The pandemic has had a significant disruptive impact on global trade, with strained supply chains, soaring shipping costs, and a general downward trend. Negotiation experts from TGP share both global and local insight into how this has played out.
THE GLOBAL SUPPLY DRAIN OF TRADE
September 2021 was supposed to have been the moment; everything went back to normal across the US and Europe as people returned from summer breaks, children went back to school and offices reopened.
The global impact of Covid-19 created a raft of issues and threw most global supply chain networks into complete disarray. Then came signs of recovery and businesses started to work out how to manage the “catch-up phase”. The geopolitical landscape is shifting and with it the balance of power on trade. In parts of Asia, the rise of nationalistic sentiment often impedes companies through active targeting campaigns accusing them of not being loyal enough or selling to foreign markets in preference. Much of this is rhetoric, but it certainly doesn’t help anyone trying to negotiate a deal!
For example, bike frames are almost a year behind planned production with high-end carbon models being sold out well in advance, and many not expected to deliver until spring 2022 in the US. Recently the website of a well-known direct to consumer bike brand showed that over 50% of its stock was sold out with the next delivery dates into spring of 2022. Processors for everything electronic are as precious as gold and companies are scrambling to meet demand.
Trade just isn’t easy anymore
Since the declaration of Covid-19 as a global pandemic by the World Health Organization in March 2020, the commercial negotiation landscape has been defined by a building cost conundrum. Manufacturers, suppliers, and retailers tussle in price wars as they bump elbows to protect their eroding margins from rising costs across all sectors. The escalating price of shipment goods internationally is pushed from supplier to retailer, who has no choice but to raise consumer prices. For the first time in years, it is the consumer who ultimately bears the weight of increasing costs due to the surging price of raw materials, production, and transit.
In addition to rising costs, inactive containership capacity (the number of inactive vessels) has hit its highest peak since the 2016 Hanjin bankruptcy that crippled economies across Asia. Country lockdown policies throughout the region do not mitigate these difficulties, as Asia has the strictest Covid quarantine policies globally. Authorities mandate a 14 to 21-day quarantine for crew arriving in vessels from high-risk countries, limited port personnel, and high customs restrictions on all but essential cargo such as pharmaceuticals and PPE.
As a result of the pandemic, repercussions have been felt in trade and negotiation agreements across Latin America. As it pertains to trade, one of the major issues the region is currently encountering is the scarcity of ship containers and the uptick in prices of fleet and logistics.
Another major factor causing the decline of trade and increase in prices in Latin America is the interruption of maritime transportation. On one side, the typhoon season in Asia has blocked major shipments companies and caused them to halt their operations, as well as contributed to major Chinese ports, already impacted by the pandemic, closing.
The demand in Latin America continues to increase and as a result, it poses major challenges when it relates to negotiating pricing structures, logistical challenges, product fulfilment, and payment terms.
Brexit red tape and Covid have together created a perfect storm of rising costs to import goods through labour shortages, escalating oil and fuel costs, surging packaging costs, and an imbalance of supply and demand pushing the costs of bringing goods into the UK through the roof.
Nurturing and strengthening relationships throughout their supply chains will help retailers navigate through this current crisis and beyond. They must work in partnership and fully understand each party’s situation and challenges, finding out what is important to both parties and truly getting inside each other’s heads.
They will then be able to joint problem-solve through effective questioning, building trust by the act of sharing both information and their expertise and unique insight to fully understand the situation from the perspective of the other party.
Retailers could also look to adopt it with their fellow retailers and leaders in their industry, to share best practices and truly work together to enable the survival of the high street and online fashion businesses – again, more cooperation versus competition.
In summary, now is the time for retailers to be creative, collaborative, and flexible, grabbing the tiller together to negotiate their way out of this perfect storm and into calmer and more prosperous waters.
The past eighteen months have seen a surge in home consumption coupled with sporadic panic buying that continue to challenge the local and global supply chains. While one would be challenged to find domestic brands on the shelves, finding global brands is even more difficult as the flow of goods from abroad continues to face additional pressures in transportation across borders.
Manufacturers are focusing on producing their core products as opposed to differentiated and evolutionary items. Quite frankly, consumers demand that supply and would generally prefer the core versus the breadth of the product line.
By having that conversation, both sides of the equation can maximize their on-shelf efficiency better and drive towards mutual growth in step. This is the goal and epitome of joint business planning – mutual managed growth. The accomplishment of this feat in current times is challenging. Too often, the conversation derails on “red herring” topics.
If both parties understand one another’s priorities and are willing to help solve the other’s challenges, we can create value.
The challenge is that there is a tendency to blame and argue rather than support. For the United States to overcome the current supply issues, it is going to take collaboration at all levels, and we need to be willing to engage in that conversation.