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tariffs

Third of supply chain leaders re-evaluating China operations

33% of supply chain leaders globally have either moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years, with the COVID-19 pandemic just one of several disruptions cited that have put global supply chains under pressure.

That’s according to new research from Gartner, which surveyed of 260 global supply chain leaders in February and March 2020 across a range of industries, including high-tech, industrial and food & beverage, in North & South America and the EMEA and APAC regions.

“Global supply chains were being disrupted long before COVID-19 emerged,” said Kamala Raman, senior director analyst with the Gartner Supply Chain Practice. “Already in 2018 and 2019, the U.S.-China trade war made supply chain leaders aware of the weaknesses of their globalized supply chains and question the logic of heavily outsourced, concentrated and interdependent networks. As a result, a new focus on network resilience and the idea of more regional manufacturing emerged. But this kind of change comes with a price tag.”

For decades, China has been the go-to destination for high-quality, low-cost manufacturing, and it has established itself as a key source of supply for almost all major industries including retail and pharmaceutical. However, Gartner research showed that the margin between those companies planning to add jobs in China versus taking them away narrowed sharply in 2019. The primary reason is the increase in tariff costs.

“We have found that tariffs imposed by the U.S. and Chinese governments during the past years have increased supply chain costs by up to 10% for more than 40% of organizations. For just over one-quarter of respondents, the impact has been even higher,” Raman said. “Popular alternative locations are Vietnam, India, and Mexico. The second main reason for moving business out of China is that supply chain leaders want to make their networks more resilient.”

Only 21% of survey respondents believe that they have a highly resilient network today – meaning that they have good visibility and the agility to shift sourcing, manufacturing and distribution activities around quickly. However, 55% expect to have a highly resilient network in the next two to three years – a reaction to disruptions such as Brexit, the trade war and COVID-19.

However, resilience has a price. Fifty-eight percent of respondents agree that more resilience also results in additional structural costs to the network.

“We are at a crossroads in the evaluation of global supply chains that pits just-in-time systems designed to improve operational efficiency against just-in-case plans that emphasize planning and preparing for a range of plausible scenarios,” Raman added. “To find balance, supply chain leaders must engage in risk management to assess their organization’s willingness to take risk onboard and decide how to quantify that risk against other network objectives such as cost effectiveness.”

One-quarter of survey respondents stated that they have already regionalized or localized manufacturing to be closer to demand. Despite the cost of adding more players to the ecosystem and increasing the overall network complexity, regional supply chains can ease delays and shortages in times of disruption – if the model is economically viable.

“Many Western organizations will have to explore new forms of automation on the factory floor to decrease the costs of near- or onshore production. Some also favour a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer,” Raman concluded.

Image by wei zhu from Pixabay 

Temporary tariff regime as ‘no deal’ Brexit looms large

Government has published details of the UK’s temporary tariff regime for no deal, designed to minimise costs to business and consumers while protecting vulnerable industries as the risk of a no deal Brexit increases.

This regime is temporary, and the government says it would closely monitor the effects of these tariffs on the UK economy. It would apply for up to 12 months while a full consultation and review on a permanent approach to tariffs is undertaken.

British businesses would not pay customs duties on the majority of goods when importing into the UK if we leave the European Union without an agreement.

Under the temporary tariff, 87% of total imports to the UK by value would be eligible for tariff free access.

Tariffs would still apply to 13% of goods imported into the UK. This includes:

  • a mixture of tariffs and quotas on beef, lamb, pork, poultry and some dairy to support farmers and producers who have historically been protected through high EU tariffs
  • retaining a number of tariffs on finished vehicles in order to support the automotive sector and in light of broader challenging market conditions. However, car makers relying on EU supply chains would not face additional tariffs on car parts imported from the EU to prevent disruption to supply chains
  • in addition, there are a number of sectors where tariffs help provide support for UK producers against unfair global trading practices, such as dumping and state subsidies. Tariffs would be retained for these products, including certain ceramics, fertiliser and fuel
  • to meet our long-standing commitment to reduce poverty through trade, the government currently offers preferential access to the UK market for developing countries. To ensure that access for developing countries is maintained, we would retain tariffs on a set of goods, including bananas, raw cane sugar, and certain kinds of fis

Trade Policy Minister George Hollingbery said: “Our priority is securing a deal with the European Union as this will avoid disruption to our global trading relationships. However, we must prepare for all eventualities.

“If we leave without a deal, we will set the majority of our import tariffs to zero, whilst maintaining tariffs for the most sensitive industries.

“This balanced approach will help to support British jobs and avoid potential price increases that would hit the poorest households the hardest.

“It represents a modest liberalisation of tariffs and we will be monitoring the economy closely, as well as consulting with businesses, to decide what our tariffs should be after this transitional period.”

The government has also confirmed that it will take a temporary approach to avoid new checks and controls on goods at the Northern Ireland land border if the UK leaves the EU without a deal. The UK’s temporary import tariffs will therefore not apply to goods crossing from Ireland into Northern Ireland.

These tariffs would apply equally to all other trading partners, except for those where we have a free trade agreement in place and around 70 developing countries that will benefit from preferential access to our market.