Shifts in Global Trade and Picking Winners for Global Sourcing

International trade of merchandise goods rebounded in 2021, following a tumultuous period of disruptions in 2020 due to the pandemic. But lingering bottlenecks and new global shocks will moderate economic activity and trade growth in 2022. Meanwhile, the global exporter rankings are dynamically adjusting and it is now more complicated, in the post-pandemic world that is unfolding, to pick winners for sustainable and effective global sourcing.

Date: 2 May 2022

Global exports by value grew by 26.3% year-on-year (y-o-y) from USD 17.6 tn in 2020 to USD 22.3 tn in 2021. While global exports grew by a CAGR of 6.1% from 2000 to 2021, the Asia Pacific (APAC) countries have been outperforming other regions having grown by  a CAGR of 7.7% in this same period. China is a major contributor to this region’s rapid growth. According to the WTO April 2022 forecast, global trade growth by volume is forecast to be 3% in 2022. This lower growth is due to expected COVID-19 disruptions in major export markets such as China, lingering supply bottlenecks that remain from past disruptions, as well as ongoing conflict in Europe.

China’s exports grew by 30% y-o-y in 2021 from 2020, maintaining its position as the top global exporter. Some countries also maintained their 2020 position in 2021, while others increased/decreased in rank due to various factors.

Trends

2020 – 2021

• Many emerging countries competed with developed markets for higher export rankings in 2021, with China maintaining its no. 1 position and Mexico breaking into the top 11. Other notable emerging countries among the top 30 after a tumultuous year were India (17th); Vietnam (22nd); Poland (23rd); Malaysia (24th); Brazil (25th); Thailand (27th); Czechia (28th) and Turkey (29th). While most of the top 30 countries experienced export declines in 2020 due to the pandemic, all of them recorded a positive recovery in 2021
• The average growth for the top 30 exporters was 24% from 2020 to 2021
• Countries like China, Hong Kong SAR (China), South Korea, Mexico, Canada, Taiwan (China), UAE, India, Poland, Malaysia, Brazil, and Turkey registered positive monthly year-on-year export growth rates in every month of 2021
• In 2021, year-on-year (Y-o-Y) export growth of some developed markets like Australia (39.6%), Taiwan (China) (29.4%), Canada (29%), South Korea (25.8%), Netherlands (25.5%), UAE (46.8%) and Spain (25.5%) was higher than the top 30 countries’ average of 24%

2022

• The previous 4.7% global trade growth by volume forecast for 2022 by the WTO has been cut to 3% in April 2022 due to “the impact of the Ukraine war and related policies”. The cut is also linked to continuing global supply chain problems that began as a result of lingering pandemic issues. The WTO’s Goods Trade Barometer, a real-time trend gauge for trade, decreased slightly to 98.7 in December 2021 compared to 99.5 in November. The figure below the baseline value of 100 signaled a loss of momentum in trade at the start of 2022 but shows signs of bottoming out as supply pressures eased
• Supply-side issues such as semiconductor scarcity and port backlogs may continue to strain supply chains and weigh on trade in particular areas, but they are unlikely to have substantial impact on global aggregates. According to the latest Goods Trade Barometer issued by WTO on 21 February 2022, the container shipping index (97.2) dipped even further in the wake of ongoing port congestion issues

Upshot

• Multiple factors like the surge in global demand, production constraints, labor shortages, port congestion, shipping delays, and higher overall logistics prices will continue to disrupt global supply chains in the near future and are expected to ease only in late 2022 or early 2023
• However, the rebound in global trade in 2021 makes it clear that while major catastrophic events like the recent pandemic might slow down global supply chains for a while, global trade remains a priority for many markets
• Ukraine and Russia account for nearly 30% of wheat, 17% of corn and over half of sunflower seed oil exports across the world. The conflict-induced bottlenecks at Black Sea ports — where cargo vessels have been struck by Russian rockets — and other complications of the war have slammed Ukrainian exports. The boycott of Russian ports by shipping companies and the knock-on effects of sanctions have also disrupted the flow of foods and fuels from Russia — creating problems that could grow as further export or import controls occur
• Countries are recovering at varying speeds, but some Asian and other emerging countries have rebounded faster than others
• It remains to be seen who will come out as long-term export champions in the post pandemic world but some countries which are having a head start might leapfrog ahead of others and improve upon their pre pandemic export ranks

Selected Key Markets

China, India, and Turkey were selected as key emerging markets whose export growth rates were some of the highest in 2021. After a decline of 7.4% in global exports by value in 2020, China, India and Turkey were able to tap on to the opportunity better than others as global demand for merchandise goods from its biggest markets rose in 2021.

China

• China’s exports rose to USD 3.3tn in 2021 despite shortages of processor chips for smartphones and other products as global demand rebounded from the pandemic. Manufacturers were also hampered by power rationing imposed in some areas early in the year
• The top 10 export categories comprised mostly of high-technology and other manufactured goods, with China continuing to be the lead global exporter of electronic goods
• China’s export growth moderated in Jan-Feb 2022, pointing to more stable global demand as multiple risks cloud the outlook

India

• The rise in India’s exports could be attributed largely to the continued global growth momentum and the increase in global import demand, along with favorable global commodity prices
• The top 10 export categories made up 37% of India’s total exports to the world, which includes a diverse portfolio of product categories

Despite global supply chain disruptions due to Russia-Ukraine war and shipping costs sky-rocketing, India  managed to achieve an all-time monthly high export of USD 40 bn in March 2022.

Turkey

• According to a World Bank report, Turkey’s exports have benefited from the deterioration of global shipping reliability as multinationals sourced more intensively from Turkey, instead of from less reliable and more distant exporters who began charging higher freight prices
• Turkey’s top 10 export categories made up 23% of the country’s total exports, and is mostly comprised of vehicle parts and machines, and minerals and resources
• Turkish exports are expected to reach USD 250bn in 2022. In recent months, Turkey has been working to improve relations with several regional powers that it previously had strained relations with, including Saudi Arabia, the UAE, Egypt, and Israel

Imperatives

• Assess and position appropriately across different strategic options such as sourcing locally vs globally across critical spend categories – and calibrate the potential mix of offshoring, reshoring, nearshoring and onshoring activities
• Work with your current and future suppliers to gain information about their next-tier suppliers and their upstream value chains before taking a decision of local vs global sourcing
• Given the right circumstances and opportunity, use global sourcing as an important lever to drive value in your organization – carefully calibrate the ‘risk & cost’ equation
• Rethink your decision criteria when shortlisting new sourcing locations or new suppliers to adapt to the post pandemic world
• While prioritizing your sourcing markets, think beyond the demand vs supply equation towards better collaboration and control (transparency & traceability, cross value chain sustainability) with your suppliers
• Avoid single-source thinking, over-dependence on too few supply markets (risk) and under-exposure to viable supply markets (opportunity)

For more on Axis Group International’s Global Procurement & Supply solutions, email us at solve@axisgroup-international.com

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