Global trade
Global Logistics pt. 2
The Tradewar
China had been US’s #1 trade partner since 2015
Total value of both imports and exports down significantly from 2019-early 2020
China to US down 11%
US to China down 21%
$314 billion in first 6 months of 2018 vs. $271 billion in 2019
Has hurt both sides as well as global economy
Exasperated by COVID-19
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$28 billion subsidies – more than double the auto bailout
China – U.S. Trade
Growing since China joined the WTO in 2001
In 1991 China was only 1% of U.S. imports
Chinese tariffs went from 40% in the 1990’s to 10% in 2005
US market is fairly open – Chinese is still somewhat protected.
Especially in specific sectors
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China & Intellectual Property
China has a history of IP theft and “forced technology transfers”
Essentially you have to give them your designs to have the privilege of selling in the 20% of the world that makes up the Chinese market
EU, Canada and US sued over this in 2006
Pre-WTO China stole about $1billion from US annually
In 2019 it was be between $225-$600 billion
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Are Tariffs Good or Bad?
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Manufacturing Complex Goods = Pro Tariffs
Producing Raw Materials = Anti-Tariffs
Consumption and Service Based = Anti-Tariffs
Depends on where you are.
Lerner Symmetry Theorem: An import tariff is equal to a tax on exports
The effect on relative price is the same
So putting a tariff on tire imports will lead to tariffs on tire exports
Some regions right to want tariffs.
Some regions are right to not want tariffs
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 rocked by “Brexit”
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
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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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
Foreign Trade Zones (FTZ)
An isolated, enclosed area in or adjacent to a port of entry, used to import, process, and reship products to foreign markets
Purpose: avoid, postpone, or reduce tariff on imports
FTZ’s differ depending on their major functions
transshipments, storage, exhibition and display, manufacturing
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Used to store goods until duties are paid or goods are otherwise properly released
To exempt the importer from paying duty on foreign commerce that will be re-exported
or
To delay payment of duties until the owner moves the merchandise into the host country
Bonded Warehouses/Logistics Parks
Yantian Port Bonded Logistics Park
Incoterms
International Commercial Terms
A “uniform set of rules to clarify the costs, risks, and obligations of buyers and sellers in an international commercial transaction”
Describe the responsibilities of a buyer and seller in a transaction
May vary across regions and among carriers
11 standard Incoterms in 2 groups:
7 Rules for Any Form of Transport
4 Rules for Sea and Inland Waterway Transport Only
Each term must be followed by a geographic location, such as a port or city
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Incoterms: All Transport
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Ex Works (EXW)
- Seller makers goods/services available at their facility
- Buyer clears/loads/ships everything
Free Carrier (FCA)
-Seller clears goods for export and delivers to the carrier specified by the buyer at the named location
- Buyer takes possession and assumes all risks at the named location
Carriage & Insurance Paid (CIP)
- Seller clears /delivers goods to carrier. Is responsible for paying carriage & insurance to destination
- Seller covers costs of unloading, customs clearance and duties, other costs included in carriage
- Title and risk of loss transfers when goods are transferred to the carrier
Delivered Duty Paid (DDP)
Seller clears goods /makes them available to buyer at including customs clearance for import
Seller assumes responsibility for all costs associated with transportation to destination, including import duties Buyer: responsible for unloading/assumes all risks once goods have been made available
Incoterms: All Transport (Cont.)
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Carriage Paid To (CPT)
- Seller: clears/delivers goods to carrier, and pays for carriage to named place of destination
- Seller: responsible for unloading/customs clearance /duties costs
- Buyer: responsible for all additional costs, such as procuring and paying for insurance coverage
Delivered at Terminal (DAT)
- Seller covers all transport costs and assumes all risks until the goods are given to supplier @ destination
- Seller clears goods for export, but not import
Delivered at Place (DAP)
- Seller clears goods &makes them available to the buyer on the arriving vehicle @ destination
- Buyer unloads goods and clears for import
- Buyer assumes all risks from the time the goods have been made available at the place of destination
Incoterms: Sea & Inland Waterways
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Free Alongside Ship (FAS)
- Seller clears goods & places them next to ship
-Buyer takes possession at the dock of export
Free On Board (FOB)
-Seller responsible for costs & risks of delivering goods onto ship
- Buyer assumes control after goods are loaded onto ship
Cost & Freight (CFR
-Seller clears goods, places them on ship and pays for cost of shipping them to destination
- Buyer assumes responsibility for risk/damage/additional transport costs once goods are delivered to specified port
Cost, Insurance & Freight (CIF)
- Seller clears goods for export, delivers goods on board at port of shipment, pays cost of transport to named port of destination AND PAYS COST OF INSURANCE ON GOODS
- Buyer assumes responsibility for risk/damage/additional transport costs once goods are delivered to specified port
Bonus Time
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AOL quiz available online until December 14th @ 11:59pm
At first this will appear as being out of 11out of 11
Course Evaluation
Assignment 11 up at the end of class – due tonight (12/6) at 11:59pm (so before Tuesday becomes Wednesday)
For Next Class
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Wrap-Up/Review
Get those cheat sheets ready
Similarly, Assignment #11 needs to be graded and then made EC
Please take the course eval here: https://colostate.instructure.com/courses/121140/external_tools/5468
Information Sources
The Internet
Government sources
Chambers of commerce in major cities worldwide
Supply organizations at other companies
Supply chain partners
Supplier locator directories
Thomas Register, Dun & Bradstreet
Importers and foreign trade brokers
Other sources ; suppliers, banks
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