This particular Friday, on the 13th day of the month, provides a noteworthy milestone for breaking news related to the geo-political forces surrounding global trade. Two headline events foretell a very challenging 2020 for multi-industry global supply chain management teams that will likely extend beyond the current new year. Teams need to be prepared for even greater tensions and subsequent challenges in the coming year if not, subsequent years.  Global Trade

 

United Kingdom National Election Results- Brexit is On

Yesterday, voters across the United Kingdom went to their local polling locations to participate in a snap national election precipitated by an ongoing legislative stalemate related to the timing of Great Britain’s exit from the European Union, the infamous Brexit.

Today’s headlines indicate an overwhelming victory and voter mandate handed to Prime Minister Boris Johnson’s Conservative Party, and with that, a signal of the likely scenario that Brexit will indeed be occurring by the end of January 2020.

Multi-industry UK and Eurozone based supply and customer fulfillment networks must now dust-off the various previously developed Brexit inventory safety stock, capacity and transportation contingency plans previously and now prepare to initiate such actions.

In the analogy of the D-Day invasion of 1944, orders are about to be issued for a marshalling of appropriate logistics, transportation and inventory contingency needs to address what is very likely to be a period of significant disruptions in cross-border material flows. There is also the border between Northern Ireland and the Republic of Ireland that will now be put to the test.

Business media reports further remind us that Brexit is not limited to a single milestone, but a series of major ongoing legislative and regulatory milestones that will extend well into 2020 and perhaps further. Issues of customs, labor laws, transport licenses and a whole host of other measures related to cross-border trade will need to be negotiated, legislated and enacted for enforcement. Up to date and timely knowledge will be essential.

In short, depending on what occurs over the next several weeks, industry supply chain and procurement management teams will have to address and mitigate as much as possible, the realities of an independent United Kingdom, and with that, untested cross-border processes.

 

Phase One Trade Agreement Reportedly Reached Among China and the United States

Today’s headlines also point to an agreement being reached between China and the United States on the preliminary phase one trade agreement. As has been the history of these specific negotiations, that details as to what was actually agreed to remain to be seen in the coming weeks.

U.S. based business media reports indicate that the U.S. side has agreed to cut in-half, the 15 percent tariffs previously imposed on $120 billion on certain U.S. imports from China. The scheduled new tariffs on an additional $156 billion of mostly direct consumer goods, scheduled to take affect on Sunday, December 15 have been cancelled. Prior tariffs of 25 percent on $250 billion of certain product imports reportedly will remain in effect. Thus, certain industry or businesses are positively or negatively affected by the news,

China reportedly has agreed to guarantee purchases on tens of billions of U.S. agricultural products along with certain other energy related and other products. Should such amount of purchases fail to materialize, a reported “snapback” provision would be invoked to return to original levels of tariffs. One additional scenario variable to be factored in product P&L’s.

The prioritization of such purchases should be of little surprise since the Trump Administration’s positioning in the ongoing China trade negotiations leaned far more toward the political dimensions and backdrop leading up to the upcoming 2020 Presidential election being held in the U.S. and where the U.S. Midwest states loom large in influencing an electoral college victory for any candidate.

The Wall Street Journal reported that some measures related to improving intellectual property protections, prevention of currency manipulation and the opening-up China’s financial services markets to U.S. firms are part of the phase one agreement and further expected to lead to a phase two deal with other measures added, including China’s ongoing subsidies to state-owned firms. These issues were the primary core of the ongoing trade conflict, and negotiations and time will drag-on further.

China’s Vice Minister of Commerce today both acknowledged that a phase-one agreement has been reached but declined to share any specifics other than the U.S. would remove tariffs in stages.

The actual initial trade agreement is not expected to be signed until some time in January 2020, and thus it has taken 16 months to reach a mere preliminary agreement.

 

What This Week’s Events Imply

From our Supply Chain Matters lens, it is rather apparent to us that this week’s phase one agreement among the United States and China does not represent the beginning of the end of the trade war among the globe’s two largest economic powers.

As indicated in our prior Supply Chain Matters blog commentary published in early November, multi-industry supply chain and procurement management teams would be wise to assume a period of continued trade tensions and consequent customer demand and supply network implications stretching into 2020 and likely beyond.

Already, the Trump Administration is not only declaring victory, but also gearing-up for aggressive tariff action targeting certain Eurozone countries and specific industries. This morning, President Trump tweeted that he is looking forward to signing a massive trade agreement with an independent Britain in 2020.

Factoring the various assumptions and/or contingencies relative to landed costs will be challenging and demanding of resources and management discussion.

With so many complex political connotations, lobbying and other special interests, not to mention the gap of the specific issues to be resolved coupled with continued building economic and geo-political tensions, business as usual is absolutely not in the cards.

We were somewhat taken aback upon reading the results of a recent DHL sponsored study indicating that more than one-quarter of multinational firms have not made contingency plans related to sourcing of components or products in China.  The DHL Resiliency study indicated that 48 percent from the engineering and manufacturing industry and 40 percent from the automotive mobility sector indicating that they had no contingency plans at all, even though both fields have been heavily targeted by both countries in the trade war.

We find such data both perplexing and alarming.

Within our soon to be published 2020 Predictions, we will once again point to the need for multi-industry businesses and their respective supply chain management teams to assume that in 2020, and likely in 2021, continued geo-political landscape of trade and subsequent tariff actions will continue to be even more disconcerting, and will not only involve the two largest economic powers but he Eurozone as-well. Last January when we published this year’s predictions relative to global supply management, we predicted that such decisions would rise to the attention of C-level executives, and indeed, that is what exactly occurred.

Do not be the business or the organization that ignored the obvious- be prepared and vested in scenario-based planning and decision-making capabilities as well as a more geographic, regional-based  customer demand focused supply network capabilities. Resiliency and agility are going to once again be the keys toward achieving required customer expectations and business financial outcomes.

 

Bob Ferrari

© Copyright 2019, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.