Global Logistics—February 2013
Improving border administration and transport, and telecommunications infrastructure and services, could boost global Gross Domestic Product (GDP) by almost five percent, and world trade by 15 percent, according to a new report by the World Economic Forum in collaboration with Bain & Company and the World Bank. Completely eliminating tariffs, by contrast, would increase global GDP by less than one percent, and world trade by 10 percent.
Reducing supply chain barriers delivers economic improvements that are more evenly distributed across countries versus those achieved by eliminating tariffs, says the report, Enabling Trade: Valuing Growth Opportunities. Streamlining inefficient customs and administrative procedures, complex regulations, and cross-border infrastructure weaknesses is effective because it eliminates resource waste and reduces costs between trading partners as well as end consumers. Countries in sub-Saharan Africa and Southeast Asia stand to gain the most as large increases in GDP directly impact job growth.
The World Economic Forum recommends that:
- Governments create a focal point to coordinate and oversee all regulation that directly impacts supply chains.
- Public-private partnerships be established to undertake regular data collection, monitoring, and analysis of factors affecting supply chain performance.
- Governments pursue a more holistic, supply chain-centric approach toward international trade negotiations to ensure trade agreements are more relevant to international business and more beneficial to consumers.
All Over the Map
The report cites examples of trade barriers in the following locations:
- Brazil. Managing customs paperwork for agricultural commodities exports can take 12 times longer (a full day versus a few hours) than in the European Union.
- The Middle East and North Africa. Local content requirements, rule-of-origin restrictions, and pilferage at the border can increase the costs of consumer technology products by as much as nine percent.
- Southeast Asia. Eliminating supply chain barriers in the rubber market could reduce carried inventories by 90 days, representing a 10-percent reduction in product cost.
- Russia. Product testing and licensing in the computer sector can lead to high administrative costs and delay time-to-market from 10 days to eight weeks.
- India. Preferential Market Access regulation, which provides preference for locally produced high-tech products in government procurement, could increase costs by 10 percent over the cost of imports.
Building on the cross-border goodwill that followed a long-overdue resolution to the U.S.-Mexico trucking impasse, U.S. Customs and Border Protection (CBP) and Mexico's Tax Administration Service (SAT) recently signed a joint work plan that lays out a road map for mutual recognition of the two countries' authorized economic operator programs: CBP's Customs-Trade Partnership Against Terrorism (C-TPAT) and SAT's New Certified Companies Scheme (NEEC).
C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall security for global supply chains and the U.S. border.
Mutual recognition allows companies enrolled in one program to receive reciprocal benefits from the other, securing the international supply chain and facilitating trade between the United States and Mexico. The agreement, which will be implemented in two years, doesn't address other outstanding issues between the two countries, such as a dispute over Mexican tomato import prices.
But the move could greatly benefit Mexican shippers looking to tap the U.S. market. If traders are deemed trustworthy and secure by their own government, they will be afforded similar status in the United States, paving the way for more streamlined border crossings.
Safety tops the menu for food service companies such as McDonald's, which recently embraced supply chain transparency in its mainstream advertising campaigns. So when Ireland's Food Safety Authority raised the alarm over suspicions that horse meat was passing as hamburger in British and Irish supermarkets, it was a timely coincidence that McDonald's Australian business (Macca's) had just unveiled an iOS app to help consumers learn more about what they are eating.
The TrackMyMacca's app, developed in collaboration with global marketing company DDB Group, uses an iOS camera to scan the image of a food item bought from Macca's. Then, using GPS data secured with free Wi-Fi service at Macca's restaurants, and combining it with date and time, consumers can tap into the company's supply chain data to pinpoint the exact source of the meat, and other ingredients. The app currently works on select menu items.
Integrating the solution required redesigning more than 150 million packaging units to add scanning codes.
"We're proud that we meet more than 90 percent of our food and packaging needs in Australia," says Mark Lollback, chief marketing officer, McDonald's Australia. "This app is another way for us to share this with our customers, and allow them to see where our food comes from and what happens on its way to their plate."
As China's prosperity moves from the coast to the hinterland, an information technology divide is emerging. The country's Internet boom is on an accelerated path, reports China Internet Network Information Center (CNNIC). In 2012, usage grew 10 percent to 564 million users—more than double the United States, and by far the largest Internet-using population in the world. But CNNIC also reveals that Internet adoption is highly fractured across China, which raises some institutional concerns that threaten continued economic growth.
The disparity in technological progress is a risk for companies following suppliers and manufacturers farther inland; they have to weigh the costs and benefits of sourcing in less-developed rural areas that lack the necessary IT infrastructure to support world-class supply chains.
It's also a challenge for China's rapidly growing e-commerce industry, as companies look to expand their presence over a wider geographic area. What the country currently lacks—a sophisticated domestic express network—is contingent on having a broader online user base, and the requisite connectivity and resources to deliver to those consumers.
About 40 percent of all U.S. ocean imports passed through the gates of either Los Angeles or Long Beach in 2012. The top 10 ports brought in 87 percent of U.S. imports.
Source: Zepol Corporation
Australian sheep farmers are looking to Vietnam as a new export market and an opportunity to develop a sustainable supply chain for their wool industry. As part of its market expansion plans, the Australian Wool Innovation (AWI)—a research, development, and marketing organization for wool growers—has implemented the "Out of Vietnam" project. Australia exports 80 percent of its wool to China, but an emerging need to establish a new processing and manufacturing market targets Vietnam as a prime area for expansion.
"Vietnam meets a host of essential criteria, including low sovereign risk; well-established textile manufacturing industry and infrastructure; a large, skilled workforce; growing exports of textile products; trade access, including a Free Trade Agreement with the United States; and an abundant water supply," explains Jimmy Jackson, manager for product development and commercialization, AWI, in a recent Vietnam News article.
The increasing cost of labor-intensive industries, such as spinning and garment making, is partly predicating AWI's move away from China. Vietnam has a pedigree in cotton processing from raw materials to final product, which translates to wool and presents a more affordable option.