Disruptions in trade and global supply chains
Recent disruptions, macroeconomic pressures, and geopolitical turbulence have exposed vulnerabilities of global value chains designed for structure, just-in-time inventory, and total landed cost optimization.
Over the years, this traditional design created complexity and risk that was beyond the capabilities of today's multinational organizations. Furthermore, the need for in-house capabilities and subsequent reliance on third-party partners has limited the ability to be flexible, capture demand surges, and unlock new opportunities.
As international transport and global regulations transform, managing import-export operations efficiently will become a competitive differentiator in creating and capturing value. Leaders face the dilemma of winning today’s race while building a better tomorrow. Based on recent transformation experience across retail, CPG, and pharmaceutical companies, we have summarized our perspectives on what organizations can do to unlock opportunities by refreshing their Import Export capabilities.
Accelerated complexity in import-export operations
The cost of managing cross-border shipments before the pandemic was, at best, a modest line item on the P&L, typically between 2-10% of the unit cost baseline in developed markets, limiting the need for C-suite strategic decision-making on import-export operations. This cost has increased dramatically in the last few years. A recent study from Interos highlighted that, on average, a billion-dollar US company loses USD 228MM of annual revenue due to supply chain-related disruptions. Continuing market volatility has resulted in specific components of import-export operations reaching unprecedented levels and losing discipline. Some examples include:
- Ocean freight rates grew exponentially, with 2022 numbers on specific trade lanes more than 4-5 times higher than 2019-2020. While rates have declined dramatically due to global recession fears, supply chains and cross-functional working methods remain under-optimized.
- The frequency of Air freight transportation increased by 10-20%+ over the last three years, with materials usually meant for ocean transport now transported via air due to port congestion and capacity constraints.
- Import duties and associated fees doubled to 3.3% of the total US tax income over the past five years, caused by the increased scrutiny and regulations on international trade practices.
The dilemma for organizations and industries
Companies have constantly adapted to these changes, addressing talent shortages, protecting cash flow, and managing shareholder expectations. Executives have found themselves in an unusual firefighting situation to stabilize operations, keep employees motivated, and rethink how to refresh capabilities. A recent COO and Operations Leaders’ pulse survey highlighted that four out of five executives believe improving resilience is important for growth this year.
Under the broad scope of import-export that covers customs, trade, and international logistics, there is a need to prioritize issues that unlock short-term value and build long-term resilience. While the approach to building resilience varies across organizations, understanding own challenges and building foundational capabilities is essential. Based on our expertise and recent experience, we summarized the most prominent challenges organizations are typically facing related to import and export activities:
- 1Insufficient granularity on the movement of products, information, and assets
- 2Duplication of effort due to unclear roles, responsibilities, and process ownership
- 3Narrow in-house capabilities and increased dependency on third parties
- 4Limitations in connecting the impact of regulatory changes to cost drivers
- 5Blurred capability vision and supporting investment platform
"Our ability to maintain flexibility, agility, and visibility will help reduce leakages, exceed expectations, and sustain our legacy as corporate citizens."
Opportunity to become fit for growth quickly
Growth remains the lifeblood of any industry. Addressing these challenges provides an opportunity to excite the organization and creates a platform for renewed focus to deliver value. We have listed the top five ways where multinational companies have created competitive advantage and service differentiation in import-export operations.
- 1Build foundational data accessibility and integrity before full-scale digital transformation
- 2Redefine the scope of global business services to accelerate new capability development and sustainment
- 3Dedicate effort to identify public-private partnership models and investment opportunities
- 4Strengthen third-party relationships through proactive management against outcome-driven objectives
- 5Set up the ability to measure value stream performance to inform capability evolution
While today's international supply chains are on a path toward normalization, the structural problems that led to delays, rate increases, and bottlenecks still need to be fully addressed. Knowing that vulnerabilities still exist within the overall chain, periodic reevaluation of essential capabilities will help companies journey towards resilient management of import-export operations. With environmental and social factors increasing the frequency of 'black swan' events, our ability to maintain flexibility, agility, and visibility will help reduce leakages, exceed expectations, and sustain our legacy as corporate citizens.
Sources: PwC Analysis, Project Experience, External Research, Expert Interviews, Financial Times, World Bank, ITeros, UNCTAD
Stephanie Abi Abdallah, Xavier van Ardenne and Matt McMahon also contributed to this article.
Thank you to our partners and clients for giving us the opportunity to be part of this journey.
