How commerce is helping companies weather the Covid wave

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This is the last Trade Secret before next week’s big ministerial meeting at the World Trade Organization in Geneva. So before we dive into the carnival of the civil servants, the carnival of the petty thieves, the chat of the parasites, today we are going to give you another explosion of real real things. In particular, we’ll take a closer look at how management decisions are shaping the overall models of supply chains we’ve looked at. beginning of the week.

By the way, yesterday’s interesting news in terms of policy. New German coalition government said that the economy department, the body that handles the trade, would go to the Greens. Before you all start lamenting how EU trade policy fell into the hands of a bunch of eco-friendly defenders, especially since climate will now be included in the same ministry, the Greens in politics German interior is actually quite pragmatic. They are also instinctively more hawkish towards China and Russia than Angela Merkel’s Christian Democrats. We slightly doubt that there will be a bold move away from crude “Merkantilism” brought us the Comprehensive EU-China Investment Agreement, but if it does, we’re all for it.

Country chart examines the steady decline in labor force participation in advanced economies.

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Onshoring is a slogan, not a strategy

Let’s recap what we know. As far as we can tell, supply chains haven’t changed much in terms of shortening, transitioning, adjacency, “friendhoring” (moving to countries run by political allies) as a result. of Covid-19. Last year, a huge drop in trade due to shrinking demand (excluding the frenzied scramble for masks and other health ministries), this year’s massive resurgence caused a chain boom. supply around the world, governments began to talk of a powerful intervention game: none of this seemed to have much effect.

We chatted with a range of supply chain experts, including some from banks, who speak to companies, do a lot of trade finance, and have a very good overview of the industry. who are shopping and exporting from. Common sense is that the secular changes that preceded the crisis will continue, but Covid is, at least, a catalyst of existing trends, not a new departure.

Last year, the sense of panic among companies about a critical supply chain vulnerability seemed to have dissipated fairly quickly, and they were looking past the current tumultuous period. Parvaiz Dalal, global head of supply chain finance at Citigroup, told us: “Walking was a big topic of discussion last year, but as of today, it hasn’t materialized. as expected”.

One HSBC survey of more than 7,300 business decision-makers in 14 markets have seen some sizable impacts from the current predicament: 70% of respondents think supply chain disruptions will reduce earnings of their company over the next year, an average of 22%. But less than a quarter say disruption is a serious constraint on business growth.

In fact, as Vinay Mendonca, interim global co-head of trade and receivables finance at HSBC, has pointed out, the volatility within and between countries argues that more internationalization more, not less, to spread risk both in the sourcing and destination markets. “The economic recovery has not only been bumpy, but it has also been uneven and inconsistent,” he said. Covid cases can spike in one country or another, leading to government restrictions that shift demand or close factories and disrupt supply.

Assuming the chaos dissipates, what remains are the same problems as before the pandemic – indeed, since the 2008 global financial crisis. poor countries making things for the rich), the mainstream model since the 1990s, has become increasingly exhausted. Today, China is more interested in building a domestic market than importing intermediate goods and exporting finished products. Emile Naus, from BearingPoint, a supply chain consulting firm, says that for high value-added products, at least “we need to look at reversing some of what has already been done in the past. the past 30 years”.

Products are becoming more complex and value chains more complex, and with that comes a higher probability of unexpected points of failure lurking deep in the supplier network. Threats of disruption from bad weather or natural or man-made disasters like the 2011 Japan earthquake and Fukushima nuclear disaster have existed long before Covid.

But blindly following a disorganized strategy like “health care” or even “diversification” is not enough. Naus is about an automaker that tried to spread the risk by sourcing gearboxes from multiple suppliers, only to find that they all depended on the same (small and cheap but important) produced in Fukushima.

Properly assessing costs and risks in the supply chain and implementing changes is slow and detailed work. Most experts say that even if Covid focuses its mind on the need to improve resilience, for complex items it will take at least three years, maybe five or 10, to make a serious overhaul. And while companies are fairly confident that business and commerce will return, those using cash are now more in the stock buyback game than expanding their balance sheets and starting Participate in new business projects. “Most of the companies we talk to are taking a lighter investment approach than investing heavily in new production,” said Citi’s Dalal.

Now, all of the above is anecdotal or survey information at best – it’s hard to quantify these with hard-to-update numbers. But it’s a pretty consistent story, and it’s consistent with more comprehensive data on what happened before Covid and last year.

We will continue to return to the topic of supply chain from many different angles, because it is more nuanced than the theme of OH NO (or “HOORAY” au choix), THAT IS THE END OF GLOBALIZATION AS WE KNOW that you can read in some quarters. And if you think there’s an aspect we’ve overlooked, get in touch. We all have ears.

Country chart

Yesterday, we noted that advanced economies have fight to attract immigrants to fill the gap left by the lack of labor. Many of these belated shortfalls have resulted in millions of resignations being made in advanced economies during the pandemic.

However, there is a broader trend going on here. As the chart below shows, labor force participation rates have been steadily declining in several advanced economies since the turn of the millennium. Claire Jones

Labor market participation line graph, ages 15+ (%) shows that Covid-19 has a smaller impact on labor force participation than the long-term trend in some countries

Good news for delivery company and exporters: Beijing says it will allow foreign ships to transport goods between ports in the country.

Not so good news: a new one China’s data protection law blocked access by foreign companies and governments to information about the location of their ships, reducing supply chain transparency and the ability to monitor trade in goods.

Chad Bown Yes updated his US-China “phase one” tracker, showing that two more months, China are on track to buy only 62% of the goods they pledge to buy from the US.

A great source of new information about multilateral agreement at the WTO went live yesterday.

Japanese Beverage Company Kirin can find itself starting from Myanmar (Nikkei, $) after a military-owned corporation asked a court to cease their jointly owned brewing operation.

Prime Minister of Vietnam find a way to appease supply chain concerns ($) while in Japan this week, but Nikkei reports that factories serving brands from Intel to Toyota and Reebok have been halted as employees are afraid to return to work, worrying investors. worry that Thailand and Indonesia may soon accelerate ahead. Alan Beattie and Francesca Regalado

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