Global Trade: Skeletons in the Cupboard

Global Trade: Skeletons in the Cupboard Even though the Dow Jones has recently broken through the psychological 10,000 barrier and the large banking institutions are beginning to report a bumper return to profit, there is no doubt that global trade is still lagging behind with volumes still subdued against past expectations. That is not to say that there is no positive data. For example, the decline in China’s exports slowed in September and the country’s overall manufacturing output continues to expand, albeit more reliant on domestic demand. There are, however, a couple of interesting observations that can be pointed to that demonstrate, on the whole, consumer demand remains fragile.

When global trade contracts, there is an increasing risk that a heightened level of protectionism (see Dec/Jan edition – “The Inauguration Ball”), comes to the fore, and with it trade barriers, such as the imposition of import duties. Unfortunately, such restrictions can be problematic for companies with supply chains within countries that are affected. Often the driver behind such measures is as much political as it is economical such as is the case with China and the US. There is evidence that this is currently the predicament. Namely, the United States recently imposed duties of between 25% and 35% on imports of tires from China that will remain in force for the next 3 years pricing out of the market 17% of all tires sold in the United States. On the other side, China has imposed duties on the importation of some poultry from the States in what is widely seen as retaliation. China is the country targeted by the most governments for protectionist measures with 55 countries passing measures that hurt the Chinese exports. However, notably this is followed by America (49), Japan (46) and both Germany and France with 29 such measures.

A further signal that global trade has contracted is the vast “Ghost Fleet” that can be seen off the coast of Singapore in the Sumatra straight (see photo at top) as well as southern coast of Malaysia and the Indonesian island of Batam. It is estimated that approximately 12% of the world’s container ships (nearly 500 vessels) are being quietly mothballed in international waters. The shipyards that were building during the boom times have sold ships onto the market for which there is now no requirement. For companies that ship their products from Asia, they have been able to reap the benefit of the lowest ocean freight rates in the modern era for the movements of their goods from Asia, especially for those companies who contracted with their carriers for a fixed period. Although the third quarter saw a seasonal increase due to the lack of supply (as ships have been idled in international waters), from October the market has slowed and a further reduction of capacity has inevitably occurred. This is a further sign that companies must look to manage their supply chains from the source through to the destination.

Supply chain management is the paradigm that is changing business and business relationships. It reflects the fact that the product pipeline for a business extends from the vendor right through to delivery to the customer. ET2C works for our clients in conjunction with our local partners to ensure that this is the case through tailored solutions that meet our client’s needs and deliver tangible results. The past year has been one of nightmares for global trade as a whole. And although the recovery is by no means complete, there are still opportunities available.

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