Due diligence is the best approach. In this article, we outline what can go wrong with international supplier relationships and explain how intensive due diligence can mitigate supplier fraud risks. 

How supplier relationships can go wrong 

International trade and international outsourcing offer immense opportunities for growth. But with greater opportunity also comes greater risk. 

Trade across borders, and your business exposes itself to a complex web of global sourcing jurisdictional gaps where enforcement is difficult, and liability is often transferred unknowingly.  

Fundamental supplier fraud 

The most direct risk involves engaging with entities that are purely fraudulent. This includes “suppliers” who set up professional-looking websites to sell non-existent goods, collecting payment before vanishing, as well as fraudulent “buyers” who use stolen financial details or overpayment schemes to defraud sellers.  

Where that happens, the contract is fiction designed solely to extract funds, leaving the victim with no recourse once the digital storefront disappears. 

Transferred regulatory liability 

Also known as the DDP (Delivered Duty Paid) trap, it’s a situation where DPP terms can create a false sense of security. As the buyer, you may think the seller handles all customs responsibilities.  

Unfortunately, where the international trade supplier commits customs fraud by e.g. under-declaring value, or by misclassifying goods (or worse, smuggling goods through third-party countries) the authorities can hold the buyer criminally and civilly liable for the unpaid customs.

Your cargo can get seized, resulting in massive fines, and even prison time if the authorities decide that you’re guilty of “willful blindness”. That can all come about regardless of what the contract stated and what your trading partner promised. 

Logistical extortion and intermediary fraud 

The chain of custody itself presents multiple points of failure, particularly through fraudulent freight forwarders or customs brokers who demand “advance fees” for taxes or clearance that do not exist.  

We’re talking about scams where forwarders hold goods hostage until extortionate fees are paid or tampering with container seals to replace high-value cargo with junk.  

Additionally, businesses risk intellectual property theft where local entities register a brand’s trademark before the legitimate owner can, effectively holding the brand ransom in the destination market. 

Real life examples of supplier fraud 

Last year, it emerged that a man called Thomas Robinson (aka Tam O’Braan) operating under the business name “The Wee Tea Plantation,” ran a scam for five years – passing off ordinary teas as a rare, premium variety.  

Robinson claimed that the tea was grown on his own estate in Perthshire, Scotland, using special techniques.  

Yet, it was simply ordinary wholesale tea. He bolstered his credibility by repackaging the tea – while also fabricating key industry awards as well as his academic qualifications.  

He targeted high-profile clients in the hospitality sector, including luxury hotels, the Caledonian Sleeper train service, and the Royal Botanic Garden Edinburgh. It was estimated that Robinson successfully conned these businesses out of a total of $740,000 USD. 

Food Standards Scotland investigated, and Robinson was found guilty of two counts of fraud at Falkirk Sheriff Court. It’s an egregious case, but there are countless other examples: 

• Fake credentials: This Alibaba vendor presents falsified documentation to buyers, masquerading as legitimate manufacturers. The imposter uses a variety of tactics including displaying certificates that are for a different, genuine company.  

• Business email compromise: In this instance, the City of Saskatoon lost over $1 million when a fraudster successfully impersonated the CFO of a prominent construction company via email to request an urgent change in the company’s banking information. As a result, a legitimate payment intended for the construction firm was redirected and sent directly to the criminal’s bank account.

• Corporate impersonation: Here, a fraudster set up a fake profile impersonating the UK logistics firm Trans Orbis Forwarding Limited on Timocom, a freight exchange platform. The criminal accepted genuine international haulage bookings, which were carried out by unsuspecting hauliers. The fraudster received the payment and disappeared, leaving the unsuspecting hauliers to invoice the real Trans Orbis, which had no knowledge of the work. 

From the above examples you can see the breadth of fraud strategies, and just how widespread fraud is. Every company is at risk. 

Resorting to legal action isn’t always realistic 

Pursuing foreign sellers for unpaid duties isn’t always a viable option, unfortunately. Costs are prohibitive and chances of recovery are low. The expense of cross-border litigation can dwarf the actual financial loss, and poorly drafted contracts and unfavourable jurisdictional clauses can mean it’s tough to enforce contracts – even in the face of fraud. 

Unscrupulous sellers often “judgment-proof” shell entities, able to dodge successful legal claims. Lawsuits can also draw unwanted attention both from potential customers and future suppliers.  

It goes for customs disputes too. While a DDP (Delivered Duty Paid) agreement commercially obligates the seller to pay, the government holds the “Importer of Record” solely responsible. The upshot is that you simply can’t rely on litigation to try to claim back the customs the seller was supposed to pay. 

How to guard against bad supplier relationships 

It’s far better to prevent a bad supplier relationship by vetting suppliers, rather than relying on legal actions once the relationship has soured. That starts with due diligence, right at the start of a sourcing or outsourcing decision. 

Proper due diligence includes a mix of judgement, care, and prudence that a company can take to ensure that its trading partners are qualified with a track record and current operations can be trusted. 

For more on how to maximize cost savings, create a competitive advantage and minimize potential risks by finding the best possible suppliers or outsourcing opportunities explore Global Value Chain.

It can be a daunting task, but there are resources that help. Consider talking to trade councillors and government agencies to see where the current pitfalls lie, and how to guard against these. 

Your export credit partner can also help – and trading houses are also a good port of call for due diligence research.  

Prevention is the only strategy 

Whatever you do, never rush into a decision with a foreign trading partner – these decisions should never be made quickly. 

As the “Wee Tea” case demonstrates, a professional facade can easily mask deception, and once a relationship sours, legal recourse is often prohibitively expensive or practically impossible.  

Relying on contracts to protect your interests in cross-border deals is a gamble that frequently leaves buyers with no way to recover lost funds or salvage their reputation. 

Rigorous, proactive due diligence is critical.  

The post Scammed, swindled and shorted – how you can avoid losing money to bad supplier partnerships appeared first on Trade Ready.

To qualify for preferential duties, exporters must meet ROO rules, but these are complex – and strict compliance is essential to avoid costly customs audits. In this article, we outline what companies need to understand about rules of origin – and highlight the key points exporters must manage to avoid failing an audit.

What rules of origin actually do

Rules of origin are fundamental to international trade because they gatekeep access to Free Trade Agreements (FTAs). ROOs determine the economic nationality of a product, i.e., where a good is truly considered “from” for tariff purposes.

Rules of origin are the laws, regulations and administrative guidelines that governments use to determine an imported product’s country of origin, not always an easy matter when the raw materials, manufacturing, processing or assembly of a product can be provided in several different countries.

For example, simply shipping a product from, say, Canada to the EU, does not automatically grant it preferential treatment under the Canada European Union Comprehensive Economic and Trade Agreement (CETA).

If the product uses inputs from outside the FTA zone, it must undergo substantial transformation in the exporting country to be deemed “originating” in that country.

Exporters must meet the strict, product-specific criteria laid out in each FTA, in order for the product to qualify as “originating” and become eligible for reduced or zero tariffs.

Two main types of rules of origin

Rules of origin are generally categorized into two distinct types, each serving a different purpose in international trade: preferential and non-preferential.

Preferential ROO

These are the rules that matter most to exporters seeking a competitive edge. Preferential ROO are applied exclusively within the framework of FTAs, such as USMCA (formerly NAFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), or the Regional Comprehensive Economic Partnership (RCEP).

Meeting these rules is how a product qualifies as “originating” under the terms of the agreement, which in turn grants it preferential tariff treatment. In practice, it means that importers pay either a reduced or a zero-duty rate.

Non-Preferential ROO

Non-preferential ROO determine a product’s origin for general commercial purposes and are applied unilaterally by a country (or by multilateral organizations like the WTO) in cases where no FTA benefits are being claimed.

These rules do not usually grant any special tariff advantages, but countries still impose these rules for various administrative and trade remedy reasons, for example:

• Trade statistics: Accurate recording of import and export data.
• Country-of-origin labelling: Determining the “Made In…” label required on goods.
• Trade remedies: Applying specific measures like anti-dumping or countervailing duties against goods determined to originate from a specific country.
• Government procurement: Determining the eligibility of a product for public tenders.

While both rule types are legally required, for the specific goal of maximizing profit and offering cost savings to your buyers through lower import duties, preferential ROO are the primary focus for any company using an FTA.

How to figure out the rule for your product

Determining origin starts with classification. Every product in global trade is assigned a specific harmonized system (HS) code by the World Customs Organization (WCO).

The World Customs Organization says that,

“At the heart of international trade, the harmonized system is an essential tool for harmonizing and facilitating the movement of goods around the globe.”

The HS code is the anchor for all trade rules. Once you have the correct HS codes for your exported product, you can look it up in the relevant FTAs’ annex or schedule, which will detail the product-specific rule (PSR) you need to meet. These rules fall roughly into four categories:

Wholly Obtained (WO)

This is the most straightforward rule. Here, goods must be entirely sourced or produced within the territory of one FTA member country. None of the materials used to produce the goods can be non-originating. Wholly obtained goods automatically qualify as originating.

Clear examples include minerals extracted from the ground, live animals born and raised, or fish caught by vessels registered and flagged to that country.

Change in Tariff Classification (CTC)

CTC rules are the most common method for manufactured goods that use imported components. The core principle is that non-originating inputs must undergo sufficient production or processing within the exporting country.

In other words, the finished product is classified under a different HS code than the inputs. There is a minimum shift in classification required for this rule to apply. Depending on the rule, the required “shift” can be at a high level – implying a change in the applicable chapter of the HS code.

Some rules allow more granular changes in how to find HS code, for example, a change in subheading. It depends on the specifics of the free trade agreement.

Regional Value Content (RVC)

The RVC rule dictates that a certain minimum percentage of the final product’s value must originate from within the FTA region.

According to Export Development Canada,

“The imported components must undergo significant transformation during manufacturing to be considered as originating from the trade agreement countries.”

This rule is often used for products where a tariff shift alone is not considered a sufficient transformation. Think about really complex assemblies, such as a car or industrial machinery.

The FTA will specify the calculation method to be used, but the common ones are the transaction value method, which looks at the selling price of the product, and the net cost method, excluding costs such as marketing and royalties.

Specific Process Rules

For a limited set of international business contracts, origin is determined by requiring the completion of a specific, non-tariff-based manufacturing or chemical process.

This rule is often applied to industries like textiles, chemicals, and refined metals (steel), where the process itself is the measure of substantial transformation, regardless of the resulting HS code.

Key points exporters must manage

ROO compliance requires diligence across multiple parts of your supply chain and record-keeping system, including:

• HS code accuracy: Incorrect classification is the most common and costly mistake, as using the wrong HS code immediately leads to an inaccurate ROO determination. This can result in your buyer being denied the preferential tariff.
• Understanding the applicable rule: Different FTAs have different rules, so a product that qualifies as originating under CETA may not qualify under USMCA due to varying RVC thresholds or CTC requirements.
• Tracking inputs: For any product not wholly obtained, you must trace the origin and processing of your components. That includes where inputs are from, the relative value of each input, and its transformation status.
• Maintaining documentation: Exporters are required to keep records to back up every origin declaration, including bill of materials and supplier declarations. Cost breakdowns and production records are also critical.
• Issuing the certificate of origin: The required format depends on the FTA and can vary from self-certification (USMCA, CPTPP, and CETA) to government-authorized certificates, particularly in the case of older regional agreements.
• Importer responsibilities: The importer is the party legally responsible for claiming the preferential tariff rate and ultimately liable for any inaccuracies. Importers must retain the origin documentation provided by the exporter.

Note that under certain FTAs (like RCEP), the importer is permitted to issue the origin declaration themselves, placing the compliance burden directly on them.

Common pitfalls

Navigating rules of origin is complex, with even experienced exporters making mistakes. Common pitfalls include:

• Assuming “Made In X” means “Originating in X”: The country where a product is made is not the same as its origin according to trade rules. Something can be made in one country, but fail to qualify as originating in that country according to an FTA.
• Trusting supplier classifications: Exporters often assume the materials provided by their suppliers meet the origin criteria – but should instead verify via a formal supplier declaration or certification.
• Ignoring the De Minimis rule: The de minimis rule is a tolerance that allows a small percentage of non-originating inputs to be used without affecting the origin status, provided the product otherwise meets its ROO.
• Origin when suppliers change: A change in your supply chain, even switching suppliers within the same country, can alter the origin status of your materials.

It’s also worth noting that when a regional value content rule applies, errors in calculation, including the wrong valuation method or non-allowable costs, can invalidate the entire origin claim.

ROO knowledge is core to the correct trade declaration

Ultimately, understanding and mastering the rules of origin is just non-negotiable. Strict compliance ensures your product is correctly documented, which protects your company during customs audits.

Achieving assured originating status directly translates to financial benefits by allowing your product to access lower tariffs (often zero duties) under FTAs, which immediately helps with competitive pricing in new markets.

It’s a win-win, but the rules are complex. Close adherence is an absolute must.

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Strategy at the core

A sustainability strategy acts as a guiding map with clear objectives and precise action steps to minimize adverse effects on the environment while maximizing lasting advantages for both the company and society at large.

By adhering to global sustainability benchmarks, organizations manage ESG risks and also enhance their standing among various stakeholders, including clients, shareholders, and authorities.

These sustainability initiatives foster a culture of effectiveness and purpose within the organization, which also results in reduced expenses and enhanced competitiveness in markets increasingly demanding these efforts from the companies they patronize.

1. Cascades

Packaging and hygiene products producer Cascades Inc.’s sustainability action plan recently received accolades for its forward-thinking aspects, which aim toward a circular business model. The company has focused on building a legacy on their dedication maintaining a circular supply chain for their products and packaging.

For the 5^th year in a row, Cascades was ranked among the top 100 most sustainable companies in the world.

The company’s investment policy included proactive investments aimed at sustainability goals, with perhaps the most impressive point of this plan being a target to shift all packaging to recyclable, compostable, and reusable forms by 2030. Amidst the growing urgency to combat climate change, this bold vision reflects Cascades’ resolute application of its circular economy philosophy and waste reduction practices.

Furthermore, Cascades intends to be a pillar of North America’s recycling sector with 17 sorting facilities, while having an impressive high usage ratio of recycled fibers in its products at 83%. Through its guarantee that more than 90% of all the goods manufactured are compostable, it’s estimated that 2.2 million tonnes of fiber is diverted from landfill sites, which leads to the preservation of over 31 million trees. Cascades is a leader in demonstrating a strong commitment to the environment and to society.

2. IKEA

IKEA’s sustainability strategy is based on three fundamental pillars: living sustainably and healthfully, focusing on climate action and fairness, and safety first. Applying several programs and strategies, the “IKEA Concept” aims to expand the scope of its actions and expand the coverage of sustainability action through 2030 – to reach more than one billion people around the world.

It’s a broad-ranging program that may encourage a huge section of the global population to adopt sustainable lifestyles and minimize the adverse impacts of their activities.

IKEA acknowledges the increasing importance of the contribution of families to the health, environment, and resilience of today’s world. For instance, these groups are helping to take care of our environment by working towards the reduction of pollution and carbon emissions through promoting energy and water conservation, the use of renewable energy sources, as well as suggesting sustainable means of nutrition.

Among their efforts, IKEA is are 100% committed to sustainable cotton ensuring the cotton they use is grown with less water and chemicals, helping areas that are subject to erosion and water scarcity.

The company has also prioritized drastically reducing greenhouse gas emissions across the IKEA value chain and moved toward the use of only renewable or recycled materials by 2030.

All wood used in IKEA products is also sourced from responsibly managed forests which do not contribute to deforestation.

On top of that IKEA has become very popular by developing products that are not just the cheapest but also the greenest, hence people are observing IKEA’s green credentials and making some effort to follow their lead.

IKEA’s vision: through 2030, reaching zero fossil materials or fuels used. This should be a major contributor to the reduction of global warming.

3. Pact

Pact developed a sustainability strategy which is based on organic cotton, fair trade practices, and environmentally smart shipping. Its initial purpose was to be an underwear brand, which has extended into men and women’s clothing.

Being a label that offers all kinds of organic cotton with tops, dresses, and lounge wear, it now ensures it sells only GOTS organic cotton, and that its processes are also certified by fair trade factories.

A notable example of their circular fashion initiatives is their partnership with the “Give Back Box” program, whereby people can use free shipping labels distributed by Pact to send on their used clothing on to multiple charities.

Through teaming up with SimpliZero and organizations similar to that, Pact ensures that each one of its products is manufactured on a zero-emissions basis and completely carbon neutral.

Packaging with Pact is all about paper eco envelopes with FSC-certified 100% recyclable material and cardboard boxes constructed of recycled material. All in all, Pact’s sustainability plan consists of fair-trade alternatives, carbon emission offsetting and ecologically sustainable packaging, showing the company’s involvement in the environmental and societal responsibility of the fashion business.

4. Novo Nordisk

A pharmaceutical giant, Novo Nordisk manifests its dedication to the environment through an innovative program called “Circular for Zero”, which tries to get Novo Nordisk to a point where the company’s activities pose no harm to nature.

The company reported a more than 66% reduction in carbon emissions and progressed even more after achieving 100% renewable energy consumption in all production centers in November 2020.

Aware of the magnitude of the sustainability issue, Novo Nordisk emphasizes that it will shift its supply chain and zero emissions out by 2045 through a set of bold ambitions, justifying its unalloyed dedication to sustainability.

Novo Nordisk not only has to face environmental issues but also solve the matter of equal access to treatment and affordable treatment for all patients who are in dire need with the help of their company.

The company’s “Changing Diabetes® in Children” Program is global and in almost 380 hospitals in low and middle-income countries, the initial goal being to create a platform where children with diabetes would have access to the right medical treatment.

Collaborating with UNICEF as a partner helps the company build an operations strategy concerned with identifying environmental factors. The activities demonstrate how Novo Nordisk encompasses the whole approach to disease prevention.

5. Clif Bar

Clif Bar implements CSR through various environmental initiatives including waste reduction, using renewable energy sources and campaigning for protecting our forests. Moreover, Clif Bar aims to make all its packaging recyclable, compostable or reusable by 2025, and this process is going to begin with the classic Clif Bar packaging.

Reducing plastic usage stands as the main principle followed by the company, and it plans to minimize the consumption of plastic by 12% and to acquire 25% of its plastic from recycled or renewable sources by 2025. In addition, Clif Bar has committed to remove 1000 tons of plastics from the ocean within the specified years.

Besides that, Clif Bar has moved towards the harnessing of renewable energy which is one of the company’s main objectives, and to have all their production facilities powered by clean energy by the year 2030 as well as cutting down CO2 emissions by half.

The firm also aims at planting up to 1 million trees by 2030.

Clif Bar’s process-based approach in its value chain is an indicator of the organization’s determination to make the whole food system sustainable – from sourcing raw materials to the final product delivery – as healthy as possible.

Sustainability with purpose

The path to sustainability for companies no matter small or large is by way of combining purpose and faithfulness. It’s clear that sustainable management can be applied not just in the operations of business, but also can cover waste disposal, renewal of energy sources, procurement of raw materials, and reduction of plastic use.

These brands are serving as leaders, demonstrating how companies can start modifying their business practices by focusing on environmental issues and building a portfolio of green activities to create this future. The promotion of sustainability is not solely a decision, but also an obligatory commitment. Its advantages are not only for the company and its customers, but for the entire global community as a whole.

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These issues not only underscore the canals’ vulnerabilities but also their crucial role in maintaining the rhythm of global trade. We also explore the strategies traders are employing to navigate these challenges and the outlook for 2024, offering insights into the future of these vital trade routes.

The importance of the Suez and Panama canals on global trade

The Suez Canal, opened in November 1869, is a 193km waterway connecting the Mediterranean Sea and the Red Sea. It provides a direct route for shipping between Europe and Asia, bypassing the need to navigate around Africa.

Approximately 12% of global trade, representing 30% of all global container traffic and over USD $1 trillion worth of goods per annum, passes through the Suez Canal.

This includes energy, commodities, consumer goods, and componentry from Asia and the Middle East to Europe.

The Panama Canal, opened in 1914, is another vital link in global maritime transportation, connecting the Atlantic and Pacific Oceans. It allows ships to avoid the lengthy and hazardous voyage around Cape Horn at the southern tip of South America.

The canal plays a crucial role in global supply chains, supporting the movement of various commodities, including dry bulk, container, chemical tankers, and more.

Both canals have had significant impacts on global trade patterns and the economic geography of many countries. They have facilitated faster delivery of goods, but their importance also highlights the vulnerability of global supply chains, as blockages or disruptions in these canals can have far-reaching effects on global trade.

What the drought has meant for the Panama Canal

Drought has led to decreased water levels in the Panama Canal. Water is crucial for its operation as water is used to raise and lower ships. This has forced officials to reduce the number of vessels they allow through the canal, creating expensive complications for shipping companies.

The decreased water level in the canal is due to a reduction in rainfall in Panama, leading to one of the driest years in the country’s history. The water levels in the Gatun Lake, which feeds the canal, have reduced significantly compared to usual levels during this period. This has led to a severe drought, with water levels in the canal at their lowest in decades.

The drought has also led to delays in transit times, impacting the ability of large cargo ships to quickly traverse the Panama Canal. The Panama Canal Authority has had to implement new operational measures to minimize the impact of the drought. These measures include reducing the number of available reservation slots, which is likely to hinder trade levels, particularly for the U.S. East Coast.

The drought has also forced the Panama Canal Authority to reduce the number of daily transits and the maximum weight of ships. This has led to a significant reduction in vessel traffic, affecting the flow of trade. Shipping containers are piling up along the Panama Canal, triggering a wave of supply chain disruptions. This has led to additional container surcharges imposed by ocean carriers on shippers.

Conflict in the Red Sea – and its implications for Suez Canal attacks

The current conflict in the Red Sea involves Houthi rebel attacks on maritime vessels, which has escalated military tensions in the region. The Houthis, who control a portion of Yemen’s Red Sea coastline, have launched missiles and drones against ships, asserting that their actions are retaliatory against Israel’s military operations.

These attacks have disrupted international shipping and led to a multinational maritime security force, including the U.S. and U.K., to protect ships passing through the Red Sea. The implications for the Suez Canal are significant, as it is one of the world’s most crucial maritime chokepoints, facilitating a substantial portion of global trade.

Any disruption in the Red Sea could impact the flow of traffic through the Suez Canal, potentially causing delays and economic repercussions due to the canal’s strategic importance in connecting the Mediterranean Sea to the Red Sea, and thereby Europe to Asia.

The conflict has attracted international attention, with various nations responding to the threat against shipping in the Red Sea. The U.S. and U.K. have conducted airstrikes against Houthi targets in response to the attacks, and there is concern that the conflict could widen, affecting not just regional but global stability and trade.

Understanding the aggregate effect

The aggregate effect of restrictions on both the Panama Canal and the Suez Canal can be profound for global trade.

These two canals are essential shortcuts for maritime shipping, with the Panama Canal facilitating about 6% of global trade and the Suez Canal handling around 12%.

When operations at these canals are restricted, it can lead to significant delays, increased shipping costs, and disruptions in supply chains.

For instance, the Panama Canal drought meant that ports in Panama, Nicaragua, Ecuador, Peru, El Salvador, and Jamaica have seen 10% to 25% of their total maritime trade flows affected. The Suez Canal’s disruption could add about 10 days to the duration of trips, forcing ships to reroute around the Cape of Good Hope, adding about 3,000-3,500 nautical miles to journeys.

These disruptions can also lead to increased prices for goods. The Panama Canal disruption has resulted in generalized price increases for agricultural commodities and food industry produce in Europe. The Suez Canal disruption could lead to surging prices on goods like oil and gas.

Moreover, these disruptions can force shipping companies to seek alternative routes or modes of transportation, which can further increase costs and lead to delays. Some shipping companies have started redirecting shipments from Asia away from Panama and through the Suez Canal due to the Panama Canal’s drought.

However, with the ongoing conflict in the Red Sea, these companies may have to reroute their vessels around Africa, adding at least a week to the journey.

5 strategies importers and exporters can action to avoid disruption

Goods and commodity traders can employ several strategies to compensate for disruptions in the Panama and Suez Canals:

• Diversification of supply chains: One option is to diversify supply chains to reduce dependence on a single route. This could involve using alternative shipping routes, such as the Cape of Good Hope, or exploring other modes of transportation like rail or air freight.
• Stockpiling and strategic reserves: Traders can maintain larger inventories or strategic reserves of key commodities to buffer against supply chain disruptions. This strategy, however, increases storage costs and may not be feasible for perishable goods.
• Insurance and hedging: Insurance can cover losses from supply chain disruptions. Traders can also use financial instruments, such as futures and options, to hedge against price volatility caused by disruptions.
• Investment in technology: Considering investing in technology to improve supply chain visibility and resilience. For example, supply chain control towers, which use artificial intelligence, can provide timely alerts about possible delays, allowing companies to adjust their strategies quickly.
• Trade shifts: Traders can shift their trade towards regions or countries that have increased their exports due to the disruptions. For instance, traditional trading partners like the United States, Canada, Australia, and New Zealand have heavily increased their exports towards the EU27.

While disruptions in the Panama and Suez Canals pose significant challenges, traders have a range of strategies at their disposal to mitigate the impacts.

The choice of strategy will depend on the specific circumstances of each trader, including their risk tolerance, financial resources, and the nature of the commodities they trade.

The Panama and Suez Canal outlook for  2024

In the Panama Canal, daily vessel passages, expected to reduce to 18, have instead increased to 24, and delays have been minimal. Despite this, water levels remain below average, and the long-term outlook for the canal is concerning.

Meanwhile, the Red Sea crisis has seen increased security issues, with attacks by Yemen’s Houthi forces on commercial vessels causing most container lines to reroute around Africa and the Cape of Good Hope.

It is arguably the Suez Canal that poses the biggest ongoing threat to global trade flows. The lack of security in the Red Sea has led to a halt in transits, and any potential military action to increase security will risk escalating the regional conflict.

Users of freight shipping are advised to monitor the port outlook as 2024 is set to see problematic conditions for at least the first quarter. Resolving the issues in both the Panama and Suez Canals is crucial for the industry, but there are no quick or easy solutions to the challenges currently faced.

The post How international trade will be impacted by Suez and Panama Canal disruptions in 2024 appeared first on Trade Ready.

In the aftermath of a global pandemic and with the context of shifting geopolitical landscapes nations struggle with what looks like slowing trade. In this article we examine the current state of global trade, weighing the optimistic strides made against a backdrop of challenges.

Progress in August

First, the good news – it looks like significant progress in global trade growth was made in August, as several factors appear to support broader international trade – according to the WTO’s August 2023 trade report.

For example, Ukraine has initiated a significant move by opening a “humanitarian corridor” in the Black Sea for cargo ships. It’s a marked change when considering the recent collapse of the Black Sea Grain Initiative: Russia’s exit from the grain initiative and its subsequent blockade on Ukraine.

On a broader trade front, the WTO stated in the same report that services trade is witnessing what looks like more robust growth compared to merchandise trade. This difference is particularly accentuated thanks to export restrictions on key goods, including food and fertilizers.

In fact since 2020, there has been a significant increase in export restrictions. For instance, 63 such restrictions are in place for food, feed, and fertilizers.

Last year, the services trade saw a remarkable 15% boost, decisively outperforming the 2.7% growth in merchandise trade.

When combined, the total trade experienced a 13% surge, accumulating to an impressive $31 trillion.

Challenges in many corners

Diving deeper into global trade intricacies, we see a few pinch points – including a reminder of how physical pinch points such as the Suez and the Panama Canal can restrict global trade.

A severe drought at the Panama Canal is causing significant disruptions to global trade. In practice cargo ships have waited for extended periods, sometimes several weeks, to traverse the canal – which delayed cargo significantly, and led to a build-up of vessels.

The Panama Canal Authority (ACP) has had to limit the number of vessels using the canal and impose restrictions on ships’ depth, limiting the cargo they can carry, due to water scarcity. The ongoing drought situation is described as presenting “unprecedented challenges”.

The canal, which connects almost 2,000 ports across 170 countries, is pivotal for international trade, with major traffic from across the globe but in particular countries such as the United States, China, and Japan.

The drought’s impact on the canal emphasizes the increasingly disruptive consequences of the climate crisis on global supply chains.

Trade volume under policy pressure

China, a major player in the world’s economic scenario, registered a sharp decline in both exports, by 14.5%, and imports, by 12.4%, in July. One event that may have contributed is the US decision to curtail its investments in some pivotal Chinese tech sectors.

Also in the East, Japan and Qatar are keenly focused on strengthening their trade ties, but there’s a cloud of uncertainty between Japan and the US due to disagreements over whaling practices.

The changing global climate has also been exerting pressure on trade. Rising temperatures have escalated food prices, with soybeans, olive oil, and rice facing severe shortages.

The emphasis on climate-aligned foreign direct investment (FDI) is now seen arguably at the core of sustainable growth of developing nations.

A noteworthy development from the West is the recent downgrading of the US’s long-term credit rating, which poses intriguing questions about the behemoth economy’s future borrowing and investment capabilities.

IMF comment underlines global concerns

In the aftermath of a global pandemic, the world finds itself grappling with unprecedented challenges. Recent research from the Kansas City Federal Reserve paints a challenging picture of the post-pandemic global economy, highlighting issues like soaring government debt, geopolitical tensions, and an unsettling trajectory for technological innovation.

With the backdrop of geopolitical disruptions like the Russian invasion of Ukraine and escalating U.S.-China tensions, global trade appears to stand at a tough crossroads.

Pierre-Olivier Gourinchas, the International Monetary Fund’s chief economist, underscores the fragility of the current state, noting that countries are drained after battling the pandemic, and that policy-driven forces and decoupling between China and the West add further strain.

The looming danger is a possible stagnation where parts of the world fail to progress, leading to demographic and migration pressures. Economists, including Gourinchas, believe that global growth might stagnate around 3%, a disappointing rate compared to the past where China’s rapid development drove figures above 4%.

Existing trends amplified by COVID-19

The impact of the pandemic amplified certain pre-existing trends. A paper by Serkan Arslanalp of the IMF and Barry Eichengreen from the University of California, Berkeley, reveals a troubling statistic: the ratio of public debt to global economic output surged to 60%.

This was largely driven by pandemic spending by governments. Such unsustainable levels of debt threaten to divert vital resources away from developing nations that have burgeoning populations but lack capital.

Recent geopolitical events, notably the Russian aggression against Ukraine, have also fragmented the longstanding belief that trade fosters lasting international partnerships.

COVID-19 had, of course, a huge impact on global trade flows and arguably became a movement where many participants in global trade decided that near-shoring is also the equivalent of de-risking.

It led to a pattern of nearshoring but World Trade Organization Director-General Ngozi Okonjo-Iweala cautions against the current trend of reordering global production patterns. While diversifying trade might seem appealing, it’s essential to extend opportunities to those nations historically sidelined in the global trade arena.

What does global growth look like?

Global economic growth is a natural driver of trade growth. From an economic standpoint, recent economic projections from the IMF shows global growth decelerating, with projections declining from 3.5% in 2022 to 3.0% for 2023 and 2024.

Although inflation in developed economies shows signs of slowing, trade volumes are down. Manufacturing sectors worldwide are experiencing a slowdown, and while services are expanding, there’s noticeable deceleration.

The ripple effects of the pandemic also extend to the future of work, affecting urban economies. Demand for office spaces in major cities like New York, London, and San Francisco is dwindling, with average office attendance dropping significantly.

In general it could be suggested that global growth is somewhat anemic – and there are also signs that China may not offer much support in the near future.

Debt may continue to weigh on trade

Despite the myriad challenges facing global trade, and an ongoing recession threat, it’s worth considering the resilience shown by key economies. Growth in certain sectors, like the services trade, offer a beacon of hope.

The commitment of nations to navigate these complex issues, combined with the need to diversify and include historically sidelined nations, has the potential to reshape and strengthen global trade patterns for a more inclusive and prosperous future.

For organizations dependent on global trade it therefore depends on the ability to harness opportunities – which, though under pressure, will still be out there to harness.

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