Global Trade and Economic Outlook PPT

Global Trade and Economic Outlook Panel

GLOBAL TRADE AND ECONOMIC OUTLOOKPANEL MEMBERS

Review the Relationship between Global Trade (GT) and

Global GDP

Global TradePanel

Objectives

Discuss Offshoring, Given Labor Costs Averaging 16% of Manufacturing COGS

A Point of View: The Advantages of Near Shoring

Discuss Deflation and Inflation Impacting Global Trade

Provide Insight Into Potential Supply Chain New Paradigms

Identify Key Supply Chain Risk Areas in Global Trade

Analyze current inventory shortages: The “Bull Whip”

Effect Or Permanent

Review the possibility of a Supply Chain “inflection Point” & New Paradigms Evaluation


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


What is the Relationship Between Global Trade and Global GDP?

GlobalGDP

Global Gross Domestic Product

CPrivate-Consumption Expenditures by Households and Nonprofit Organizations

IBusiness

Expenditure investments

GGovernment

Spending

NXNet Exports

Or Exports minus Imports

Global Trade

Global Trade is Almost 60% of Global GDP (GT/GDP)(Net Global Trade—Exports minus imports) was Approximately $47 Trillion USD)

25%

30%

35%

40%

45%

50%

60%

55%

% GlobalTrade to GDP

Source: World Bank and OECD data files, 2020

Year Global Trade % of GDP

Increase or Decrease over previous Year

2019 58.24% 1.25% decline from 2018

2018 59.49% 1.65% increase from 2017

2017 57.84% 1.88% increase from 2017

2016 55.96% 1.74% decline from 2015

General direction for the last 4 years is upward, despite a

2019 decline.

Global trade as a % of Global GDP has been “flat”

since the 2007 GFC.In other words, Global trade is growing in tandem

with the global GDP

GT/GDP Ratio Explains Why Some Countries Favor Global Trade More than Others

Area or Country Global Trade (GT) as a Percentage of GDP

GT(Trillions)

GDP(Trillions)

Comments

Hong Kong 3575.10 2nd largest GT/GDP ratio behind only Luxembourg

Singapore 320.56% 3rd largest GT/GDP ratio

European Union as a Group 90.98% $15.6 $17.1 Trade is extremely important to the EU

Euro Area 88.38%

World 58.24% $47.1 $80.9

East Asia and Pacific 55.1%

Germany 46.89% $1.8 $3.9 Largest GDP in the EU

Latin America & Caribbean 45.85%

South Asia 39.2%

China 35.48% $5.07 $14.3 China is below the world average GT/GDP however China is the leader in export trade value with $2.6 Trillion

USA 26. % $5.59 $21.5 The USA is near the bottom in GT/GDP as our domestic economy is larger than most countries in the world. The USA is the 2nd largest exporter in dollars at $1.4 Trillion behind China.

Chart 1: The Global Trade Trend Never Recovered from the 2008 Global Financial Crisis

Chart 2: World Merchandise Trade Volume, 2005Q1-2021Q4 & the 2020-21 Coronavirus Crisis

Economic Crisis Negatively Impact Global Trade(2008 GFC and Coronavirus)


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


GTAPwww.gtap.us

Ignacio Benitez+1 (858) [email protected]

WHO WE ARE

GTAP provides partnerships and guidance for companies to efficiently strategies, plan, set up, execute and manage their North America hub vision.

• Global e-commerce is growing, and customers wanting their packages faster, demand challenges for logistic companies, and looking for new solutions opportunities.

• Most e-commerce companies, especially in specific verticals like food, have seen the fastest growth and put pressure on the company and what is required to change for an end-to-end supply chain.

• When inventory counts shift so rapidly, this becomes an enhanced pressure point for both manufacturers and buyers and stands as an obstacle to customers' demand for faster delivery.

• Supply Chain Management may continue to look for regionally local supply chain centers that may have a high percentage of self-containment and, in some cases, flexibility in various areas.

• Now, companies are moving out from China to other countries such as Mexico to benefit from cheaper manufacturing costs. It also makes a benefit from the agile supply chain and fulfillment of supply and demand by reducing the lead time.

• We, as GTAP, have the expertise from our group of companies that have been in the business for more than 45 years, managing transportation, logistics and warehouses in Mexico; therefore, we can help companies come closer to the US. Market and eliminated some of the worries of stablishing a company in a foreign country

Bringing supply-chains closer by

reducing time, expenses and

carbon footprint.

www.gtap.us

Lower labor costs

Lower shipping costs and port congestions

Higher skilled labor

Better trade regulations; USMCA

• Foreign Direct Investment in Mexico increased by 5955.50 USD Million in the second quarter of 2021

• Trade between Mexico and the US in 2020 will reach more than 506 billion dollars.

• Mexico is betting that one of the engines of recovery is the Agreement between Mexico, the United States, and Canada (USMCA) by giving legal certainty to entrepreneurs and investors to carry out their activities in Mexico.

• The US's search for safe and resilient value chains in critical sectors such as semiconductors, automotive, aerospace, and agro-food, leading sectors in the 21st century, will allow greater productive integration of the USMCA partners.

• The USMCA and the US's interest in having a strong and competitive North America provide the opportunity for Mexico to increase its participation in regional and global supply chains, particularly among Mexican SMEs.

• The recent relaunch of the High-Level Economic Dialogue between Mexico and the United States, progress will be made on important issues such as the creation of:

• Resilient and robust supply chains in the region that reduce dependence on Asian products

• Build and modernize checkpoints and customs processes with the creation of customs pre-clearance programs or joint customs inspections;

• Advance on issues of receipt of information leagues such as 5G and the fight against cybersecurity• Create training programs for workers and technicians in the disciplines, jobs, and trades that we need

now.• Today more than ever, the US must look to Mexico and Canada as its reliable and strategic partners

with which it can face competition from the economies of other regions.

Companies of all sizes are moving their US supply chains closer to home.

Why?

From offshore to nearshore

www.gtap.us


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


Price

Quantity

Supply

Q1

Q2

P1P2

D1

D2

From Coronavirus to Deflation

“In the name of health, crush the global economy”

Demand Falls

Deflation

Prices fall from P1 to P2

CoronavirusUncontrolled

Note: Some sectors like pharma and eCommerce rose as the demand for PPE (personal protective equipment), pharmaceuticals, equipment, and products that allowed

you to stay home.

TechnologyGlobal Trade

Traditional Deflationary Drivers

Price

Quantity

Supply

Q2

Q1

P2P1

D2

D1

From Coronavirus to Inflation:

Demand Rises

Inflation

Prices rise from P1 to P2

Note: Some sectors such as hi-tech, transportation and fuel

have risen to decade highs

We’reOPE

N

Stimulus

CoronavirusControlled

WithVaccines

Supply Chain Transportation (Sea, Air, Land)

Global Trade From Coronavirus Shutdowns to Economic Inflation in 4 Key Areas

Coronavirus Issues impacts labor

Demand & Capacity Issues

Raw MaterialsAsian

Manufacturing Hubs

Environmental Issues

• Truck & chassis Shortages

• Inland train Capacity

Terminals Lack Capacity for Handling 10K Plus

Container Ships

• Reduced emissions• Electric trucks

• Demand exceeds capacity• About 50% of airfreight

carried in passenger airplanes which are grounded

Sulphur Fuel

Customers & Consumers

InflationaryDemand

Inflation or Deflation ?

• What do you see happening in the future, deflation or inflation? Why?

• What action will you take if we somehow go back into a deflationary mode?

• What action will you take if we move into an inflationary mode?

• Do you believe global trade will actually increase during a period of inflation as companies search for less expensive sourcing?

• Typically company valuations (stock prices) fall during a period of inflation. If this happens, will global trade also decrease?

• Do you see transportation costs rising, constant, or falling in what time period?


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


Shortages Everywhere

Taiwan Semiconductor Manufacturing Controls 57% of the chip market and 90% of the

advanced chip manufacturing.Raising prices for commodity chips by 20% and

advanced chips by 10%

Empty retail stores: Not a single Rolex watch in stores in Hawaii and Los Angeles

Rolling electric shutdowns in China impact manufacturing that depends on electricity

Demand for Products—“Bull Whip Effect” or Permanent

• Demand for toilet paper surged nearly 800% overnight

• Is this permanent or will demand return to 141 toilet paper rolls per person annually

• How does a company handle the demand surges caused by the pandemic with their supply chain?

• Do you handle the surge as something permanent or “assume” the demand is a classic “bull whip effect”?

• What should we expect given US savings have grown by over $2 trillion (WSJ-Alan S Binder, Princeton Univ. * vice chair Federal reserve) and if those savings are spent, demand driven inflation could occur?

• What can be done to modify your supply chain?


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


Typical Inflection Point Drivers

Time

Growth

Inflection Point

Change in Client Demand(i.e.. Covid)

Change in Technology

Change in Regulatory Environment

New Competitors

&Processes

Has the Economics of Global Trade Reached an “Inflection Point” that Requires a New Supply Chain Paradigm?

Major Growth Paradigms• Constantly falling ocean

rates (Cont. & Ship Size)• Improved Infrastructure• JIT supply chain

processes• Tech processing & value

add-• Trade information for

inventory• Minimal government

regulatory actions• Transportation over

capacity• Cheap labor

CurrentParadigm

New Inflection Point Factors:• Focus on Client delivery

(last mile)• Rising transp. costs.• Near and on shoring• More contract logistics• Less reliance on JIT• Greater optimization tool

use• Transportation under

capacity• Less on-site labor

“InflectionPoint”

NewParadigm

Is this a Supply Chain “inflection point” and what will be the new assumptions for ‘growth”?

• Do you believe that we are at a new “inflection point” for supply chain? Why?

• If we are at a new “inflection point”, what do you believe will be the new “growth paradigm”? For example, a change of focus from cost (JIT) to include risk mitigation, longer lead times including ordering earlier, etc.


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


LandEconomic

OptimizationSea Air Cyberspace Regulatory

• Transportation Costs

• Capacity• Routing• Port Congestion• Delivery time

• Transportation Costs

• Capacity• Routing• Delivery time

• Inland costs• Capacity• Routing• Inland capacity• Warehousing• Inventory• Last mile delivery

• Make or buy• Sourcing (Supplier&

location options)• Supplier Relationship

Management• Manufacturing (capacity

& location)• Distribution (Brick &

Mortar to eCommerce)

• Internet of things• SC system security• Supplier system

security• Cloud security• Client security

EconomicCrisis

• Green regulations• Trade restrictions• Tariffs• Impact on

transportation costs• Shipping line pricing

investigations

What are the Potential Supply Chain Risks Caused by Economic Conditions:

• Do you see any other domains of risk for global trade?

• Which do you see as the highest risk? Why?

• What should companies do to minimize their supply chain risks in these domains?

• What can a company do if transportation was less than 10% of COGS and has now risen to 20-30% or more?


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


• Material costs are the highest component of USA manufacturers at approximately 60%

• Labor is only 16% of COGS for USA manufacturers

• Manufacturing consumes 32% of USA energy production

• Approximately 25% of USA manufacturing is considered energy intensive, for many other sectors energy as a percent of COGS is only 1-2%

Why Has So Much Manufacturing Moved Overseas?

• If labor is such a small percentage of manufacturing cost, why doesn’t more manufacturing return to the USA?

• How do rising petroleum/coal costs in other countries impact USA competitiveness for manufacturing at home?

• Would energy self sufficiency for petroleum and coal make the USA more competitive for manufacturing?

• Has U.S. government regulations made manufacturing more expensive and are not reflected in the COGS?

Why Has So Much Manufacturing Moved Overseas?


Global GDP

Global TradePanel

Objectives







Effect Or Permanent


Modify JIT Principles to build more lead time into the Supply Chain and Client

Fulfillment

Improve Supply Chain data to optimize the Supply Chain

Classify build of materials (BOM) by “Supply Criticality “

& build into Network Optimization Models

Alter network optimization models to warehouse more inventory, especially critical

ones

Develop Supply Chain Strategies for critical supplies

& suppliers

Identify alternative sourcing locations closer to where

products will be used

Focus on “Supply Risk Mitigation” rather than just

“Cost”— Corporate sustainability

Global Trade and Economic Outlook Panel

Thank

You

Documents

Global Trade and Economic Outlook PPT