As per yesterday’s post, we need to discuss in detail each and every “future” trend that we debunked in our Future of Procurement series on old-blues and ongoing news. Until you not only understand why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians, as well as what you need to do to prevent staying in the past with your organizational “peers”, we can’t risk ignoring them simply because we’re fed up of them. We have to make sure that each and every organization that wants to claw its way out of the past and into the present has the knowledge it needs to do so. So without further ado, we move on to trend number thirty-two.
As per our original series, globalization began soon after trade between nations. As far back as 3,000 BC Egypt was trading with Mesopotamia, which was near the end of the known civilized world for most Egyptians at that time, for pottery, lazuli, and obsidian. Then, about 3,000 years later, the Silk Road connected China to India, Africa, the Middle East, and Europe — and that was the known world at that time. Globalization has been with us for thousands of years and isn’t going away either.
So why do so many historians keep pegging it as a future trend? There are a number of reason, but among the top three today are:
- Post-Panamax Ships and the Panama Canal Widening
- The New Silk Road
So what does this mean for your organization? How do you blast out of the past and into the present in preparation for planning for the future?
Post-Panamax Ships and the Panama Canal Widening
Current Panamax Ships can accomodate 5,000 TEU (twenty-foot equivalent units), and can hold the equivalent of three-plus football fields, but with the widening of the Panama Canal, expected to be completed next year, the canal will be able to handle post-Panamax ships with a cargo capacity of up to 13,000 TEUs. That’s a 260% increase which will bring the cargo capacity up to about eight football fields. That’s over 20 million pre-packaged ready to sell iPhones on a single ship. Assuming Foxconn can pump them out fast enough, one ship and all of North America’s iPhone needs are met for an entire quarter!
It means that even with increasing oil prices and transportation costs, it will still be cheaper to outsource production of certain goods because the cost per unit will be essentially zero in certain compact high-value goods categories.
Can’t wait 33 days for ocean freight? You don’t have to! The new 787-10 Dreamliner has a 124.4 meters of cargo capacity, which is over 3 TEUs of cargo capacity that can be moved halfway around the world in less than a day! For compact, high-value goods, this also results in outsourcing continuing to be profitable and logical for certain categories despite rising oil costs and rising labour costs in Asia.
The New Slik Road
Despite the almost utter lack of coverage from western media, the new China, Russia, and Germany trade partnership is going to usher in a new era in Eurasian trade, strengthen both the European and Asian economies (and Russia, India, and China in particular – the “RIC” in “BRICS”), and offer a plethora of new opportunities for global expansion both in terms of sourcing and selling — and Procurement organizations need to lead the way. Russia, China, India, and the EU account for about 42% of global GDP, and even though it’s still too early to tell precisely what impacts the new trade agreements are going to have, there’s no way that they are not going to be uber-significant. Not only does it have the potential to biggest boon to supply chain finance this year, if not this decade, but it’s going to change the way you think about trade. In other words, you have to totally reevaluate your global sourcing and procurement strategies to make sure they still make sense in this new era of trade.
That’s two down and twenty-eight to go. It’s going to be a long trek, but we’ll do it!