Last week, U.S. government trade data provided ever clearer evidence that for U.S. based manufacturers and retailers, changes in global supply chain sourcing strategies are already underway. Global Trade



When our research arm, The Ferrari Consulting and Research Group, published our 35-page Research Advisory Report: 2019 Predictions for Industry and Global Supply Chains in early January, we noted specific themes for the year. They included the following:

The escalating geo-political landscape involving trade conflicts, added tariffs, threats of increased business disruption, will result in unprecedented global supply and customer demand network challenges that will occupy the attention of senior management at all levels, especially supply chain management.

In our Overall Themes section, we further stated:

Higher levels of global supply chain risk, complexity and cost will lead to the presence of discernable structural industry shifts occurring with far-reaching longer-term effects:

  • Final production and/or product assembly processes located closer to major customer concentrations. Increased investments in higher levels of manufacturing process automation and additive manufacturing techniques to provide more flexibilities in production siting among global regions.
  • More supply network sourcing being shifted away from China to other Asia-based regions with specific countries or regions benefitting.
  • Facility and technology investments in online customer fulfillment being prioritized and leveraged to move closer to customer concentrations to save on transportation and logistics costs.


Added Evidence

Last week, the U.S. Commerce Department released data that indicated that in the first half of 2019, the value of bilateral goods exchanged with China dropped 14 percent to a value of just over $271 billion. As a result of that change, Mexico became the top U.S. trading partner, followed by Canada.  Both are partners in the newly negotiated but not as yet ratified USMCA trade agreement.

The government data further indicated the U.S. imports from Vietnam rose by 33 percent in the same period. Imports from Europe, Japan and South Korea also expanded.

Our view of these data points reflect added evidence that structural changes among U.S. based manufacturers and retailers are indeed underway concerning their  global supply chain strategies.

In its reporting of this data, The Wall Street Journal opined: “The tariff dispute, along with cooling global economic growth, has contributed to a stagnation in total U.S. exports to the world and a widening of the trade deficit.”


Additional Perspectives

In our prior Supply Chain Matters commentary late last week, we highlighted a more looming scenario of a more elongated trade war involving the United States and China. We shared our perspective of a reality that U.S. businesses have already assessed that trade tensions are likely to continue, regardless of any perceived trade agreement among the two nations. Since publishing that blog several days ago, China has responded to the Trump Administration’s imposition of a 10 percent tariff on an additional $300 billion in U.S. imports by allowing its currency to now float below a previous stated 7 yuan to the dollar threshold level. That has added implications for global markets including fears of a global recession.

Trade conflict may indeed be a status-quo scenario.

With this added government data, the evidence builds that multi-industry global supply chain movements have begun.  The open question is to what extent, and how long such changes continue to occur. Further, the notions of global product demand structural changes come to the fore, especially with agricultural, food, and high technology market segments.

Non-U.S. producers and retailers now enjoy a cost advantage which can be exploited.

Indeed, unprecedented levels of global supply chain network challenges will continue to occupy the attention of C-Suite and industry supply chain executives for the remainder of 2019 and 2020.

The notions of waiting-out the storm of trade war with end product price increases to compensate for added tariff costs can only go so far before customers balk and move-on. Product sourcing strategies are being reviewed in the context of nearshoring to major regional markets, which explains some of the increased trade with Mexico and Vietnam.

As noted, a lot has to do with the heightened ongoing geo-political climate, and on the timetable of the U.S. Presidential election in 2020 when the Trump Administration’s ongoing confrontational trade policies will likely be put to a voter referendum. There are added concerns, that by 2020, the U.S. may face an economic recession triggered by growing trade and budget spending deficits.

All of this is remains on the minds of C-Suite and senior supply chain executives and well is should. Candidly, predicting unprecedented global supply and customer demand network challenges was one that we hoped would not come to pass since multi-industry supply chain management teams already had too much on their plates. But this has come to reality in the coming months and perhaps longer.


Bob Ferrari

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