Speaking at last week’s Automotive Logistics Europe conference in Germany, Sean Doherty, director of Supply Chain and Transport Industry at the World Economic Forum (WEF), outlined results from a recent study which showed that a push for reforms on supply chain barriers, including border administration, processing costs and infrastructure, would open big opportunities for the automotive logistics industry.
This is something the industry was now beginning to recognise and Doherty pointed to a meeting held in the week preceding the conference in Bonn at which automotive CEOs met with WTO heads to look at the action that needs to be taken on overcoming some of these barriers.
“Last week we had a very interesting meeting in Geneva that brought together seven automotive CEOs and the director general of the World Trade Organisation, Pascal Lamy,” said Doherty. “They talked about some of the practical barriers to the supply chain globally and what the automotive logistics industry do about some of them.”
This willingness to push for change was reassuring, according to Doherty, who said it was something automotive companies have shown little interest in previously.
“For the last couple of years we haven’t seen that much interest from the automotive industry and I’m not sure why,” said Doherty. “Perhaps it was felt that some of these topics were not practical enough or they felt they had solved all their problems and were way ahead of everybody else. This year that has changed and the automotive industry is at the forefront of pushing this topic forward.”
What became clear from the meeting was that the automotive logistics industry needed to work on two fronts to try and create a supply chain mentality, particularly among regulators and administrators.
On the national level, logistics providers need to work with government on the priorities for improving supply chain efficiency based on objective performance data and the creation of a mandate to govern regulation that affected supply chain efficiency. Work on the domestic front also needed to recognize SME interests in policy.
In terms of international cooperation, there needs to be pressure on governments to agree on “a holistic supply chain approach” to barrier removal, as well as a global effort to pursue conversion from paper to electronic systems.
That recognition is reassuring given the miscalculations that can affect business, especially in a region such as Mexico, which is of paramount importance to the automotive industry at the moment. Doherty cited one (non-automotive) company that calculated it would see a 25% reduction in costs by moving its manufacturing to Mexico but found that when they factored in the costs of various supply chain barriers the reduction was closer to 9%.
What was also revealing was that private companies are often behind the establishment of certain supply chain barriers in the first place. “When a company is investing in a massive plant in Latin America they may well say to the government ‘we will make this investment but as a result we would like you to make it a bit difficult for our competitors to access it in the same way,” he said, something bad for the country and its business climate.
Companies asking for free markets internationally need to look closely at what they were asking for on a local level.
With that in mind, Doherty said that if most countries tried to ameliorate barriers to supply just half way to global best practice, they could see a 5% GDP increase to $2 trillion, whereas the removal of tariffs showed GDP gains of $0.4 trillion (0.7%). Even supply chain improvements half way to regional best practice could still yield a 3% GDP increase he said.
“[Furthermore] the trade impact is roughly three times the impact to GDP, so we are talking around 10-15%, and this is much more than you get from tariff reduction,” he added.
Doherty said that there were big opportunities involved if the automotive logistics industry joined the debate for supply chain barrier reforms and at least tried to bring public and private sectors together for detailed discussions, including the SMEs. Most importantly, he said, was the need to get away from “silo-based international trade negotiations to a supply chain level of thinking”.