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Global Trade’s Annual Logistics Planning Guide Reveals the Year’s Top Trends

logistics

Global Trade’s Annual Logistics Planning Guide Reveals the Year’s Top Trends

Sometimes buying your business into the latest trends isn’t the best idea. Saddled with high costs and incompatible programs, trendy new technology can often make business processes more difficult for your business, not less. But there are some industries where the latest really can be the greatest, and one of those industries is the logistics industry.

Let’s face it: Logistics make the world go round. Whether it’s shipping perishables to community markets or lifesaving machinery to medical clinics, there’s a lot riding on the shoulders of logistics providers. That’s why it often pays to rely on cutting-edge technology. From tracking and tracing to locating items in your warehouse, new technology can often get the job done faster and more accurately. Plus, with the growing e-commerce market, logistics is more important than ever before as businesses push to get their products into customers’ hands at the speed of retailers such as Amazon.

So, what’s on the horizon for the logistics industry this coming year? Here’s what’s on our radar—and should be on yours—for the best (and one troublesome) new innovations and trends in logistics in 2020.

LOGISTICS IT

When it comes to logistics, information technology (IT) may arguably be the most important innovation of 2020. That’s because without a solid tracking system in place you’re not only causing potential backlogs for your workers, but you could be causing frustration for your clients, too. After all, if your customer can’t see where their merchandise is in the supply chain, they may bring their business to someone else who can. This is where an excellent Warehouse Management System (WMS) comes in. Using RFID and GPS, warehouse management systems can now monitor and trace every piece of inventory in your warehouse, providing real-time data to both you and your customer.

Other systems expected to be used with increased frequency in the new year include order entry systems and transportation management systems (TMS).

But logistics IT isn’t just what the customer sees, or even what your employees interact with. It goes well beyond that. Logistics IT also encompasses the back end of your IT solutions—not just the IT product itself but also the customer support that goes along with it.

We all know the logistics industry doesn’t just run from nine to five. When there’s a problem like a software bug or outage, is your IT provider available to offer technical support when you need it? Does your provider strive to make software updates that are meaningful to your business, and that integrate seamlessly into your other systems? Does your provider notify you when there are new versions of your system that could benefit your business? These are all signs of a good IT provider—a trend you definitely don’t want to miss the boat (or train, plane or truck!) on.

Logistics providers are using the latest technology, such as Collaborative Planning, Forecasting and Replenishment (CPFR) and Vendor Managed Inventory (VMI), to satisfy ever-changing customer requirements. DHL Express introduced a fresh TC55 technology that works on the Android platform and is simple to use, as well as the navigation skills in the global positioning system (GPS).

ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING

Artificial intelligence, or AI, is another way technology is streamlining the logistics industry. Currently, the biggest benefit of AI is arguably its ability to automate many of the processes logistics providers provide every day, including repetitive tasks that exhaust human capital and don’t challenge workers. Though many workers worry that AI will someday replace human workers, currently the technology is actually assisting them.

Another use for AI in the logistics industry relates to the driving of vehicles. As many are aware, initiatives from companies like Google have in recent years invested time and resources into developing self-driving cars, i.e. autonomous vehicles. These vehicles may be manned by a human driver, but they allow the driver to take breaks from driving while still traveling. This in turn gets deliveries to their destinations quicker, a fact that is projected to save logistics providers a lot of money. In fact, according to Mckinsey, autonomous vehicles could save logistics providers up to 45 percent, a savings providers can then pass along to their clients. These savings could then be passed to the consumer in the form of lower prices or lower shipping rates.

ENVIRONMENTALLY CONSCIOUS LOGISTICS

With many seaports developing green initiatives and land- and air-based logistics providers initiating a greater push for a reduced carbon footprint, 2020 is set to be a big year for reducing carbon emissions. Some land-based initiatives include more efficient route mapping, video conferencing and net-zero emissions.

Route mapping works by eliminating excess travel on longer routes. The idea is that a more direct route cuts fuel waste as well as carbon emissions. Video conferencing saves both money and the need for travel to meetings. As for net zero emissions, many logistics providers are investing in low or zero-emission vehicles and alternative fuels that emit less carbon into the air.

Logistics companies with warehousing services are also increasing their push toward a lower carbon footprint, using sustainable packaging and ramping up recycling efforts with the packing, shipping and packaging of products.

Maritime initiatives include the restoration and protection of wetlands as well as the planting of trees at some ports. Strategies also include the use of more efficient photosensitive lighting, such as the switch to LED lighting. Some ports have even switched over to the use of electric equipment instead of diesel fuel equipment, the establishment of fuel efficient requirements for ships which frequent the port and much more.

BLOCKCHAIN

If you’re in the logistics world, you’ve likely been hearing about blockchain for several years now. But what is it? Simply put, blockchain is a way of recording data which cannot be altered, using a technology called cryptology. Blockchain data is nearly unchangeable. The “chain” in blockchain refers to the chain of messages that originate from a single entry. To edit the chain, all members who posted to the chain must be willing to alter their own data to support the potentially edited data. This reduces the risk of that data being falsified or otherwise compromised along the way.

Blockchain data can be used to do everything from order tracking to payment issues. Blockchain also streamlines the way we communicate, reducing the need for time-consuming paperwork. Blockchain works in real-time, so shippers can trace every detail of their shipment as it progresses and make necessary adjustments to their route and load temperatures as needed. This can save time and money, preventing delays or rejected shipments.

Blockchain can also aid in financial decisions regarding fleet vehicles. Similar to a Carfax report, blockchain can show whether a pre-owned logistics vehicle has been maintained as well as the previous owner claims, and can help the potential buyer make decisions that could cost them—or save them—significantly down both the literal and figurative roads.

Indeed, blockchain has become so big that an organization has been founded to monitor the industry. The Blockchain in Transport Alliance, or BiTa, was founded to help advance the Bitchain industry, developing rules and regulations and providing education for new and veteran Bitchain users. The organization already boasts an impressive member list, including representatives of UPS and FedEx.

TECHNOMAX

In the maritime sector of the logistics industry, one revolutionary service that is “making waves” is TechnoMax, or TMX. TechnoMax works to streamline maritime operations by working with AI and the Internet of Things (IoT). The system provides risk and compliance data, app development, infrastructure development and data management. Some of TechnoMax’s capabilities include monitoring a ship’s emissions, analyzing cargo information and guiding navigation.

TRADE TARIFFS

Now for some bad news. With trade deals between the United States and China again delayed, there remains a lot of uncertainty among retailers and manufacturers. Though there is no crystal ball to predict the future or what it holds for these industries, the potential for raised prices on goods is of big concern. Price increases would inevitably be passed down to consumers, who could cut out or cut back on goods, causing sales to plummet. This could in turn negatively impact the logistics industry, as fewer products will be warehoused and transported.

For now, the industry seems to be holding its own, with some businesses preparing for the looming tariffs by shipping larger amounts now to avoid elevated costs later. Whether this bulking up will cause a dramatic drop in shipments in the first few months of 2020 remains to be seen.

LOOKING TO THE FUTURE

All things considered, 2020 seems to be gearing up to be a great year for the logistics industry, with many new technological and environmental advances on the horizon. From AI to blockchain, the industry is poised to become more efficient than ever, saving providers money which they can pass along to their clients, and in turn potentially to the consumer.

Even with the potential for steep tariffs on China (and vice versa) on the horizon, these positive advances should still make an impact on the industry in the coming year and decade.

supply chain

How to Select the Best Supply Chain for Your Business

All businesses, no matter how small, need a reliable supply chain so they can deliver their products to their customers in the shortest time possible. The delivery system needs to be accurate, prompt and cost-effective.

Standards to consider when selecting a suitable supply chain

If the existing supply chain is missing just one of the above three elements, then you should consider redesigning it. In addition, business owners need to understand that supply chains have three different classifications:

-High inventory turns and low inventory volume – equivalent to Just-In-Time inventory

-Low inventory turns and high inventory volume – applicable when you have a long lead time with suppliers

-High inventory turns and high inventory volume – if your business is in the fresh or frozen food industry, you need sufficient produce to replace any expired or spoiled goods

When creating or adjusting your supply chain, other essential elements should include:

-Location of your business, customers, and suppliers

-Local regulations and tax laws

-Logistics lead times

-Logistical costs and savings

You can also measure your supply chain’s success based on the following:

-Flow of goods

-Costs of the flow of goods

-The time needed for such goods to flow

Ultimately, you will need a delivery system that will satisfy all your customers at the lowest possible cost. To determine which supply chain is most suited to your business, consider the following factors.

The location of your typical customer

-Do you ship globally, regionally or locally?

-Do customers come to you to pick up their orders?

For example, if you have to ship your goods across the globe, it can take up to two months for buyers to receive them. Therefore, you will need to design a supply chain that can handle international freight and customs issues.

However, if your customers pick up their purchases personally, then the delivery element can be the extension of your inventory and management control.

If your business requires fast order-to-delivery lead time, you will need a high inventory but low turns. This will mean that you need to allocate more resources to your inventory, but at least this will keep your customers happy.

If your product is in high demand or is perishable, you also need to keep a high inventory and deliver it quickly before the expiration date.

Accounting for supply chains

To successfully manage your product deliveries, you will need to know:

-What exactly you have in your inventory

-Where your stocks are located

-The costs of procuring your products

-The costs of holding them until they are sold or delivered

If you have hundreds or thousands of products, you will need a warehouse management system. Alternatively, you can hire a third-party logistics provider to take care of your inventory management and sales deliveries.

However, if you are just a small business, these options may prove to be too much of an investment. Despite the lack of huge resources, you still need to know your exact inventory. Fortunately, you can keep track of this information using spreadsheets and accounting software such as QuickBooks. This accounting service provider has several resource articles that can help you decide which software is most suitable for your business.

As your business continues to grow, you will need specific software that includes a component called enterprise resource planning (ERP). This system incorporates all the internal and external data in your electronic records and departments, such as accounting and sales.

Accountants, and specifically cost accountants, use the supply management chain as a tool to improve a company’s purchasing, manufacturing and inventory processes. This is a technique that analyzes the movement of goods; for example, from the raw materials to the finished products.

Locate your suppliers

You will have a long supplier lead time if the products will only arrive after

-Two months of sea travel. Shipping them by air is much quicker, but very expensive and the costs are usually unjustifiable

-Lengthy manufacturing cycles

High inventory volume and low inventory turns are normal for businesses such as Apple, although this tech company is using its market position to reduce its high inventory costs. For example, if you are an Apple supplier, you ship the products to the company, but it won’t issue an invoice upon receipt. You only receive payment once Apple releases the products to its retail stores.

Conclusion

In the end, the supply chain you choose must satisfy all your customers’ requirements so they can receive your products whenever and wherever they want. Nevertheless, the cost to you should also be reasonable. Achieving this goal requires a smart strategy and careful planning. However, the financial side of the supply chain will entail employing the services of an accountant who specializes in cost accounting. They will probably recommend a supply management system to monitor every process in the chain.

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Written by Nishi Patel, founder of Northants Accounting.

 

warehousing

Insource or Outsource? That’s the Question Facing Companies When it Comes to Warehousing.

To insource or outsource your warehouse: That is the question.

Companies face many considerations when it comes to deciding whether to own or lease a warehouse filled with their own employees or hire a third party with warehousing expertise and their own workers.

Exploration of the latter has often caused the phone to ring—or the computer inbox to fill—for Todd Alloway, vice president, Contract Logistics at ODW Logistics. Since 1971—and including the 16 years Alloway has been with the company—the Columbus, Ohio, concern has been providing warehousing, distribution and transportation solutions for hundreds of brands.

Of course, ODW will take all the new business it can get, but Alloway concedes in a phone interview that outsourcing usually makes the least sense to a company that has “a team of logistics people inside the business.”

“They might have a vice president of supply chain who has 10 people under that person and a lot of other staff that are part of the business,” he says. “They may understand more about what they are doing” than a third party could coming in cold.

Alloway says he and his team must understand that before making a pitch to outsource to such a company, admitting it can get delicate if you are talking with someone who may lose his or her job or has buddies in positions that could disappear with outsourcing. “We have to walk that fine line,” he says.

It also might make sense to keep things in house if a company’s services or products are complex or highly specialized, something that can come up with those who are big in the manufacturing world, according to Alloway.

Typically, before partnering with a potential client, Alloway will meet with their leadership “face to face to ensure they are a good fit.” During that initial interview, he will gather information about the business. “I can’t go on and say why ODW will be better until I truly understand your business,” he says. “Upfront research is the first thing we have to do.”

“I tell folks that all the time that you can’t just hand me a price sheet and have me give you a price. There is no blanket pricing or one size fits all for businesses. We find out a lot of times that they don’t even know what they need. We have to find out what is valuable on both ends, we’ve got to find out what’s important.”

In today’s ever-changing modern warehousing, outsourcing may be what’s important. It allows a company to leverage someone else’s expertise in transportation, warehousing, distribution, setting up supply chains and maintaining compliance standards, so the original client can focus again on its core competency.

“A lot of our customers started out doing it themselves,” Alloway notes, but as those companies grew, so did their capital investments in staffing, equipping and maintaining warehouses. Suddenly confronted with the need to consolidate operations and/or become technologically viable, many such companies turn to third-party experts like ODW Logistics.

Another challenge with keeping a modern warehouse in-house is staffing, according to Alloway, who cites as an example his company’s Columbus base, where the unemployment rate currently hovers around 3 percent. Companies with warehouses, he says, must develop strategies when it comes to seeking, training and retaining skilled workers among an ever more competitive labor pool. Faced with the time, effort and cost of staying in the hiring game, many conclude it would be better to farm all that out so they can, again, concentrate on their company’s service or product.

When it comes to logistics, companies that ship to big box retailers also have to know the differing compliance, ordering and fulfillment processes of, say, Walmart, Target and Kohl’s. Concerns like ODW Logistics already thrive in that atmosphere because of experience already gleaned on behalf of existing customers, Alloway points out.

As a for instance, ODW’s Director of Marketing John Meier mentions a health and beauty customer that knew going in that the logistics company already worked with others in the same industry.

“One key differentiator” when it came to snagging that account “was our expertise with Ulta, Sephora, different salons and big box retailers,” Alloway recalls. “Word of mouth is still very big in the industry.”

Wanting to know whether ODW has experience in a potential customer’s industry is often the first question Alloway gets. Another, obviously, is price, “especially from someone new to the market that has done it themselves the entire time,” he says. “They want the new technology and whatever the latest and greatest inventory management system is, but they don’t understand the cost that gets that. A lot of time it is education on our part” that is imparted to the potential client.

Likewise, a company like Alloway’s can figure out the overall savings that will ultimately come from outsourcing, but the one thing he and his colleagues will not do is quote a price until they have completed research of the potential client and its industry.

Today’s “I want it now” shipping culture has challenged companies like ODW Logistics, concedes Alloway, who adds that he approaches a delivery schedule less on speed than on the best optimization of his trucks. “Next day and two day are still important,” he says, “but in a direct consumer market it’s more important how you handle returns.”

After pausing to think more about today’s expected speedy deliveries, he adds, “We have had to put in a valiant effort that last few years.”

However, Alloway also offers that with a new client, landing the account does not always come down to speed, price or even experience. He brings up Handgards, a provider of high quality food safety, food protection, protective wear and food service products. The El Paso, Texas-based company managed its distribution network for half a century before partnering with ODW Logistics a decade ago.

“One of the most important attributes they sought was a cultural fit,” says Alloway. “They are a family-oriented business and when we first went to visit them we quickly understood that, and we were able to help them see how ODW has the business values that would match theirs.”

You read that right: Choosing whether to stay in house or go with a third party can come down to whether you get your new partner and are convinced your new partner gets you. What was most important to Handgards was someone, as Alloway put it, “with a similar feel.” ODW now handles the food safety company’s logistics and warehouse support in a 300,000-square-foot facility.

“The people that I have worked with in the ODW organization have been excellent partners to our business and work diligently on our behalf,” said an executive with Handgards.

“Like with most companies outsourcing for the first time, there can be a fear of change, a fear of how a new one is going to handle a product,” Alloway says. “‘Will they do it like we do? Will they talk with customers like we do?’ We went and visited them, made some research and it did not come down to price. It came down to did they like us and did they think we would be a good business fit together.

“… Sometimes we are not the best fit, somebody else is or they should keep doing it themselves. You just do not know that until you do the research.”

commercial

How to Reduce Commercial Warehousing Costs

With an unpredictable market, erratic economy, and huge competition, it can be quite difficult to get a warehouse business running smoothly. Your goal is to maximize profit while cutting down on production and operation costs. Well, that is not always easy. One of the biggest issues that create setbacks is spending money on things you don’t need to keep a business running. My goal is to show you how to reduce commercial warehousing costs, and increase your earnings while keeping the quality of the service on a satisfying level.

The Primary Goal

The primary goal of every professional warehouse must be to reduce commercial warehousing costs. Since all items must be in buy-ready condition, and in their proper place, you must have enough funding to keep this well-oiled machinery running smoothly. If you wish to improve the efficiency, speed, and accuracy in your warehouse, this strategy is a must. Let’s see how to achieve that.

Optimize Your Storage by Reducing Space

Optimizing your warehouse space is crucial for peak performance of your facilities. If we think about expenses, one of the major contributors is land cost. Since the productivity rate of the warehouse depends on the speed of locating the item and loading it onto the truck, you must think of the best system.

Optimize your aisles by carefully calculating the necessary length and width. Learn the dimensions of forklifts, and reduce extra space by moving the racks closer. Furthermore, sorting the packages on the racks makes everything easier.

When we think about square footage, it is crucial to go narrow and tall. That is the best way to reduce warehouse space, without losing productivity and effectiveness. Nevertheless, it is important to factor in the safety requirements of your workers, and provide enough space for them to work without constrictions.

Protecting the Inventory

Every warehouse has its own financial problems. Damaged inventory is most certainly one of the biggest culprits for the loss of money. Smart inventory management helps you keep your inventory protected.

One of the first approaches to take is to tightly stick to the packing and storage procedures. Extensive employee training is imperative for a smoothly-operated business without many losses.

Furthermore, it is not just the damage to the inventory that causes loss of money. It happens many times that a package is lost. That not only dries out your budget, but it is also bad customer service. Implementing proper control systems like RFID, VDP or RF is the best solution.

Finally, increasing overall security by installing top-of-the-art security systems will prevent theft, which is also a huge issue in many warehouses.

Cross-Docking

Cutting out the middleman and transferring a package directly to the customer is a great way to reduce commercial warehousing costs. This system is called cross-docking, and while many are aware of it, not everyone is using it. It is a great way to save both money and time, and improve store management, shipping, delivery, labor costs, etc.

Energy Cost Reduction

Reducing your utility bills is a great way to simultaneously reduce commercial warehousing costs. Better insulation, automatic lighting system, and water consumption reduction are just some of the ways to achieve this.

The more windows you have, the more natural light enters the warehouse. If you install hands-free faucets or automatic flush toilets with low flow, you will see great results.

All these changes require funding, but it is a long-term investment that always pays out in the end.

Used Containers vs. New Containers

Buying new containers for your warehouse seems appealing. Everyone likes to have new things straight out of the factory. However, that can be a costly investment. Instead, you should turn your focus towards used containers. You can find plenty in good condition, at a lower cost.

Believe it or not, you can save up to 40% on the smart purchase of used containers. All vendors keep them in superb condition, and all the containers are cleaned and inspected before selling. With such great savings, it really isn’t that difficult to see the benefits of used containers over new ones.

Cutting Down Labor-Related Expenses

When we talk about cutting down labor-related expenses, we are not referring to reducing employees’ salaries. That is not the way to go about this. However, it is important to properly manage your employees. Having idle workers is only draining your budget.

A great solution is to put everything you have into employee retention. If you keep your employees satisfied and give them an opportunity to develop, they will stay with you. Over time, they will turn into experienced employees that really have no cost. That strategy is much more affordable than hiring and training new employees.

Furthermore, the automation of warehouses is also an option. Machines can run as long as you need them. However, do not forget to factor in the installation and maintenance costs. Nevertheless, it is the main strategy of the future to reduce commercial warehousing costs.

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Joshua Collins is a business owner with a degree in economics, with over 10 years of experience. In his spare time, he runs a blog about startups and writes articles for multiple companies, like ccmover.com and many others. He is offering his advice both to young entrepreneurs looking to find a way into the small business industry and to experienced business owners looking for ways to increase earnings. Furthermore, his vast knowledge of marketing strategies provides a great foundation for any business and helps in reducing costs and increasing effectiveness and productivity.

6 Ways to Improve Efficiency, Speed, and Accuracy in Your Warehouse

Modern warehouses are already much faster and more efficient than those 20, even ten years ago. But you’re still feeling the budget crunch every quarter. And, if you’re like us, you know that there are always things we can do to make a warehouse a little better.

So, we crunched the numbers, talked to experts, and meditated in the back of the warehouse to come up with these six methods designed to improve your warehouse efficiency, speed, accuracy, and how much we like working in a warehouse.

Improve Your Operational Software

Your first step in improving your warehouse operations is having the right tools in place to measure, track, and understand what you’ve got. A modern warehouse management system (WMS) is your safest bet to start establishing baselines of your efficiency, waste, how quickly you fill orders, and how accurate everything you do is.

We’ve all heard it a thousand times, but it remains true: you can’t improve something you don’t measure. Choose and implement a capable WMS to gain a better understanding and give your team plenty of ways to use their time and your inventory better.

Enhance Your Metrics Choices

Metrics, especially key performance indicators (KPIs), build on that introduction of a smart WMS. They help you tell the story of your business and how it can do better — and sometimes communicating KPIs is just as important as choosing the right ones.

Review the metrics you track and how you define KPIs. Do they measure productivity? Can they respond to changes to your baseline? Do they match up with current targets and accurately track as performance changes?

Don’t get overly complicated.

You want KPIs that are easy to understand and measure. Glancing at your system and dashboards with these metrics should give you an idea of the health of your business. You and your warehouse team can understand five metrics much better than 20. So, find what easily tells the most important story.

Reorganize Your Inventory Locations

Once you know what to track and can start tracking it, it’s time to review your standard day’s orders and the routes people take to pick them. Look for high-volume products and see if they’re in a good or bad location.

Put your most popular products near they critical points in your warehouse that can speed up picking and packing efforts. Usually, this includes aisle ends and exit or transition areas. However, you might also have enough volume to give them their own space that’s closest to your packing areas, with a set team of pickers grabbing only these while others grab the secondary items to complete each order.

You can speed this up further with a WMS that support voice picking and wave or batch pick and pack methods. They’re faster, more accurate, and improve your efficiency for filling orders.

Try Custom Kitting

When you redo your inventory locations and start reviewing route changes, you’re collecting a lot of data along the way. Use it.

Productivity can see significant gains when you implement custom kitting in your warehouse. Kitting can occur with the packages you sell or how you manage your warehouse, both increasing efficiency by reducing pick points. Selling kits means you can control inventory better and generate higher-value orders more often.

However, you can kit within the warehouse simply by grouping products that are typically bought together. Some companies even bag select items together to give pickers an option to grab one thing instead of many. It can help you control your space and keep inventory counts more accurate, giving you a nice boost.

Give Receiving Its Due

The warehouse mantra is often about getting orders out the door as quickly and accurately as possible. Unfortunately, that leads to bottlenecks and procrastination in the receiving department. The faster and more efficient you become, the quicker you need to get your inventory ready for use.

Make every aspect of receiving, from putting away inventory to breaking down boxes and taking out the trash, important. It should be habit, and your systems should reinforce it. The better you do this, the more accurate and reliable your data, making all these other steps more efficient.

Besides, do you really want a bad inventory count because an empty box listed as full?

Talk to Your Team

And the final way we’ll think about running a better warehouse is by asking you to stop thinking about it. All of the steps above require data and activities from your warehouse team, IT, leadership, and more. Every group interacts with each change in a variety of ways, giving them varied perspectives.

Don’t let all that experience go to waste.

Talk to your team in the warehouse, in IT and sales, and leadership. Discuss what’s working, what isn’t, and their suggestions to change things regularly. You’ll get a two-prong benefit:

-People interacting with the systems and changes have excellent vantage points to find breaking points or see additional changes that can boost your performance.

-It helps your teams feel heard, which makes them happier to come into work and more likely to implement the changes you make.

Your company pays a lot to have different experts in and around the warehouse. They’re the most significant resource for maximizing your business. And, we all like feeling respected at work.

trade

Trade and the Impact on Imports and Exports in 2020

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

[3]Adam Smith: Wealth of nations 1776

Neil Wheeldon is the Vice Presidents Solutions, BDP International.

vietnam

Is Vietnam the Next China: Myth vs. Reality

The ongoing US-China trade war has brought a renewed urgency in recent months resulting in my crisscrossing this tiny nation from the northern capital of Hanoi to the country’s economic epicenter to the south, Ho Chi Minh City – formerly known as Saigon, and every stop in between. Once viewed as an emerging market with potential, Vietnam today is considered the hottest “go-to” sourcing destination as supply chains uproot from China and President Trump and President Xi continue to work out their disagreements.

However, despite logging thousands of miles of travel and spending days upon days conducting factory audits in the remotest corners of the country, I’ve discovered Vietnam’s manufacturing industry and export products may not live up to the hype as China’s best alternative.

Myth #1: Vietnam manufacturing is on par with China.

One striking difference I noticed immediately is that Vietnam’s manufacturing is at least 10-15 years behind China. On my factory tours, I witnessed outdated machinery, lack of modern equipment and saw few signs of the latest supply chain best practices, including LEAN certification standards and supply chain manufacturing principles in action. In my daily research on vetting manufacturers, I consistently come across poorly designed websites- if I am lucky to find one at all, sales pages listing professional contacts using Gmail and Yahoo accounts, and often encounter few staff members who can converse or speak English well. These deficiencies contribute to the challenging task of sourcing products meeting global export standards.

Myth #2: Vietnam’s pricing is cheaper than China.  

With labor about one-third of China, the cost of living and land is much cheaper than its northern neighbor, many falsely believe that Vietnam-made products automatically translate into big savings.

There are three contributing factors:

1. In nearly every industry, Vietnam lacks quality raw materials and must import them from China, thereby, increasing costs

2.  As new foreign direct investments set record highs, industrial park land costs have increased dramatically to coincide with this boom

3. Manufacturers (well aware that the US-China trade war has put American buyers in a corner) have raised their prices accordingly.

These all contribute to the drowning out of any major cost savings. In my experience, several times North American buyers have responded that my Vietnam price offer is wildly off the mark and not competitive with their current China suppliers, China tariff included. 

Myth #3: In Vietnam, you can expect to find everything as in China.

In the world of manufacturing and supply chain, I constantly hear: “Just start sourcing from Vietnam.” That would be all fine and dandy assuming an apples to apples comparison, but Vietnam is anything but China. Over the past two decades, China has perfected their manufacturing and supply chains to the point of employing robotics and automation churning out sophisticated products by the millions. Just take a trip to the hugely popular Canton Fair or attend one of the hundreds of trade shows and expos throughout the year; you will find every product imaginable, in every variant and color, too.

Furthermore, China has the most up-to-date and modern infrastructure—from container ports, highways, railways, and warehouses—to deliver goods globally. In contrast, Vietnam only in recent years has started to emerge onto the manufacturing scene, known mostly for light furniture, textiles, sewing, and electronics parts. 

Exasperated by the US-China trade war, Vietnam’s manufacturing industry has been red hot, however, it’s not an equivalent replacement for China. Buyers can expect less-than-stellar quality products and choices than what China offers, met with challenging business practices and frustration due to the lack of manufacturing transparency, data, and information. While Vietnam might be a manufacturing dream destination for many of your gains, it might be just that in the end: a pipe dream. 

automation

Automation Won’t Destroy Trade – It Might Even Boost It

Alarm bells are ringing

Many industry observers are sounding alarms about the looming impact of automation, robots and 3D printing, which they fear will destroy jobsdisrupt value chains and maybe even reduce the need for international trade. Developing countries are particularly concerned because trade has been an avenue to economic development and growth for them. But a recent report released by the World Bank shows that the data and evidence don’t support the hype. Instead, automation, robots and 3D printing might actually increase trade as trade costs continue to fall.

Some business analysts have warned that automation and robots could disrupt and shorten global supply chains. The thinking behind the concern is that, if a computer can design it and a 3D printer can make it, then we won’t need to source it from countries abroad that have more abundant low-cost labor than we do. Instead, companies will drastically shorten their value chains, which could reduce international trade.

The anxieties have gotten the attention of development economists and developing countries. Trade and economic growth go hand-in-hand, both in economic theory and in practice. Multiple studies have shown that firms in developing countries that participate in global value chains outperform their local peers that solely focus on domestic markets. If robots eliminate the need for global value chains, this important avenue for economic development could be threatened.

Anxiety over automation may be overblown

Scare tactics about economic change are attractive because they get our attention. About 15 years ago, we saw headlines about “white collar outsourcing” (once attorneys were added to the list of jobs that could be moved offshore, the panic even spread into boardrooms). Some lawmakers called for restrictions on offshoring, and some of those calls are still alive today. But the mass exodus of white collar jobs did not occur.

The World Bank is a multilateral development agency that makes grants and loans to support capital projects and economic growth in the poorest countries. Anything that reduces the need for trade and global value chains would hit those developing countries hard, putting the automation concerns squarely on the World Bank’s radar.

In its annual World Development Report, the latest released on October 8, the World Bank does not take a definitive stance on the overall effects of automation, and it does not make any bold predictions. But it does make one thing clear: The anxiety over automation hindering trade is not supported by the data and evidence. In fact, the authors show that sectors with the largest increases in automation have also been those with the largest increases in trade. Yep, that’s right: We’re experiencing the opposite phenomenon to what so many are worried about.

Automation actually helping to expand trade

Specifically, the report shows that the percentage change in imports of parts from developing countries from 1995 to 2015 is higher in industries that are more automated. Agriculture and textiles are among the least-automated industries and have the smallest change. Metal, rubber and plastics, and automotive sectors have the highest rates of automation and the largest increases in trade.

Automation in industrial countries has boosted imports from developing countries

Why? Because automation, like robotic assembly and 3D printing, leads to an expansion in output and demand for material inputs. Automation can also lead to the creation of new tasks. So while it brings labor market adjustment pains — like technology and progress always do — automation will not necessarily reduce trade or shorten global value chains.

Meanwhile, investments in digital technologies continue to lower the costs of coordinating across long distances. These lower trade costs are expected to promote trade and lead to a continued expansion of global value chains, particularly for developing countries.

The big picture

Here’s the big picture: Change is the one thing in the economy you can count on. Improvements in how we make things and advanced production technologies are likely to continue, and workers and firms that adapt and embrace these changes are likely to outperform those that do not. But a wide-sweeping elimination of trade and global value chains due to automation and robots? Don’t believe the hype.

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The original version of this article was published in The Hill.

ChristineMcDaniel

Christine McDaniel a former senior economist with the White House Council of Economic Advisers and deputy assistant Treasury secretary for economic policy, is a senior research fellow with the Mercatus Center at George Mason University.

This article also appeared on TradeVistas.org. Republished with permission.

maker

The Maker Movement can Flourish Thanks to Trade

The Maker Movement

Life is pretty cushy. We long ago stopped having to make everything we need: forging tools, handcrafting shoes from hides and weaving textiles for clothing. Manufacturers eventually specialized where they had comparative advantage and produced at scale. Specialization led to more trade in goods and services. Today, anything we need can be obtained at the push of a computer button from almost anywhere in the world.

While much attention is being paid to the potential for new technologies to displace manufacturing workers, there’s an interesting phenomenon afoot. Bits and bytes are bringing us back to our “maker” roots by making information and technologies more accessible to everyone. The smallest inventors and producers can integrate into globally distributed production chains and sell into global markets. Basically, trade is providing us the luxury of producing again at a small scale, and it’s the art of inventing nimbly and producing small that just might help us stay globally competitive.

Re-Making our Workforce

“Makerspaces,” TechShops and FabLabs are popping up in cities all over the country and they are playing an increasingly vital role in education, workforce development, entrepreneurship and even revolutionizing advanced manufacturing.

Memberships give hobbyists, tinkerers, students and entrepreneurs alike access to tools, machines and materials to gain experience with 3D printing, CAD/CAM, electronics, robotics, plastics and composites, fabrication, welding, coding and programming, woodworking and more. Students and young workers can be exposed to industrial careers in a relatively low-cost, low-risk environment, picking up skills in weeks — not months and years. They can create portfolios to demonstrate competency in the skills employers require.

By partnering with local colleges and employers, training in Makerspaces can culminate in recognized and portable credentials that prove mastery of a specific skill or set of equipment, enabling companies to develop talent pipelines with less direct investment. Meanwhile, students are not just gaining experience working with materials and machines. They are also putting math and measurement into practice, reading blueprints, and using design software — the knowledge skills associated with modern manufacturing and foundational competencies for a wide variety of jobs that lie in between traditional “blue collar” and executive levels.

TradeVistas- Maker movement graphic

Small Batch Production

“Making” can create new pathways to working at established manufacturing companies, but it is also spawning a resurgence of custom fabricators who are positioned for small-batch or on-demand manufacturing. The current trend of “niche consumerism” is responding to demand for tailored products in small lots, even by the big brands.

Makers can iterate quickly in response to consumer feedback or engage in rapid prototyping to optimize product design. Makers can offer these services to larger firms or they can leverage the resources of Makerspaces to keep costs down and retain control during product development, iteration and initial production of their own invention. The difficulty of communicating well with manufacturers or visiting facilities in China is a common refrain for small entrepreneurs.

Reverse Engineering

Makers and Makerspaces are attracting the attention of major corporations. GE and National Instruments were among the first to emulate Makerspaces to support open innovation on their corporate campuses. Ford Motor Company worked with a company called TechShop to build a world-class Makerspace for Detroit, becoming the facility’s anchor tenant. Affording their engineers the opportunity to cross-pollinate with other inventors and have a freer hand in direct and more rapid prototyping, Ford says that within one year, the company doubled the number of patents the company produced.

Large companies recognize that good ideas can come from anywhere, from hobbyists to amateur scientists and roboticists. Some Makerspaces cater more to small designers and inventors, but others are more like modern-day Edison workshops hosting sophisticated “experiments” employing biotechnology, nanotechnology and additive manufacturing. As such, they have become ecosystems of innovation where individuals, small businesses and large corporations can come together to incubate and accelerate ideas in a decentralized and agile network — emulating the same set of activities and interactions that were once only housed inside the corporation.

Manufacturing Renaissance?

Putting compact versions of industrial tools in the hands of millions more people means that inventors can get a “minimum viable product” out in the world faster and at much lower cost. Small and growing manufacturers can take smaller bets on the market with lower volume commitments or put a wider variety of products out for testing consumer preferences.

Specialty manufacturers that can re-tool quickly are filling an increasingly important role offering “manufacturing-as-a-service.” The Maker Movement encourages innovation through co-creation and crowdsourced designs, rapid prototyping and experimentation with new production processes. Maker facilities enable micro-factories that can service orders from anywhere in the world. Some notable inventions in Makerspaces have even transformed commerce itself. For example, millions of small businesses now use Square to take payments.

Join the Movement

Makers aren’t likely to replace mass production anytime soon, but they are an important source for training the next generation of inventors and manufacturing workers. Makerspaces are poised to drive real economic benefits for cities that embrace and support them. For example, the Brooklyn Navy Yard brings together makers, artisans, and manufacturers. The more than 10,000 people working within the complex generate some $390 million in economic output, supporting an estimated $2 billion in indirect earnings and an additional 15,500 jobs in 2011. According to the Pratt Center for Community Development, it’s a model producing similar results from across the country from Chicago to Minden, Nevada.

The famed Defense Advanced Research Projects Agency (DARPA) has supported a TechShop in Pittsburgh and provides membership for thousands of veterans. With funding from the Department of Labor, the AFL-CIO and Carnegie Mellon University partnered with TechShop Pittsburgh to create apprenticeship programs for workers and to encourage startups to manufacture locally. As Brooking’s Mark Muro has written, the Maker Movement is “a deeply American source of decentralized creativity for rebuilding America’s thinning manufacturing ecosystems…hacking the new industrial revolution one town at a time.”

#Thankstrade

Makers are able to access the materials and tools they need because of trade. Take the 3D printer, for example. The global market for 3D printers, plastics and related services have exploded in recent years. And perhaps one could even be so bold as to say that it’s the expansion of global trade that affords us the opportunity to rediscover and reinvent the art of “making” itself, which could in turn profoundly impact what we make and what we trade.

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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 fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

uae

The UAE Foreign Direct Investment (FDI) Law

For a great many years, global businesses have viewed the United Arab Emirates as an attractive global investment market. With a strong presence of high-net-worth consumers and a geographically strategic location from which to distribute throughout the Middle East and North Africa, the UAE is rife with opportunity.

Yet, many international corporations could not own companies outright in the UAE and were restricted to a maximum ownership of 49%. Ownership laws, however, are now being revisited to diversify the country’s economy beyond the energy sector, which has been the source of UAE wealth for decades. But precisely the degree to which economic liberalization is taking place is very much based on one’s perspective.

Background

The United Arab Emirates (UAE), a federation of seven Emirates (member states), has served as a global centre for trade for centuries. However, most global businesses had often expressed discomfort with the country’s investment laws which, despite allowing 100 percent foreign ownership of businesses in the country’s Free Trade Zones (FTZs), stipulated that at least 51 percent of a company established  within the UAE, and outside a Free Trade Zone, must be owned by UAE citizens, or companies wholly owned by UAE citizens.

In addition, agency and distributor laws require that only a local commercial agent could sell products in the UAE market; and only UAE citizens or companies wholly owned by UAE citizens could register with the Ministry of Economy as commercial agents. Regulations also prevent the termination, or non-renewal, of a commercial agency contract unless the principal has a material reason to justify the termination or non-renewal; and the principal must often approach a court to terminate a contract.

Legislating Economic Diversification

The most recent Trade Policy Statement issued by the UAE through the World Trade Organization’s Trade Policy Review mechanism in 2016 stated the country aims to drive towards economic diversification by being less reliant on the oil sector and to increase its attractiveness to foreign investment.

The UAE enacted Federal Law No. 19, the Foreign Direct Investment Law (FDI Law) in November 2018. To promote and develop the investment environment and attract foreign direct investment in line with the developmental policies of the country, the Law established a framework for the country’s Cabinet to mandate which sectors and activities of the economy would be eligible for 100 percent foreign ownership. However, a list of eligible economic sectors and activities was not published by the UAE Cabinet until July 2019.

The list comprised of 122 economic activities across 13 sectors that would be eligible for up to 100 percent foreign ownership. The decision simultaneously conveyed that each emirate (member state of the UAE) could determine the percentage of foreign ownership under each activity suggesting that foreign ownership levels could vary from emirate to emirate. It was also clarified that oil & gas production and exploration sectors, air transport, and security and military sectors would be excluded from the purview of the FDI Law.

A Method of Recourse

It is also of interest that news reports indicate that for activities that are not included in the list of activities/sectors eligible for 100 percent foreign ownership, companies could approach the government for permission for a higher level of ownership; and that approvals may be granted on a case-by-case basis. The sectors that would allow 100 percent foreign ownership include:

-Space

-Renewable Energy

-Agriculture

Manufacturing

-Road Transport & Storage

-Hospitality and Food Services

-Information and Communication Services

-Professional, Scientific and Technical activities

-Administration and Support Services

-Education

-Healthcare

-Art & Entertainment; and

-Construction

For those businesses that do qualify under the FDI law, their products will be treated as being of UAE origin and therefore, eligible for such treatment under international agreements to which the UAE is a party. This is a privilege that is not available to goods manufactured by foreign-owned companies based in UAE Free Trade Zones. In addition, they can transfer abroad operating profits and proceeds from sale of investment or other assets.

Measuring Success

The Emirate of Dubai has reported that it has attracted US $12.7 billion in foreign direct investment (FDI) in the first half of 2019 thereby ranking the emirate third globally in FDI capital flows into Greenfield Projects. Also, in October 2019, Dubai assumed the presidency of the World Association of Investment Promotion Agencies (WAIPA), a global entity that works for the smooth flow of cross-border investments.

Although it is still too early to gauge the impact of the FDI Law and other developments, the consensus is that the UAE has taken steps to accelerate foreign direct investment into the country. It remains to be seen whether further steps such as changes to the agency and distributor laws, and changes to regulations related to the termination of agency contracts will be implemented to enhance the attractiveness of the UAE to foreign investors.

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JC Pachakkil is a senior consultant in Global Trade Management at trade services firm Livingston International.