Trade wars, fuel regulations to affect global supply chain, per report

Feb. 6, 2019
A.T. Kearney’s Global Business Policy Council has released its year-ahead predictions for 2019, and there are a number of looming trends that could have a big impact on the global supply chain.

A.T. Kearney’s Global Business Policy Council has released its year-ahead predictions for 2019, and there are a number of looming trends that could have a big impact on the global supply chain.

The ten predictions in the report range from the growth of bitcoin to the use of robotic exoskeletons, but a handful of trends will directly affect importers and exporters – and not necessarily in a positive way. Among them:

The U.S.-China Trade War Will Intensify
The aftermarket has been directly affected by rising tensions and back-and-forth tariffs between the U.S. and China – steel and auto parts have been high on the list of tariff targets for the Trump Administration.

Relations between the two countries worsened throughout 2018. Negotiations remained deadlocked until December, when U.S. President Donald Trump and Chinese President Xi Jinping agreed to resume talks for 90 days in what was characterized as a “ceasefire.”

A.T. Kearney, however, believes that tensions will rise again in 2019: “Insufficient progress on key issues will likely lead President Trump to raise tariff levels on Chinese imports. The administration may even impose tariffs on an additional $267 billion of Chinese goods-encompassing essentially the entire value of Chinese imports in 2017,” the report says.

“So far we’re not very optimistic that China will be willing to meet the U.S. demands, just because a lot of what the U.S. is asking for is counter to Beijing’s overall economic strategy,” says Courtney Rickert-McCaffrey, manager of thought leadership in A.T. Kearney’s Global Business Policy Council. “We expect Beijing to make some concessions, but not enough to satisfy the President.”

“A lot of people in industry agree that China’s trade behavior should change, but they question this tactic (tariffs) in actually getting them to change,” Rickert-McCaffrey adds.

In the meantime, China will continue to secure alliances with other countries and build up its own domestic economy. According to the report, Southeast Asian economies will benefit from the trade war as U.S. importers shift production and supply chains to other countries. The International Monetary Fund (IMF) estimates that the trade war will translate to a 0.2 to 0.4 percentage point reduction in global economic output in the long term as companies restructure their supply chains.

Sulfur Regulations Will Put a Crimp on Shipping
While the ongoing tariff war takes all the headlines, another issue has emerged that could further increase the cost of shipping goods via container ships. The International Maritime Organization (IMO) is preparing to implement new sulfur regulations. On January 1, 2020, the IMO will enforce a ban on ships using fuel that has a sulfur content of 0.5 per cent or higher. Ships will have the option to purchase "scrubbers" to reduce emissions from higher-sulfur fuel, but that technology costs between $1 million and $10 million per ship, and less than 3 percent of the global fleet has installed them, according to A.T. Kearney.

“Industry has been pushing back and asking for a delay in implementation, but the IMO has not budged,” Rickert-McCaffrey says. “We think that over the course of this year some refiners will offer more compliant fuels with lower sulfur. But that will be a big shift for refiners as well. Fuel will cost more. The shipping companies may have to eat some of that cost, but we expect them to pass some of it along to customers.”

The report predicts that shipping companies will spend 2019 hastily preparing for the transition as fuel prices become more volatile. “Ship owners are already sounding the alarm about fuel scarcity and the estimated $60 billion in additional fuel bills (equal to the total industry fuel spend in 2016),” A.T. Kearney reports. “Some of the largest crude oil tankers could see a 25 percent increase in shipping costs, resulting in higher oil and gas prices for consumers. In fact, higher seaborne freight costs for all goods will raise prices for companies and households around the world by the end of 2019.”

Looming Credit Crisis
Many emerging markets around the world are facing economic crises as a result of foreign-denominated debt and currency depreciations. In Argentina, Pakistan, Turkey and India, these issues have resulted in bail-outs from the International Monetary Fund (IMF) and declining currency values. Zambia is on the verge of defaulting on its Chinese loans, and Venezuela is experiencing hyperinflation that could exceed 1 million percent.

China, which has made significant loans to African nations and others, will feel the brunt of these problems. A strengthening U.S. dollar will also increase the cost of repaying foreign currency-denominated loans. A.T. Kearney predicts that Pakistan and other countries will request IMF bailouts this year.

New Opportunities in Africa
There was some good supply chain news in the report – African countries are growing more connected, which will improve economies across the continent and generate new opportunities there and for companies looking for new, emerging markets for their products.

African countries have increased regional and economic integration, and travel across the continent has become easier thanks to new visa agreements. The African Continental Free Trade Area (AfCFTA) was signed by 49 countries last year, and has the potential to boost intra-African trade by 52 percent by 2022.

A.T. Kearney believes these efforts will accelerate in 2019 along with the expansion of airline routes and new railway investments, as well as digital connectivity.

“There’s a lot to be optimistic about in Africa,” Rickert-McCaffrey says. “Some economies are struggling and South Africa and Nigeria are expected to have low growth, but we see more regional integration than we’ve had in the past. That helps these economies develop locally so that they aren’t dependent on the demand cycles of the developed markets. With infrastructure investment in new roads and railways, that will improve a lot of efficiencies.”

You can read the full report here.

Sponsored Recommendations

ZEUS+: The Cutting-Edge Diagnostic Solution for Smart, Fast, and Efficient Auto Repairs

The new ZEUS+ simplifies your diagnostic process and guides you through the right repair, avoiding unnecessary steps along the way. It gives you the software coverage, processing...

Diagnostic Pre- and Post-scan Reports are Solid Gold for Profitability

The following article highlights the significance of pre-scans and post-scans, particularly with Snap-on scan tools, showcasing their efficiency in diagnosing issues and preventing...

Unlock Precision and Certainty: TRITON-D10 Webinar Training for Advanced Vehicle Diagnostics

The TRITON-D10 lets you dig deep into the systems of a vehicle and evaluate performance with comparative data, systematically eliminating the unnecessary to provide you with only...

APOLLO-D9: Trustworthy Diagnostics for Precision Repairs

The APOLLO-D9 provides the diagnostic information and resources you need to get the job done. No more hunting through forums or endlessly searching to find the right answers. ...

Voice Your Opinion!

To join the conversation, and become an exclusive member of Vehicle Service Pros, create an account today!