In recent weeks the COVID-19 outbreak has put a stop to what once was everyday activities. Schools closed their doors, significant cities shut down, sporting events canceled, and with all of that, supermarkets and grocery stores face supply shortages. With the continued spread of the Coronavirus, how does it affect the supply chain?
Global Supply Chain in Its Normalcy
Uncertainty has become the focus of driving global trade management and comp
liance in the supply chain over the last few years. Traditional supply chain looked to global trade management (GTM) to focus on:
- Shifting regulations as goods transferred across borders
- Cost reductions from reduced duty programs
- Security risk abatement
- Effective corporate policies that support operational effectiveness.
The “Trade Wars of 2019” introduced chaotic duty increases and non-tariff barriers to adding complications and have brought new attention to global trade compliance. The need for visibility into supply chain operations for details on analytical oversight has grown from “nice to have” to a core requirement to run supply chain effectively. Disruption is the new global standard, and the need to manage import and export tariff changes, regulatory requirements, and the potential barriers by product, and country is expanding daily.
COVID-19 Becomes Top Priority
The latest non-tariff trade barrier posed by COVID-19 appears to have now replaced the standard of “controlled” chaos with a new level of uncertainty and complete unpredictability in global trade. Just as the supply chain was adapting to the new reality of sourcing strategies to manage the import and export of sub-assemblies of critical components, as well as finished goods from China, COVID-19 has produced substantial shutdowns from China for weeks. The interruption of supply for materials and finished products, and more importantly, the supply chain links allowing goods to move throughout the global network is an extreme challenge.
As the virus has spread globally, the loss of critical demand within Europe and North America has made an impact and, even more so, demands on global trade. Visibility of the location for essential SKU’s, parts, and orders no longer are needed to meet service standards and measure disruptions to delivery. They will, however, be critical to chart a course for the very survival of many organizations dependent on only in-time inventory and production management. The ability to adapt to additional sourcing decisions and possessing trade expertise will be needed when it comes time to interpret shifting trends and needs when addressing the complexity introduced by complete loss of supply and then demand globally.
Reductions of inbound containers by 30% at large ports like Long Beach, CA, Newark, NJ, and Baltimore, MD, will be replaced with eager clients ready to move onwards from quarantines. Visibility will be critical to organizations as they utilize the updates from the logistics service providers on congested ports, reduced staffing, and limited distribution networks. Not only are the location of SKU’s critical to managing expectations, but having the ability to hold, accept, or reverse purchase orders for retail companies has been crucial to maintaining the bottom line as the impact grows. Import volumes for Q1, 2020, are now expected to rebound by almost 10% by May 2020, due to increased tariffs (National Retail Foundation & Hackett Group). Trade analytics will now be as critical in the post-COVID-19 environment as tariff calculations of 2019. Analytics allow for agile planning and decision making by financial and logistics teams to weaken the effects of the shutdowns. These tools will help navigate the extreme demand likely to be endured once the coronavirus breaks. The shift from holding the same product to manage financial impact will move to an excessive interest in fulfilling pent up customer demand.
Supply Chain and Beyond
Business’s spend for Q1, 2020, will end substantially lower due to the slowing of supply being demanded but, it will require adjustment for the substantial freight cost increases and volumes pressing through the supply chain. If container volumes are expected to surge at least 11% or more, the amount of duty spending will rise and be accompanied by additional freight costs due to expedited shipping well into 2020.
Once again, trade analytics can help to forecast this impact by analyzing shipments ordered and pending arrivals as well as the effect on the duty costs, which will impact cash flows and bottom lines. The standard analysis of the duty spend year over year will prove futile as carriers are changed, volumes are prioritized, and network designs are impacted by the reality of a post-COVID-19 supply chain. In addition, as the US enters a very competitive election season, the appetite for any rollback of 232/301 additional tariffs has been met with only tepid interest and been focused only on products assisting the COVID-19 response effort.
The key to success is not to blame the fragile state of the global supply chain, likewise, to criticize expanded reliance on the systems that allow service providers to get shipments from one location to another. For global trade organizations to remain relevant, they are adding an in-depth analysis of supply chain data. This shift allows them to become part of the supply chain decision process to address the new normal of chaotic complexity.
Only by effectively utilizing data, will global trade experts be able to help determine the best course of action for shipments delayed at the origin, backed up at arrival terminals, and lost in customs clearance. Beyond the obvious, the financial departments of all organizations will be looking to address the impacts to tariff costs, demurrage, and detention that were reduced for most of Q1 and will soar in Q2. The need for accurate analytical reporting of current volumes, pending inventories, and the reality of the chaos will prove critical for the trade community over the short term.