2016 Global Trade Management Survey
The China slowdown and the weakness that lingers in the European Union (EU) as a by-product of the Great Recession have caused global trade to stop growing.
Tariffs, quotas and stringent regulations are familiar challenges that affect trade. Not all trade regulations are obstacles for trade flows, however – most countries use trade regulations also as a means to incent and streamline trade and to support job-creating industries. Companies engaged in global trade are faced with the dual challenge of complying with complex trade regulations while creating efficient supply chains that maximize the use of available incentives. Current global economic and trade slowdown make it particularly important for companies to seek out efficiency gains in their global trade and supply chain management.
The Global Trade Management Survey conducted by Thomson Reuters and KPMG sought to provide new information on the operational and process inefficiencies affecting global trade departments, and to ultimately provide some clarity instead of more noise to those conversations. Our survey was robust and truly global in scope, with 1,769 respondents across 30 countries. Here are some of the key findings the survey uncovered on free trade agreements, automation and product classification.
Multinational corporations are seemingly taking a pass on many free trade agreements (FTAs) that they could use to lower costs. Just 23 percent of respondents said their companies are fully utilizing all of the FTAs available to them. The reasons they cite for this low utilization rate include the complexity of rules of origin, challenges in gathering required documentation and a lack of internal expertise. A strong majority of respondents, however, acknowledged that FTAs do produce a positive return on investment for multinationals.
Furthermore, the survey found that just one-third of respondents said their companies are thinking about how to use the Trans-Pacific Partnership (TPP). With the uncertainties surrounding the TPP passage through the US Congress, it’s understandable that most companies are not yet engaged in detailed preparations. Yet, the TPP will significantly impact market opportunities and reshape supply chains because companies will be able to achieve cost reductions and efficiencies by switching suppliers, adjusting their manufacturing footprint and seeking new target markets. The lead time for a global company to implement changes has been estimated at up to five years, so many more companies should start to seriously look at the TPP, even if the trade deal’s ultimate passage is still uncertain.
The regional differences in FTA utilization are truly striking. India and Brazil show very low rates, primarily because of less than ideal FTA coverage. Brazil does not have many FTAs that would cover its larger trade partners, and this is the state of play in India, to a lesser extent, as well. Across all countries, the most common explanation for the low rate of FTA utilization is the difficulty of record keeping and tracking supplier information, two tasks that are primed for automation.
It should be noted that this survey was conducted before the UK voted to exit the EU. One of many reasons why the Brexit was a watershed event for global trade is because, should the UK follow through on voters’ wishes, its businesses would lose all of the FTAs that apply – not only the liberalized trade it had with other EU member-countries, but also the trade linkages solidified by the many FTAs to which the EU is party.
Aside from the questions about FTAs, we also uncovered some specific barriers trade teams face at multinational enterprises. The survey’s consensus is that manual processes tie up resources and increase risk overall for trade teams. A lack of automation is the top challenge respondents cited. Most companies still do not use global trade management technology despite the opportunity that it presents. Only 34 percent of the respondents are currently utilizing a global trade management (GTM) system for any aspect of import or export activities. Global trade technology use is highest in the US (42 percent) and lowest in
Asia (21 percent).
Rules regarding classification are complex, and the vast majority of respondents, 91 percent, said that some part of the process of performing product classification is problematic. Classification complexity was cited as a problem across all industries and regions surveyed.
Ultimately, the survey paints a portrait of a function, trade management, that is still overly reliant on manual processes but which is also aware of the ways technology can help across the board: by boosting FTA utilization, automating compliance and making classification less complex for trade teams.
Explore more findings by downloading the full 2016 Global Trade Management survey.
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