In recent years, the globalization of supply chains has been supported by two assumptions that many shippers have come to rely on:
- Global trade barriers would continue to fall.
- Transportation over long distances would remain relatively cheap.
As we enter 2017, both of these dynamics appear poised to reverse course, which sets the table for a difficult — and potentially expensive — year for global shippers. For many, this year will be more about playing defense while markets search for a “new normal.”
Changing politics in the Western world have led to major shifts in the outlook for global trade. The results of the US presidential election seem to have significantly diminished the likelihood of trade agreements such as the Trans-Pacific Partnership and also cast doubt on existing relationships with key trade partners such as China. And Brexit in the UK has set the stage for similar discussions in Europe.
Meanwhile, persistent supply and demand challenges in key transportation markets, such as containerized ocean freight, also look likely to shift. The pace of industry consolidation has accelerated, allowing fewer parties to control supply in a market where demand has flattened. Additionally, the economics of longer transits have been buoyed by historically low interest rates and low fuel prices, both of which could be subject to change in this new environment.
In this uncertain environment, shippers need to think about their supply chains with a short-term mind-set, focusing on immediate costs and risk mitigation. Specifically, shippers should delay strategic-sourcing decisions that rest solely on 2016 economics, partner more closely with fewer transportation providers whose rates and service levels are advantageous, and rethink hedges on key macro-economic factors such as fuel and currency.
Contingency plans and the agility to put them into action quickly will likely separate supply chain leaders and laggards in 2017.