Editor’s Note: Global Insight provides comprehensive economic, financial, and political coverage of over 200 countries and spanning more than approximately 170 industries. This analysis was prepared exclusively for World Trade magazine.



There’s little debate that the changing pace of globalization has, and will continue to, affect the world trade sector. But what’s not always so clear is just how globalization will impact trade at all levels-from the individual manufacturers and shippers, to regional economies.

Will current growth patterns continue? Will new regions come into the forefront, as traditional leaders fall back? Or will the up-an d-coming economies of countries like China and India spur innovation and competitive drive among traditional trade partners and regions? Where will all this take world trade in the coming years? Where are the opportunities? The pitfalls? And how do we factor in and prepare for uncertainties like terrorism and other political upheaval, climate change, regulatory policy shifts, and even the subjective impact of new cultural modes and ways of doing business?

On the positive side of the coin-globalization has led to declines in prices of most imported goods and services, even as quality and choices are on the rise. And while importers and consumers reap the benefits of foreign resources and labor, exporters are enjoying the freedom to sell to more diverse and larger markets. In the U.S. there’s been significant job growth in transportation and distribution, as well in the exporting and retail sectors of developing exporter economies.

But there’s growing pressure on trade from all sides-and that pressure is not expected to ease up in a hurry-change and uncertainty will become the norm. The smart shipping manager will be informed, flexible, and open to shifts in strategy and operational trends.  

Global cargo shipment growth

For 2006, container trade volume is growing at more than double the rate of overall world economic growth. Although trade volume will see a reduction in the pace of growth in 2007, world economic growth rate will remain relatively stable, lagging well behind container volume growth. In sheer numbers of shipments, deep-sea containerized trade of full boxes, excluding transshipments, will grow from 98 million TEUs in 2006 to 106 million in 2007, and that growth rate will continue.

Strong corporate profits, buttressed by a weaker U.S. dollar and stronger world economy, are helping to drive capital spending and exports by non-U.S. businesses. U.S. spending on imports has grown since 2001-increasingly in the form of containerized imports from Asia, and China in particular.

Enter China

Speaking of China, there’s no overstating their impact. From 1995-2005, China’s share of total U.S. containerized import TEUs shot up from about 15% to almost 40%; during that same period, China’s share of Transpacific shipments more than doubled, from less than one-third to about two-thirds of the total. This growth is expected to continue, especially as more non-Chinese businesses shift production there for export.

Port congestion

Our forecast of U.S. container port traffic (from the monthly National Retail Federation and Global Insight’s Port Tracker) sees no serious congestion at U.S. ports as we enter 2007. However, overall system performance will be challenged by continued volume growth, especially from Asia.  

Consequences of growth

Every coin has its flip side. The increase in imports by the U.S. will continue to consume available transportation capacity and add to congestion pressures; delivery time and reliability may suffer; costs will rise. As freight activity increases, we can expect to see more local “NIMBY” (Not In My Back Yard) opposition. Inadequate public financing and investment in freight infrastructure will make it harder for shippers and ports to operate efficiently and productively.

Keys to meeting the challenge

So what can shippers expect? What can be done to meet these challenges? First of all, supply chains need to be forecasted further out. New technology and modeling can help provide decision-making information. Supply chain partner integration must be strengthened, particularly through adoption of new technologies and standards for planning, management, and security. More important, there will need to be greater flexibility in shipment and delivery practices to meet the changing natures of the diverse international workforce, carriers, and networks.

The bottom line-foresight and flexibility

Globalization will continue. And that means continued pressure from the amount and character of cargo shipped. All of these global changes and operational pressures present both opportunity and risk. In the end, it’s the informed managers, those willing and able to be flexible enough to foresee and prepare for the continued change, who will gain the most.

For more information, visit Global Insight’s Global Trade & Transportation Web site at: www.globalinsight.com/TradeTransportation.

Fearless Forecasts

What does the future bode for global supply chains in 2007? That’s the multi-billion dollar question.

On the eve of the New Year, a sense of optimism prevails. If opinion is slightly more guarded than in the past, it’s partly because of the ebullient growth of the past few years. Indeed, the note of uncertainty on the horizon when it comes to maintaining high levels of operational global supply chains and their domestic U.S. logistics channels is a product of recent success which has put capacity strains on various systems.

World Trade surveyed the experts to solicit their predictions about developments this coming year in their respective areas of expertise.  

World Trade Magazine Editorial Board Members:
Anti-Corruption Movement Gains Traction

Global trade is undermined by high levels of corruption. Two thousand seven is the year when there could be significant progress in addressing this issue in meaningful ways at the international level.

There is considerable concern at the helm of the World Trade Organization about the matter and one can expect action from WTO chief Pascal Lamy. The Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention looks great on paper, but it is barely being enforced by the 36 countries that have signed it. This may change under the new and aggressive leadership of Angel Gurria, who became the OECD Secretary-General in late 2006 and has this issue among his top priorities. In addition, the leadership at the World Bank and the United Nations are likely to move into higher gear on the topic. At the Bank, President Paul Wolfowitz has made fighting corruption a central challenge for the international aid community. And, at the United Nations don’t be surprised in 2007 if Paul Volcker, former U.S. Federal Reserve Chairman, moves into high gear to mobilize political forces to seriously attack the corruption in global commerce-it was Volcker who chaired the special investigation into corruption in the United Nations oil-for-food program in Iraq and it is Volcker who is going to lead the charge again at UN complacency and mismanagement if the UN, with a new leader in 2007, ignores the bribery in its midst.

Frank Vogl, Co-Founder of Transparency International and The Partnership for Transparency Fund (www.transparency.org), and a member of the World Trade Magazine Editorial Board

'Wise-sourcing' Global Trade Moves to Gross Margin Management

In 2007, companies will continue to source more from emerging countries, but leaders will be focused on gross margin management, not just unit cost reduction. Today, many companies report anticipating a 30% or more savings on unit costs from sourcing from emerging countries such as China or Vietnam, but the actual total landed cost savings is often around 12%.

Look for leading retailers and manufacturers to leverage costing, trade compliance, and visibility technology to gain a better handle on true costs as an order progresses. If the actual costs start deviating from expectations, these innovators will make changes to pricing, promotions, or transportation movements to protect gross margin.

Other ways companies will seek to maximize gross margin are to ensure that sourcing strategies and distribution strategies account for both demand and lead time variability. A number of companies have found that it is more profitable to continue sourcing more volatile goods or components closer to home so that they can capture upswings in demand or minimize inventory obsolescence in a market downturn. This move to profit-optimized “wisesourcing” is the next step in global trade maturity.

Beth Enslow, SVP Enterprise Research, Aberdeen Group (www.aberdeen.com), and a member of the World Trade Magazine Editorial Board

Six Trends That Will Impact Supply Chains

1. Continued growth in air freight as the standard way of managing global logistics;
2. Broad national pressures in the U.S. for greater regulation on trucking for safety reasons;
3. Push for customizable distribution that takes more touch points out of factory-to-consumer distribution;
4. Greater emphasis on cargo security/screening as well as a push for security measures in public transportation;
5. Further consolidation in semiconductors, network equipment, storage-essentially, those technologies that are becoming more commoditized;
6. Continued erosion of middle management due to baby-boomer retirements that drive the market for professional management services (contracted expertise).

Steve Pileggi, Partner, PRTM Consulting (www.prtm.com) specializing in Electronics, Equipment, and Semiconductors, and a member of the World Trade Magazine Editorial Board

…And Seven More

1. Strategic sourcing gets, well, strategic. Smart companies get serious about sourcing from fewer vendors and the focus is not just cost. Vendor considerations such as time to market, quality, and technological sophistication move to the head of the list. Companies stop talking about collaboration and actually do it;
2. It’s not just about China anymore. Countries like Vietnam, India and Pakistan rise in importance as companies take a more portfolio approach to the countries they source from. They’re not going to get fooled again on quotas.
3. Traditional Factoring heads towards extinction like its Jurassic cousin, the Letter Of Credit. The rise of electronic tools for supply chain finance-along with abundant pools of hedge fund money and movement of non-bank financial institutions into the trade finance game-will make the old paper based factoring a thing of the past.
4. “Fast fashion” wakes up traditional “slow fashion.” Rapid turn newcomers such as Zara, H&M, and American Apparel wake up the incumbents, forcing traditional apparel companies to source more in the Americas and use technology to reduce cycle times.
5. Raw materials matter. Sophisticated companies start looking deeper into their supply chains to find savings. Visibility tools look past your supplier to your supplier’s supplier. We’ll see growth in electronic tools that allow credit optimization across the entire length of the supply chain.
6. Charge backs get “real.” With crooked CEOs getting serious jail time, retailers finally figure out that the charge back process has got to be an automated, auditable, Sarbanes Oxley compliant process. Amen.
7. Talent is king. With more than 6 billion people on this planet it’s hard to believe, but serious talent shortages are going to plague the knowledge and skill industries in places like China, India and the U.S. Hold on to your best talent!

Kurt Cavano, CEO, TradeCard (www.tradecard.com) and a member of the World Trade Magazine Editorial Board

The View from Sector Providers

The market looks good for 2007; I think it will be the best year since before 9/11. The industry has progressed through difficult economic times, fuel prices are coming down. I am cautiously optimistic with regards to pricing. Shippers can expect to see prices come down on fuel, and these savings will be passed onto to customer. In ocean freight, space has been tight for the past few years. Shippers can expect to see that break up early in 2007; capacity will be good. The larger ships on the water are resulting in more capacity.

-Vaughan Moore, Vice President, Sales & Marketing, AIT Worldwide Logistics  (www.aitworldwide.com)

The big question is the economy-will there be a soft landing?

There is short term fuel relief, but there are no indications that the peak season will be as robust as it has in the past.

There is still speculation of more consolidations in the industry. Consolidation has weeded out many of the weaker or inefficient players, so shippers can continue to expect a high level of performance from their carriers, who are more efficient and gotten costs down.

-Frank Perri, Executive Vice President, Pilot Air Freight  (www.pilotair.com)

The freight situation is moderating a bit, putting capacity and demand more in balance. There’s been a stark difference this year in comparison to previous years, so naturally we’re wondering what this means for 2007.

For one, there have been some structural changes in the retail sector, particularly with the growing popularity of gift cards. The result is that there is less held inventory for the traditional ‘big spike’ at the end of year. What we’ve been predicting is that retailers will start to improve their product flows, and judging from consumer behavior, this is starting to happen.

As for fuel prices, I’ve learned in the last few years that fuel equals volatility. We think there’s probably going to be a moderation in fuel prices (unless there’s a larger event that upsets things), and we don’t think it’s going to get up to $3 per gallon.

Meanwhile, on the regulatory side, we’re hoping to draw more attention to the ongoing diversion of highway taxes to other budget areas within the state and federal government. Highway trucks pay a substantial amount of taxes, yet those taxes often times get diverted to general funds and they’re not going to roads, bridges, and the infrastructure. Potentially, the problem will worsen as we move towards more fuel efficient automobiles (which means less fuel tax dollars), and this will be compounded with the new diesel truck engines (which are less fuel efficient) that are required in 2007. As an industry, we’re going to be paying an even higher percentage of the fuel tax.

Lastly, as an unintended consequence of the Hours-of-Service rule, is that we’re now putting more truck traffic on the road during peak hours. Drivers have less flexibility to take a break, or stagger their shift, because once they’re day starts they’ve got only so much time before their day ends.

There are now more trucks, and more trucks during prime-time driving hours, on the road, which is exacerbating congestion.

-Mark Rourke, President, Transportation, Schneider National (www.schneider.com)

Customers are expected to place greater emphasis on visibility of shipping volumes, expenditure and global management reporting. They will be looking to shippers that can provide in-country knowledge and seamless global shipping solutions.

As with other industries, government and customs regulation are always at the forefront. So it’s more important than ever to work with partners who understand local markets around the world and are well-versed in customs, compliance, language and currency. Continued reductions to trade barriers coupled with extended solutions by express carriers will continue to reduce the barriers of entry for importers and exporters.

-Lindsay Birley, Executive Vice President, International Products & Services, DHL Express USA  (www.dhl-usa.com)

Exports from China will continue to increase, particularly for retail and consumer goods and for high tech products, leading to increased international trade and the need for comprehensive, sophisticated global service providers. At the same time, the China domestic consumption market continues to expand such that multinational companies want to penetrate the retail opportunities. This in turn will lead to increase demand for comprehensive logistics solutions within domestic China.

In-country, China continues with aggressive plans for infrastructure improvements including major upgrades of the rail network, and substantial expansion plans for ports, airports, inland waterways and road transport.

Shippers can expect the increased sourcing from China and subsequent expansion of the vendor base in most industries to drive the need for more supplier management, capacity management and freight consolidation service.

-Mark Millar, Regional Sector Director, Asia Pacific, UPS Supply Chain Solutions (www.ups-scs.com)

The economy will hold up over 2007 and it will be a good year for transportation. From an intermodal perspective, things look strong.

Railroads are working hard to improve terminal services, and are operating at capacity almost all year. Service is getting better as the railroads are working with the ocean carriers and the ports. Because of the capacity constraints, rates are higher and shippers can expect prices to increase as railroads continue to reinvest to improve their capabilities.

- Phillip Yeager, Chairman, Hub Group  (www.hubgroup.com)

The focus on lean logistics will continue; each year we think we can’t get any leaner, yet we do. That means that companies need to invest in technology, people and processes to continually improve services.

There is renewed interest in creatively attacking transportation costs. Suppliers and customers are looking for any way to address the increases of the past few years. Energy costs will continue to impact the supply chain, and shippers are looking to mitigate these costs. Although the industry seems to be experiencing fewer demand spikes, there has not yet been any real move to address the capacity and infrastructure issues of the transportation industry.

-Scott McWilliams, CEO, Ozburn-Hessey Logistics (www.ohlogistics.com)

BC210: Traditional forwarders will become once again the transportation agent of choice for the majority of shippers. From a dollars and cents standpoint, transportation remains the bedrock of the logistics business. More shippers than ever before will respond to this truism in 2007. The basic objectives of the traditional forwarder-delivering customers’ cargo on time, with no damage and hassle free-will find encouragement and support from the shipper.

-Julian A. Keeling, President, Consolidators International, Inc. (www.cii-usa.com)  

There is an increasing need for flexibility in customers’ supply chain networks. Products have shorter life cycles and companies are fine-tuning and orchestrating new product introductions, resulting in ‘surge logistics.’ This requires more collaboration across the supply chain and among the various partners, placing an even greater emphasis on visibility. All the players across the supply chain need to see the same information in the same place. For the customer, this makes accurate data and forecasting essential. They need the right processes and data to optimize this type of activity.

-Bob Bianco, President, Menlo Worldwide  (www.menloworldwide.com)

Imports will continue to grow at the current rates (about 11-13%). Asia will continue to be a formidable market for sourcing. Capacity issues along the West Coast will force shippers to look for alternative ports in the East, such as the Port of Savannah. Measures that have been taken to improve the efficiency of the Port of L.A., such as Pier Pass and extended hours of operation will expand to other ports.

-Thomas Scorsune, Senior Vice President, Global Logistics, National Retail Systems  (www.nrsonline.com)

Shippers should budget for cost increases to offset the expense of managing through a congested freight transport infrastructure, and higher fuel prices. They should also continue to concentrate on port diversification strategies as the port and rails infrastructures struggle to handle continuing increases in volume.

Freight infrastructure is a continuing concern globally. There is strain in the U.S.-especially the intermodal system. In China, they have prepared well at the seaports, though the rail and highway systems need improvement. India, on the other hand, has such poor infrastructure that its growth potential may not be fully realized.

-David Noe, Vice President, Sales, Marketing & Customer Support, APL Logistics Americas  (www.apllogistics.com)

Continued movement of offshore sourcing will grow U.S. import traffic, meaning that freight companies will need to develop a greater sense of how to best move cargo from Asia and Mexico to the U.S.

With the Big 3 automotive companies in decline, many companies supporting Detroit automakers will have to find new markets, new customers or reduce workforces to compete. Transportation for these companies will change and expedited freight will shrink.

Security issues also will be a huge impact in 2007. Even as we close 2006, the TSA is enacting regulations on freight forwarders that will force changes in their methods and slow the movement of cargo from origin to destination.

-Michael Entzminger, CEO, Mach 1 Air Services  (www.mach1air.com)

Two thousand seven will be a year of challenge and adjustment. Customers will continue to look toward very specific services to meet their supply chain needs. Bundling is out. Focus on core competencies, operational excellence, consistency and attention to detail is in.

We will see transportation providers increasingly intertwined in the customers’ business, part of their service, a component which impacts the quality and integrity of their products. We represent our customers to their customers. We are the face that buyer sees when the product is delivered.  The market will begin to see a separation among carriers as savvy shippers understand the value of premium service, and how to use rapid-response, high-service trucking in very strategic, targeted ways to meet business objectives that go beyond simple “get it there” transportation.

-David S. McClimon, President, Con-way Freight  (www.con-way.com)

With the SAFE Port Act now law, the port industry will push hard for Congress to appropriate what it authorized in 2006 for the Port Security Grant program: $400 million a year through 2012. The Transportation Security Administration (TSA) will begin issuing hundreds of thousands of Transportation Worker Identity Credential cards in 2007 as the TWIC card program rolls out. Furthermore, the Department of Homeland Security will hasten the pace to conduct biometric card reader pilot programs and issue a report detailing the readers’ capabilities so the card readers can begin authenticating the new TWIC cards that TSA is issuing.

As trade volumes continue to grow in 2007, more American business will recognize the need to enhance freight mobility and address congestion. Transportation will become a mainstream issue and an increasing priority for federal decision-makers. Infrastructure investment will begin to emerge as a key national issue in the upcoming 2008 federal elections.

-American Association of Port Authorities  (www.aapa-ports.org)

While many buyers and suppliers have achieved operational efficiencies in their physical supply chains, they still have room to improve the efficiency of their financial supply chains, particularly their ability to manage the data associated with trade. Banks will have a strong value proposition in the area of facilitating this information connectivity amongst trading partners.

With more settlement moving to open account terms, there will also be a need for banks to offer corresponding financing mechanisms. By capturing vital data throughout the transaction lifecycle and analyzing trends, banks will be better able to offer pre- and post-shipment financing. This product offering will be critical to the supply chain and its need will continue to grow over the coming years.

-Cindy Murray, Executive VP and Head of Transaction Banking North America, ABN AMRO  (www.abnamro.com)

-Shafiq Rahman, Group Senior Vice President and Head of North America Trade Products & Supply Chain  Management, ABN AMRO.

-Michael Klausner, Senior VP & Global Product Manager, Supply Chain  Services, ABN AMRO

The Harmonized Tariff changes scheduled for January/February 2007 will have a huge impact. There has not yet been any notification of how long businesses will be given to comply with the new classifications, yet to make the switch without slowing trade will require a huge global coordination effort.

There is a proliferation of bilateral trade agreements around the world that are being put together as major, multi-country trade agreements are held up. These agreements require businesses to have specific processes and procedures in place, and require more information and technology. Compliance has and continues to be a major issue.

-Bernie Hart, Global Product Head, JPMorgan Chase Vastera  (www.jpmorganchase.com/vastera)

Companies will continue to look for alternatives to Letters of Credit (LCs) as part of an overall move to reduce costs in the financial supply chain. There will be a focus on payables and managing open account payables more efficiently.  There is also a trend towards consulting and helping clients address strategies to move off LCs, while helping their foreign suppliers get financing. As always, technology plays a key role and visibility is a must, as most companies require seamlessness in all transactions.

-Elizabeth Atkins, Senior VP, Global Supply Chain Management Solutions & Head of Supply Chain, Wells Fargo HSBC Trade Bank  (www.thetradebank.com)