Coming off a challenging year in 2020, shippers around the world found themselves dealing with many of the same obstacles they faced during the prior year along with some international trade issues that could present more hurdles in 2021.
Where international trade wars have in some way always been prevalent in the global trading environment, concerns over increased economic nationalism and newer/higher tariffs have been elevated over the last few years.
With the U.S. in the early stages of transitioning to a new presidential administration, the outlook for global trade this year remains uncertain for domestic shippers. Should a commitment to economic nationalism persist, for instance, then 2021 may prove to be just as challenging for importers and exporters.
However, if the walls begin to come down between the U.S. and one or more foreign countries, it could lead to a more amenable trading environment later this year.
5 Tips for Success in 2021
In a global trading environment where ancient Greek philosopher Heraclitus’ famous line “the only constant in life is change” is holding steady, shippers have to be able to adapt to the ongoing uncertainty while also fulfilling their customers’ needs and maintaining their own profitability levels. Here are five tips that companies can use to achieve this balance and thrive in 2021:
- Don’t leave decisions until the last possible minute. Under “normal” circumstances, there are times when last-minute decisions not only are necessary, but they can also pay off for shippers that put off decisions until the last possible minute. In the current environment, it pays to plan ahead, do the forecasting, and secure transportation capacity well in advance. In A fresh approach to logistics forecasting in 2021, McKinsey says companies are taking a different approach in 2021. Knowing that they need to do things differently, it says logistics organizations are doing more scenario planning, working harder on their reviews and reforecasts, and putting more money aside to manage contingencies.
- Identify and address hidden risks in your global supply chain. If companies learned just one lesson from 2020, it’s that their global supply chains need better oversight and management. To address this issue, HBR says a good first step is to start thinking beyond just the first and second tier of suppliers. Map out your complete, end-to-end supply chain, including all distribution facilities and transportation hubs. “This is time-consuming and expensive, which explains why most major firms have focused their attention only on strategic direct suppliers that account for large amounts of their expenditures,” HBR points out. “But a surprise disruption that brings your business to a halt can be much more costly than a deep look into your supply chain is.”
- Pay attention to “big” issues, like global vaccine distribution. Once a new director-general of the WTO is appointed in early-2021, ING says the world trade system will begin to play a bigger role in the distribution of COVID-19 vaccines. “Countries have signed up to the principle of fair allocation, but making this work will be key to a global recovery in 2021,” it adds, “and prospects for multilateral cooperation thereafter. The stakes couldn’t be higher.” These developments will impact freight capacity (particularly airfreight) and should be factored into any shipper’s 2021 global trade management plans.
- Understand the updated developments around free trade and duty free shipping. In its 2021 Trade Update, Logistics Management reports that with the United States-Mexico-Canada Agreement (USMCA) resolved, much hemispheric trade will continue to take place on a duty free basis. “Indeed, much of the new agreement has been to standardize and modernize customs procedures throughout our continent to facilitate the free flow of goods,” Patrick Burnson writes, adding that U.S. shippers are now closely tracking ongoing regulatory issues with China and Southeast Asia, as well as the impacts of Brexit.
- Work with a reliable logistics provider. Thoroughly assess your organization’s overall sales projections and transportation needs while also factoring in the more unpredictable trade-related challenges that could surface in 2021. Using historical data, for example, you can factor in the previous year’s numbers to develop an accurate forecast. Then, share those numbers with your logistics providers. The more these valued partners know about your business and the potential sales numbers, the better. Good transparency in this area allows your logistics partner to manage carriers to their capacity commitments and then tweak forecasts based on actual results (not just guesswork).
With the World Trade Organization projecting a 7.2% increase in global trade in 2021 (a turnaround from the 9.2% decline in the volume of world merchandise trade during the prior year), cross-border trade will continue its path to recovery over the next few months. This will present both challenges and opportunities for shippers.
“World trade will continue to bear the scars of the tit-for-tat trade war, and the effects of subsidies introduced during the pandemic risk dampening the recovery,” ING predicts. “But in spite of the challenges and risks, cautious optimism for 2021 is warranted as economies are set to recover and trade policy may be done through talks, rather than tariffs.”