Global trade
Global Logistics pt. 1
2
$22,508,809,010,000
$2.7 Trillion 12.1%
$2.1 Trillion 9.4%
$1.7 Trillion 7.4%
$.785 Trillion 3.5%
Top 5 Countries: Exports
Top 5 = 36%
Top 10 = 50.3%
| RANK | COUNTRY | 2020 EXPORT SALES (US$) |
| 1 | China | 2,723,250.43 |
| 2 | USA | 2,123,410.00 |
| 3 | Germany | 1,669,993.51 |
| 4 | Japan | 785,365.75 |
| 5 | UK | 776,079.91 |
| 6 | France | 733,165.40 |
| 7 | Neth. | 711,504.80 |
| 8 | Hong Kong | 612,566.52 |
| 9 | Singapore | 599,216.28 |
| 10 | Korea | 596,945.20 |
$.776 Trillion 3.4%
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$21,750,000,000,000
$2.38 Trillion 10.8%
$2.77 Trillion 13%
$.786 Trillion 3.6%
$.1.45 Trillion 6.7%
Top 5 = 37.5%
Top 10 = 51.5%
Top 5 Countries: Imports
| United States | $ 2,774,597 |
| China | $ 2,357,106 |
| Germany | $ 1,449,777 |
| France | $ 786,302 |
| Japan | $ 786,216 |
| United Kingdom | $ 772,415 |
| Netherlands | $ 616,384 |
| Hong Kong | $ 606,251 |
| Korea, Rep. | $ 536,733 |
| Canada | $ 516,977 |
| India | $ 510,975 |
| Singapore | $ 490,695 |
$.786 Trillion 3.6%
Country with the least imports/exports?
Basically a bunch of pirate people
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This is their whole population, it’s about half of this class
$5.9 million
Service Trade
U.S. is world leader in services exported at $710B in 2020 (was $876 billion in 2019)
Imports are $460.3 billion
Service Trade Surplus
Germany, UK, China, France round out top 5
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5
Combination of countries turning away from the U.S., and mfct. Tariffs indirectly effecting services
Transportation/Logistics
Financial Services
Management/Consulting
IT
IT
Oh look, all the stuff you’re learning
| Country | Exports | Imports | Trade Deficit | %of Total Trade |
| All Countries | 1,754.60 | 2,832.90 | -1,078.30 | 100.00% |
| Top 15 Countries | 1,233.30 | 2,205.60 | -972.30 | 75.00% |
| Canada | 307.6 | 357.2 | -49.60 | 14.50% |
| Mexico | 276.5 | 384.7 | -108.20 | 14.40% |
| China | 151.1 | 506.4 | -355.30 | 14.30% |
| Japan | 75 | 135.1 | -60.10 | 4.60% |
| Germany | 65.2 | 135.2 | -70.00 | 4.40% |
| Korea, South | 65.8 | 95 | -29.20 | 3.50% |
| United Kingdom | 61.5 | 56.4 | 5.10 | 2.60% |
| Taiwan | 36.9 | 77.1 | -40.20 | 2.50% |
| India | 40.1 | 73.3 | -33.20 | 2.50% |
| Vietnam | 10.9 | 101.9 | -91.00 | 2.50% |
| Netherlands | 53.6 | 35.3 | 18.30 | 1.90% |
| Ireland | 13.6 | 73.7 | -60.10 | 1.90% |
| Switzerland | 24 | 63 | -39.00 | 1.90% |
| Italy | 21.7 | 61 | -39.30 | 1.80% |
| France | 30 | 50.3 | -20.30 | 1.80% |
US Global Trade
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But What are Trade Deficits Really?
Trade deficits only tell the final step of the story
No one who understands supply chains or understands global business thinks trade deficits matter
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| iPhone 7 Sales Cost | $ 649.00 |
| Foxconn Factory Cost | $ 237.45 |
| U.S. (design/components) | $ 68.00 |
| Japan (components) | $ 68.00 |
| Taiwan (Assembly) | $ 48.00 |
| South Korea (components) | $ 17.00 |
| China (Labor/Battery) | $ 8.50 |
$237.45
$68
$68
$48
$17
We are having some big international trade problems though
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Today in Global Trade
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Total Imports Port of Los Angeles 2019-2022
Total Imports Jan'19 Feb'19 Mar'19 Apr'19 May'19 Jun'19 Jul'19 Aug'19 Sep'19 Oct'19 Nov'19 Dec'19 Jan'20 Feb'20 Mar'20 Apr'20 May'20 Jun'20 Jul'20 Aug'20 Sep'20 Oct'20 Nov'20 Dec'20 Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 Jul'21 Aug'21 Sep'21 Oct'21 Nov'21 Dec'21 Jan'22 Feb'22 Mar'22 445730.5 364550.55 311053.90000000002 378343.5 440313.4 405824 487604.9 449085.8 414680.75 402452.5 380437.65 383794.25 425761.5 278735.05 231607.3 374186 306366 369256.9 457196.7 517024.75 476681.55 510812.8 466067.4 462655.3 437863.2 414154.5 493465.25 494681.59999999998 540803.1 469553.6 469481.55 488873.85 469570.1 468713.60000000003 405309.3 387523.15 428474.25 426812.45 497775.85
Congestion in the San Pedro Bay
Too much focus on 1 path
We have a system designed for a single primary pathway to move all Asian goods to all American consumers
Not the bullet-proof solution we were thinking we had.
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Congestion on Chicago Rail lines – about 20 miles
Freight imbalance makes it a lot more expensive to go from LA to Dallas than from Dallas to LA
Multiple Bottlenecks
Even if we eliminate one bottleneck – we’ll have several more to deal with before we can get goods to the consumers
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Protect Key Goods
White House report recommends greater control over key industries including semiconductor, high-capacity batteries, pharmaceuticals, and rare-earth metals/minerals
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The U.S. only accounted for 12% of global production in 2021
Down from 37% in 1990
Diversify Everything Else
Like the move towards service over cost in domestic supply chains, international chains must become more geared towards flexibility and customer service
China+1 Policy
Pan American Manufacturing
Multiple points of entry
Alternate ports (and the infrastructure behind them)
Direct intermodal shipping
Salt Lake City Pilot – could work in Phoenix.
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Lots of empty boxes
Again through, we do export plenty of services
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US Exports by Type 2019-2022
Loaded Exports Jan'19 Feb'19 Mar'19 Apr'19 May'19 Jun'19 Jul'19 Aug'19 Sep'19 Oct'19 Nov'19 Dec'19 Jan'20 Feb'20 Mar'20 Apr'20 May'20 Jun'20 Jul'20 Aug'20 Sep'20 Oct'20 Nov'20 Dec'20 Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 Jul'21 Aug'21 Sep'21 Oct'21 Nov'21 Dec'21 Jan'22 Feb'22 Mar'22 144993 142554.5 158923.75 155532.75 167357.25 139318 161340.25 146284 130768.5 140331.5 138544.5 130228.5 148206 134468.5 121146 130321.25 104382 109585.75 126353.7 131428.75 130396.75 143935.75 130916.5 120265 119326.75 101208.15 122899 114448.5 109886 96066.75 91439.5 101292 75713.5 98251.25 82741.350000000006 70871.75 100185.25 95441 111781.25 Empty Exports Jan'19 Feb'19 Mar'19 Apr'19 May'19 Jun'19 Jul'19 Aug'19 Sep'19 Oct'19 Nov'19 Dec'19 Jan'20 Feb'20 Mar'20 Apr'20 May'20 Jun'20 Jul'20 Aug'20 Sep'20 Oct'20 Nov'20 Dec'20 Jan'21 Feb'21 Mar'21 Apr'21 May'21 Jun'21 Jul'21 Aug'21 Sep'21 Oct'21 Nov'21 Dec'21 Jan'22 Feb'22 Mar'22 261726 198201.5 180999.5 202589.7 220991.5 219635.25 263209 265711 234453.5 227437.5 209935.75 232727 232176.25 130833.75 96815 184491.75 170916.75 212632.75 272838.7 313379.25 276546.5 325980 292762.25 296265.75 278326.25 283952.75 341235 337836.25 361358.75 310810 329878.75 364211.5 358581 335679.05 323409.25 328193.84999999998 336935.85 335510.95 349116.95
Reasons for Global Purchasing
Unavailability of items domestically
Coffee, bananas, spices, anime, etc.
Price and total cost
labor costs, exchange rates (strong $ right now), equipment and processes, product and pricing focus
Government pressures and trade regulations
Offset agreements
Quality
Newer capital equipment
Faster delivery and continuity of supply
Rare earth metals in China
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“If goods don’t cross borders, soldiers will”
-Frederic Bastiat
Thucydides Trap
Reasons for Global Purchasing (cont.)
Better technical service
Technology
*Technology clusters: specialize in a certain area to attract talent & investment
Korea in DRAM
India in biotech/software
Marketing tool
Tie-in with offshore subsidiaries
Competitive clout or leverage
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Potential Problem Areas in Global Purchasing
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Source location and evaluation
Lead/delivery time
Turns out other places are further away
Expediting
Political, labor and security problems
Hidden costs
Currency fluctuations
Payment methods
Quality
Warranties and claims
Mohammad bin Salman – slowed down oil production to raise prices. Bad for oil companies & the environment, good for drivers
Strong dollar can limit ability of US firms to export goods
Potential Problem Areas in Global Purchasing (cont.)
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Tariffs and duties
Administration costs
Legal issues
Logistics and transportation
Language
Communications
Cultural and social customs
Ethics and social responsibility
US: A-Ok
Japan: Money
Brazil: Vulgar/ Offensive
Stock Market Reaction to Sustainability Issues
external (0,0) 1994-00 2001-07 2008-12 1.3308E-3 -2.7147999999999999E-3 -3.637E-3 internal (0,0) 1994-00 2001-07 2008-12 -8.0543000000000003E-3 -3.9199999999999999E-3 -1.2474000000000001E-3
Regional Trade Agreements
Efforts to eliminate trade barriers result in bilateral, regional, and global trade agreements
Implications for supply managers:
know the major trading partners with their countries
know what trade agreements are in place
know what opportunities exist in emerging markets
Data on trading patterns of countries and regional trading blocks available from the World Trade Organization (wto.org)
Examples of Regional Trade Agreements
United States Mexico Canada Agreement (USMCA)
Canada, United States, and Mexico – approved in December, 2019
The European Union (EU)
2013 the EU included 28 member states
Association of South East Asian Nations (ASEAN)
10 South East Asian countries
Mercosur (El Mercado Común del Sur)
Argentina, Brazil, Paraguay, Uruguay, Venezuela, and Bolivia in a customs union plus associate members
Trans-Pacific Partnership (TPP)
U.S. and 11 other Pacific Countries
China has 14 Free Trade Agreement partners
Recently altered by “Brexit”
USMCA
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| Rank | Country | Exports | Imports | Total Trade | % of Total Trade |
| --- | Total, All Countries | 1,372.50 | 2,096.70 | 3,469.10 | 100.00% |
| --- | Total, Top 15 Countries | 968 | 1,644.00 | 2,611.90 | 75.30% |
| 1 | Mexico | 216.4 | 301.3 | 517.7 | 14.90% |
| 2 | Canada | 246.8 | 267.2 | 514 | 14.80% |
| 3 | China | 87.6 | 382.1 | 469.8 | 13.50% |
| 4 | Japan | 61.9 | 120.6 | 182.6 | 5.30% |
| 5 | Germany | 50.7 | 106.8 | 157.5 | 4.50% |
2 most important partners
The Case For
Would add 796K export jobs to US
Pay 18% more than avg. job
Rule Maker, not Rule Taker
Raise standards of key Chinese trading partners
IP Protection
9% of all US manufacturers hold patents. But 89% of all US exporters do
Theft of IP costs US $300B/year
Estimated to add $3T to world wealth
ISDS allows investors the right to use dispute settlement proceedings against a foreign government
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The Case Against
Would slow manufacturing job growth in US by 20%
121K fewer manufacturing jobs by 2030
US already has bilateral free trade w/many TPP countries
Won’t add much benefit in those cases
Prescription drug costs may go up in other countries
The TPP
For Next Class
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Global Trade pt. 2
Quiz 11 (Bonus):
https://www.wsj.com/articles/china-trade-war-didnt-boost-u-s-manufacturing-might-11603618203
https://www.wsj.com/articles/asia-pacific-nations-sign-major-china-backed-trade-deal-11605434779
https://www.wsj.com/articles/china-is-far-behind-on-u-s-purchases-under-trade-deal-11603748956
AOL Extra Credit Quiz will be posted on Canvas
Course Evaluation
Global Sourcing Organizations
Regional Purchasing Offices
Organized geographic regions
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Global Commodity Management Organization
Large number of common requirements across facilities or business units and a geographically dispersed supply base
International Purchasing Office (IPO)
Separate purchasing organization usually reporting to corporate/head office purchasing department
VP of Procurement
CPO Euro
CPO Asia
CPO Americas
VP of Procurement
Tin
Gold
Silicon
Intermediaries
Import brokers and agents
Assist in locating suppliers and handling paperwork (fees up to 25%)
Import merchants
Buy the product, take title and deliver it to buyer
Supplier’s subsidiary
Sales representatives
Trading companies
Potential advantages: convenience; efficiency; potentially lower costs, due to volume; reduced lead times; and greater assurance of the product meeting quality specifications
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Import Merchant
Countertrade
When a company promises to buy material, products or services from a country in return for the privilege of selling in the country
Supply function may:
Use material acquired through a barter/swap
Identify cost-effective sourcing alternatives to fulfill offset agreements
Identify goods and services to fulfill counter purchase agreements
Set-up buyback agreements
Negotiate switch trade agreements with a broker or trading house
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Types of Countertrade: Barter/Swaps
Barter: the exchange of goods instead of cash
a country short of hard currency may agree to exchange its product for another country’s product
exchanging equivalent dollar values
Swap: if goods of the same kind—for example, agricultural items or chemicals—are exchanged to save transportation costs
Congo
Types of Countertrade: Offsets
Part of the countertrade must be used to purchase government and/or military-related exports
The selling company agrees to purchase a given percentage of the sales price in the customer country
Types of Countertrade: Counterpurchase
Requires the initial exporter to buy (or to find a buyer for) a specified value of goods (often stated as a percentage of the value of the original export) from the original importer during a specified time period
Acceptance of these terms allowed HKM to beat out US and UK competitors for $9M Crane Deal
Types of Countertrade: Buyback/Compensation
The selling firm agrees to set up a producing plant in the buying country or to sell the country capital equipment and/or technology
The original seller agrees to buy back a specified amount of what is produced by the plant, equipment, or technology.
Buyback agreements can span 10 or more years
Types of Countertrade: Switchtrade
A third party applies its “credits” to a bilateral clearing arrangement
The credits are used to buy goods and/or services from the company or country in deficit
Can be handled by a broker or trading house
Final Thoughts on Countertrade
Between 10-20% of all global trade (so like $2-$4 trillion)
US & some Euro Gov’s official position is that countertrade hinders free markets – But they do not stand in the way of their firms engaging in it
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For Next Class
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Global Trade pt. 2
AOL Extra Credit Quiz will be posted on Canvas
Course Evaluation
The Inventory Roller Coaster
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| Comparison | Zara | Industry average |
| Adapt couture designs, manufactures, distributes, and retails clothes | Within 2 weeks | 6 months |
| Unsold items | Less than 10% of stock | 17% - 20% of stock |
| Inventory turnover/year | 12 | 3 – 4 |
| Pre-planned Fab Capacity | 15% | 80+% |
Succeed through lean inventory
Succeed through stockpiling inventory
Now we have way too much inventory – classic bullwhip