Additional data and reports related to ongoing implications of global trade and tariff tensions will likely lead to added business planning challenges related to product demand and network supply for the coming year, and perhaps beyond.
Here is why.
With one quarter remaining in 2018, multi-industry supply chain as well as individual business sales and operations planning (S&OP) teams must now turn their attention towards planning for 2019 and beyond. Planning will have to consider the possibilities of declining global growth and supply chain activity as well as different industry competitive considerations related to supply networks. In prior Supply Chain Matters blogs addressing global supply chain activity levels over the past two quarters, we have continually noted the trending of data indicating a trade-induce slowdown. There is now additional, more forward-looking data. 
Economic Outlook
In its latest October World Economic Outlook, the International Monetary Fund (IMF) has lowered its forecasts for economic growth for both 2018 and 2019, attributing the forecast decline to rising trade protectionism and growing instability in emerging markets. The IMF forecasts the global economy will expand 3.7 percent in 2018, a 0.2 percent decline from the April forecast of 3.9 percent. The agency further indicates that overall global trade volumes appear to be tracking to 4.2 percent growth in 2018 compared to a 5.2 percent growth rate last year.
Regarding the globe’s three largest economies, China, the Eurozone and the United States, a muted picture is presented for next year. China is forecasted to grow 6.6 percent this year and contract to 6.2 percent next year. The Eurozone is forecasted to grow 2 percent this year, a 0.2 percentage month decline from the April forecast of 2.2 percent growth, with 2019 growth forecasted at 1.9 percent. The United States economy is expected to grow 2.9 percent this year and only 2.5 percent in 2019.
In the report’s Executive Summary, the IMF opines that:
“Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare. More import restrictions would also make tradeable consumer goods less affordable. Harming low-income households disproportionately.”
Tariff Induced Business Practice Changes
Just this week, The Wall Street Journal observed that ongoing tariff actions have increasingly spawned a new era of tariff dodging, the willful misclassification of the 10-digit Harmonized Tariff Schedule (HTS) codes utilized to declare customs movements. Utilization of improper codes or altering of country of origin packaging are on the rise to as a work-around to a growing number of tariffs. Not only is this practice illegal and subject to criminal penalty, it will increasingly distort actual reporting of trade data and provide a troublesome data management challenge for multi-industry supply chain and product management teams.
Another growing practice is the re-routing of shipments from countries such as China to other countries not subject to the same level of import-export tariffs, adding additional transit times and transportation cost factors to product costing, not to mention added supply network risks. If not managed, such actions can lead to added cost and risk factors, not to mention even more supply network complexity.
Implications
Thus- assumptions related to supply networks, material flows and cost factors will likely continue to undergo considerable changes in the coming year. Of more concern, rising governmental debt levels in the United States, and particular in China, are raising added concerns of potential economic disruption. According to a Washington Post report in early October, more than half of 51 surveyed economists by the National Association for Business Economics predict the next recession is likely to hit in 2019. Such a concern will hedge some overall business planning for 2019.
What all of this implies, from our lens, is that 2019 business planning is shaping up to be a challenging exercise that will present a number of added risk considerations.
The notions that a U.S. and China trade war will eventually run its course and revert back to business as usual is not a prudent perspective. Increasing trade tensions, added risks of recession-induced economic shock, and more rapid changes involving global and domestic manufacturing landscapes imply that supply chain and business planning teams will continue to be responding to a lot of senior management analysis and scenario-based planning requests.
The coming year should in no way or form be viewed as business is good, and let’s keep our heads-down and make expected revenues and budgets happen.
Consider instead the need for a whole lot of contingency, scenario and risk-based planning involving the broad functional and line-of-business interaction. This will obviously require a closer collaboration among line-of-business, product management, sourcing / procurement, supply chain and financial planning teams in working with consistent planning objectives, assumptions and common demand and supply network information.
Even more than last year, strategic demand and supply network management are key to insuring that expected business and financial outcomes are achieved in a very fluid environment.
Bob Ferrari
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