Whether factories do move closer to home, this will only really be seen in the long term as moving production facilities is not something that happens overnight.
Patrik adds: “We have seen a couple of high profile examples that have already been talked about but it will take time before they are realised and begin to have a real effect at the micro level. Moving suppliers for any sort of company is of course never easy. In a number of industries it can take at least 12 months to add a supplier due to all of the quality assurance measures they need to take. Moving a whole factory itself is estimated to take two years at a minimum to achieve full productivity.”
Costs and more costs in focus
The coronavirus has already seen increases in the international trade costs of imports and exports across borders due to factors such as additional inspections, reduced hours of operations, border closures and lack of transport capacity, etc. As well as visibility and alternative sourcing arrangements, costs are also expected to come even more into focus in the post corona trading environment.
Richard says: “From a supply chain perspective, the likelihood is that companies will see their costs increase as they adapt to changes and alter the structure and location of their suppliers. These costs can include the investment that’s required to bring in other countries and sites into their supply chain equation alongside or instead of China. Companies considering near shoring will also experience cost increases as a result.”
Patrik says: “In recent years, many companies have pursued a form of cost arbitrage as they try to find the countries with the lowest salaries for hosting their production sites. As they now consider alternative production locations, the obvious route to offset increases in costs is of course to look at productivity. Something that we have realised in the Nordics and that has proved to be key in the growth of the Nordic economy is that if you need to move your supply chain, you need to increase productivity. There’s been a natural development as salaries pick up in traditionally lower cost locations, competition increases and we start to automate and roboticise wherever we can in order to increase productivity. It’s kind of an evolutionary move. Costs will initially increase but the demand that they come down will prove to be a catalyst that energises productivity.”
Digitalisation no longer optional
One noticeable aspect of the coronavirus crisis has been limitations caused by international trade processes that are still heavily reliant on paper. Difficulties encountered in the physical delivery of trade documents has further spurred the switch to fully digital trade tools such as the blockchain based platform we.trade. The emergency measures taken during extraordinary times, where authorities and third parties in the supply chain have accepted electronic documents in the form of PDFs and copies rather than originals, has also shown that the switch to digital has worked and can be scaled up. This may lead to a more rapid change of culture and behaviour within trade practices.
The adoption of new digital trade technologies is expected to continue at a rapid pace, making it possible to automate the actual trade process with digitised data entry points for companies, banks and logistics providers. Advanced systems are expected to use AI (Artificial Intelligence) to robotise the necessary steps for buying and selling goods, thereby simplifying and speeding up the global trading system.
The move to fully digital and decentralised platforms like we.trade in order to exchange digitised trade instruments such as guarantees, electronic bills of lading or letters of credit, will continue to replace paper trade methods that have stayed the same for many years.
Richard says: “One thing that we knew before and that has really been confirmed by this crisis is that digitalisation is no longer optional. Everyone has seen working from home become even more pronounced but from a purely treasury perspective the crisis really does highlight the fact that trade and supply chains specifically have got to go as digital as possible. The uncertainties and potential risks caused by an over reliance on traditional paper trade documents are all too clear for everyone to see. We already have the tools and platforms such as we.trade in place and it would be surprising not to see digitalised trading becoming the norm in the coming years.”