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If you’d asked us a month or two back what the world trading system needed, we’d totally have said a new and highly contagious variant of coronavirus and a big global row over manufacturing protectionism.
Our Christmas wishes have been granted. First Omicron, and now a festering transatlantic argument over the Biden administration’s plans for local content requirements in electric vehicles, which other countries — including Canada and Mexico — have also warned against for some time. Depending on whether the US really goes for it, this has the potential to be as big or bigger than the steel/aluminium dispute, which has been temporarily fixed if not permanently resolved. On that latter subject, today’s Trade Secrets author has an opinion column up on ft.com, addressing the Biden administration’s claim that its trade policy in general and steel tariffs in particular can accurately be deemed “worker-centred”. Surprise! We’re sceptical.
Filling the gaps in the sum of trade knowledge
We’ve had a week or so of talking about bureaucrats on Trade Secrets, so it’s time to turn once more to the real world and the ever-popular issue of supply chains.
Quick update on the latest: Omicron has threatened a renewal of the kind of disruption to trade in goods we saw with earlier waves of restrictions. Even among the optimists, among whom we’d count ourselves, there’s a sense that the return of normality will be pushed back further in 2022. But does that mean that minds are changing on whether to do major restructuring of supply chains and particularly onshore production? Not as far as we can tell. The ever-helpful Confederation of Swedish Enterprise has done one of its recent surveys of members and has shared with us the results. Some 75 per cent of importing companies say they are facing major problems with their supply chains, mainly shortages but also rising prices. But most companies aren’t changing their supply chains drastically. While some are holding bigger inventories and sourcing from more suppliers, fewer than a quarter of companies want to onshore production to Sweden, or even to Europe.
So if not knee-jerk onshoring, what longer-term changes may be afoot? Well, one thing that might help is for companies to have a better idea of what the hell is going on. This year’s disruptions have revealed big holes in data on who is producing what, where and when, and how it is getting transported.
Ryan Petersen, chief executive of the freight forwarding company Flexport, who has emerged as one of the most interesting business characters in the supply chain crisis, says that thinking in the industry has often been dominated by easy explanations. “I’m not convinced it’s reality until I see data,” he told us earlier this year.
The crisis suddenly made data that his company had been sitting on potentially very valuable. “We have a mobile app with thousands of [truck] drivers around the United States doing container pick-ups from the ports. I’ve got an all-hands-on-deck team analysing this data. What is the wait time at every port? How long does the driver have to spend in traffic? How many loads a day are they doing? What’s the average delivery time per load in traffic? What’s the miles per hour of this? What’s the variability?”
At sea, there are excellent data on the location of ships. Flexport has recently used some of this information to create the index charted below, which highlights the degree to which journeys along one of the world’s main trade arteries have been delayed (expect more on this topic tomorrow).
However, Petersen says there’s less available on the movements of actual containers. Flexport is launching a third-party visibility platform to allow clients to track freight, which he reckons will help users minimise delays.
Manufacturers are also trying to better understand the supply chain. We spoke to one of our favourite sages on these matters — John Neill, chief executive of Unipart, a UK logistics company with a strong presence in auto components. Neill was one of the people who convinced us early in the pandemic that, certainly as far as complex and high-value supply chains such as car parts were concerned, a lot of the talk about onshoring was heavily overdone. (He says it still is: “If you look at the UK auto industry, the chances of substantial onshoring for today’s internal combustion engines are extremely low.”)
Like Petersen, Neill says the issue now is how to collect and analyse large and disparate sources of data rather than building supply chains by rules of thumb. “It’s much more effective to think about using machine learning than just spending tonnes of money reshoring, which doesn’t always work,” Neill told us.
Unipart is building a machine learning product called Dragonfly. It took a suite of machine learning tools to make better forecasts and then surrounded it with industry-specific knowledge to help it create more agile supply chains. “You can start teaching the system to use data about container usage and locations, port congestion, vehicle movements, driver shortages and raw materials,” Neill said. “You then have far more information to manage and plan delivery lead times than before.” Dragonfly won’t tell you directly whether to onshore or not, but it will make for a more informed decision.
This all sounds great, right? The onward march of knowledge. Big Data defeats Covid-19, promotes efficiency and saves the day. But there’s a problem. There was disturbing news last month that public access to information on the location of ships, which is widely used to assess the performance of supply chains, had dropped dramatically for vessels in Chinese waters. A new Chinese data protection law has restricted the information, saying it was being used to spy on its navy.
China’s data localisation campaign is only going in one direction, and other countries are heading the same way. Of course, it’s self-destructive to reduce the efficiencies of your ports if you want to be woven into a web of global supply chains, but that’s a trade-off Beijing is evidently willing to make.
This is just our first stab at looking at the issue of data and managing supply chains: we’d be delighted to hear everyone’s views on the subject. To repeat what we’ve said before, restructuring complex production systems spread across multiple countries is going to take time. At least there are more numbers to look at while doing it.
On the occasion of China’s 20th anniversary of joining the World Trade Organization, Karl Falkenberg, chief EU negotiator during its accession talks, offers his views on its past and future membership.
South Korea will apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership after its qualms dissipated about upsetting China.
The UK appears to be capitulating again in its Brexit talks with the EU, which is fast becoming an annual event. And, in a win for Japanese farmers, the British government has taken the first step towards (Nikkei, $) abolishing import restrictions on foods imposed after the Fukushima nuclear accident 10 years ago.
Supply chain woes continue for Toyota, which has partially suspended (Nikkei, $) operations at four plants in Japan due to delays in procuring parts from south-east Asia. Alan Beattie and Francesca Regalado