Category Archives: Global Trade

Primary ProcureTech Concern: Weakness & Volatility in Emerging Markets / Trade Wars

Emerging markets are your future markets, and often the source of critical raw materials.

Why?

Given that a lot of outsourcing has been redirected to these “low cost” markets over the past two to three decades, any rapid increase in volatility becomes a significant concern, especially if the markets are not strong enough to weather the storm. A major event could wipe out an entire subset of the supply base literally overnight, greatly increasing supply shortages and increasing the market complexity. Or at least make it unsustainable, such as a 145% tariff on China which is the source of over $500 Billion dollars in imports into the USA.

Impact Potential

The impact of a “low cost” market becoming unavailable, or at least unsustainable, is moderate to severe, especially if all of your outsourced eggs are in the same country basket. One lesson that some companies haven’t learned yet is that dual sourcing is not reducing risk if the two sources of supply are in the same country (or the same small geographic region — because if you have two factories located 100 miles from each other on two sides of a border, guess what, one natural disaster can wipe them both out).

If your primary source of affordable supply is wiped out overnight, it could take months to identify a new source of supply and quarters to secure the supply and get your supply chain flowing properly.

Major Challenges/Risks

Foreign Market Predictions
It’s hard to predict what’s going to happen in a foreign market that you aren’t in everyday. You can follow economist predictions, follow currency trends, try to get a grip on the trade relations between that country and your home country, and so on, but it’s not easy. If you can predict early enough, you can take action. But if an administration, without warning, decides to drop 100%+ tariffs on your source of supply, you’re in trouble.

Alternate Sources of Supply
Sometimes there’s few sources of supply for a given material, part, or product outside of a given country that has a similar total cost of acquisition, especially if you aren’t sourcing at full volume. Identifying alternate sources of supply that you can switch to quickly can be quite a challenge.

New Market Identification
If the emerging market also happens to be one of your primary emerging sales markets, the hit from volatility can be quite significant if the volatility results in rapid inflation, job loss, or both and your sales start to drop rapidly.

Final Words

Given the globalization of today’s supply chains, where a product can depend on materials and parts from dozens of countries, weakness and volatility in emerging markets is a significant concern. And we have yet another (fourth) reason you need an economist!

Primary ProcureTech Concern: Geopolitical Uncertainty

As Koray Köse would be quick to point out, trade is dependent on politics, and with politics comes geopolitical uncertainty.

Why?

Geopolitical uncertainty is a huge concern because geopolitical uncertainty often results in instability of supply and cost and contributes to the three highest risks: rising cost, supply shortages/constraints, and regulatory compliance. In addition, it also strengthens the one of the more significant barriers to success: category/market complexity.

Impact Potential

Geopolitical uncertainty often leads to sanctions, port shutdowns, border closings, and sometimes the complete termination of supply lines. It can also lead to product, factory, and bank account and also asset seizures. All of these impacts are significant. Best case scenario, it’s just millions in losses, the organization can afford it, and keeps going. Typical scenario, major interruptions, if not termination, of product lines; very unhappy customers; significant, ongoing, losses; and possible closure of divisions or loss of markets. Bad scenario: one of the only sources of a key rare earth or technology component becomes unavailable, the source can’t be sufficiently replaced, and your main business line is terminated. Worst case scenario: a regime change seizes all of your assets in a country, terminates your supply line, indicts your senior executive in the region for treason, and your business is terminated.

Major Challenges/Risks

Event Monitoring: monitoring and detecting events that not only signal that a significant geopolitical event has taken place that is likely to interrupt your supply chain but also events that signal that a significant geopolitical event might be coming. For example, polls a short time apart that signal a rapid shift in political leanings (to the far left or far right) can signal a major shift in the next election. Massive, violent, protests and riots can signal a possible uprising. Unsanctioned military operations can signal an attempt to overthrow the government. Detecting the right events is key to making the right predictions.

Impact Analysis: detecting an event is one thing. Predicting a likely outcome is another. Determining the extent of that outcome can be harder still. And, finally, determining the full, long-term, impact on the organization is often extremely difficult, as some assumptions will need to be made in each step of the reasoning, and the wrong one will lead to the wrong conclusion.

Final Words

Geopolitical uncertainty is a huge concern because you can never know for sure what is going to happen, but you need to have a good idea if you want to prepare. So you need to ensure you have access to a trade expert as well as an economist.

America: Please Get a Plan and Sign Your Trade Deals! FAST!

the doctor stopped reading the daily tariff news about a month ago, because it was too depressing. (Especially since he had already told you that, since you didn’t start preparing years ago, your only real solution was BTCHaaS.) But now it’s unavoidable with the 90 days expiring, few deals done, and “letters” supposed to replace deals. Moreover, the news hasn’t improved any since the rumours in May that the Big Three Automakers were going to scale back and shift global production outside the US. (EEEK!)

These trade wars aren’t helping America. They’re hurting America. Every day more and more American small businesses close their doors. Every day an average lower class or working class American pays more and more taxes on basic necessities that cannot be sourced from within America’s borders. And every time an American Government representative attacks Canada with false claims of hostility, 400% tariffs on US imports, huge trade deficits (which don’t exist, as per yesterday’s post), and so on, more and more Canadians go elbows up and forget about the pain an average American is experiencing and how important it is for Canada and the USA to work together to combat global threats and maintain a strong North America.

Anyway, back to the point, you need to get a plan and sign your trade deals fast because if

  • small businesses continue to fail,
  • the 12% lower class and 31% blue collar working class have to continue to pay 10% to 30% more on food and necessities they need just to survive, then your poverty rate (which is already 11% and quite high for the richest country in the world) is going to explode, and
  • trade partners continue to look elsewhere to trade their products and services

then America is losing out!

It’s important to remember that there are two, and only two, good reasons for tariffs:

  1. Tax Rates in a Consumption-Based Tax Regime. (America, like Canada and most first world countries are Income-Based Tax Regimes.)
  2. Protection of core/critical industries by ensuring third parties can’t dump massive amount of cheaper (and usually inferior) products and services into your country and damage your industries.

In other words, in America, and Canada,

  1. there should ONLY be significant tariffs for products and services that the country is capable of meeting it’s total domestic need for,
  2. there should ONLY be moderate tariffs for products and services where the country is close to, but not yet capable of meeting, the domestic need (so that the remaining need can be met, but outside products and services will only be chosen to meet the gaps)
  3. there should ONLY be low tariffs for products and services that the country can not (come close to) meet(ing) the domestic need for, but where the government has to ensure safety, quality, compliance with laws etc. (e.g. outside food needs to be regularly inspected by the FDA, for example)
  4. there should be essentially no tariffs (beyond minimal inspection/processing fees) for products/services the country cannot produce domestically

Anything else hurts the populace. Also, since American economists didn’t do the math, a Canadian economist did. And the outlook for (sustained) tariffs above 10% is NOT Good! See this article. Or, if you don’t like economics and math, note that it more-or-less reinforces what the doctor said above. Low tariffs (on the majority of products and services) are actually good. They reduce trade deficits (presumably by discouraging dumping) and encourage real GDP growth (as current factories have the chance to maximize production and local markets with some protection), but only to a point! Somewhere between a 5% and 10% tariff rate, any and all benefits from tariffs cease.

So get those deals, and get the tariffs down to the right rate for the category of good or service (and country of origin) in question. Next to nothing for basic foods (like mangos) you don’t produce locally. The 5% to 10% range for raw materials (like aluminum and steel) you can produce of lot of domestically, but not totally meet your need for. 10% for industries that are strong and you need to protect (and grow). But please remember that you can’t build a new factory overnight, and in most modern manufacturing industries, and hi-tech electronics in particular, it takes 5 to 10 years to build and get a factory up and running. In the interim, you have to buy those products elsewhere.

In other words, you need a detailed plan, not just broad goals, reactionary policies, or a belief that if you will it hard enough, it will happen. Just because you want to play baseball, that doesn’t mean the world does. And, unfortunately, the nature of trade is you have to work with your partners (while, and this is key, making sure they work with you — don’t just get agreements for reciprocal trade, encode penalties into those agreements where if they don’t increase their purchasing, the tariff will go up every time the trade deficit fails to decrease by a pre-determined amount. Remember that some countries, like China, like to make broad promises, like they did in your President’s first time, but then fail to follow through).

The last thing Canada wants to see is this come crashing down, which would result in millions of layoffs (outside the tech industry), big manufacturers relocating production to the global market outside of the US, or global partners dumping American holdings or the American dollar as the default currency. It’s important to look at history and remember that while America was globally one of the richest countries the last time tariffs were high in the Gilded Age, the average American was quite poor. Furthermore, the short-lived Progressive Era that followed ended in the Great Depression, and that’s something we never want to see again! Short term trade wars can be a good thing if it leads to a re-stabilization of a drifting global economy, but long term trade wars aren’t good for anyone — and the country that started it in particular.

So please, get your deals, establish a new operating norm, and let everyone get back to work. Thank you!

Why You Need BTCHaaS!

Nine years ago we told you that you needed MROaaS, and you most definitely do, but it’s not enough anymore, now that you can’t predict what your parts are going to cost now that you’re Back in the U.S.S.R, you also need BTCHaaS: Border Transport Cost Heuristics as a Service.

Basically, now that USA border tariffs (and counter-tariffs from Canada and Mexico) are more unpredictable than the weather (where 3 day forecasts in some areas approach 97%, East Coast Canada excluded, and 10-day forecast accuracy is approaching 50%), and come and go on a daily basis, you need a border transport (BT) solution that uses predictive analytics solution that minimizes your tariff impacts that uses cost heuristics (CH) derived from similar prior patterns in similar tariff announcements and withdrawals, costs per day of delay, and spoilage risk.

Basically, you have this dilemma. When a tariff is announced on the border your truck is scheduled to cross for the day it is scheduled to cross, do you

  1. accept is a cost of business, do nothing, and have it cross as normal
  2. send it to a truck stop and tell it to wait for a revised decision tomorrow
  3. turn it back around, unload, and do without (for now)

Depending on:

  • the value of what’s in the truck
  • the risk of spoilage
  • your contractual requirements
  • storage costs on the other side of the border
  • the tariff(s) that will be applied

Your best option on any particular day will vary. For example:

  • if the tariff is likely to be rescinded in the next three days, and you can wait a day or three, maybe you tell the driver to wait and pay an extra one to three days of salary/transport fee
  • if the tariff is not likely to be rescinded in the next three days, but likely within the next few weeks, and the tariffs would be in the tens or hundreds of thousands of dollars, and you can do without the goods for a few weeks, maybe you send the truck to a local warehouse and pay a temporary storage fee
  • if the tariff is not likely to be rescinded at all, and you can do without the goods in the short term, and you are not contractually obligated to take them (which might also be the case if the tariffs are so high that they qualify as force majeure), maybe you turn the truck around and drop them off where you picked them up
  • if the tariff is not likely to be rescinded, and you can’t do without the goods, then you should just cross the border

But that’s not an easy decision to make on the spot. You need to know

  • the transport, and waiting, cost per day
  • the (potential) cost of (additional) spoilage (i.e. 5% of produce may spoil)
  • the (potential) cost of any delay
  • the cost of the tariff
  • the cost of localized storage (plus the additional unloading and loading fees)
  • the likelihood of a decision change within a short time frame (3 days) and a mid-time frame (3 weeks) based on market data and sentiment analysis to tariff announcements

and do all the calculations and make recommendations based on the possibilities for you, a human with human intelligence (HI!), to accept or reject. After all, if the truck is carrying 2 Million of electronics or auto parts, a 25% tariff is 500K, and it doesn’t cost anywhere near that to make the driver wait an extra couple of days (and to hire a few security guards to keep it safe), and will be worth it if the likelihood of a reversal, or significant reduction, is high.

So yes, MROaaS is not enough anymore … you now need BTCHaaS!

Is this FINALLY the time of Specialized Supplier Discovery?

Supplier Discovery applications are not new. They’ve been around for quite some time. Two notable examples that you might not think of as Supplier Discovery are Tealbook and ScoutBee as Tealbook is now focussed on powering your procurement with trusted supplier data and Scoutbee X is now the AI-powered procurement network. Why? Because no one actually bought supplier discovery!

Why? Business have always thought they know their suppliers, they know who their suppliers’ competitors are, and that if they need to find a supplier, for the last 25 years, that’s what Google was for. And they kind of did. If they were sourcing from China, they knew all the major competitors in China. From South Korea or Japan, the same. If they were sourcing regionally in Asia, they knew enough. And if they didn’t, Google. They might miss one or two of the top 10, but if you knew 80% of the suppliers you might do business with, constructed a good RFP, vetted properly, you usually acquired a decent product at a decent price and went on merrily about your day, especially if you saved 2% on a category in the last RFP.

But that was a time of relatively free global trade. Yes there were tariffs, and yes they changed from year to year, but for any given trading partner pairing of countries, they were relatively static and predictable. With the exception of a country like Brazil that, for a while, was changing tariffs weekly, you knew how to compute your TLC (Total Landed Cost), where you wanted to do business, how to find the majority of suppliers, qualify them, and do business with them.

Plus, there were few countries with sanctions that affected you, and you didn’t have one of the major global economies cut off to you if you want to do business in the EU. Moreover, no matter where you did business, you did business in dollars if you wanted to. That’s because, for most countries, currency exchange rates were more or less stable for a period of time and easily predictable.

However, those good times in global trade are gone. Long gone. Not only did you have to deal with countries shutting down completely during COVID, but then you had to deal with sanctions against Russia, canal slowdowns and effective closures due to Panamanian droughts and Houthis in the red sea, dynamic exchange rates as a result of recent elections, and now rampant trade wars.

Your supply chain is in shambles, and, frankly, there is a portion of your current supply base that, even if it is still available, you can’t afford to use anymore. That’s because 25%+ tariffs in some category are just too crippling. So you need to find new suppliers, preferably at home, but most of the time that won’t be possible (as you were outsourcing because there wasn’t enough [competitive] capacity in your own country), so you at least need to find suppliers in a low cost, low tariff country — and likely one you haven’t done a lot of, or any, business in before.

And you need to find these new suppliers, and send them RFPs, fast. You should have done it yesterday. But you need to be 98% sure these suppliers can actually serve you before even sending the RFP because you don’t have time to wait for a response, review the RFP, and then realize they can’t do what you need and that you have to find another set of suppliers and repeat.

But you can only do this if you not only have deep data on what they make, but what equipment they have, processes they support, capacities they can meet, their tier 1 supply chain they have immediate access to, and so on. Some of this might be on their website, if they have one, in a language you don’t read, and a format you’re not used to.

In short, you don’t have the information you need, you can’t get it quickly, and that means identifying your next supplier is going to take months — months you don’t have — unless, of course, you use a Supplier Discovery platform that has all of the information on the global supply base you need to make this decision. That has the majority of suppliers in an industry. That has deep data on their products, capacities, equipment, processes, and factory locations. That can take in detailed requirements and/or a detailed BoM with production requirements and instantly identify 10 suppliers not in a set of regions that will meet your need. That will help you analyze appropriateness, cost differentials, and suitability to your business before your first contact. That has the contact information you need to make the right contact.

In other words, you need Supplier Discovery, and maybe even a market research platform like Forestreet, more than you ever did, there are platforms out there (a few old, a few new) that can help you, but will you wake up to the fact and finally incorporate these tools into your Procurement platform? (And let’s be clear, no matter what they tell you, Suites are NOT Enough.)