supply Chains Brace for Russia-Ukraine Conflict – Four Major Risks

global supply chains

Global Supply Chains Brace for Russia-Ukraine Conflict – Four Major Risks

As tens of thousands of Russian troops continue to mass along the Ukrainian border, and with diplomatic talks between the U.S. and Russia yet to bear fruit, the threat of a Russian invasion within the next few weeks appear to be growing.

A Russian invasion of Ukraine has the potential to cause extensive and debilitating disruption across global supply chains, resulting in rising input costs to a heightened threat of cyber attacks (see below).

Today thousands of U.S. and European companies do business with suppliers in Russia and Ukraine, which could be at risk during a prolonged military conflict. Analysis of global relationship data on the Interos platform reveals key findings:

-More than 1,100 U.S.-based firms and 1,300 European firms have at least one direct (tier-1) supplier in Russia.

-More than 400 firms in both the U.S. and Europe have tier-1 suppliers in Ukraine.

-Software and IT services account for around 12% of supplier relationships between U.S. and Russian/Ukrainian companies, compared with 9% for trading and distribution services, and 6% for oil and gas. Steel and metal products are other common items purchased from the two countries.

While the proportion of U.S. and European supply chains that include tier-1 Russian or Ukrainian suppliers is relatively low, at around 0.75%, this figure increases significantly when indirect relationships with suppliers at tier 2 and tier 3 are included.

-More than 5,000 firms in both the U.S. and Europe have Russian or Ukrainian suppliers at tier 3 (representing 2.76% and 2.37% of their respective supply chains).

-More than 1,000 firms in both the U.S. and Europe have tier-2 suppliers based in Ukraine, with around 1,200 dependent on suppliers at tier 3.

Supply chain and information security leaders in U.S. and European organizations should review their dependence on Russian and Ukrainian suppliers at multiple tiers as a key first step in their efforts to assess risk exposure in the region and ensure operational resilience.

Four Major Risks for Global Supply Chains

In the event of a Russian invasion of Ukraine, there are four major areas where global supply chains could be negatively impacted:

1. Commodity prices and supply availability

2. Firm-level export controls and sanctions

3. Cyber security collateral damage

4. Wider geopolitical instability

1. Commodity price increases. Energy, raw material and agricultural markets all face uncertainty as tensions escalate. Russia provides over a third of the European Union’s (E.U.) natural gas, and threats to this supply could force up prices at a time when companies and consumers are already facing higher energy bills. Natural gas supply pressures likely would spike volatility in other energy markets too. By one estimate, an invasion could send oil prices spiraling to $150 a barrel, lowering global GDP growth by close to 1% and doubling inflation. Even lower estimates of $100 a barrel would cause input costs and consumer prices to soar.

Food inflation is another risk, with Ukraine on track to being the world’s third largest exporter of corn, and Russia the world’s top wheat exporter. Ukraine is also a top exporter of barley and rye. Rising food prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists.

Metal markets may also continue to be squeezed. Russia controls roughly 10% of global copper reserves, and is also a major producer of nickel and platinum. Nickel has been trading at an 11-year high, and further price increases for aluminum are likely with any disruption in supply caused by the conflict.

2. Firm-level Export controls and sanctions. Commodity cost pressures could be exacerbated by targeted U.S. and European export controls. The use of such controls to restrict certain companies or products from supply chains has soared over the last few years. While many have been aimed at Chinese companies, a growing number of Russian firms have been earmarked for export controls for “acting contrary to the national security or foreign policy interests of the United States”.

Prominent Russian companies already on a U.S. restrictions list include Rosneft and subsidiaries and Gazprom. Extending export controls and sanctions to Gazprom’s subsidiaries, other energy producers, and key mining and steel market firms could further impact supply availability and input costs. Not surprisingly, U.S. companies and business groups are urging the government to be cautious in how it applies any new rules.

U.S. and E.U. export controls would also likely target the Russian financial sector – including state-owned banks – if an invasion takes place, and may be a tactic for deterrence as well. U.S. officials have noted that any sanctions would be aimed at the Russian financial sector for “high impact, quick action response”.

3. Cyber security collateral damage. Entities linked to malicious cyber activity may also face further repercussions from the U.S. and its partners. Ukraine is certainly no stranger to Russian cyber aggression. Russia has twice disrupted the Ukrainian electric grid, first in December 2015 leaving hundreds of thousands of Ukrainians in the cold, and then again the following year. But destructive attacks on the country’s infrastructure could also spark significant collateral damage in global supply chains.

In 2017, the NotPetya attack on Ukrainian tax reporting software spread across the world in a matter of hours, disrupting ports, shutting down manufacturing plants and hindering the work of government agencies. The Federal Reserve Bank of New York estimated that victims of the attack, which included companies such as Maersk, Merck and FedEx, lost a combined $7.3 billion.

This figure could pale in comparison to the global supply chain impact of a Russia-Ukraine military conflict, which would inevitably include a cyber element. Whether Russia would target its cyberwar playbook at U.S. or E.U. targets in retaliation for any support to Ukraine remains hotly debated. But the Cybersecurity Infrastructure and Security Agency (CISA) has been urging U.S. organizations to prepare for potential Russian cyber attacks, including data-wiping malware, illustrating how the private sector risks becoming collateral damage from geopolitical hostilities.

4. Geopolitical instability. Just as cyber warfare would be unlikely to remain within Ukraine’s borders, so the destabilizing effect of a Russian invasion could have wider geopolitical ramifications. In Europe, a refugee crisis could emerge, with three to five million refugees seeking safety from the conflict. In Africa and Asia, rising food prices could fuel popular uprisings. Of the 14 countries that rely on Ukraine for more than 10% of their wheat imports, the majority already face food insecurity and political instability.

China is watching closely to see how the world responds if Russia invades Ukraine. The superpower has its own aspirations of seizing territory and extending its sphere of influence. Taiwan’s defense minister has remarked that tensions over Taiwan are the worst in 40 years. A Russian invasion could further embolden China to enlist military tactics against Taiwan – something that, as well as its far-reaching geopolitical implications, would have a significant impact on electronics and other global supply chains.

***

Although many of these risks may not materialize, and represent a worst-case scenario, executives should be thinking now about the potential impact of a Russia-Ukraine military conflict on their operations over the coming months. These same leaders need to ensure that appropriate contingency plans are in place for their most critical supply chains and riskiest suppliers in the region.

Risk mitigation strategies include:

-evaluating required levels of inventory and labor in the short to medium term;

-discussing business continuity plans with key suppliers; and

-preparing to switch to, or qualify, alternative sources for essential products and services.

With proper analysis, planning and execution, it is possible to mitigate significant risk and ensure operational resilience.

forced labor

DHS Requests Comments to Inform Implementation of the Uyghur Forced Labor Prevention Act

Today, the U.S. Department of Homeland Security (“DHS”) issued a request for comments to assist the Forced Labor Enforcement Task Force (“FLETF”) with implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”). The UFLPA, signed by President Biden on December 23, 2021, creates a rebuttable presumption that goods manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (“Xinjiang”) or produced by an entity on a number of lists to be produced, will be denied entry into the U.S. under section 307 of the Tariff Act of 1930 (19 U.S.C. 1307). The UFLPA was passed in response to the alleged use of forced labor of Uyghurs, Kazakhs, Kyrgyz, Tibetans, and other persecuted groups in China. Readers can learn more about the UFLPA and the rebuttable presumption, which goes into effect on June 21, 2022, in our previous post following the UFLPA’s enactment.

While the UFLPA will almost certainly result in additional withhold release orders (“WROs”) on goods manufactured wholly or in part by entities in China, DHS’ request for comments does not provide the public with new details about investigations and enforcement practices or procedures that DHS has utilized in the Xinjiang-related WROs issued on certain silica-based products as well as certain cotton and tomato products. Instead, the request for comments poses eighteen (18) open-ended questions.

U.S. importers potentially affected by WROs are encouraged to submit comments to ensure a balanced and fully accurate record.  Some questions of particular importance include:

-What due diligence, effective supply chain tracing, and supply chain management measures can importers leverage to ensure that they do not import any goods mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the Xinjiang Uyghur Autonomous Region?

-What type, nature, and extent of evidence can companies provide to reasonably demonstrate that goods originating in the People’s Republic of China were not mined, produced, or manufactured wholly or in part with forced labor in the Xinjiang Uyghur Autonomous Region?

-To what extent is there a need for a common set of supply chain traceability and verification standards, through a widely endorsed protocol, and what current government or private sector infrastructure exists to support such a protocol?

-What measures can be taken to trace the origin of goods, offer greater supply chain transparency, and identify third-country supply chain routes for goods mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China?

Comments are due on March 10, 2022 at 11:59 PM. Husch Blackwell will continue to monitor UFLPA developments including the anticipated reports, lists, and implementing regulations.

_______________________________________________________________________

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office and is a member of the firm’s International Trade & Supply Chain practice team.

Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

global supply chain

Resilience in the Global Supply Chain: Understanding 5 Key Ingredients

Resilience is defined as follows:

re·sil·ience

/rəˈzilyəns/

noun

1. the capacity to recover quickly from difficulties; toughness. “the often remarkable resilience of so many British institutions”

2.  the ability of a substance or object to spring back into shape; elasticity. “nylon is excellent in wearability and resilience”

In terms of global supply chains, resilience is determined by an ability to adapt, survive and perform despite devastating and unplanned circumstances such as those we have been dealing with since the Covid-19 pandemic enveloped the world in February 2020.

The Covid-19 pandemic has been disruptive to every company, in every business vertical, in all countries, to all companies and for most people in the world.

The impacts of increased delays, cost escalations, unavailable space, reduced inventory balances, and lost sales continued to escalate through 2021, a year that we hoped would have positioned the pandemic in our rear-view mirrors.

By contrast, the economic impact, as well as the personal toll, have been devastating, and as we enter 2022 the residual concerns are lingering and in some business models are worsening.

Delays, cost escalations and uncertainty plague all global supply chains and have made for very difficult daily management and long-term planning.

All these issues are challenges that must be met by the supply chain executives who manage these responsibilities for the companies they operate in.

Having been through numerous disasters that have impacted supply chains, from hurricanes to tsunamis to winter storms … this pandemic has exposed corporations to new and extended vulnerabilities, never previously seen to this magnitude.

Over the last 35 years and especially in the last 20 months, I have witnessed and participated in various strategies, methodologies, and tactics to deal with these challenges.

An individual’s demonstration of “RESILIENCE” has been a key ingredient to surviving these challenges and keeping his or her organization on an even keel through these turbulent waters.

I believe there are 5 Key Ingredients to “Resiliency in Global Supply Chains”.

-Patience

-Pliability

-Information & Research Gain

-Creative Solutions

-Going Back to Basics

Patience

Those that are too quick to respond under the pressure of the issues and under senior management demands will likely make misjudgments that will make matters worse.

As an example: A logistics manager is losing patience with their service provider, who is having difficulty booking space. Instead of trying collaboratively to find a solution … moves the business to another freight forwarder … to only discover that the new forwarder’s senior management team is prioritizing space allocations to older clients and not new ones.

The logistics manager has now created a bigger hole to get out of.

Exercising patience, along with a collaborative approach, would more likely have brought a resolution that could now be in play. The impatience moved the potential resolution to the back of the line.

Patience comes with maturity, confidence, and experience. Junior-level supply chain personnel lacking tenure need to closely observe senior management – who are hopefully setting an example of a more balanced reaction and approach to disaster.

Reactions by instinct alone, hurried responses and not well-thought-out actions will typically lead to poor choices. Poor choices produce bad outcomes.

Through this pandemic, I have observed many company supply chain executives – both young and old – overreact and make some bad decisions, which placed their supply chain in further jeopardy.

“Patience is a Virtue” is part of an old adage that has never rung truer than in managing global supply chains in 2020, 2021 and into 2022.

Pliability

Pliability is the ability to bend, like a willow tree in the wind. It is all about flexibility, like a gymnast performing at this year’s Summer Olympics in Tokyo.

In Supply Chain, the meaning moves us in a direction where our strategies, tactics and decisions must become molded to the new circumstances we face where demand and capacity have been misaligned for over the past 20 months and likely to continue down that road well into 2022.

It means we must adapt to a completely new set of assessments, quantitative data input, expected outcomes, and circumstances mostly out of our control.

Specifically, in companies with a global footprint, this means underperforming suppliers, unreliable freight services, escalating costs and enormous frustrations in promises made by many and kept by few.

In addition to being patient, in this pandemic, the supply chain executive must take well-thought-out risks and approaches that can offer resolutions to all the obstacles and challenges.

And more importantly, it means that we must be pliable in our approach to attempt solutions not previously tried.

Information and Resource Gain

The Supply Chain Executives showing resilience will have to make better decisions. Better decisions will originate with quantitative data analysis, based on robust information flows.

As an example: A procurement manager for a perfume company that has a major supplier in Guangzhou, China, which accounts for 80% of a particular product line.

The Chinese supplier is having trouble meeting demand. The intuitive procurement manager dives deep with the supplier to find out who supplies them with the raw materials that they seem to be having trouble obtaining in the necessary quantities needed to fill their PO’s.

The procurement manager reached into their sourcing staff to see if they can find some alternative suppliers, which they were successful doing.

This new raw material supplier to their supplier made a big difference in having them mitigate the problems of meeting all the PO requirements.

Information, along with collaboration, resolved the problem.

In today’s world, information can make the difference between success and failure, profit or loss. Supply Chain Managers need to spend considerable time in developing resources to gain information.

Some of these resources could be:

-Friendly competitors

-Supply Chain Organizations: CSCMP, ISM, NIWT, etc.

-Consultants specializing in Global Supply Chain: Blue Tiger International & others

-Internet (search, networking)

-Media: Journal of Commerce, American Shipper & SupplyChainBrain

-Industry Trade Shows

-Advanced Colleges & Universities with Supply Chain Modules

Information that provides useful data comes from reliable sources, comprehensive structure, timely subject matter and from qualified expertise.

The “Gain of Information” is invaluable in making informed and well-thought-out decisions.  Resourcefulness is making clever use of the information gained.

Creative Solutions

This is a time one needs to raise the bar of performance in meeting the Covid-19 Pandemic challenges.

Solutions of the past may not have contemporary applications. Current practices may make the problems even worse.

One needs to “put on the thinking cap” and bring new and creative ideas to the table.

This is directly tied into being patient, pliable, and developing information sources and resources, previously discussed.

An example: A NY-based chemical company operating successfully for 40+ years is having difficulty moving cargo timely and cost-effectively from various Asian suppliers.

Their typical move is product in 25 and 50 Kilo bags and boxes, stowed in 20- and 40-Foot Containers.

They are feeling the pain of 90-120 delays in ocean freight and cost escalations from $2700/per 40’ to $22,500/per 40’ from March of 2020 till now in December 2021.

The delay and cost escalation are devastating the cost-effectiveness in an established supply chain that has worked well for more than 40 years.

The potential of customer loss is great along with margin depletion.

They collaborated with a supply chain consultant who suggested they load the product in 500 kilo super sacks at their supplier facilities and “charter” a Breakbulk vessel to move 20’ container volumes of freight.

This was very much out of their wheelhouse, but they diligently, along with their consultant reviewed the risks, quantified, assessed carefully and took steps to mitigate all the challenges that came to light.

Now, 8 months later, they have had 3 successful charters and have actually reduced landed costs by 10-12%. Their margins are in-line, the customers are happy.  The new and creative approach, with well-thought-out risk management steps, came to a favorable conclusion.

In another example: A Houston-based consumer electronics company purchasing finished products from all over the world, specifically from suppliers in Europe, Asia and the Middle East.

In their standard (pre-pandemic) process, they would bring the goods into their 750,000 sq.ft. distribution facility just outside Houston for quality control work before shipping product to customers in all 50 states, Mexico and Canada. Most customers were big-box retailers.

In this case, their supply chain consultant gave them two suggestions which they studied, assessed, and modified to fit their supply chain; both of which ultimately created favorable outcomes.

For the first option, they approached their larger retailers who were building their own consolidations in the countries they were sourcing from.

They offered the retailers pricing discounts to move the sales from CIF INCO Term to FCA Overseas Consolidation Point. Meaning they would deliver the goods to the warehouse/carrier at the outbound gateway of the country of origin. The retailer would take possession of the goods at their consolidation facility and combine it with other orders and ship as a “consolidated shipment”. The benefits could be freight cost savings and affording the control of the cargo directly to the consignee.

The second suggestion was to make the distribution facility in Houston into a Foreign Trade Zone (FTZ), where duties on sales to US entities were deferred until point of sale.  For goods exported to Canada and Mexico, no duties were paid, as the goods passed through the FTZ and never entered the U.S. economy.

This option took approximately 3 months to assess and implement, and an upgrade in their supply chain technologies became a favored solution.

Other creative solutions are as follows:

All these options present potential solutions to the global supply chain management teams to consider in mitigating the impact of disruptions and to lower landed costs.

Going Back to Basics

I was an athlete throughout my high school and college years, rising to “All American” status. I observed many times when athletic prowess waivered, winning subsided, and performance shattered how the coaches brought us back from the “dark side”.

Experience demonstrates that difficult times are likely to occur. Success is not a straight and smooth line. It is curved, bumpy and has roadblocks.

I observed over the years that quality coaches had the ability to turn circumstances around and bring guidance, solutions and resolve to the challenges we faced.

Their number one solution was to bring the team and the athlete back to basics. In soccer, it was dribbling, passing and running. In wrestling it was take-downs, grinding and stamina build-up, in lacrosse, it was throwing, cradling and scooping.

Practice those basic skill sets and once achieved again, move forward onto more robust capabilities and strategies.

It was a formula that worked over and over again. In my adult life, I utilize the same strategy in golf. When my game goes south I go back to basics: slow the swing, keep the head down and work on the short game.

The basics in global supply chain are:

Summary

We believe … like tragic forest fires that ultimately benefit the woodlands as old timber is destroyed allowing new and stronger growth to eventually flourish … that weak supply chains will potentially be lost and stronger supply chains will survive and prosper.

So it will be for global supply chains.  This latest unprecedented disruption will make supply chains ultimately operate with:

-Greater Efficiencies

-More cost-effective strategies

-Enhanced processes, protocols and SOP’s for future disruptions and affording proactive mitigation strategies

All leading to a mindset of “resiliency” … a great management quality allowing not only survival but growth and prosperity … in the most difficult of times.

 ______________________________________________________________________

Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

He can be reached at tomcook@bluetigerintl.com or 516-359-6232

trading

THE U.S., CHINA, AND THE FUTURE OF THE WORLD TRADING SYSTEM

Victorious after World War II and the Cold War, the United States and its allies largely wrote the rules for international trade and investment. Critically, the United States and European Union drove the creation of the World Trade Organization (WTO) in 1995 with the aim of opening trade in goods and services for their products, ramping up protection for their intellectual property, and transforming national trade-related law and institutions within countries around the world to look more like American and European law and institutions. Developing countries joined the WTO, but often complained that its rules were skewed. As a result, it was argued, the U.S. and European Union could rule the global economy through rules. They were incredibly successful, as WTO norms transformed laws and institutions within emerging economies.

Yet by 2020, 25 years after the WTO’s creation, it was the U.S. that has become the great disrupter—disenchanted with the rules’ constraints, including on its ability to create new rules. It was the U.S. that flouted WTO rules in the name of “national security” and the national interest—even to protect American producers of aluminum siding, and to pressure countries to block migration from Mexico and Central America. It was the U.S. that neutered trade dispute settlement and threatened to withdraw from the organization. Meanwhile, the United Kingdom— the EU’s second largest economy—voted by referendum to leave the European Union. As nationalist parties rose in prominence throughout Europe, the EU was pressed to turn inward to protect its very existence, curtailing its role on the global stage. It continues to defend multilateralism, but it is in a much weaker position following the euro crisis, internal divisions over migration, Brexit and the ravages of the COVID-19 virus, than it was in the 1990s. 

Paradoxically, China and other emerging economies became stakeholders and (at times) defenders of economic globalization and the rules regulating it, even while they too have taken nationalist turns. Before the World Economic Forum in Davos, that paragon of global institutions, China’s President Xi declared in his 2016 keynote address, “We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up and say no to protectionism.” 

How did this come to be? How did the emerging powers invest in trade law to defend their interests? What has this meant for their own internal economic governance? And what does it mean for the future of the trade legal order in light of intensified rivalry between the U.S. and China, triggering a new economic cold war? 

Many economists write of China’s rise in terms of efficiency—a combination of Western know-how and Chinese wages that triggered a “manufacturing miracle” where China became producer for the world. In his book The Great Convergence, Richard Baldwin explains how the revolution in information and communications technology in the 1990s led Western firms to outsource production of goods and services to countries such as China and India, creating a new unbundling of production through global supply chains. This unbundling “created a new style of industrial competitiveness—one that combined G7 know-how with developing-nation labor.” China became the manufacturer for the world. Its share of world manufacturing surged from 3% percent in 1990 to 19% in 2015. Western firms outsourced services to India, whose services exports increased more than 22-fold from US$8.9 billion in 1997 to US$204 billion in 2018, while its manufacturing grew in parallel. Such growth triggered a commodity boom for Brazil’s highly competitive agribusiness and mining sectors. 

These economic shifts catalyzed dramatic changes in shares of global gross domestic product. In just 29 years, the share of the G7 (U.S., Japan, Germany, U.K., France, Canada and Italy) plummeted 18 percentage points, from 64% (in 1990) to 46% (in 2019) in nominal terms, and to 30% measured by purchasing power parity. In contrast, China’s and India’s share soared. At the start of 2020, the share of global GDP of China, India and Brazil approached that of the U.S. in nominal terms (21% compared to 24%) and almost doubled it in terms of purchasing power (29% to 15%). Within a decade, China should become—once more—the world’s largest economy.

These changes in the share of global GDP gave rise to shifts in power, as political scientists stress. While the U.S. and Europe turned inwards, emerging powers like China gained confidence and became central players in the global economy. The creation of the G20 for global economic governance first reflected this transition. 

The growing U.S-China rivalry now dramatizes it. China, India and Brazil each play a leadership role in regional economic governance, and they aim to play a growing role globally. Although the U.S. wishes to halt China’s rise, the reality is that two-thirds of countries trade more goods with China than the U.S., compared to just one-fifth in 2001, the year China joined the WTO. Simply put, the economies and market size of China and other emerging powers matter, providing the country with negotiating leverage, constituting a form of power. 

So, what about law? Stated simply, it is not just structural and material power that govern the world, but also law, legal institutions and their practices. They are complementary, and they affect each other. Law and legal institutions provide normative resources that actors harness to advance their interests. They simultaneously affect the normative environment in which actors operate, which shapes their understanding and pursuit of interests. The story of emerging powers’ rise and the implications for global trade governance requires a complementary story about law and their deployment of it. My book, Emerging Powers and the World Trading System, provides that story. It tells the past story of trade law’s impact within large, emerging powers and their response to trade law, which, in turn, helps us understand the current context and responses to this context that will shape international trade and economic law’s future. The book shows how emerging powers changed internally to engage better externally.

These countries’ institutional changes and investments in legal capacity shaped the international trade legal order. They learned how to play the legal game to thwart U.S. and European dominance of the trade regime, both in negotiations and in litigation over the meaning of legal texts. This dynamic, in turn, constrained U.S. and E.U.EU policymaking, ranging from agricultural subsidies to industrial protection through import relief law. When the U.S. and European Union turned away from the WTO to create new rules through bilateral and regional trade and investment agreements, China and other emerging powers developed their own initiatives and models as well. 

The challenges for the future of the multilateral legal order for trade are clearly material, structural and ideological, as well as legal. On the one hand, they reflect the growing economic power of China, and the impact of trade from China and other emerging economies within the United States. On the other hand, traditional narratives of the benefits of free trade that ignore the impact on the economically vulnerable, have been destabilized, especially in the United States. 

The development of legal capacity to use, make, shape and apply law are is a critical part of this story, and they will continue to shape the evolving ecology of the trading system. By defining the trade order in terms of rules and judicialized dispute settlement, the WTO system created an opening for emerging economies to invest in trade law capacity and take on the U.S. and Europe at their own legal game. As a system of law purportedly in service of fairness and equal treatment, weaker players could also win. Law’s ideology of rationality and fairness could constrain the powerful, shape the interpretation of norms, and affect their strategies. The legal order for trade, although slanted in favor of the powerful, offered opportunities to weaker parties who could compete through building legal capacity. China’s, Brazil’s and India’s investments in legal capacity help explain the paradox of the U.S. abandoning the legal order that it created.

The U.S. challenge to the legitimacy and efficacy of the international trade regime that it created, and emerging powers’ defense of that regime, is a paradox that cuts across international relations theories.

John Ikenberry, in his book After Victory, published a decade after the end of the Cold War and five years after the WTO’s creation, asked this central political question: “What do states that have just won major wars do with their newly acquired powers.” His answer was a legal one: They create the rules of the game. In this situation, he wrote, states “have sought to hold onto that power and make it last” through institutionalizing it. He called the order that the U.S. created a “liberal hegemonic order” because other states consented to it in the context of American unipolar power, while the U.S. agreed to constrain itself under the rules to “make it acceptable.”

Michael Zurn, in his theory of global governance, argues that such regimes create resistance because they are “embedded in a normative and institutional structure that contains hierarchies and power inequalities.” He thus contends that “counter-institutionalization is the preferred strategy by rising powers.”

And the realist Graham Allison, in his book Destined for War, writes, “Americans urge other powers to accept a ‘rule-based international order.’ But through Chinese eyes, this appears to be an order in which Americans make the rules, and others obey the orders.” The paradox with the trade legal order is that China and other emerging powers became its defenders, while the U.S., under the Trump administration, attacked it as illegitimate and neutered its dispute settlement system. The U.S. became the revisionist power. So far, the Biden administration has continued these policies, although with a more constrained rhetoric and without the 3 a.m. tweets.

Political fault lines over trade are not just between states, but also within them. Such politics shape legal ordering internationally. Developments in China implicate companies and workers in the U.S.; the rise of U.S. economic nationalism implicates companies and workers in China. International law and institutions such as the WTO can provide an interface that helps to shape those interactions, but international law and institutions are also reciprocally shaped by them. International law and institutions are both medium and outcome.

For trade liberals, this has the arc of a tragedy. International trade law rose in prominence and trade law norms permeated deeply within emerging powers’ laws, institutions and professions. Yet, the very success of such legal ordering triggered unintended consequences. As these countries rose in economic importance and built legal capacity to wield WTO law to defend and advance their positions, the U.S. became disenchanted with the legal order it had created. It elected an economic nationalist who became “a wrecking ball,” unsettling the international legal order for trade and broader economic governance.

Effective international legal orders must be grounded in common perceptions of problems that law can address. If perceptions of underlying problems shift in radically divergent ways within the U.S., E.U.EU and these emerging powers, then the WTO as a multilateral institution based on common rules that permeate domestic laws and institutions becomes unsettled. There is no end of history, no unidirectional force toward a particular manifestation, breadth or depth of international legal ordering. Norms settle and unsettle, internationally and domestically, often in parallel. Now the centralized WTO legal order for trade is declining, giving rise to fragmenting, overlapping and competing regional and bilateral legal ordering.

The challenge for states will be how to maintain and adapt the international trade legal order to changing political and economic contexts. To maintain the international trading system to foster economic order, sustainable and inclusive growth, and the pacific settlement of disputes through law, the U.S., E.U.EU, China, India and Brazil will need to collaborate to define rules governing the interface of their economies. International trade law and institutions are no nirvana, but the alternative to them could be dire. We are in the history and make the history with the choices we make today. 

The Trump administration may have neutered the WTO’s dispute settlement system and brazenly ignored WTO rules. So far, the Biden administration has done little to nothing to change this. Its legacy for the multilateral trading system will depend on the decisions it makes in the months to come.

____________________________________________________________________

Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine School of Law and President-Elect of the American Society of International Law. This essay is taken from his book Emerging Powers and the World Trading System (2021, Cambridge University Press).

trade

Take note: Address Global Trade Issues Early in Your Negotiations to Avoid Liability and Costs (Yes, this applies to you).

Premise: Nearly all companies have exposure to international trade laws when doing business. Spotting these risks early when negotiating agreements and transactions will prevent future liability and costs. So, when drafting agreements engaging in mergers or acquisitions, and conducting diligence parties, should be considering a number of important trade risk points that may be sprinkled throughout various business activities.

“Supply chain” is the buzzword right now for a reason, it’s an area where trade liabilities are growing significantly. On top of backups and slowdowns, additional tariffs or duties (import taxes) can make importing from certain locations more expensive than it once was, and more restrictions are being added to this already highly regulated activity. New ESG and human rights restrictions along with an expanding list of prohibited parties make planning a supply chain more challenging than ever. Additionally, if done incorrectly, the penalties associated with customs violations can be quite high, or, in a worst-case scenario, your shipments can also be seized and even destroyed without compensation.

Trade Controls Are Broader Than You Think 

Always screen your transaction for other tangential cross-border issues. If the company is directly or indirectly supplying the U.S. government with goods or services under a procurement agreement, ensure someone has reviewed whether any relevant Buy America criteria are met. Enforcement is on the rise so include proactive requirements for antiboycott compliance and anti-corruption representations in agreements and ensure training is being done as needed for both employees and third parties to decrease the risk of violations. Most trade-related rules and regulations apply to U.S. persons and U.S. companies both directly and indirectly. For example, if a third-party distributor sells your product to a person in Iran without required authorization – you can be liable.

Importing is Getting More Complicated

Before you commit to acquiring, merging with, or working with any business, ensure the security of its supply chain and that it is reporting the correct country of origin, classification codes, and other required information properly. Confirm that it has all relevant IP rights and that there are no infringing marks being used, and determine whether any anti-dumping or countervailing duties might apply to the imported product. If it turns out that additional, high tariffs are due – not only may penalties be imposed, but the government will also demand interest on its unpaid revenue. So, when drafting agreements consider representations from parties to minimize risks of wrong or missing information, changing regulations, and government enforcement cases, limit your liability if possible, and choose INCOTERMS (contract terms that determine which party has responsibly shipped goods at any time during the shipping process) wisely to limit exposure.

Sanctions Apply To all of Your Customer and Supplier Relationships

Like import regulations, U.S. sanctions prohibitions and restrictions are also expanding at a steady rate. To protect yourself and your business in this dynamic and fast-changing environment, ensure that any target companies or business partners already have sanctions compliance programs and are pro-actively complying with economic sanctions and associated mandatory requirements. This is an area in which you want to limit successor and indirect liability, as penalties can be extremely high. You don’t want to learn after the fact that your business partner has been buying inputs from or selling your product to a restricted party in China. So, for your own best interest, take the initiative to educate your partners as needed and get your information and inspection rights regarding the supply chain, indirect sales, and distribution network in writing.

Export Requirements Can Apply in the US Too

Similarly, export laws also carry a specific set of risks and liabilities for exporters. Filing and licensing requirements are complex and the rules apply broadly to all U.S. origin goods and technologies (even online only and SaaS products). Ensure that any target company or potential business partner has determined the correct export classification for its products and technology before you commit to investing, acquiring, or merging. Look out for red flags that products are being transshipped to countries without the proper authorizations. Similarly, if you are going to contract with an agent or distributor, make sure they understand export compliance because your liability does not end when you hand over the product.

Further, export classifications are no longer something companies only need to know if they export physical products to locations outside of the U.S. Export controls is also implicated if you share technology domestically in the U.S. with foreign nationals. and export classification can be a determining factor in whether a CFIUS (Committee on Foreign Investment in the U.S.) filing to the Department of Treasury is required before closing a deal – and this filing requirement may apply regardless of whether the target company exports at all.

Update Your Agreements and Compliance Materials

The government is expanding its enforcement initiatives and broadening its scope of review in corporate criminal enforcement cases. Thus, it is worth your time to slow down and do your homework to avoid bigger problems later. Talk to your Colleagues. Identify whether if you are already addressing these issues, and if not, create a plan to work trade reviews into your regular processes and workflows.

Don’t let simple compliance actions slip through the cracks. If you have compliance materials- read them and ensure they are up to date and are useful to protect the company. If not work with someone familiar with the risks and the law to update, retool, or enhance them.

Make your materials practically employable, set a tone at the top that compliance procedures are taken seriously, and ensure your standard agreements include trade provisions to minimize your risk. Once you’re comfortable that you have a solid compliance program or transaction checklist well-tailored to your business activities, complete an internal audit at set intervals to make sure that it’s being used and working.

Addressing trade risks before closing a transaction or signing a contract may save you not only from headaches but from getting to know the U.S. authorities all too well.

____________________________________________________________________

Abbey Baker, counsel at Lowenstein Sandler LLP, works with businesses and entrepreneurs seeking to expand their market position in the global economy while considering national security, trade regulation, and foreign policy concerns.

Doreen M. Edelman is the chair and founder of the Global Trade & Policy practice. She has more than 30 years of experience advising clients on the risks associated with export controls, customs matters and U.S. sanctions in cross-border M&A and investment transactions, and on the compliance requirements pertaining to technology, software, defense articles and services, and commercial goods.

agricultural products

Largest Importers of U.S. Agricultural Products

According to the U.S. Department of Agriculture, U.S. agricultural and related exports totaled $162 billion in 2020, the third-highest total on record. The U.S.’s top agricultural export partners have shifted over the years, from Western Europe and Russia to South and East Asia, Latin America, and North Africa. A growing world population and expanding middle class in developing countries suggest that U.S. agriculture will remain in high demand looking ahead.

Total U.S. agricultural and related goods exports peaked in 2014 at over $170 billion. The following year, the value dropped by 12% due to a significant appreciation of the U.S. dollar; agriculture exports remained fairly constant after that. Tariffs imposed during the Trump administration resulted in retaliatory tariffs by important trade partners, which impacted U.S. agricultural exports to those countries, particularly to China. However, the impact on total agricultural exports was minimal, in part due to increased exports to other non-retaliating countries.

Since 1980, consumer-oriented goods have made up an increasingly large share of U.S. agricultural exports. Consumer-oriented agricultural products are higher-value goods destined for direct consumer consumption, and include things like meat, eggs, fruit, and vegetables. This trend is due in part to changing consumer preferences resulting from rising incomes globally. Many developing countries—including China, Mexico, and Indonesia—are important trade partners to the U.S., and rising household incomes in these countries have led to increased demand for higher-value products such as meat, dairy, and fresh produce. Bulk goods make up the second-largest share of U.S. agricultural exports and include products like grains, oilseeds, and cotton.

While the U.S. and Europe have historically been the world’s largest importers and exporters of agricultural goods, emerging economies are becoming increasingly important to global trade. On a regional basis, East Asia—which includes China, Japan, South Korea, and Taiwan—is the largest importer of U.S. agricultural products, accounting for 34% of all U.S. agricultural exports in 2020. Southeast Asia—which includes Vietnam, the Philippines, and Indonesia—is now the third-largest importer of U.S. agricultural products, behind North America and ahead of the European Union. For context, Southeast Asia ranked seventh in 1990.

To find the largest importers of U.S. agricultural products, researchers at Commodity.com analyzed data from the U.S. Department of Agriculture. The researchers ranked countries according to the total value of U.S. agricultural products that each country imports. Researchers also calculated each country’s value as a share of total U.S. agricultural exports, the top U.S. agricultural product exported to each country, and other detailed statistics.

Here are the biggest importers of U.S. agricultural products.

Country
Rank
Total value of U.S. agricultural exports to country
Country’s value as a share of total U.S. agricultural exports
Top U.S. agricultural product exported to country
Bulk total value
Intermedial total value
Consumer-oriented total value
Agricultural related total value
China

 

  1 $28,750,288,000    17.7% Soybeans $19,132,864,000  $1,872,701,000  $5,393,904,000  $2,350,819,000
Canada   2  $25,414,534,000    15.7% Bakery Goods, Cereals, & Pasta

 

$1,023,675,000  $4,160,305,000  $17,093,000,000  $3,137,555,000
Mexico

 

  3  $18,962,080,000    11.7% Corn $6,132,761,000  $3,914,580,000  $8,288,950,000  $625,787,000
Japan   4  $12,887,108,000    8.0% Beef & Beef Products

 

$3,966,270,000  $1,377,563,000  $6,371,574,000  $1,171,700,000
South Korea   5  $8,241,801,000    5.1% Beef & Beef Products

 

$1,604,410,000  $1,560,234,000  $4,541,906,000  $535,251,000
Vietnam

 

  6  $3,744,450,000    2.3% Cotton $1,790,124,000  $643,589,000  $928,273,000  $382,465,000
Netherlands   7  $3,741,523,000    2.3% Soybeans $1,158,135,000  $965,926,000  $1,221,265,000  $396,197,000
Taiwan   8  $3,349,146,000    2.1% Soybeans $1,194,534,000  $350,236,000  $1,729,362,000  $75,015,000
Philippines   9  $3,230,646,000    2.0% Soybean Meal $919,558,000  $1,182,673,000  $1,107,535,000  $20,881,000
Indonesia   10  $2,897,691,000    1.8% Soybeans $1,486,644,000  $682,172,000  $654,523,000  $74,352,000
Colombia   11  $2,881,065,000    1.8% Corn

 

$1,305,913,000  $923,885,000  $632,865,000  $18,402,000
United Kingdom   12  $2,740,498,000    1.7% Forest Products

 

$119,602,000  $506,820,000  $1,100,002,000  $1,014,074,000
Hong Kong   13  $2,182,661,000    1.3% Beef & Beef Products

 

$31,654,000  $89,541,000  $1,911,321,000  $150,145,000
Egypt   14  $1,920,256,000    1.2% Soybeans $1,509,877,000  $180,781,000  $204,093,000  $25,506,000
Thailand   15  $1,900,352,000    1.2% Soybeans $868,546,000  $508,351,000  $398,499,000  $124,957,000

 

For more information, a detailed methodology, and complete results, you can find the original report on Commodity.com’s website: https://commodity.com/blog/us-agricultural-importers/

supply chain

The True Issues Facing Shippers and Importers in this Supply Chain Nightmare – and How We Face Them with Resilience

It shouldn’t come as a surprise to anyone in the industry that trade will remain incredibly tight for the remainder of 2021 and through 2022, with constraints resulting mainly from port infrastructure challenges, demand variability, COVID-19 resurgences, and carrier capacity.

“Global supply chain bottlenecks are feeding on one another, with shortages of components and surging prices of critical raw materials squeezing manufacturers around the world,” wrote reporters for the Wall Street Journal in an Oct. 8 story

I recommend to any executive seeking guidance that all aspects of their business ought to focus now on resilience. Engage your partners and stakeholders with transparency about the challenges; don’t try to shield them from reality. Leaders need to concentrate on business continuity and supply chain agility, whilst scenario planning throughout the value chain of inputs and flows. 

Even when it looks like conditions are approaching catastrophe, there is always something an organization can do. After the 2014 flooding in Somerset, Prince Charles visited the area to learn about relief efforts and remarked, “There’s nothing like a jolly good disaster to get people to start doing something.”

Now is a good time to remind managers that they need not wait for a jolly good disaster to create a plan of action. Rather, multiple “scenario plans” are crucial to providing guidance in the case of any disruption one can think of — and they must include mechanisms for coordinated communication and implementation across the value chain. Making sure these scenario plans result in opportunities for reserving capacity within manufacturing and transport divisions will allow your company to switch gears when needed. 

Any company that relies on a global supply chain is suffering to a degree right now. Obstacles have descended like a game of whack-a-mole; if capacity is secured, an issue like port congestion is ready to pop up and take its place as the bottleneck. That’s why I’ve been reminding my teams and customers that rather than keep strict, minute-by-minute tabs on external conditions, our time is better spent referring to (or developing, if none are found to be applicable) our scenario plans to discern what levers to pull, as well as the potential customer impacts. 

The best path toward actually implementing these chosen plans of action is consistent collaboration, transparency of information, and gaming with peer options/scenarios. It is also worthwhile considering that options are changing rapidly as providers, countries and infrastructures adapt — e.g. options you thought open today, may not exist tomorrow — so being present (understanding the landscape) is as important as planning scenarios in advance. 

The fundamental concept of trade, as outlined by Adam Smith in The Wealth of Nations (1776) is based on the concept of comparative advantages and division of labor offset against the cost of home manufacture and transport. If you ask modern-day economists, global trade conditions are a direct consequence; they echo the very same sentiments as Smith expressed in 1776. They produce daily figures such as PMI, GDP growth, wage inflation, etc., which do provide insight into trends that will directly impact the demand for global trade — outside of trade disputes, pandemics and government interventions, that is!

For more informed predictions, however, one must pair economists’ numbers with trade capacity data. We are trying to return to a normal state of demand and supply right now — with one challenge being that speed of recovery and capacity constraints are creating the real impacts, and this is only solved by normalization of demand, which is impacted by both inflation and opening of service sectors (or fundamental societal changes — don’t underestimate the potential for change from COP26); and/or increased capacity to service demand, which would require new vessels and terminal infrastructure that would be several years out from use.

The last two years have highlighted the fragility of global supply chains, as well as the interconnectedness of our world in general. We’re still feeling the effects of the initial COVID-related factory shutdowns in Wuhan, which immediately generated a global impact on supply chains. COVID has shown how shocks in long global supply chains can become impossible to repair, destroying businesses and wiping out hard-fought GDP growth. 

Among the most likely outcomes: companies will re-evaluate risk in sourcing internationally, consider more diverse sourcing strategies, and build segmented supply chains to manage risk. 

We must be mindful, however, that while the majority of the news over the last two years has been about COVID, major geopolitical changes have also been playing out: heightened tensions between the US and China, increased risk of conflict in the Asia Pacific region, and trade tensions between the UK / EU through Brexit. So when companies look at long-term strategy, these influences on trade policy may force more questions over resiliency, risk management, and diversity than the pandemic’s impact.

Also among the headlines is ongoing discourse about the US’s over-dependence on foreign supply, both in terms of resilience and sustainability agendas. 

In the short run, keep in mind that big problems very often don’t have simple solutions. We can manage the diversity of sourcing both nationally and internationally, remembering that even domestic supply chains are not 100% safe from natural disasters and environmental impacts. We can segment our supply, understand the sourcing of inbound products, and take steps to secure strategic inputs that the company depends on — all while utilizing a diversity strategy that blends domestic, near-sourced, and internationally sourced inputs from diverse supplier bases. 

Apart from the above actions, it’s good old effective planning, careful inventory adjustments, and sales management that remain the keys to supply chain resiliency, whether near- or far-sourced.

_______________________________________________________________________

Neil Wheeldon is Chief Strategy & Innovation Officer, BDP International. He is an experienced supply chain management practitioner having worked across numerous industries supporting customers in supply chain and digital transformation initiatives to drive growth. He can be reached at neil.wheeldon@bdpint.com.

section 232

U.S. Court of International Trade Stays Department of Commerce’s Motion for Voluntary Remand Setting Course for Court-Annexed Mediation in Section 232 Exclusions Dispute

On September 30, 2021, the Department of Commerce (“Commerce”) filed a motion requesting a voluntary remand to review 502 Section 232 exclusion request denials it issued to Voestalpine High Performance Metals Corporation and Ergo Specialty Steels, Incorporated (collectively “Voestalpine, et al.”) beginning in 2018. Specifically, Commerce in its motion acknowledges that it lacks documentation explaining why it rejected all 502 requests. This motion for voluntary remand comes only a couple months after Commerce requested the same type of voluntary remand in six separate Section 232 appeals.

In its September 15, 2021, order, the court rejected Commerce’s motions for voluntary remand and instead consolidated the six separate cases concerning similar denials of Section 232 exclusion requests and collectively referred the cases to court-annexed mediation. Specifically, the court ordered that (1) all cases are stayed for a maximum of 90 days beginning September 15th in which time mediation should be conducted and concluded, and (2) all cases be returned to the active calendar unless settlement is reached during the mediation process.

The court seems set to follow the same course in Voestalpine et al.’s appeal. On October 1, 2021, the CIT issued an order (1) staying Plaintiffs time to respond to Commerce’s September 30th motion until further notice and (2) requiring both parties to file statements on whether this case should be referred to court-annexed mediation.

Commerce in its statement filed on October 6, 2021, opposes the court-annexed mediation. In its statement, Commerce argues that the differences in the products that are the subject of the exclusion requests do not allow for a speedy resolution through mediation. Commerce also points out that in Voestalpine et al.’s initial complaint, the relief sought was a remand to Commerce.

Voestalpine et al., in its statement filed on October 8, 2021, rebuts both of Commerce’s arguments and supports court-annexed mediation. In its statement, Voestalpine et al. points out that the issue is not that Commerce denied the exclusion requests, but rather that it did not include the reasoning behind any denials at issue. Voestalpine et al. also argues that it did not seek relief through remand to Commerce merely for reconsideration of the exclusion requests. Rather, it sought a remand to Commerce with a requirement “to refund the Section 232 tariffs previously paid by Plaintiffs.”

It appears there may be a trend developing. The court seems reluctant to allow these actions to fully go back to Commerce while, at the same time, it is reluctant to provide plaintiffs the relief sought: a declaration that Commerce’s denials were unlawful.

It may also be that the court is waiting to see whether global politics will impact the status of Section 232 tariffs in the near future. Either way, it seems likely that this case will be referred to the same mediation process as the cases earlier this year and that a trend of court-annexed mediation is developing where Section 232 exclusion request denials are concerned.

As a reminder, the Trump Administration instituted Section 232 national security tariffs on steel and aluminum in 2018 and also set up an exclusion process for importers if they met certain qualifications and were able to demonstrate that the product was not available from any other source and did not harm national security interests. The exclusions were granted on a product-specific and importer-specific basis.

__________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

fruit

Global Frozen Fruit Trade Grows Robustly

IndexBox has just published a new report: ‘World – Frozen Fruits – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

Global frozen fruit imports continue to grow in physical terms, expanding twofold over the past decade. In 2020, global imports rose by +3% y-o-y to 2.7M tonnes. In value terms, imports reached $5.8B last year. The U.S. and Germany remain the largest importers of frozen fruits worldwide, with a combined 34%-share of the global figure. The U.S. featured the highest growth rate of imports in physical terms in 2020. The average global frozen fruit import price amounted to $2,121 per tonne in 2020, increasing by +8.2% y-o-y. 

Global Frozen Fruit Imports by Country

In 2020, global imports of frozen fruits amounted to 2.7M tonnes, increasing by +3% on 2019 figures. In value terms, frozen fruit imports expanded by +11.4% y-o-y to $5.8B (IndexBox estimates) in 2020. Global frozen fruit imports have expanded twofold in the past decade.

In 2020, the U.S. (544K tonnes) and Germany (376K tonnes) constituted the key importers of frozen fruits worldwide, together comprising approx. 34% of total imports. France (186K tonnes) occupied the next position in the ranking, followed by the Netherlands (159K tonnes). All these countries together held approx. 13% share of total imports. The following importers – Poland (115K tonnes), Belgium (113K tonnes), the UK (107K tonnes), Canada (100K tonnes), China (98K tonnes), Russia (95K tonnes), Japan (82K tonnes), Austria (66K tonnes) and Australia (55K tonnes) – together made up 31% of total imports.

In 2020, the most notable growth rate in purchases amongst the leading importing countries was attained by the U.S. (+19.7% y-o-y), while imports for the other global leaders experienced more modest paces of growth.

In value terms, the largest frozen fruit importing markets worldwide were the U.S. ($1.1B), Germany ($675M) and China ($428M), with a combined 39% share of global imports.

The average frozen fruit import price stood at $2,121 per tonne in 2020, growing by +8.2% against the previous year. There were significant differences in the average prices amongst the major importing countries. In 2020, the country with the highest price was China ($4,385 per tonne), while Russia ($1,148 per tonne) was amongst the lowest. In 2020, the most notable rate of growth in terms of prices was attained by Austria, while the other global leaders experienced more modest paces of growth.

World’s Largest Suppliers of Frozen Fruits

In 2020, Poland (335K tonnes), followed by Serbia (205K tonnes), Canada (201K tonnes), Mexico (159K tonnes), China (133K tonnes), the Netherlands (115K tonnes) and Egypt (113K tonnes) represented the major exporters of frozen fruits, together constituting 52% of total exports. Peru (101K tonnes), the U.S. (101K tonnes), Morocco (85K tonnes), Costa Rica (75K tonnes), Belgium (73K tonnes) and Germany (61K tonnes) occupied a relatively small share of total exports.

In value terms, the largest frozen fruit supplying countries worldwide were Poland ($551M), Canada ($436M) and Serbia ($428M), together comprising 28% of global exports. These countries were followed by Mexico, Peru, the U.S., the Netherlands, China, Belgium, Egypt, Germany, Morocco and Costa Rica, which together accounted for a further 38%.

Source: IndexBox Platform

furniture

The Fall in Demand for Furniture Should Stop MDF Price Rally in the United States

IndexBox has just published a new report: ‘U.S. – MDF – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

Prices for MDF in the U.S. continue to shoot up amid a shortage of the product and the high demand from the furniture industry. Other factors that led to the jump in prices include the high cost of woody materials and resins for manufacturing MDF as well as increasing container freight rates. Strong demand for the product has led to a spike in imports to the U.S. High prices for MDF negatively affect furniture sales, which have been decreasing in recent months due to a slowdown in the construction boom noted at the first half of the year. The fall in demand for furniture, coupled with the beginning of a decline in the cost of wood raw materials should lead to a decrease in prices for MDF in the coming months.

Key Trends and Insights

While the cost of sawnwood is rapidly declining, the price of Medium Density Fiberboard (MDF) in the U.S. continues to rise. According to the U.S. Bureau of Labor Statistics, the producer price for MDFs produced on the domestic market increased by 8.4% from June to July of this year. July 2021 prices exceeded those from the same period in 2020 by 30.3%.

The reason for the spike in prices was the shortage of MDF in the American domestic market, which arose amid the high demand for furniture. In the first half of 2021, total furniture sales and home furniture stores in the U.S. grew by 38% compared to the same period in 2020.

Another significant factor was the noticeable rise in the cost of basic resources used to manufacture MDF, such as resins and woody materials. The producer price for thermoplastic resins in July 2021 increased by 63% compared to July 2020, while the price of thermosetting resins rose by 11.8% in the same period.

The jump in freight rates due to the lack of container traffic has had a significant impact on the final cost of MDF. According to the data from the Baltic Stock Exchange and the Freightos company group, the global container freight index of spot sea freight rates for 40-foot containers peaked in August 2021 and exceeded $10K.

The U.S. remains the world’s largest importer of MDF. Strong demand stimulated imports of MDF into America., which doubled from 2019 to 2020 and reached 2.3M m3. Canada, Chile, and Germany provide about 66% of all MDF imports to the U.S.

Due to steep prices, American wood-based product manufacturers have made huge profits this year. One of the largest producers of processed wood building materials in the U.S., Boise Cascade Co, reported a net income of $303M in the second quarter of 2021, which was 9 times the net income taken in for the second quarter of 2020. UFP Industries, Inc. posted a positive financial result, which took in record net earnings of $173M, a 161% increase compared to the same period in 2020.

The high prices for MDF are set to elevate the cost of furniture, reducing demand for it. While producer prices for commercial and household furniture rose by an average of 2% per month from May to July this year, total sales of furniture stores fell from $12.3B to $ 1.9B. Combined with the declining cost of woody materials for manufacturing MDF, the drop in demand for furniture should trigger a decrease in prices for MDF in the coming months.

American MDF Imports

In 2020, approx. 2.3M cubic meters of MDF were imported into the U.S.; growing by +32% compared with 2019. In value terms, MDF imports expanded by +4.6% y-o-y to $1.1B (IndexBox estimates) in 2020.

Canada (570K cubic meters), Chile (500K cubic meters) and Germany (431K cubic meters) were the main suppliers of MDF imports to the U.S., together comprising 66% of total imports. China, Brazil, Austria, Turkey, Viet Nam, New Zealand, Argentina and Mexico lagged somewhat behind, together comprising a further 27%.

In physical terms, Canadian MDF shipments to the U.S. grew by +22% y-o-y, while the American purchases from Germany increased twofold. Chile saw an 8%-growth of exports to the U.S.

In value terms, the largest MDF suppliers to the U.S. were Chile ($252M), Canada ($245M) and Germany ($203M), with a combined 66% share of total imports.

These countries were followed by China, Brazil, Austria, Viet Nam, New Zealand, Argentina, Turkey and Mexico, which together accounted for a further 26%.

The average MDF import price stood at $462 per cubic meter in 2020, with a decrease of -20.8% against the previous year. There were significant differences in the average prices amongst the major supplying countries. In 2020, the country with the highest price was Austria ($644 per cubic meter), while the price for Turkey ($265 per cubic meter) was amongst the lowest. In 2020, the most notable price growth was attained by Chile, while the prices for the other major suppliers experienced a decline.

Source: IndexBox Platform