How to stimulate and sustain supply chain resilience - now
Businesses looking to optimise their global value chains have always had to find a way to circumvent trade tensions and bottlenecks. Most recently, there has been a shift towards reshoring operations to increase resilience while decreasing transport costs to meet the growing demand for locally made products and faster delivery times.
Geopolitical tensions are not a valid justification for a contraction in trade because companies will, and must, always find a workaround - whether outsourcing to new markets or near-shoring.
But public and private entities would be mistaken in believing that trade will find a way to flow. As our research with Economist Impact shows, over half of the cargo owners say tightening monetary policy due to rising inflation will make imports and exports contract in 2023.To ensure trade continues to catalyse FDI and provide opportunities for local companies to export their goods, governments must step back from protectionist policies and work collaboratively to liberalise trade, increase international economic cooperation and remove trade barriers.
Here are three immediate steps that governments can take to stimulate and sustain supply chain resilience for their local economies:
1. Support the World Trade Organization (WTO)
How supply chains and demand adapted and recovered after the pandemic causes cheer among supporters of trade and globalisation. But trade – its origins, structure, and flows – requires a fundamental change in the years ahead. To counter protectionism, international economic cooperation is sought.
Therefore, strengthening trade governance, led by the WTO, will be imperative - and any weakening of the WTO would only increase uncertainty for firms worldwide.
This is more than just a discussion between governments. In most cases, the private sector holds the most knowledge on the global obstacles and opportunities for imports and exports. It must focus more on communicating business needs and advancing multilateral trade negotiations.
In the WTO Business Survey, 95 per cent said they believe the work of the WTO is vital for businesses. Private sector leaders must lobby for greater involvement to ensure we’re at the heart of the conversations that impact our communities most.
As the WTO is the only international organisation dealing with the global rules of trade, it is critical that it holds a seat at the table. We must support it accordingly.
2. Boost digital accountability
In the 21st Century, we see pioneering advanced technologies from robotics to the metaverse, yet the logistics industry often relies on paperwork and other outdated systems. This increases the risk for businesses, with many operating with blind spots on the location of their cargo worldwide.
Our goal at DP World is to do for logistics what Amazon has done for e-commerce. Digitalisation – plus the broader adoption of data-sharing regulation – is pivotal in achieving this. While we have invested significantly to ensure greater technological integration, mainly through new digital solutions to work alongside our existing infrastructure, we cannot work in isolation.
We need governments to step in as a catalyst to drive better public-private data-sharing mechanisms that offer better visibility in understanding, evaluating and optimising trade flows.
A great example of working together towards trade transformation is ‘Single Windows’. Provided by the World Bank Group with funding from the Trade Facilitation Support Program (TFSP), this initiative serves as a path for paperless trade. It is the type of partnership needed to help standardise information, reduce costs, and expedite international trade procedures without broad trade agreements.
3. Modernise trading infrastructure
Even if businesses have greater global access to markets – and minimal disruption over their cargo – we must ensure that physical infrastructure can accommodate supply. We risk excluding certain communities and countries from trade unless urgent action is taken to expedite the freight flow through developing markets.
Africa is one example; the proper physical infrastructure must underpin its new digital trading corridors. The African Continental Free Trade Area (AfCTA) came into force last year and promises to increase intra-African trade through greater liberalisation and enhanced regulatory coordination. However, success depends on smart choices and collaborative policies to uncover end-to-end supply chain potential across the continent.
In South America, the infrastructure gap also hampers trade volumes despite high commodity prices and free trade agreements. The Inter-American Development Bank estimates that the current shortage of adequate infrastructure creates a deficit of around $150 billion a year. And while business investment is essential to closing that gap, trade also needs to be facilitated by standardising, digitalising, and simplifying trade procedures.