Week in Review
What We're Reading:
April 5, 2021
Suez Canal cleared, but disruption ‘could last months.’ Efforts to clear a backlog of hundreds of vessels in the Suez Canal are finally underway after a stranded container ship blocked the route for nearly a week, but experts warn the secondary effects on supply chains and shipping costs could last months. (Global Trade Review)
Vaccines, fiscal stimulus boost US employment in March. The U.S. economy created the most jobs in seven months in March as more Americans got vaccinated and the government doled out additional pandemic relief money, marking the start of what could be the strongest economic performance this year in decades. (Reuters)
Bitcoin price surge may be driving up interest in China’s digital yuan, central bank says. Interest in China’s digital yuan project could in part be driven by the surging price of bitcoin, China’s central bank said on April 1, even as the cryptocurrency is effectively banned in the world’s second-largest economy. (CNBC)
Egypt’s claims bill for Ever Given ship’s Suez blockage may hit $1bn: Canal authorities. The head of the Suez Canal Authority on April 1 said that losses and damages resulting from the grounding of the Ever Given container ship could run to more than $1 billion. (Arab News)
EU SMEs in bid for greater interoperability in Digital Markets Act. Forty pan-European tech companies have penned a letter to MEPs calling for support for bolstered interoperability requirements in the Digital Markets Act (DMA) while stressing the importance of keeping the rules aligned to developments in the area across EU nations. (EurActiv)
Mexico faces a slow economic recovery after a steep recession. Mexico’s economic performance deteriorated steeply in 2020 which may be largely attributed to the COVID-19 pandemic and slow government action to curb disease spread. (Global Trade Magazine)
Oil climbs as OPEC+ weighs hiking production or keeping cuts. Oil gained in New York as OPEC+ started a high-stakes meeting to decide whether to extend deep supply curbs or ease them. (Aljazeera)
Credit Suisse shares rally while Archegos ripples spread. Credit Suisse shares rose on April 1, ending a losing streak in which they shed close to a fifth of their value, though the lender is yet disclose how much it lost in trades for stricken U.S. fund Archegos. (Reuters)
Connecting the world through the Panama Canal. Through its shortened route and strategic location, the Panama Canal continues to expand its partnerships across the world and innovate its services to uphold its commitment to creating, capturing and rendering value to its customers and Panama. (AJOT)
How Far Will Supply Chain Adjustments Go?
Chris Kuehl, NACM economist
Prior to this year, the business community placed supply chain concerns fairly far down on the list of things to obsess about. Basically, supply chains had become amazingly reliable and efficient as technology advanced. One could predict the arrival of goods down to the hour, and every element of the transportation system had managed to work out how to collaborate and cooperate.
It was basically seamless. That was the underpinning of the just-in-time (JIT) system. Nobody had to hold vast inventories any longer. Worries about overstocks, understocks, theft or insurance were minimized. No more carrying so much dead weight on the books.
Whatever was needed would show up as if by magic. That was before the onslaught of pandemic inspired delays, the impact of storms and accidents like the Suez Canal blockage. Suddenly the whole premise behind supply chain efficiency was called into question. What happens now? Is there to be a wholesale change in the way that things are moved from place to place?
The short answer is no. The interconnected world we inhabit now demands extensive movement of just about everything. There will always be hundreds of thousands of vehicles and millions of people employed in the process. The changes will be felt in terms of expectations. There will be more attention paid to contingency plans.
Assumptions that supply chains were flawless have been shattered. Businesses must build in reactions to breakdowns and failures—standard practices for many companies for years already. Companies must employ three strategies to prepare for supply chain challenges.
The first and most obvious strategy is the use of inventory management. The JIT system will not vanish altogether, but the notion that inventory no longer needs to be held will. Companies will have to forecast demand more accurately and ensure they have the materials they require to continue producing or selling. The auto sector in the U.S. has been forced to close assembly plants for weeks due to insufficient access to semiconductors. All of them now plan to keep a greater number of these on hand. Retailers that run out of items that shoppers demand will not get a second chance. On the other hand, no business wants to sit on millions of parts that are not needed. That retailer doesn’t want hundreds of Christmas items hanging around in May.
The second approach ensures diversity. When the JIT system developed, a great deal of variety was available, including hundreds of suppliers and options. That was the beauty of the system. It could manage all of these different supply chains and ensure that products would be available and that quality would be maintained.
Over time, choices narrowed as some suppliers came to dominate the system. It was simply easier to manage one or a select few suppliers from a few nations than to deal with dozens. In the early 1990s, department stores in the U.S. such as Sears and Montgomery Ward bought clothing items from more than 87 nations. No country had more than a 5% share of the market. By 2020, the clothing market was dominated by seven nations, which collectively control more than 65% of supply. Today, a conscious effort is underway to bring back some of that diversity to ensure there are options should something interrupt the usual flow.
The third response shortens the supply chain. The rapid advance of globalization and supply chain efficiency allows shipments to travel vast distances, and that has shifted the emphasis as far as selecting a supplier. The only issue of concern was the product itself: price, design, quality and the like. That has now changed; the length of the supply chain has yielded concerns regarding its reliability. The push now is to locate more production closer to where it is needed. That has encouraged movements to “on-shore” and “near-shore” in the U.S. and Europe. It does not always mean bringing production back to the home country because big differences in production costs still exist, but there has been an emphasis on locating in nations where transportation options are less complex.
|Blockchain Technology & Decentralized Finance
Speakers: Anjon Roy and David Wasson, SIMBA Chain
|NACM and FCIB Present Author Chat:
Leadership Reflections: 52 Leadership Practices in the Age of Worry
Author: Dr. Lisa M. Aldisert
|Regulatory Compliance 101:
What is regulatory compliance and why is it important?
Speaker: Chris Doxey, CAPP, CCSA, CICA, CPC, Doxey Inc.
|Global Expert Briefings - Trade Risk
Speaker: Jay Tenney, Trade Risk Group
How Embedded Payments Can Drive Cross-Border B2B Marketplace Success
Health-consciousness rose to new levels over the last year as individuals around the globe took a renewed interest in products that promote wellness. For retailers and grocers, that meant having to adjust their product procurement strategies to focus on organic and natural brands to meet customer demand.
Consumer shopping habits have shifted dramatically over the months thanks to a surge in eCommerce, curbside pickup and other emerging models. As stores were scrambling to keep pace with intensifying demands, they were also balancing this need to inject new variety within their product offerings.
These market pressures created conditions in which retail buyers of these brands had to come to terms with a new way to source products, collaborate with their vendors and procure across borders, according to Grovara’s Co-founder and CEO Abu Kamara and Co-founder and Chief Innovation Officer Peter Groverman.
Speaking with PYMNTS, Kamara and Groverman highlighted how important it was for even the most hesitant of overseas buyers to finally embrace the digital realm when sourcing from the U.S.
“You have a lot of people internationally who are behind, in terms of technology,” Groverman explained, pointing to one buy-side client of the Grovara B2B marketplace platform in Costa Rica who had initially considered the portal “over-engineered” and unnecessarily digitized. But when the pandemic hit, he said, that buyer could no longer rely on in-person interaction to purchase what the company needed. “If the pandemic did anything,” Groverman said, “it increased the evolution of what’s inevitably going to happen.”
Digitization Towards Simplicity
That inevitable change undoubtedly includes the digitization of B2B eCommerce in a similar fashion to the migration of consumer commerce online. And while the pandemic has driven up purchasing volumes of B2B trade online — Amazon Business, for instance, recently hit a new milestone in terms of annual sales volume — corporate buyers can still face significant friction when it comes to changing sourcing, procurement and payment processes that have historically been offline and via email.
A recent survey from B2B International revealed that more than one-third of millennial B2B buyers say B2B eCommerce platforms offer a worse experience than B2C portals. It’s a finding that emphasizes just how crucial it is for digital B2B marketplaces to not only digitize the buying and selling experience for their users but do so in a way that promotes ease of use.
“We understood the difference between B2B and B2C,” said Kamara. “We all know, as big as the opportunity of the buying process is, it’s really boring.”
Highlighting the “stickiness” of successful consumer commerce portals, he noted the opportunity for marketplaces that bring buyers and suppliers together to tackle some of the biggest pain points of cross-border B2B trade. Among the largest, he said, is a lack of transparency, allowing the marketplace to digitize and present data with regards to shipping routes, documentations, brand discovery and more.
The Embedded Experience
Digital marketplaces can act as B2B matchmakers, but they can also sit between buyer and supplier to address some of the biggest barriers to cross-border trade. That includes product discovery and logistics, with Groverman highlighting Grovara’s features like integrated buyer education about U.S. brands and products as well as its proprietary “pallet builder” feature that allows a buyer to add items to the digital shopping cart based on SKU data and the item’s ability to fit on a single pallet.
To elevate the user experience for both buyer and seller, however, these features must be seamlessly embedded within the digital portal. Cross-border B2B payments are no exception: While a marketplace may be able to address the pain points of traditionally sluggish and opaque cross-border transactions with complex foreign exchange (FX) conversions and fees, the most successful of these platforms will be able to offer integrated payments experiences.
Kamara said that the company’s current partnership with Stripe allows for integrated payments within the platform, but as Grovara expands (the company recently announced a seed funding round), it will be exploring ways to imbed the payments function more deeply and seamlessly within the portal. That could mean new partnerships or building out proprietary technology.
“We believe we can have our own native payment solution,” Kamara said. “There is something there to capture the payment ourselves — especially from an international wire transfer point of view — and to automate and streamline it."
Groverman agreed that comparing Grovara’s cross-border B2B payments plan to the payments evolution of Alibaba launching Alipay. The effort to introduce a payments feature that naturally complements the marketplace itself is a rising trend in B2B eCommerce today as more marketplaces and platforms seek to retain greater ownership of the payment process, rather than handing it off for a third-party partner to manage.
Embedded payments and an emphasis on user experience are key features of B2B eCommerce not isolated to the organics and natural products industry. On the contrary, they are universal and industry agnostic and may provide Grovara an avenue to expand its product category footprint moving forward.
Regardless of the customer or brand segment, B2B buyers and sellers that seek international opportunities need an elevated experience, and the more streamlined and simple a digital marketplace can operate with elevated functionality, the sticker that platform will be for the business buyer and seller.
Reprinted with permission by PYMNTS.com.
Finance Chiefs Say Their Capital Allocation Strategy Needs Overhaul
The effects of the COVID-19 pandemic on companies have catalyzed a major shift in capital allocation strategy, according to a new survey.
The 2021 Global Capital Allocation Survey by Ernst & Young LLP, in partnership with Oxford Economics, states that more than half (56%) of the chief financial officers (CFOs) who responded say their capital allocation strategy needs to be completely rethought, and 80% concede their existing capital allocation process needs improvement.
To improve long-term business performance, the survey finds that CFOs and their companies must:
- Define the future state of their business with greater accuracy and align their strategy with their investment road maps.
- Use the capital allocation process to drive business agility.
- Focus on the right metrics in the post-pandemic era.
Aligning Investment Road Map with Corporate Strategy
As capital spending rebounds, CFOs are deciding which investments best support their corporate strategy. This poses challenges, especially given the need to keep pace with rapidly evolving customer demands and competition, the difficulties of securing the necessary capital to fund all projects and finding the right balance of qualitative and quantitative metrics to track success.
With continued uncertainty, CFOs must determine which of the many business model changes will stick moving forward. For example, the pandemic supercharged digital capabilities and remote work, and it is reasonable to conclude that businesses will continue to invest in these areas for future growth. In fact, CFOs point to digital technology as the area where investment increased the most from 2019 to 2020, and 62% say accelerated digital transformation will impact capital allocation going forward.
Capital Allocation Drives Business Agility
Funding the future requires companies to make timely, unbiased decisions about how to reprioritize. However, less than half of CFOs say they can quickly assess market threats and opportunities and reprioritize planned investments accordingly. This can hinder long-term shareholder returns—only 47% of the 1,050 global CFO respondents say their capital allocation process is effectively helping them meet their total shareholder return goals.
When considering obstacles, more than half (52%) of CFOs say access to data is the primary barrier to optimal capital allocation, with 42% pointing to a lack of data analysis capabilities. Advanced data and analytics tools, such as data visualizations and dashboards, can provide companies with the firepower needed to manage the vast amount of data and produce usable insights for decision-making.
Rethinking Metrics in a Post-Pandemic Age
Companies are also being evaluated on a greater variety of metrics than in the past, creating profound effects on how performance is measured. CFOs note that a host of metrics have become more important in the capital allocation process in the past year, with qualitative metrics, such as safety and regulatory requirements, workforce impact and alignment with corporate strategy, leading the way (64%).
This may be an indication that the disruption from the pandemic is forcing more discipline in decision-making and that a broader set of stakeholders—including employees, customers and regulators in addition to the board and investing public—is demanding to understand more about the rationale behind each business decision.
“The way companies are evaluated is changing and tracking the right quantitative and qualitative KPIs are critical for creating long-term value,” said Loren Garruto, EY global and Americas corporate finance leader. “We anticipate that businesses will increasingly leverage a balanced scorecard approach—which combines financial metrics with quantitative non-financial metrics and qualitative metrics—to make investment decisions and track progress.”
In January and February of 2021, Oxford Economics and EY surveyed 1,050 CFOs or equivalent titles worldwide and across industries. Respondents came from companies with revenues more than US$500m, with 33% having revenues US$500m-US$4.9b, 33% with revenues US$4.9b-US$14.9b and 33% with revenues more than US$15b.
Industries were evenly mixed (about 10% each) among advanced manufacturing, retail, technology, telecom, automotive, life sciences, health care (payers and providers), media and entertainment, consumer products, transportation and mobility as a service. More than half (60%) of respondents came from publicly traded companies; 40% came from privately owned companies.
Respondent companies are headquartered in the United States (50%); Canada (10%); Western Europe (20% in the United Kingdom, France and Germany); and Asia-Pacific (20%, in China, India, Japan and Australia).
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations