EnThis report summarizes the six research articles that make up Panjiva’s 2021 Outlook for global supply chains. You can read all the reports – as well as a review of 2020 – in detail on our dedicated microsite.
After a traumatic start to the 2020s there are reasons to be cautiously optimistic in 2021 including: an end to the ravages of the pandemic with the roll-out of vaccines; the restructuring of supply chains with improved resilience; stabilized logistics activity, sustainable shipping rates and investment in greener vessels, technology and infrastructure; a new phase in U.S.-China relations; the return to cautious but progressive deal-making in both the Atlantic and Pacific basins; and the delivery of promises from trade deals launched ranging from Brexit and USMCA to RCEP and AfCTA.
Global supply chain activity in 2020 was defined by the COVID-19 pandemic as COVID-19 exacted a terrible human cost, disrupted manufacturing and destroyed economic demand. Later in the year a recovery in global trade came as consumers bought durables for stay/work/learn-at-home purposes and substituted purchases of services for things. Medical and food supply chains suffered from periods of protectionism which have since mostly passed. The logistics industry struggled to keep up with demand as shipping rates soared. U.S.-China relations shifted from tariffs to financing and sanctions – though the phase 1 trade deal surprisingly held – while the RCEP trade deal was finally signed and the EU-U.K. Trade & Cooperation Agreement crossed the line.
Source: Panjiva
Looking into 2021 the (not guaranteed) passing of the pandemic comes as global trade relations are set to go through another round of evolution. U.S. trade policy under the Biden administration could prove more effective and legislation-driven given the narrow Senate majority held by Democrats. It will be more cautious than under President Trump with coalition building with international partners likely the first order of business. Relations with the EU and the U.K. may benefit from a resolution to the ongoing aerospace spat and reduced steel duties. China will remain a strategic rival. The phase 1 trade deal will likely be left in place and tariffs are unlikely to be removed soon. The signing of new trade deals looks unlikely during the year, though President-elect Biden may have to take early action on CPTPP, which represented 43.9% of U.S. exports in the 12 months to Oct. 31 (of which 32.5% is Canada and Mexico), given China is also considering joining the group.
Source: Panjiva
The fallout from Brexit will take much of the year to play out. The EU-U.K. Trade and Cooperation Agreement leaves many issues unaddressed. The impact of more complex customs formalities and rules of origin have been put off but will inevitably increase the frictional costs for supply chains. The chemicals sector faces among the biggest challenges with regards to materials regulations with the EU accounting for 51.5% of U.K. exports in the 12 months to Oct. 31. Medical supplies may also face challenges, 77.0% of pharmaceuticals came from the EU, due to an absence of harmonized batch testing. Autos and electrical components face challenges while a trade deal with the U.S. is the biggest potential win for the Johnson administration’s dealmakers.
Source: Panjiva
Global trade policy will also remain in flux in 2021. Reform of the World Trade Organization is unlikely though coordinated work is still needed to work down the c120 protectionist measures on medical supplies that are still in place. State support policies for manufacturing reshoring will continue to evolve, with China’s 14th Five Year Plan potentially kicking off a new round of action from other governments. Cross-border tax policy will overlap with trade policies with an OECD decision on digital services taxes and potential carbon border taxes from the EU to come. The latter will have implications for base metals where the U.S. and EU have 13.4% and 18.3% market shares of imports respectively. The environment will be on the agenda once more with President-elect Biden committed to bringing the U.S. back into the Paris Agreement. The RCEP and African Continental Free Trade Areas enter their ratification and implementation stages respectively while disputes between China and Australia and between Japan and South Korea await resolution.
Source: Panjiva
The logistics industry enters 2021 in a state of imbalance that has led to record high shipping rates with congestion that could take much of the first quarter to clear and the specter of regulatory intervention hanging over the industry. Consolidation is unlikely among the container lines where the big three represent 83.5% of U.S. seaborne imports but is still needed in the fragmented freight forwarding sector. Investments in improving the sector’s environmental profile is needed as shipping joins the EU emissions trading scheme. Spending on IoT and other technologies can make sure existing assets are used more effectively and will be additive to much-needed improvements in supply chain resilience.
Source: Panjiva
Corporations are still struggling to emerge from pandemic-related supply chain disruptions, with the uneven recovery in elements of the automobile manufacturing sector being a prime example of the challenges faced, while the risk of a bifurcation between U.S. and China-oriented supply chains remains high even without President Trump on the scene. Long-term corporate supply chain strategies for a post-pandemic period are still in flux. Firms that have been successful have pivoted to the right products, operate integrated supply chain / e-commerce capabilities and have built more flexible sourcing strategies.
Source: Panjiva
