AJOT’s article on global trade and transportation includes an interview with Baker about the current global supply chain environment and highlights top strategies for business success in 2020.
By: Matt Miller
As 2020 approaches, the only certainty for trade is uncertainty. So, is this the New Abnormal?
In Europe, Brexit looms large, with the frightening prospect of Britain facing empty grocery shelves, while thousands of trucks are idled on its borders, and goods waiting to be delivered stack up in overflowing warehouses on the Continent. On this side of the Pond, President Trump’s numerous tariffs-by-Tweet strategies threaten to upend decades of freer trade in and out of the US, while Mexico and Canada scramble to avoid incurring Washington’s wrath. Elsewhere, countries in Asia, Australia and Latin America react to the mounting trade tensions, or escalate them. Some, such as China, are in the thick of the battle. Others, such as Vietnam, are hoping they might benefit from the bruising fight. Still others, such as Brazil and Argentina, see their fortunes whipsawed by some markets opening up, while others shut down.
Trade patterns are changing. New trade alliances are being formed. Other, longstanding regimes are falling apart.
Across the globe, carefully crafted supply chains face massive disruption if a tit-for-tat escalation accelerates, as it might well do.
The New Abnormal
Those engaged in cross-border business and commerce are desperately trying to make sense of all this. It’s an issue that has been elevated from procuring and transportation departments to the boardroom.
“In the past, trade management within a corporation was this sleepy group, maybe one or two people reporting to legal,” said Lauren Pittelli, a principal at Baker Logistics Consulting Services, a Chicago-based firm that specializes in international transportation, trade and customs. “Now, with all of this disruption, it’s really become a very critical part of pricing analysis and supply chain planning.”
The unpredictability can be overwhelming, and it could get worse before it gets better. “The unknown is what makes everybody the most nervous,” explained Mike Kuhn, the COO of Syracuse-based Mohawk Global Logistics, which offers customs brokerage and trade compliance.
Shippers turn for advice and assistance to logistics providers, an industry that prides itself on constantly improving speed and efficiencies in the most difficult of conditions. But there are challenges now that tax the savviest logistician.
Call It the New Abnormal
“There’s so much uncertainty,” said Pittelli. “There’s no roadmap at all”
To counter this unsettled world, logistics companies and their clients alike need to plan as best they can for the unexpected. Four watchwords are essential in this process: knowledge, preparedness, flexibility and speed.
Logistics providers and shippers need to be armed with the best knowledge possible, be prepared as best they can for various alternatives and have the flexibility to change course as quickly as possible.
Of course, that’s easier said than done. “It’s a very challenging environment,” said Pittelli. These days, “most business is international, and it is impacted by the trade uncertainty. That comes on top of all of the changes continuing to be driven by the Internet. So, everything is accelerated.”
Technology – The Crucible of the Matter
Technology becomes a huge enabler in all this. It is essential in everything from updating duties in real time, to insuring customs compliance, to analyzing the tradeoff between, say, logistics costs and landed costs, or lower tariffs and higher transportation costs and longer lead time. It’s vital for determining how quickly goods need to be shipped to avoid higher duties and which vessels and ports offer the most appropriate ways of transporting.
“Technology is the only way that you can get to get to the end of the tunnel,” said Wayne Slossberg, admittedly not an unbiased source. Slossberg is senior vice president at QuestaWeb, a Clark, NJ-based technology provider of global trade management software.
But the complexity of import duties alone demand sophisticated responses. Just one example: In the US, the harmonized tariff codes “can literally change in minutes,” explained Slossberg. The only way possible to keep current is to be linked electronically to customs data, which software such as that offered by QuestaWeb provides.
That data is necessary to determine not just the price of the items being directly affected, but the impact as well on the cost of a finished good and on business in general, said Rich Roche, Mohawk’s vice president of international transportation. “We’re able to run reports and cross-reference and come up with what the new duties would be and what their total impact would be,” he said.
As we are all aware, technologies are evolving rapidly and logistics is no exception. Technological resources will be directed toward solving increasingly more thorny trade-related issues. Data analytics is one area that could prove invaluable. Terri Sandine is Mohawk’s’ IT director. She explains how, as companies like hers collect data on how tariffs are being leveled and what their outcomes are, machine learning can be harnessed to predict likely courses of action based on past behavior. This, she said, might enable companies such as Mohawk to recommend strategies and action before the tariffs are actually imposed, in anticipation of such events.
Trade Shocks No Longer Shocking
As trade disputes widen and become more capricious, the terrain is becoming more unsettled. The new abnormal is becoming increasingly normal. On a day early this month, Trump said he would impose tariffs on steel and aluminum imports from Argentina and Brazil because of supposed currency manipulation. Both countries had been exempted when Trump first ordered the steel and aluminum tariffs last year. Then, the following day, Trump launched a trade missile strike against France, threatening billions of dollars of duties on French luxury products because of French taxes on digital services.
The world barely blinked.
Asian advisory firm Dezan Shira & Associates produces China Briefing, which offers a daily timeline of what it terms the US-China trade war. China Briefing marks “day 1” as July 6, 2018, when US Customs began collecting a 25% duty on 818 imported Chinese product categories. But the site traces the war to March 23, 2018, when the US imposed a 25% tariff on most steel imports, and a 10% tariff on aluminum.
So, we’re at Day 500+ and counting. That doesn’t mean we should become inured to this brave new world of trade shocks. It does mean there’s no excuse for some forward planning.
Risk reduction is key, both in the shorter and in the longer terms.
Pittelli, for one, suggests a two-tiered strategy for American companies, although this approach is applicable for others as well: One team looks at the more immediate issue of trade compliance. Another delves into future supply chain diversification. React as quickly and as sensibly to what’s at hand, while planning on ways to minimize future trade shocks.
One big lesson has come from these 500-odd days of escalating trade tensions: Source diversification is essential. That doesn’t mean simply trading out a factory in China for one in Vietnam, however. For logistics providers, it involves investigating lift capabilities, both sea and air, as well as port, rail, airport and road infrastructure. It involves such factors as speed to market and reliability. “As [clients] develop new and immature supply chains, we’re finding ourselves having to move in multiple directions to ensure that their products aren’t interrupted, the supply chain is not interrupted,” said Kuhn.
Soluble Solutions for the Unsolvable
Because of the volatility and often erratic nature of tariffs these days, and because trade by definition is a two-way street, it can be both extremely tough coming up with solutions that has staying power. Even the most thoughtful and well-planned solutions can be thwarted by political opportunism or personal pique.
During a recent visit to the Netherlands, sponsored by the Netherlands Foreign Investment Agency, I talked to a number of logistics companies, as well as customs officials and port authority executives. Discussions inevitably turned to Brexit. What baffled everyone wasn’t just the prospect of Britain leaving the European Union, which is serious enough. It’s the complete lack of process details coming from London, understandable considering Brexit itself isn’t a done deal, let alone the technicalities. That includes everything from British customs clearance procedures to border-related infrastructure, which must be reestablished when and if Brexit takes effect.
No one in the know believes Britain will be able to transition out of the EU, without wholesale disruption. “Whatever people tell you, it’s going to be chaos,” said one banker.
Some shippers have decided to go for parallel logistics operations in Britain as well as in continental Europe, in anticipation of Brexit becoming a reality. But others adopt a wait-and-see attitude until the contours of Brexit become clearer.
Jurrie Jan Tap, chief sales officer at fashion and apparel logistics provider specialist Bleckmann, explained the concern as he showed a group of journalists around his facilities in Venlo, a logistics-heavy city near the German border. Clients are “getting nervous that [their current Europe-related operations] are not going to fly. ‘We need to have a Plan B,’” they said. “But most are still waiting. They have done their homework. They’re very nervous. But they don’t really move yet.”
Jurrie Jan Tap, Bleckmann
Back in the US, Pittelli addressed the biggest part of the trade-related dilemma — unpredictability. What that means, she believes, is that both a supply chain and those working on that supply chain need to be resilient. “Anytime there’s a new announcement coming out, that can affect the business and throw everybody’s hard work right out the window,” she said. “People have to realize that, hey, ‘I can’t control the outside, I can only control my own environment.’”
Roel Van’t Veld is EU customs policy lead at the National Office of Dutch Customs, and a point person on Brexit coordination. His philosophy is applicable to just about everyone dealing with trade uncertainties. “We hope for the best, we prepare for the worst,” he explained.
To read the article in its published format, click here.