Global trade continues to accelerate both in volume and complexity, with the WTO’s most recent trade forecast revised to show improved growth in world merchandise trade volume. Just look at these numbers from Alibaba and its most recent Singles Day, where products were purchased from 192 countries. The number of tons shipped by ocean containers has multiplied many times over in recent years—almost 17 times—from 102 million tons in 1980 to 1,720 million tons in 2016, according to Amber Road’s 6 Global Supply Chain Trends to Watch in 2018.
Here are four supply chain trends that are impacting procurement in 2018, and some tips on how to manage these disruptions:
- Shifts in international trade agreements could impact procurement negotiations. Amid the unsettled backdrop of global protectionism that has overshadowed the advancement of trade policies in the Western Hemisphere, it is clear that the European Union (EU) has made bold strides in a “forward” direction. The number of new free trade agreements (FTAs) enacted by the EU has been substantial in the past two years, according to Amber Road. On the domestic front, Canada and Mexico are not willing to agree to the U.S.’ sunset provision that would require the three countries to re-affirm their commitment to NAFTA every five years. “Companies that use NAFTA for duty-free trade should be watching the proceedings with caution,” the company advises, “and make contingency plans in case the negotiations alter the regulations.”
- Brexit could create higher export costs from the UK. The uncertainty over Britain’s departure from the EU has already impacted manufacturers, retailers, and suppliers. According to The Chartered Institute of Procurement & Supply (CIPS), 63% of the participating EU companies planned to move some of their supply chain out of the UK as a result of the decision to leave the single market and customs union. One in five UK businesses also report difficulty securing new contracts that extend into 2019. “Supply chain executives are voicing concerns about tariff and quota changes, hoping to keep trade open and flowing as it does today,” Amber Road states. “For manufacturing to remain strong, the raw material imports from Asia need to remain duty and tariff free, as they are currently in the customs union. Costs could go up without the trade advantages, leading to higher export costs from the UK.”
- China maintains its position on the world stage. Last year, Chinese leaders held meetings with 16 Eastern European countries, leaving behind a promise to invest $3 billion in the region to support manufacturing infrastructure. Even before the “16+1” Summit, roughly $15 billion in investments by Chinese companies, backed by state banks, had been promised to the region since 2012, Amber Road reports. Part of China’s “One Belt, One Road” policy, the funds will bolster commercial and political ties with more than 64 countries spanning Asia and Europe. China is also doing more to grow its burgeoning middle class by cutting import tariffs on consumer products, including fashion apparel. “The strategy cuts import duties on 187 products by about 45-50%,” the company states, “making imports from Europe and other nations accessible to Chinese buyers.”
- Driver and capacity crunches are driving up transportation costs. “Regardless of the mode—ocean, air, small parcel, ground, or even rail—most logisticians are spending their time managing the exceptions,” Amber Road reports. “And what most need is the agility to be able to react to the obstacles in the way.” The company points to the shipping capacity crunch, the implementation deadline for electronic logging devices (ELD) for truckers, and the truck driver shortage as just three of the key issues making transportation difficult right now. “With higher rates comes tighter capacity as more carriers and shippers attempt to consolidate freight and eliminate deadhead,” Amber Road states. “In addition, if the capacity crunch comes to a head, carriers may raise rates again, an increase most shippers aren’t prepared for.”