Turning Supply Chain Issues into Long-Term Wins
By: Karen Pinkall, Director, Global Banking
Decreasing port congestion eased pressure on global supply chains in July, according to the Global Supply Chain Pressure Index. However, supply chain disruptions continue at high levels due to pandemic fallout, the Russian invasion of Ukraine and ongoing labor shortages.
Consumers experience these disruptions as frustrating delays and shortages in the availability of goods. For businesses, however, the consequences of supply chain issues strike much deeper. Yet, within the challenges, you can find opportunities.
Take Time to Evaluate
There is no denying that supply chain disruptions challenged businesses worldwide in countless ways. Although some issues are resolving, others are ongoing and new concerns continue to crop up. What is becoming clear is that the simple, affordable, just-in-time delivery systems so many companies rely on may never be the same. And, even if everything returns to normal, business leaders should anticipate future disruptions from soon-to-be required carbon decreases, trade tariffs, geopolitical strife and other external factors.
Now is the time to evaluate every step of your supply chain, including who supplies your suppliers. It’s clear that one kink in the armor can have a tremendous impact, and an onslaught of issues can push businesses to the brink. Tracing where your materials come from and mapping out new possibilities can be the difference between survival and closure.
When evaluating your suppliers, take time to compare multiple vendors. A supplier whose products are subject to tariffs may still be less expensive than another vendor, so use due diligence. Consider suppliers that source products from other countries. For example, working with a supplier that imports from Canada instead of China may be more reliable and beneficial. It’s important to note that when assessing suppliers and how they source their products, you also should consider material quality. And, don’t hesitate to look for opportunities to renegotiate pricing with your existing suppliers.
Expanding your shipping network can benefit your company, especially in times of upheaval. Building relationships with more than one shipper means you aren’t stuck when that company experiences problems. Working with multiple freight forwarders also opens opportunities for moving goods.
Plan Strategically to Avoid Future Disruptions
Now is the time to plan strategically and make key changes. Important areas to examine include:
- Diversifying and expanding to include additional overseas suppliers
- Reshoring and near-shoring
- Identifying new customers
Kristin Vekasi, associate professor at the Department of Political Science and School of Policy and International Affairs at the University of Maine, told the U.S.-China Economic and Security Commission that relying on one country or area for "any key material inherently introduces vulnerability in a supply chain."
Many companies rely on China because of its low-cost labor and subsequent low consumer prices. The recent disruptions, as well as the need to compete and deliver goods, may mitigate the low costs that led to reliance on China and other foreign suppliers. Assuring that your supply chains are resilient, reliable and sustainable may outweigh the cost increases. Plus, the price of moving supplies across oceans is increasing and will continue to increase.
This leads to the growing U.S. interest in reshoring and near-shoring. Reshoring is bringing production back to the U.S. from overseas, while near-shoring is moving operations to a nearby country. The 2021 State of North America Manufacturing Annual Report shows 83% of manufacturers are likely or extremely likely to reshore, an increase from 54% in March 2020. The potential economic impact of reshoring is astounding. “If four in five U.S. manufacturers bring on one new domestic single-contract supplier, it will inject $443 billion into the U.S. economy,” according to the manufacturing study by Thomasnet.com.
Reshoring and near-shoring do come with challenges, from a current lack of manufacturers to lengthy lead times and cost concerns.
But companies can look to the United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA), to make strategic plans. USMCA incentives may open additional opportunities if your business trades with Canada or Mexico or shifts current overseas suppliers to North America.
The USMCA maintains the focus of increasing trade between the three nations and includes changes to the automobile industry and agriculture.
One of the goals of the new agreement is to source fewer parts for automobiles outside of North America. For example, NAFTA required automakers to produce 62.5% of a vehicle’s content in North America to qualify for zero tariffs. The new agreement raises that threshold to 75%.
Under the USMCA, all food and agricultural products will remain at zero tariffs. The agreement also creates new opportunity for the U.S. to export dairy, poultry, eggs and wheat into Canada. In exchange, the U.S. will provide new access to Canada for dairy, peanuts and some sugar products.
It’s always important to research and identify new customers, and now is a great time to explore those opportunities.
The U.S Department of Commerce’s International Trade Administration provides a Market Diversification Tool that helps identify new export markets, as well as insights on sales channels, trade shows and foreign government contracts. The department also provides matchmaking services such as Int’l Partner Search and Gold Key Service, which screens and arranges meetings in overseas markets, and may more resources designed to grow international business.
For smaller entities, the Small Business Association provides State Trade Expansion Program (STEP) grants and tips to assist in overcoming hurdles and growing export markets.
As you evaluate your supply chains and research ways to diversify, near-shore and attract new customers, you may find that changes of this magnitude are easy to discuss, but much more complex to implement. Yet, investing time and resources in logistics now can help build stability and security down the line.
Learn more about how FNBO can support your international commercial business needs or contact our Global Banking team today.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.