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International Trade Agreements On Possible Standstill: What Will Keep Businesses Standing?

by Frans Kok, General Manager, Asia Pacific, AEB

For the world, 2016 has been a year of unpredictability to say the least. The collapse of the seventh largest container carrier in the world is just one example out of many. Hanjin Shipping’s crisis has consolidated the logistics industry further, leaving about US$14bn worth of cargo stranded. In the wake of such an industry-shocking event, carriers announced an increase in container freight rates by as much as 50 per cent. This has led to a significant increase in global freight costs as retailers scrambled to secure shipping services ahead of the year-end peak holiday shopping season.

Just when we thought that the world economy is taking a turn and emerging from the financial doldrums of the 2008 financial crisis, 2016 emerged to be a year of political uncertainties. This trend, along with the unpredictability of the global economy, will continue into 2017. In the post-BREXIT and post-Trump victory world, free trade agreements are currently in jeopardy. If President-elect Donald Trump were to upend deals, such as the North American Free Trade Agreement (NAFTA), and with talks of the Trans-Pacific Partnership (TPP) in disarray, the rise in tariffs can add a high percentage cost for cross-border trade with the US. This impact could reverberate globally.

In light of this, how can businesses in Asia look into other forms of costs savings to mitigate the rising costs in logistics and shipping in the next 12 months? External trade costs, such as tariffs and third-party logistics (3PL) service fees, could take a significant hike in 2017, especially if trade deals are suspended or dismantled. In order to balance rising external costs, businesses must look internally to reduce operational logistic costs through either the adoption of new technology, or cutting down the excess in current supply chain processes. This means that a business will take either of two distinct routes – changing their current logistics infrastructure to adapt to new technologies, or further analysing their current supply chain processes to cut away fat to create a lean and efficient supply chain.

Adopting digital in supply chain

Digital transformation has been long forecasted in many industries across various processes, including the need for businesses to further automate their supply chain management. Given the current global economic and political environment, 2017 is when businesses will likely begin to look into adopting digital strategies and tools to manage the unpredictable situations brought about by the current climate. Failure to do so means businesses will, in the long run, become less and less competitive.

As part of digital transformation, more and more businesses will migrate their processes to the cloud. Businesses that are based in countries equipped with the digital infrastructure will find it be easier to develop their digitisation efforts.

For companies, where a large part of their successes are driven by their strength in managing their supply chains in a highly efficient manner, their ability to further manage their operational costs in logistics will determine their business profitability. And in order for businesses to do that well, the reluctance to adopt any digital tools or to further automate their supply chain management processes can no longer be an option. It is now a must.

Managing freight costs using digital tools

One of the ways in which businesses can cut down their operational costs is to better manage their freight costs. As part of efforts to further automate their supply chains with the objective of cost savings, companies need to look into a more efficient freight cost management through the use of digital tools that will allow them to have more visibility of their supply chains.

With companies becoming increasingly wary of the accuracy of their freight bills, more companies are expected to seek out better cost effective auditing services in 2017. Freight charges can represent up to ten per cent of a company’s total expense, so cutting freight costs is an excellent way for companies to make up for increased costs in other areas, such as trade tariffs. Given that many businesses lack the manpower and skillsets needed for freight auditing, engaging in a service provider to perform a thorough audit is crucial.

This is especially true for SMEs in the Asia Pacific region. Businesses would no longer have to worry about the time-consuming tasks of auditing their freight invoices and would enjoy savings on both their freight and operational costs. Supply chain managers would have access to analyses, ad hoc reports, alerts, and dashboards that help them reconcile invoices and corrections in a more efficient manner. With on-going audits that can be automated, businesses will have more transparency in their supply chains. They are able to embark on data-driven decisionmaking and planning, and the benefits are enormous.

Visibility equates to profitability

Through the use of digital tools and data analytics, companies can utilise real-time visibility to help manage their freight costs. Businesses will only need to pay for what they ship, and can make more informed decisions about shipping operations to improve their bottom line.

For example, carrier costs is an area where organisations often overspend. Most businesses examine their carrier costs only where there is a variance, without realising that the daily choices that they make have an impact on their business profitability. Equally as important, businesses can make more informed decisions about their shipping operations to improve their bottom line.

By having real-time visibility on freight volume, they are able to consolidate their freight and negotiate for better shipping costs. Businesses can also be more proactive in examining spend. As a result, they can be more strategic in carrier selection where they are able to better choose the right carriers and shipping options.

At the operational level, once the manual tasks of freight management have been automated, businesses can focus on value-adding activities. These activities can include discrepancy negotiation and resolution with forwarders, while keeping a sharp eye on freight invoices without sacrificing quality control. In the upcoming months, topics related to digital transformation and supply chain automation are going to be discussed more seriously within the logistics industry. With an eye on saving significant costs, time, and effort for all parties involved. AEB foresees freight cost management having a critical role in creating a more efficient supply chain while offsetting higher trade tariffs and global trade costs. Crucially, companies must take immediate action, whether through digitalising or analysing their current supply chain. If not, they risk drowning amidst rising trade costs brought on by the potential end of trade deals and isolationist policies.

About the Author

Currently based in Singapore, Frans has more than 20 years experience in the IT and Automotive Industry, serving the logistics and supply chain needs of customers from many countries in the US, Europe and Asia. He has extensive experience in International Sales, Marketing and Business Development, and a strong background in both direct and indirect sales for Mobile Application, Supply Chain Management, Enterprise Applications and Integration Platforms.

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