Panelists took on “Emerging Cross-border Commerce, Logistics Costs, Blockchain and Trade” at the CSCMP Edge 2019 conference in Anaheim, CA, this week.
John Kent, a University of Arkansas associate professor, pointed to the trade imbalance; “72% of the trade is going east — from China to the U.S. — and 28% is going west.”
He said it’s interesting to note that “the U.S. and China are simultaneously suppliers for each other and customers for each other. That’s a little bit different from most supply chain relationships.”
Kent said that 75% of respondents surveyed for the AmCham 2019 China Business Report expressed opposition to tariffs and he showed a quote from the report that said, “If the U.S. continues to use tariffs as the primary tool for achieving its trade aims, we risk not only U.S. jobs and company profits, but also giving up market share in China to European and other international competitors. That market share will be hard to win back.”
Kent proposed an idea for removing trade barriers, but granted he didn’t know the probability of it coming to fruition.
“The average tariff going into China was 10% in January of 2018. The average tariff coming into the United States in January of 2018 was 5%. That’s out of balance. What could we do? We could reset tariffs to 2018 and every six months China could drop their tariff 2% and every six months America drops the tariff 1%. In 30 months we basically have zero tariffs so there’s no tariff barrier to trade,” he said.
Metrics are critical, Kent said.
“If you can’t measure it, you can’t manage it. We could establish a Beijing and Washington trade analytics center. Maybe it’s FreightWaves,” he said. “FreightWaves is doing some pretty cool stuff with metrics and visualizing those metrics.”
Visualizing those metrics would be accomplished by using FreightWaves’ SONAR platform.
“Maybe we can get FreightWaves to help us to measure trade,” Kent said. “It would be pretty easy to create a few indices and start to plot and graph those.”
Meanwhile, Kent said, “as supply chain managers, I think we need to think about risk. That could mean diversifying sourcing.
“China is diversifying sourcing right now for Microsoft Office,” he continued. “The same is happening with the U.S. I have a feeling some of your companies are in Thailand or Laos or Cambodia or one of these other countries and seeing what the opportunities might be. There are probably Chinese manufacturers doing the same thing.”
Donnie Williams, executive director of the Supply Chain Management Research Center at the University of Arkansas, said, “For both the U.S. and China, understanding the total logistics state of that industry is really critical for understanding from a macroeconomic perspective the strategies that we can move forward and the areas where we can drive innovation.”
In 2018, business logistics costs totaled $1.635 billion in the United States and $2.146 billion in China, according to Williams, who said logistics costs are 8% of GDP in the U.S. and 14.8% in China.
“The more we can drive efficiencies, the better it will be for both,” he said, pointing out that inventory-carrying costs are 2.41% of the total logistics bill in the United States. In China, that figure is 4.8%.
“There’s a real opportunity there when we think about driving efficiencies. It’s probably in reducing inventory overall. That’s an area the U.S. has really worked on, particularly with Lean principles over the years, and that’s an area we can look at with China, where there can be some improvement,” Williams said.
Kai Hu, assistant director general of China’s development and research center, said cross-border e-commerce is expanding rapidly in that country, growing now at an annual rate of 28.2%.
“Express delivery in China is growing fast. By the end of this year, the volume will exceed 61 billion pieces. In 2010, it was only 2 billion,” he said.
Hu said new technologies continue to emerge. “Different order fulfillment models with logistics as the core will continue to converge.”
Ellie Falcone, a PhD candidate at the University of Arkansas, said the Chinese government is “not very open in terms of revealing actual logistics cost data,” but it’s getting better.
She is studying blockchain implementation in China and the United States and has conducted interviews with representatives of Chinese poultry manufacturers New Hope Liuhe, Jiang Feng and Shen Nong. In the United States, interviews were conducted with Walmart, Tyson Foods and J.B. Hunt.
Falcone said the initial reactions from the Chinese companies were that they “have no intentions of implementing it at all.”
She said that in the United States, “one of the Walmart IT managers mentioned, ‘I wish suppliers would stop worrying about the technology. Just listen to us and use it. Trust us.’”
Falcone called blockchain a “fancy word” and said, “There is a lack of clear understanding of what blockchain technologies are.”
She said blockchain’s capabilities need to be clearly conveyed.
“When I presented the scenario that describes blockchain technology, their willingness to use it is very high. The perceived risk is low, meaning they trust this technology,” Falcone said.
From interviewing 141 supply chain and IT managers, “I believe most managers really want to know the results of what blockchain can do versus how it works,” she said.