The COVID-19 pandemic continues to threaten public health and disrupt economies around the world, shifting consumer behaviors, business models, and trade flows.
This article was written by Selin Yavuz, Senior Proposition Manager in Global Trade at Thomson Reuters in London
Importers and exporters are struggling to manage their global trade processes as the world grapples with the impact of the pandemic that the International Monetary Fund called “a crisis like no other.” The impact on supply chains is challenging for virtually every industry and includes shortages of critical materials and products, concerns over labor and inventory issues, as well as the need to re-route procurement and identify trends and risks.
Tactical actions such as determining alternative suppliers and changing modes of transportation can provide short- or mid-term relief, but in most cases don’t represent long-term solutions.
Consumer spending rose significantly for certain goods, and there has been a significant increase in demand for food, chemical,s and cleaning products — with variations from country to country. We have read news reports about increased demand for cologne in Turkey due to its high alcohol level, wine and pasta in Italy, guns in the U.S., and painkillers in Nordic countries to combat the spread of coronavirus. Further, the automotive industry has been hit dramatically, followed by aerospace, textiles, and electronics, but the worst impact may be on oil prices — which may reduce transportation costs for the short term but over time can create a significant adverse effect for oil-exporting countries, perhaps delaying “green energy” investments.
For the European Union, the economic impact of COVID19 this year is expected to be a 9% reduction in both imports and exports. The World Trade Organization expects a larger decrease in sectors with complex value chains such as automotive and electronics. And due to the uncertainty around COVID-19, supply chain leaders must mitigate disruption and risks to position their organizations for success through flexibility, creativity, and automation.
A recent Thomson Reuters webinar addressed the impact of COVID-19 on the global supply chain, featuring an international panel of global trade specialists:
- Anas Ikhwan, global trade manager for Eaton, based in Dubai;
- Kevin Wang, trade governance manager for Corteva in Shanghai;
- Jens Nilson, trade compliance manager for Xylem in Schaffhausen, Switzerland;
- Mary Breede, director of trade strategy and compliance for Eastman Chemical Co., in Dallas; and
- Kim Canales, director of trade control and sanctions for Thomson Reuters, based in Dallas.
Panelists offered insights on several pertinent topics for corporate trade specialists striving to navigate the “new normal” and manage trade processes in ways that ensure business continuity and enterprise resilience.
Supply chain costs
Efforts to contain the virus — including border closures and restrictions on the movement of people and goods — have significantly disrupted international supply chains. Many companies have been unable to source the materials they need, resulting in production shortages and shutdowns.
This has made it more difficult to control the cost of supply chain management in at least three ways:
- More time and resources are required to source materials.
- The need to secure materials when and where those materials are available has increased inventory holding levels and related costs.
- Limited air freight capacity has increased shipping costs.
Corporate trade professionals need to stay abreast of new and changing regulations in order to reap the potential benefits and avoid non-compliance. Singapore and New Zealand, for example, launched a Declaration on Trade in Essential Goods for Combating the COVID-19 Pandemic to enable the continued production and distribution of certain supplies. Governments in Europe and the United States restricted the export of personal protective equipment (PPE), and authorities in the Middle East enacted value-added tax and customs duty deferrals.
In addition, some government agencies announced they will conduct virtual audits, so it’s essential for corporate trade compliance managers to remain diligent in their processes and documentation, and be prepared for increasingly digital compliance and reporting obligations going forward.
Panelists said that many countries have implemented mandatory requirements for workers to use PPE, but demand has outstripped the supply of this equipment, leaving companies struggling to maintain production and other critical business activities. Meanwhile, companies that have adequate PPE supplies are experiencing slowdowns due to the time required to clean the equipment between shifts and monitor personnel health.
When corporations onboard new suppliers to resolve gaps in their supply chains they also must manage regulatory requirements related to the origin of goods, the need for special export or import licenses, and exposure to different customs duty rates and custom clearance procedures.
For each new supplier, companies need to apply their due diligence processes and assess pricing, manufacturing capacity, lead times, and product quality. Some enterprises also analyze landed costs that take into account factors such as preferential origin and customs duties. In addition, companies must screen their potential business relationships against the current global lists of restricted persons and companies and sanctioned or embargoed countries.
The supplier vetting process will be scrutinized and audited — now and in the future — so trade teams cannot cut corners even when they are under significant pressure to meet business demands and keep operations on track.
Panelists said they anticipate more emphasis going forward on localization — companies migrating overseas operations back to their home countries or merging offices to reduce global footprints — to alleviate the risk of future shutdowns.
In today’s environment, technology is critical to managing the entire value chain and anticipating risks and challenges. Trade managers can leverage their companies’ supply chain data to spot inefficiencies, automate decision-making processes, and improve customer experience.
Data analytics and automation are essential in order to identify risks, trigger alerts, comply with the regulations, reduce costs, and remain competitive. Businesses that use cloud computing, artificial intelligence, and data analytics are definitely standing stronger during this crisis time.
Finally, panelists noted that companies may need to re-think their IT strategies and consider tech solutions that support efficient and compliant global trade management, including tools that manage trade-related processes, data, and documentation.
This can make trade teams agile and able to deftly and effectively restructure supply chains as conditions change.