More self-sufficiency wanted – but economically not needed and a time-consuming process
Another trend, which will now gain further momentum, is the shift towards more self-sufficiency. The pandemic has already kickstarted this process, with the European Union for example introducing the European Chips Act in order to secure sovereignty in semiconductor technologies and applications.
Yet, although headline-grabbing, the shift towards more self-sufficiency is unlikely to show up in trade numbers for the time being as, so far, this has affected only some areas deemed critical, such as microchips or certain commodities. Also, this trend is more of a long-term story, as it takes a great deal of time to set up new industry branches. China has been on this path for years.
Ultimately, the war in Ukraine might result in a new world economic order, being characterised by more ‘friendshoring’ as labelled by US Treasury Secretary Janet Yellen – trading relationships with countries who have long-standing relationships, cooperation and share similar values might become more valuable. Ethics may also become a more important consideration in trading.
Overall, conditions for international trade remain very tough and the low costs and perceived low risks (both political, and logistical) which helped to support the development of global supply chains have become sources of uncertainty. However, these supply chains remain intact for now. It’s more about rerouting, diversification in suppliers and or regions, more stockpiling, and inventory building. In the US, for example, warehousing utilisation increased by 32% in March 2022 compared to March 2020, according to data from March’s Logistics Manager’s Index Report. Changes in inventories in the eurozone were up by 95% in the fourth quarter compared to the previous quarter, climbing to the highest level since the beginning of the time series in 1995.
Importers are considering options to mitigate supply risks and improve supply chain reliability (buffer stocks, multi-sourcing, nearer sourcing), but this is a slow process and it’s not easy to match the advantages of past trade relationships, as alternatives could prove to be more expensive. On top of that, we face (labour) shortages. Right now, it is a matter of planning further ahead than ever before.