The near-term outlook for global trade may seem grim in light of the fact that the global economy is not doing well and uncertainty in running rampant. But underneath those fundamentals, there is some nuance regarding trade operations.
The economic slowdown in the European Union and China’s economic transformation get most of the attention as today’s primary macroeconomic drivers, as they should. Global trade volume has not just slowed down, it has stopped growing entirely, and these trends are unquestionably responsible for a large part of the pullback.
But the nuance does not lie within the cause; it lies within companies’ reactions.
Companies cannot control the economic fundamentals that shape their industries. They can, however, control their operational approach to doing business and make their trade operations more efficient. And efficiency, for trade teams, means automating manual tasks – including those that identify and comply with the many free trade agreements at their disposal. Maximizing FTA utilization is important because companies with lower usage rates are leaving more money on the table.
We conducted our second annual Global Trade Survey in conjunction with KPMG International to examine operational issues such as this one. The survey included more than 1,700 respondents from 30 countries in a wide range of industries.
The survey report, released in mid-October, sheds light on trends and challenges faced by trade experts and multinationals alike. Broadly, the results show that trade and supply chain departments worldwide continue to struggle to keep up with the pace of change in both new business requirements and regulations. And specifically, our top findings include data on the utilization of free trade agreements and the appetite for automation, which relate to one another in interesting ways.
Increased Automation. Only 34 percent of respondents worldwide are currently using a global trade management (GTM) system for any aspect of import and/or export activities. However, 53 percent of respondents cited new technology as a key item that would help them improve their trade compliance program.
While 58 percent of U.S. respondents reported learning about GTM systems in a conference, webinar or demo during the last 12 months, this is not consistent globally. For instance, only 27 percent of respondents from Asia have attended a conference, webinar, demo or presentation where GTM systems was a topic of discussion.
This signals a need for more education about global trade technology, particularly outside the U.S. The survey also revealed a strong correlation between awareness of GTM systems and utilization rates.
The need for more automation truly shows through when examining the FTA utilization rates of the survey respondents.
FTAs Chronically Underutilized. Just 23 percent of respondents said their companies are fully utilizing all FTAs available to them. The challenges that get in the way of a higher rate of FTA utilization include complexity of rules of origin, difficulties in gathering required documentation, and a lack of internal expertise, respondents indicated.
The first two challenges are time-consuming processes that trade specialists often perform manually. GTM technology can automate these standard tasks, eliminating a substantial amount of the work related to FTA qualification and compliance.
A strong majority of respondents also acknowledge that identifying and leveraging FTAs produces a positive return on investment, yet very little time and resources are allocated to FTA compliance. Globally, only 8 percent of respondents reported no savings in import duties by taking advantage of FTAs.
This shows that trade teams are not disinterested in better leveraging FTAs. Instead, their reluctance is often a matter of capacity. Because the tasks of determining eligibility and managing FTAs are time-consuming, staff is often tied up with other operational areas of trade.
Trade cannot be an isolated, fragmented function. In the context of slow growth, efficiency in the operational areas of global trade is profoundly important. The missing link between GTM technology and FTA utilization is only one example that illustrates how the lack of technology impacts efficiency.
But there is reason for optimism. We see first hand that the global trade function is becoming more of a priority for executive management. When trade has this kind of increased visibility, those departments have an easier time getting the funding they need to obtain those systems and processes. Knowing that more change – regulatory pressure, evolving markets, and changing consumption patterns – is afoot will only accelerate this process.
This article first appeared in the October issue of American Shipper.