Category Archives: Global Trade

Will Supply Management Save the US Economy? Part II

In Part I, we noted that the information industry (defined as processors, producers and distributors of data, informational, and cultural products) shed over 750,000 jobs between 2001 and 2011, making it the sector that accounted for the second biggest loss of jobs after manufacturing, as per this recent interactive info-graphic on America’s Incredible Shrinking Information Sector. We also pointed out a recent WSJ article on Where Job Growth Will Come Over This Decade and noted that, despite the claims put forward in the article, the sectors mentioned are rather unlikely to add the 12M+ jobs the BLS (Bureau of Labour Statistics) is predicting, and stated that even if the jobs materialized, the sectors won’t save the US economy on their own. But we didn’t explain why. So today we’re going to dive into the sectors one by one.

Health Care
The boomers are becoming older and their need for health care is increasing. The BLS is predicting that 5.5 M jobs will be added between 2010 and 2020 and given that the number of people in the US aged 65 and older is going to double in the next 30 years (as chronicled in “America’s Aging Population” from PRB) from over 40 Million to over 80 Million, the US is definitely going to need a lot more health care (and senior care) workers. While SI is not sure if the sector is going to add that many jobs in the next decade, it’s a safe bet that the healthcare industry will add that many jobs in the next two decades.

Leisure and Hospitality
The BLS is predicting that 1.3 Million jobs will be added in this sector. While SI doesn’t expect much of an increase in international travel to the US like the article does, and thus doesn’t expect any new jobs in the sector for this reason, it does expect that this job growth will occur as a result of the retiring boomer population. Most of the retiring boomers have money, realize they can’t take it with them, and don’t want to leave too much for their heirs because “they had to walk uphill both ways through waist-high snowdrifts when they were young and then had to work all day to earn a dollar when they got out of school” and believe that hard work is good for you. So they are going to spend their money and enjoy their retirement, which means people will need to wait on their tables, maintain their golf courses, sell them theatre tickets (as some of them don’t like that new fangled technology that requires you to punch buttons on your phone to buy a ticket), and show them to their seats. While these are not the most glamorous of jobs, they are jobs nonetheless.

Medium Skilled Jobs
The trades aren’t going away — plumbers, electricians, builders, chefs, etc. will always be needed, and these jobs can’t be outsourced. As the population steadily increases, and old buildings get older, there will be a slightly greater need for these jobs tomorrow than there are today. While the growth might not be high, it will be there.

Business and Financial Operations
According to the article, the BLS expects the field to add over 1.1 Million jobs like credit councillors, financial examiners, and compliance officers. With regulations getting more intensive and reporting requirements continuing to multiply like Fibonacci’s rabbits around the globe, the compliance industry is definitely going to boom and could create almost this many jobs on its own (which is good because there’s already a plethora of credit councillors out there and SI doesn’t expect too many jobs to be added in this industry).

Professional and Business Services
According to the BLS, this sector, comprising consultants and other professionals skilled in areas such as legal services, accounting, and advertising, will generate 3.8 Million jobs this decade. There will definitely be growth in this sector as companies continue to farm out more back-office functions, as financial reporting regulations get more complex, and as (global trade) laws continue to get more complicated, but SI has a hard time believing that 3.8 Million jobs will be added unless something changes. And most of the consulting jobs will just be replacing jobs that disappear from the other sectors — so, without a pressing need, most of the new jobs will just be cancelling out jobs lost in other sectors. However, it is certainly a better sector to focus on than Manufacturing, IT, or Traditional Media!

Technology and Information Services
According to the BLS, this decade will add over 750,000 jobs (and effectively replace the jobs that were shed last decade). As far as SI is concerned, this is a pipe dream. While there is a greater need for Business Intelligence, most of the work is going to be outsourced to cheaper countries. And the jobs that are created in the information-security analysis space (in the government and its contractors) are barely going to make up for the non-classified private industry jobs that are going to be shed to lower cost locales in India, China, and the EU. While there shouldn’t be any more decline overall, the rapid growth of the 90’s will not be repeated.

In other words, most of the jobs are going to be in health-care and in service sectors that support the retiring boomers (about 2/3rds by SI’s estimation). And with a steadily increasing population, in the long run (with some estimates adding another 100 Million, or more, to the US population over the next 30 years), the boomer retirement is not going to create enough jobs over the long-haul. So what’s going to save the US Economy?

Come back tomorrow for Part III and SI’s thoughts on the matter.

Will Supply Management Save the US Economy? Part I

The US Economy is in trouble. Not only has manufacturing been declining steadily, but, as per this recent interactive info-graphic on America’s Incredible Shrinking Information Sector, the information industry (defined as processors, producers and distributors of data, informational, and cultural products) shed over 750,000 jobs between 2001 and 2011, making it the sector that accounted for the second biggest loss of jobs after manufacturing. In addition, the customer support industry shed over 74,000 jobs, traditional publishing shed over 263,000 jobs (and 21,000 more in the last two years), and telecommunications dispatched with a whopping 567,000 jobs.

In other words, the sectors that account for over 1/4 of US GDP have been shedding jobs faster than a swarm of shetland sheepdogs combined with a syndicate of sussex spaniels sporting on a sunny day in Spain. And there can be no rebound if new jobs don’t appear to replace the old ones somewhere.

But these sectors aren’t coming back. It will be decades before it will be cheaper to manufacture most products, especially dense Consumer Purchased Goods, at home. With the innovations in wireless technology, we need a lot less telco lines, and even less transmitters, to service the same number of customers at service levels well beyond what could be expected even five years ago. Programming can be done anywhere, by anyone, and there is always someone willing to do the same job cheaper in a developing country where a US dollar is worth considerably more than the local currency. Thanks to the internet and semantic technology, there is more content at a journalist’s disposal than ever before and research is almost automated. And online (which includes over the phone) customer support can be done by anyone in the world who speaks the same language. While we can expect the job declines to level off in media and telecommunications, just like they have done in the information sector, the jobs are not coming back.

So where will the jobs be? According to a recent WSJ article on Where Job Growth Will Come Over This Decade, they will come from:

  • health care
  • leisure and hospitality
  • medium skilled jobs
  • business and financial operations
  • professional and business services
  • technology and information services

And the article is partially right, but these sectors won’t add the 12M+ plus jobs that the BLS (Bureau of Labour Statistics) is predicting, and won’t save the US Economy on their own — at least not without a slight change in focus in a couple of the sectors. Why? Come back tomorrow for Part II and a discussion of the WSJ article predictions.

Cross-Border Shipping with Mexico


Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (His guest posts are still archived.)

the doctor sent me this article from Inbound Logistics and wondered if I agreed. Well, mostly, but I think it overstates some difficulties. I operated an International Procurement Office in Mexico and we were able to get on-time delivery to our US customers in the 98% range over long periods of time … and that included supplier performance, cross border performance and logistics performance in two countries.

Some of the issues the article mentions are common in every country. Natural disasters are just one example. Every logistics network has to have backup plans when problems occur. And of course, when you’re operating in another country you have to have an open mind to doing things their way.

The article does have some good points:

* Exporting from Mexico requires using a Mexican customs broker. If you are moving goods to the US, you will probably want a US customs broker also, unless you want to have your own people at the border. Yes, that’s an extra step in the process.

* The border does jam up around Christmas as many expatriate Mexicans ship presents south.

* Of course you need to understand your country’s security related requirements, such as C-TPAT in the US.

* You should always avoid insuring every shipment and rely on a blanket policy

* You do need to keep track of goods crossing the border

But some is either overstated or applicable to any country, and some I disagree with.

* If you are shipping LTL there are several LTL logistics companies, all aimed at industry. DHL, Fed Ex and UPS as well as local Mexican companies such as Estafeta all do cross-border LTL work.

* You are not “guilty until proven innocent” under Mexican customs regulations any more than you are in the US or other countries. And the US has the same five year “statute of limitations” on customs errors … and it’s five years from your last import of a product.

* I wouldn’t ask a Mexican carrier to price services in US dollars. Fuel costs are in pesos as are nearly all of the carrier’s operating expenses. Asking to price in dollars will get you a higher price and possible attempts to renegotiate if the dollar weakens.

As an observation, the Mexican trucking industry is changing. Twenty years ago, it was a collection of small, independent1 truckers. Today there are bright, new, shiny trucks on the Mexican roads and large, serious logistics services available.

1 Extremely independent. Mexican truck drivers were the last of the wild west cowboys. A habit of stopping off overnight at what were euphemistically called “cantinas” made on time delivery really difficult. Times have changed.

What Impact Will the SFTZ Have on Trade?

As of September 29, 2013, the Shanghai Free Trade Zone is now open for business, but what impact will it have on trade? Opinions are mixed.

CNBC states that the Shanghai Free Trade Zone is No Match for Hong Kong, even though it is a 28.8 square kilometre district that many hoped would rival Hong Kong. Why? For starters, there will be no special tax treatments while Hong Kong’s 16% personal income tax will continue to retain talent and headquarters of global banks. Secondly, many much-needed* reforms in China, such as reforms on state-owned enterprises, public finance, land ownership, and the Hukou system won’t be part of the FTZ.

KPMG issued a special tax alert when the “China (Shanghai) Pilot Free Trade Zone was Officially Launched” with their observations. KPMG’s opinion on the zone that was designed to improve investment facilitations to meet international standards, deregulate currency exchange controls, and improve efficiency and flexibility in terms of government regulatory controls and legal environment specification include the following:

  • financial institutions will develop innovative financial services and products to allow China to be more competitive on a global basis once further reforms w.r.t. the convertibility of the RMBi is improved
  • allowed industries will have simplified administrative procedures to provide greater convenience for investors once the filing mechanism is implemented
  • the government may develop preferential policies towards promoted industries
  • breakthrough reforms are required in terms of foreign exchange control

In other words, they expect that, in time the zone, for preferred industries, will simplify and enhance trade while providing companies access to new, and innovative, financial services. However, for now, the benefits are limited.

Time, said that Shanghai has a Free-Trade Zone, so Now What?, noting that there is great concern among Chinese policymakers about opening the inexperienced domestic financial sector too quickly to the global marketplace. As a result, it is therefore hard to gauge at this point how far and how fast the Shanghai free-trade zone will be allowed to develop, and there’s even more uncertainty about when any reforms attempted there will be introduced on a wider scale. In addition, many analysts expect the reforms to come slowly and have doubts about how readily they could be applied to China as a whole.

Conclusion, the zone has great potential, but at the present time, it’s not likely to take off too fast until the reforms are decided and made known. Any differing opinions?

* In the opinions of some.

FTZ, As Easy as 1-2-3

A recent article over on Inbound Logistics did a good job of dispelling Three Top Myths About Foreign Trade Zones. In short, despite some opinions, free / foreign trade zones (FTZs) are not risky, hard to use, or costly. (Although they are well-regulated with their own intricacies and do involve a setup cost like everything else. But the future benefits surpass the set-up costs quite quickly!) This is because:

FTZs are no more risky than regular imports.

Customs always has the right to inspect your imports, and import process, at any time whether or not you are using a FTZ. And whether or not you are using an FTZ, you still have to deal with a slew of reporting and transparency regulations, such as 10+2 and advance notifications, so there really isn’t more reporting or record keeping involved (as much of the information required already needs to be maintained for customs and inventory control). Plus, FTZs can allow duties to be deferred — which can improve company cash flow. In fact, properly utilized, FTZs can be less risky than regular imports.

FTZs are easy to use — with the right process.

Basically, instead of landing your goods to your warehouse, you land them to a Free Trade Zone where they stay until they are manufactured/reconfigured, extracted for consumption, or re-exported. In the first two cases, the goods become subject to duties at this time. In the third case, the goods, destined for manufacturing or consumption in another country, are sent on their way to their final destination duty free.

And if there is a Government run multi-purpose FTZ set up at or near the port of import, utilization of an FTZ is as simple as an application. (If, however, the importer wants to set up a special FTZ at its warehouse or manufacturing location, the process is considerably more complex and the company will have to bring in an expert and will definitely need to acquire best-of-breed global trade management software.)

FTZs improve Working Capital Management.

As mentioned above, FTZs allow a company to defer duties until such time as the goods are consumed and avoid paying duties on goods that are destined for re-export as-is. This can be an incredible cost saving for a company that does a lot of importing and exporting.

In addition, as noted by the author of the article on Three Top Myths About Foreign Trade Zones Dispelled, FTZs can also eliminate duties on waste, scrap, and rejected or defective parts as such parts are never consumed! In other words, a properly configured and utilized FTZ insures that you only pay duties on goods that you use or sell, when you use or sell them! This is a much better way to improve your working capital situation than extending DPO to your cash-strapped suppliers!