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Global Trade and Logistics: Adapting to Constantly Evolving Needs

global trade

Global Trade and Logistics: Adapting to Constantly Evolving Needs

Global trade managers have to deal with the complexities of multiple languages, time zones, currencies, taxes, and modes of transport. There are several laws governing global trade, and these are highly complex and ever-changing. So how do organizations manage these complexities and how can you get a competitive edge?

Current scenario

The complexity in global trade management exposes you to a lot of risks. While companies want to make the most profitable trades, it is important to balance counterparty and credit risk. Organizations must review and act on large volumes of regulatory information, which is often published on paper in varying formats and maintained in spreadsheets throughout the organization. Visibility into the entire trading value chain provides the key to making smarter, more profitable decisions. Raw materials and commodity businesses need accuracy int three key areas:

1. Flow of Information

Companies need a complete view of budgeted and actual trade-related P&L across contracts, shipments, invoices, and payments. They need to ensure documents are accurate and comply with business agreements and have a clear appraisal of all order edits, shipment changes, and related documentation.

2. Flow of goods

Companies need to track shipment and order related activities, manage all information related to the movement of the physical goods, and implement credit checks of all counterparties during contract negotiations, shipment, and invoicing.

3. Flow of cash

Good cash flow management is essential to profitable trading. Companies must diligently record the flow of letters of credit from creation to final presentment and record and track loans. They must manage resolution flows among multiple trading partners.

A Comprehensive and Modern Solution

Traditionally, global trading organizations spend most of their time and resources manually screening shipments and updating them. The solution should ensure that the process is automated, enabling organizations to screen their shipments more often, more efficiently, and more accurately, ensuring the actual shipment status is reported to the required parties.

In addition, companies should be able to track and trace shipments from origin to destination and boost operational efficiencies. They are aware of delays and deviations and can overcome shipment delays. By comparing costs and charges, companies can determine the best voyage strategies.

These challenges are difficult to master without a comprehensive solution that is simple but has the capability to manage numerous complex global trade activities and is designed to save time and effort, enabling companies to focus on core work. A modern solution that would streamline the entire lifecycle of the supply chain – automating manual processes would help reduce the cost, time, and risks in quantifiable and auditable ways.

Eka Software Solutions is a global leader in providing digital commodity management solutions driven by Cloud, Blockchain, Machine Learning and Analytics.

supply chain

Three Supply Chain Lessons for Businesses Coping with COVID-19

As governments and healthcare agencies around the world work to stop the spread of the coronavirus, importers and exporters across 164 countries are struggling to manage the pandemic’s growing impact on their supply chains.

Despite past lessons from 2003’s SARS outbreak and 2011’s Fukushima tsunami about the hidden weaknesses in their supply chains, companies are challenged to manage logistics concerns stemming from sourcing strategies and risk management.

Developing a methodical supply chain response to the coronavirus pandemic will prove challenging, given the scale and rate of the pandemic’s spread. That said, supply chain leaders must mitigate such disruption and plan for future incidents, or risk falling behind.

Here are three lessons that the logistics industry can take away from the ongoing pandemic:

Lesson one: Evaluate your supply chain design

Current supply chain designs have predominantly followed a one-size-fits-all philosophy, on the assumption that raw materials are readily available for sourcing and production globally. While this has enabled a lower ‘cost-to-serve’ model, recent trade tensions and now the coronavirus pandemic have thrown a curveball for the global logistics environment.

Organizations should aim to optimize production and distribution capacity of their supply chain with dynamic, rather than static, operational capabilities. For example, a technology company can consider diversifying production facilities with local sources of supply in each of its major markets, rather than relying on a single source. In some companies, supply chain managers recognise the risks of single sourcing, but do so to keep costs low. These decisions trickle down the supply chain, affecting customers who do not directly source materials from impacted countries but whose suppliers do.

To prevent such future situations, companies should research suppliers in different geographical locations in anticipation of rerouting shipments from affected countries or consider having a secondary source outside the primary region to mitigate the impact. This can help further diversify the value chain.

Lesson two: Apply risk management principles in advance

While many global firms recognize the value of a risk management plan, it is often placed at the bottom of the priority scale in the absence of a crisis situation. According to a paper published by the Global Supply Chain Institute at the University of Tennessee, only 25% of a typical company’s end-to-end supply chain is being assessed in any way for risk.

Supply chains inevitably have multiple dependencies, but firms can proactively manage possible vulnerabilities at every stage through their risk management plans.

For example, having an accurate assessment of inventory is a given, but it is also critical to understand how restrictions on imports from China and affected countries will impact current inventory and regular shipping cadence. Interruption risk management strategies, including mapping and monitoring suppliers, should be applied when developing an informed inventory plan. Companies must also look ahead to forecast if the demand for goods may change in upcoming weeks – bearing in mind decreases in air capacity due to cancelled passenger flights and higher logistics demand due to current backlogs.

Lesson three: People first strategy

Above all, remember that people are the most affected throughout this pandemic. The health and safety of employees and customers must be prioritised amidst this evolving situation. Wherever possible, activate contingencies for remote-working arrangements, and implement a clear communications plan within the organisation. Doing so will go a long way in keeping employees informed while ensuring business operations are minimally disrupted.  For example, companies can develop an online information hub to address frequently-asked-questions and outline company policies that map out staffing plans.

Involve your suppliers within these plans as well – align on operational readiness including appropriate staffing numbers and facility planning for surges in volume.

Maintaining flexibility in customer support and services to customers in these difficult times is key – and how effectively a company responds to these issues will mean they remember you when things take an uphill turn again.

Plan ahead to navigate disruption

While global events such as the coronavirus pandemic are impossible to predict, it is possible to cushion their impacts by increasing supply chain preparedness. Companies must keep their contingencies in place before a crisis occurs. And when these crises do occur – these businesses will rise again.

Deconstruction of the Value Chain

Why Large Shipping Lines Should Think About Asset-Sharing

In the past, companies have tried to optimize and unearth efficiency gains through value chain integration. Reason was that it is easier to communicate and optimize within a company than with external partners. Examples from container logistics include Maersk Line acquiring Damco as part of the P&O Nedlloyd acquisition and Amazon aiming to consolidate the entire value chain from factory to last mile delivery. 

In the literature, the explanations focus on lower transaction costs when communicating within an organization compared to the outside and the risk of “hold-ups” is better manageable if you can observe the entire value chain compared to just a small fraction. 

Extrapolation: You can argue that these factors and risks are the only reason why we have companies at all, those are basically just a way for humans to work together and communicate efficiently. In a sense, a company is just a collection of specialists who work together on a “platform” called a company. 

Technology Reduces Those Underlying Costs and Risks

Today, technology and digital platforms reduce transaction costs and remove risks. This makes the traditional “company borders” obsolete. We see that in the “gig” economy where specialists (from highly paid professionals such as lawyers and consultant to poorly paid uneducated “hands”) chose not to get a job in a company but instead offer their workforce on platforms – think of Uber, Fiverr and even Deliveroo. Interestingly, this does not quite fit into the B2B vs B2C vs C2C logic of the past but is rather P2B (“Platform-to-B”) or P2C: As a company or as a consumer I only need to join a platform to get access to a wide range of services without further need to search, compare or contract. 

“Traditional” B2B Markets Follow the Trend

We see the same happening in B2B! M&A activity will not remain the only logical way to increase efficiency along the value chain and to achieve economies of scale. Instead, platforms and digital technologies allow companies (no matter how small or specialised) to work together across company borders. On successful platforms, this is powered not only by efficient online processes, but supported by platform activities that increase trust such as peer reviews, performance information or payment handling. 

An industry perspective: “a simulated large, consolidated company” which operates equipment in an efficient, market-driven pool. Other examples that come to mind are platforms focused on the optimization of hinterland intermodal moves—improving communication between container carriers, freight forwarders, and trucker. 

Future: We Expect This Along the Entire Transportation Value Chain

Thinking about the future of shipping industry, we will see further deconstruction happening. Multiple “neutral” platforms will link together specialized actors along the value chain. Actors on the value chain will be much more specialized than today and instead of  seeing mega carriers covering the transport chain end-to-end, we’ll have actors such as equipment owner, vessel owner, vessel operator, slot marketer, agents in POL and POD, equipment tracking technology, ports, terminal, truckers, depots… 

An example: from an economic viewpoint (and when removing transaction costs / communication barriers and “holdup risks”) it makes only very little sense have “vessel operation” and “equipment ownership” done by the same party. In the case of equipment: Managing a pool allows you to balance out company-specific imbalances and reduce empty container moves! Container Leasing companies are a prime example where this already happens. 

Of course, this does not need to be fragmented down to the individual micro-service at all stages. Thinking back to our example before, that would mean that we don’t even have companies here anymore but just individual freelancers. Such companies can then also contribute 2, 3, 4 steps but we think the underlying logic is important: Deconsolidation makes sense! 

Additionally, there will be some clients who prefer buying from a consolidated entity instead of plugging-and-playing services on a platform. Consider a large shipper who wants to have a reliable long-term contract with stable rates and a single-point of contact -> this role will still exist and also create value (as they cater to a specific demand). Here you’ll also find strong “consumer” / “client” facing brand names such as Maersk. However, the way this “consolidator” then provides the service will change completely from an inhouse solution to an “on demand platform solution”. 

What we see in shipping is that fully integrated liners act like a “one-stop-shop” and try to offer everything even though their core business is ocean freight. Why shouldn’t forwarders or shippers bring their own containers and only book the vessel slot? When shippers bring their own boxes, containers are so-called shippers owned containers, SOC container in short. Such containers increase flexibility and create a win-win for shippers and carriers: Forwarders save demurrage charges, while carriers avoid time-consuming planning and can focus on what they’re good at: moving goods between continents and the sale of vessel slots! 

More and more shipping companies increase their SOC activities because online platforms provide them with access to global capacity and streamline processes of booking containers separately to the vessel slot. 

Container xChange is an example of how companies can work together on a neutral platform and share capabilities/ assets. It is not necessary anymore to take over your competitor to leverage a shared equipment pool of containers. More than 300 companies use this chance to access to world market and to have eyes and ears across the entire globe. It is also possible to add further services from 3rd parties to a transaction such as container insurance or surveying to further driving down transaction costs. Apart from efficient processes, transaction costs are further reduced through secure payment handling, partner reviews, performance, and issue resolution by the always on support. 

No Need to Run the Race for Integration 

You can stop the “race to be the largest and most integrated actor”, in the future of shipping you’ll need to be super specialized and able to play multiple platforms instead. In a corporate finance viewpoint there will be no more “conglomerate cover-up”, every activity needs to be performed at par with or better than the best. Because markets will be so efficient, that customers are not willing to pay for sub-par parts of products anymore. 

How Do You Prepare for The Future of Shipping?

What does this all mean for you? Firms should ensure they are preparing for an eco-system future—or what “eco-systematisation” will mean for them. Specifically, they need to dedicate resources to understanding which services are available, as the landscape is evolving quickly. More and more platforms are evolving that might evolve into an eco- system services—just think of Alibaba and WeChat. They need to decide what they are really distinctive at and exit or source marginal activities. While this has always been a good idea and strategic exercise, it is becoming more important than ever (examples could be COSCOs divestment of its shipbuilding/shipyard arm).

And finally, they need to create plug and play architectures, not just in a technical sense, but also in how they contract (e.g., shorter duration). And in some cases, they may need to organize themselves into a set of discrete internal services to allow inter-operability with the external market. Zapier is a really good example for pushing plug and play architectures, it basically is an online service that “connects” distinct services to provide additional user value. Easyjet is a good example for an “unbundling” of services into micro-services: You can book everything, but you don’t have to—that aligns very well with the market and is profitable in itself! 

Blockchain Company Highlights Circular Economy

A Netherlands-based blockchain startup company is changing the course of data sharing, certification access, as well as product and material oversight. Circularise offers a communication system that companies can use for “virtually endless range of product value chains” according to a release from the company.

In early December, the company put the circular economy in the spotlight, showing the overall benefits it provides to the industry. The concept focuses on reusing resources and maximizing the value of all products and materials. The end result is the elimination of waste.

Through the communication technology provided by the company, stakeholders are enabled to share information about parts, materials, etc. while maintaining ownership of their data and determining who gets access to it.

“Providing a system where all stakeholders can be held accountable for their actions, audit results can be published and shared, and information can be exchanged in a flexible way, is key,” explained Pietro Pasotti of Circularise.

The company revealed successful pilot programs with an Italian recycling plant as well as Netherlands-based furniture manufacturer and plans to expand its reach in 2019 in the fashion/textile and beverage industries through additional project initiatives. Circularise has also had successful partnerships with over 18 organizations.

 

About Circularise:

Since 2017 Circularise is working with multiple partners in the framework of H2020 C-SERVEES project backed by the European Union. Together these parties are developing a solution that aims to boost a resource-efficient circular economy in the electrical and electronic (E&E) sector through the potential synergies of two major revolutions of our time: the circular economy and the Industry 4.0.

Source: EIN Presswire