Over the past few years, if you were giving a presentation on supply chain and logistics, you were obligated to highlight “growth in global trade” as a key trend that created both challenges and opportunities for companies. Well, that’s one bullet item we won’t be seeing in presentations this year.
For a great overview of global trade activity over the past year, read the article that appeared on the front page of Wednesday’s Wall Street Journal (subscription required). Some of the highlights (I mean, lowlights) include:
- Total U.S. exports and imports dropped 18 percent, from $398 billion to $326 billion, from July to November (two-thirds of the drop was in imports).
- From November 2007 through November 2008, U.S. imports from China, Japan, Germany, and the U.K. dropped 5.0 percent, 19.2 percent, 11.9 percent, and 21.2 percent, respectively.
- U.S. exports to China (-10.7 percent), Japan (-1.6 percent), and the U.K. (-12.2 percent) were all down during the same time period. The one bright spot: U.S. exports to Germany which grew by 3.1 percent.
- Last month, the World Bank projected global trade would decline by 2.1 percent in 2009, exceeding the 1.9 percent decline experienced in 1975, the largest drop since World War II.
None of this is a big surprise considering what’s been happening with the economy over the past few months. But seeing actual statistics certainly brings the current trade environment into sharper focus.
Of course, despite these statistics, global trade activity is significantly greater today than a decade ago. It’s also more risky and complex, due to terrorism and ongoing changes in trade regulations (e.g. “10+2″). So, the fundamental “challenges and opportunities” of global trade still exist. The question today, however, is what impact these near-term trends will have on supply chain and logistics.
One of the things I keep hearing from politicians and business people is that these difficult times also create opportunities for change. As I highlighted earlier this week, this was one of the key themes Lee Scott, the departing president and CEO of Walmart, talked about in his speech at the NRF conference. In my opinion, here’s one opportunity we should act on. When global trade activity was accelerating, there was plenty of talk of how our nation’s ports and transportation infrastructure could not keep up, how they would reach a breaking point and constrain our economic growth (e.g., see the 2003 report from the Government Accountability Office (GAO) titled “FREIGHT TRANSPORTATION-Strategies Needed to Address Planning and Financing Limitations“). Well, this current decline in global trade activity and drop in transportation volumes is providing us with some breathing room to take action. Will we use this opportunity wisely or let it go by the wayside? The answer depends on which parts of Barack Obama’s “American Recovery and Reinvestment Plan” get passed, prioritized, and funded.
I also think this economic environment gives companies the opportunity to simplify their supply chains, ask themselves questions such as: Are there countries we should pull out off or deemphasize from a manufacturing, sourcing, or selling standpoint? Are there products or services we should discontinue or reprioritize? Are there operations we should outsource or bring back in house? The pieces I wrote recently on Ryder (“Ryder Refocuses Its Strategy“) and IBM (“Geodis and IBM: A New Strategy in Logistics Outsoucring?“) show that companies are asking these types of questions.
Finally, in the past when I’ve asked logistics service providers and technology companies which factors were critical for their future growth, “expanding globally” was their number one answer. For example, when I surveyed transportation management systems vendors last year for our annual TMS market study, more than 80 percent of them mentioned global expansion as their top priority. Number two on the list, cited by about 60 percent of the vendors, was penetrating the mid-market in a cost-effective manner. Maybe in this economic environment, focusing on the mid-market, along with retaining and up-selling existing clients, makes more sense than going global. The same advice applies for logistics service providers (see “TMS for Logistics Service Providers-A Key Enabler for Penetrating the SMB Market“).
What are your thoughts on how “negative growth” in global trade will impact supply chain and logistics strategies and decisions? Something to think about over the weekend. Better yet, have fun this weekend and forget about all this stuff until Monday.
