We are now 17 months into the U.S. China trade war with no clear end in sight, and neither side in this conflict showing as having a clear advantage. At this time the purported “Phase One” deal has not come to fruition, and even if it did it is unlikely to unravel the damage done to date.
It is clear the trade war has begun to affect both countries as well as the global economy, and this is most noticeable when looking at the logistics industry. To date in 2019, U.S. exports have dropped by 10% and Chinese imports have dropped by 6.5%.
U.S. importers are already transitioning production to countries other than China, and this trend will leak into Canada as well due to our intertwined business and supply chains. This is because Canadian exports to the U.S. are not exempt from tariffs if the original manufacture was China, thus Canadian businesses importing from China are also being hit by the trade war tariffs if they were exporting to the U.S. This also leaves the Canadian opportunity to do business with China or the U.S., filling the gap left due to the trade barriers of tariffs between these countries.
Here are 4 Predictions made by Forbes magazine, for the future of the logistics industry.
1. Diversification and the rise of the small to midsize logistics provider.
As importers have begun to move their product sourcing to countries other than China, no single country has been able to provide all that China was able to produce. This has resulted in a diversification of sourcing as well as a diversification of risk, as relying solely on sourcing from one country has shown to have it’s drawbacks, i.e., trade war.
This also has the trickle-down effect of opportunity for the smaller to midsize logistics company, as sourcing from multiple countries results in many smaller orders from many countries. With China it made sense for one large importer to source a great quantity of the same goods and take advantage of lower costs with bulk purchasing and shipping.
2. Increased Consolidation in the logistics industry
With the above increasing complexity of sourcing many small orders from multiple countries, the need for consolidation by logistics providers becomes greater. This complexity is not something that companies will want to take on, thus passing on that responsibility to logistics providers and their expertise to handle on their behalf.
3. Increased Focus on Foreign Trade zones.
With over 200 foreign trade zones in the U.S., and 9 in Canada, the opportunity arises to bypass some duties by manufacturing goods in these zones and only paying the applicable duty on the finished product, with the import of the raw goods not considered to have entered the country. Canada also has programs in place to defer taxes and essentially treat anywhere in Canada as a foreign trade zone.
4. Growth in Domestic Transportation
It also goes without saying, that trade barriers while often harming a countries economy do increase sourcing from domestic companies if available, thereby increasing the need for domestic transportation. In the case of North America this could include transportation between the U.S. and Canada if Canadian industries can provide innovative products in place of Chinese.
Regardless we are in turbulent times for international trade, with little chance of return to the pre-trade war world. Companies who innovate and take advantage of opportunities resulting from other barriers are more likely to succeed, and already some Canadian industries have stepped up to fill the market left by either their U.S. or China counterparts.
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