Category Archives: Global Trade

Supply Chains in 2020 …

… are going to be hard to predict, and more complex than even the true experts are predicting. Why?

1. Tariffs, Trade Wars, and Escalating Tensions

Once upon a time, tariffs were well understood, changed rarely, and could be easily calculated into total cost of ownership equations. This allowed an organization to make long term sourcing decisions with a solid understanding of long term costs. But with trade wars on the rise, tensions escalating, and tariffs being introduced and increased on an almost daily basis … no sourcing decision is safe beyond the minute it is made.

The situation is not going to get any better, and, in fact, might get worse. As a result, the ability to track not only costs, but tariffs, tensions, and risks thereof is going to get more complex than even the average expert expects.

2. Carrier Complexity

Carriers continue to come and go at the regional and local level (as a result of recently introduced or increased insurance requirements in some countries), ocean carrier availability depends on overall demand, suitability depends on costs which depend on availability and unpredictable energy costs, and air carrier availability depends on plane availability (which is affected when planes get grounded), weather and the non-occurrence of natural disasters (such as volcanic eruptions and hurricanes and severe thunderstorms that ground airplanes), and, of course pilot availability (impacted by strikes).

Then we have the risks of war closing off routes and even downing commercial planes. The risks of regulation limiting driver, pilot, conductor, and captain availability and/or putting carriers out-of-business. And of course the risks of escalating high-tech theft, including theft from moving vehicles.

3. Automation and AI

Automation is taking humans out of the equation, and AI is threatening to take even more out. This isn’t a good thing. Automation can streamline tactical processing and information gathering and processing, but not strategic decision making. And despite what some enthusiasts may claim, AI does not improve the situation … in fact, it makes it worse.

You see, with so many unknown variables across such a broad spectrum, no AI solution can even know all of the data to monitor, yet alone interpret it all properly when there is no foundation to measure against with so many new situations cropping up daily. AI will work the 90% to 95% of the time that the statistics says it will, but will fail in the remaining situations, and fail miserably. All of the savings or efficiencies the solutions will deliver across the first 19 solutions will be undone, and then some, in the 20th situation when the solution goes unchecked.

Even without getting into specifics, supply chain complexity will be a challenge in 2020. And, if things get worse, it could be a nightmare. We hope you’re ready.

Relevant Content is Still a Major Cornerstone of Any Compliance Effort

Not long ago we asked if you, or Ecovadis, could solve the compliance challenge before it cost your organizations tens or hundreds of millions of dollars. The biggest reasons for lack of compliance are still lack of knowledge, policy, visibility, analysis, and procurement technology and the fixes are still knowledge, policy, and appropriate technology.

One of those technologies is a Procurement Marketplace that can steer (or force) buyers to buy the right products from the right (and approved) suppliers (which can be an integrated catalog management solution that takes advantage of your supplier master, community intelligence provided by the vendor, and integrated risk information from third parties).

Another of these technologies is still supply chain visibility technology that lets a company monitor what is going on in the supply chain and evaluate a potential supply base before making a decision.

A third technology, and one we should not forget about, is import/export/trade management software that helps the organization identify the regulations it must comply with, collect the necessary information, produce the required documents, make sure the documents get to the proper authorities complete and on-time, and track all of the associated certifications and insurance certificates that go with the products and the supply base.

A good trade solution will address, at a minimum, import/export requirements, ECCN (Export Control Classification Number), custom security programs, FTA/FTZ/SEZ (Free Trade Agreements/Free Trade Zones/Special Economic Zones), country of origin, DPS (denied party screening), entry visibility, and HS (Harmonized System) codes / HTS (Harmonized Tariff Schedule) codes — and keep up with the never ending onslaught of tariff changes and temporary product bans that are result of the trade war. Essentially it will help a company determine all of the export requirements, all of the import requirements, produce the necessary documentation, and track its product from country of origin to the destination country.

In order for this solution to work, it needs a lot of content. Namely:

  • import/export regulations for all of the countries being sourced from, sourced through, and shipped to
  • US ECCN database
  • requirements for programs such as C-TPAT, PIP, and AEO
  • Free Trade Agreements between all of the relevant countries
  • database of all FTZs / SEZs in the relevant countries
  • HS schedules for all of the relevant countries and mappings
    and/or mappings to from country specific schedules
  • Denied parties lists for the relevant countries
  • Direct feeds to updated denied product lists for real-time updates
  • Direct feeds to updated tariffs for real-time updates
  • Early warning of products under consideration for bans/tariffs and real time flagging

Don’t overlook these last three. They are new and many of the traditional solutions on the market won’t have the capability. When a single ban or tariff spike can lay ruin to your best laid plans, be prepared.

There is No Bright Side to a US-China Trade War

I’ve read a few pieces over the last couple of weeks that some Asian nations expect that a drawn out reciprocal trade war between the U.S. and China could have a bright side for them as they expect that they can lure more manufacturing or agricultural exports their way.

Sounds good in theory, but here are the problems with that theory.

1. A lot of outsourced production over the last two decades has become highly specialized to the point where very few nations have factories with production lines that can produce the goods.

2. The modern electronics industry relies on rare earth metals, and China is the majority producer for many of these — in fact, only a few nations on the planet produce some of these rare earth metals.

3. The only nation that can rival China in agricultural production in Asia is India.

4. A number of companies that need supply assurance have locked in contracts with Chinese (multi-)nationals that can’t be easily broken without penalties.

5. International trade requires logistics infrastructure — good roads, reliable trucking, modern ports, large cargo carriers, etc. Something that not many countries in Asia outside China and India (and to some extent Japan and South Korea) have a lot of.

In other words, there’s not a lot of outsourced production that can be easily switched to other Asian countries, and, most importantly, if China becomes unattractive to the U.S., which we must remember controls about one quarter of global GDP, then

6. Central and South American sources can be just as attractive, and can be easier to source logistically.

Trade wars are never good, and there is no bright side, especially in this trade war.

Twenty Years Ago Today

Exxon and Mobil sign a $73.7 B USD agreement to merge and become the world’s largest company at the time, now surpassed only by Walmart, the staple of the US retail economy.

As the world’s largest oil company, it produces almost 4 Million BOE a day, is the largest refiner in the world, and despite the rise of tech, is still one of the most profitable companies in the world.

And with the continued reliance on petroleum based fuels in ocean and air shipping, most of the world’s supply chain indirectly rely on its products.

We may claim it’s the information age, but the products we use and consume still rely on the holdovers from the industrial age to get us through.

Category Management: Getting it Right is Key to Surviving the Trade Wars Part III

The Trade Wars are here! Tariffs! Counter-Tariffs! Counter-Counter-Tariffs! Counter-Counter-Counter-Tariffs! Even online traders can’t trade that fast. It’s dizzying.

And if you’re planning didn’t start weeks ago, you have a lot of catching up to do. Because if you don’t, your business may not survive. Literally.

So far, we told you it was critical to:

    1. 1. Understanding your Current Costs in Detail
    1. 2. Understand your Tier 2 Supply Chain in Detail
    1. 3. Start By Identifying Alternative Supply Choices
    1. 4. Then Build Alternative Cost Models Around those Alternative Supply Choices

5. Re-Evaluate on Every Tariff Change

But this is not always enough. What if the majority of the rare earth metal comes from China and the cost is insurmountable for your business? You also need to:


6. Start looking at alternative designs that eliminate dependence on a single country.

You can’t be dependent on China, the EU, or any other locale that Trump is targeting. Costs could go through the roof.

Also, you can’t be dependent on certain transportation methods. If diesel costs go through the roof, long haul shipping is going to get considerably more expensive. It may actually be cheaper to do short-haul trucking from Mexico or Brazil if you’re selling in the US because you know that the US may subsidize your industry in other ways (with lower taxes or rebates for buying / shipping at home). Thus, you also need to


7. Start looking aggressively at near-shoring.

SI has been telling you for years that sometimes the best cost county sourcing is home country sourcing, and when that’s not viable, near-shore sourcing is becoming a better option again. Find alternative suppliers closer to home, just in case!

And, you better make sure their supply chains are secure.


8. Weed out near-shore suppliers that are actually getting most of their materials or doing most of their production remotely.

Remember, the entire point of trying to bring production closer to home to ensure affordable supply is to actually bring production back, not just source from a supplier that is just an intermediary that outsources on your behalf. That actually adds more time, risk, and cost to the supply chain.

Is this everything you can do? No, but it’s progress.