FTI Consulting International Trade Bulletin – 3rd September

FTI’s Key Headlines

The Clock Is Ticking For Just In Time

Covid and climate-related disruptions continue to put pressure on “just in time” (JIT) supply chains. JIT relies on a combination of ultra-complex supply chains and slick shipping operations to deliver anything from Nando’s chicken to NHS blood tubes while minimising warehouse space and storage costs. Despite the convenience and cost savings JIT provides, many companies are questioning its resilience and reliability. A number of recent disruptions including the closure of Ningbo-Zhoushan port in China, Hurricane Ida in the US and the stranding of the Ever Given in the Suez Canal, have further demonstrated the fragility of the global trade system.

Even prior to the pandemic, JIT was stretched to it’s limit, with manufacturers and distributors sacrificing slack in supply chains in pursuit of efficiency. With increasing shortages of consumer and intermediate goods, the switch to an alternate ‘just in case‘ approach has proven attractive to many firms. Just in case entails companies de-risking their supply chain by holding larger stocks of supplies and undertaking greater contingency planning. Looking ahead it appears demand for warehouse space will rise due to the “onshoring” of manufacturing and processing centres closer to the final consumer.

Whilst many of these supply shocks are due to natural disasters and other global issues beyond the remit of any one government there may be serious political fallout. The ongoing shortage of blood tubes for the NHS is already proving a headache for the UK government and if they fail to effectively respond to these shocks business confidence, which currently stands at a four-year high, could be hit.

Your Country Needs You – To Drive A Lorry

The shortage of HGV drivers, has made headlines across Europe and is causing further disruptions to supply chains. Empty shelves in shops and a lack of milkshakes in McDonald’s have been some of the signs of this shortage, with some experts warning that these issues could last until Christmas.

The shortage is driven by a number of supply-side problems – low wages and poor working conditions are partly responsible resulting in many leaving the industry. The problem has been exacerbated by a fall in the number of drivers from EU countries working on Britain’s roads and the post-lockdown economic recovery causing a surge in demand. The Road Haulage Association (RHA) estimates there is a shortage of more than 100,000 drivers in the UK and retailers have responded by increasing wages, with Waitrose currently offering to pay new drivers £56,000.

The government has thus far refused calls to loosen visa requirements for EU truck drivers, which the Business Secretary described as a short-term, temporary solution and instead urged employers to help the UK-based workers retrain. Number 10 have taken the view that voters have become accustomed to supermarket shortages and will have largely forgotten about them by the next general election. In contrast they calculate that rising wages for blue collar workers will not only shore up the new Blue Wall of Northern seats but also vindicates their post-Brexit immigration policy. While this approach may help keep the government’s blue-collar voting base on board, it is risky. HGV training takes time and the DVLA is already facing a lengthy backlog for tests meaning the shortage of qualified drivers is unlikely to be resolved anytime soon.

Wish EU Were Here

In an article well worth a read, Politico points out the challenges facing the  European Commission as it tries to sign new trade deals. The piece suggests that the glory days of wheeling and dealing are over and have given way to a more complex, conservative approach to trade deals. Since 2019, The EU-UK Withdrawal Agreement has been the sole new EU trade deal. In contrast the UK has signed 4 deals in this year alone, with Australia and Norway among the new signees. Politico suggest that the EU has abandoned its classic trade policy, no longer focusing on ‘limiting trade barriers and lifting tariffs’, but instead focusing on human rights issues or climate ambitions.

The political pressure to focus on a broader range of issues coupled with the EU’s tradition of rigid protectionism for favoured industries such as agriculture makes forging meaningful new deals a big challenge. Local democracy within the EU provides another hurdle, as national governments and even regional legislatures can hold up prospective deals by refusing to ratify them, as the Belgian region of Wallonia did in 2016.

The UK’s trade negotiators, for the moment, face a very different political environment. The Trade Secretary’s FTA agenda benefits from political tail winds like the need to show meaning to the ‘Global Britain’ rhetoric and go some way to replacing the volumes of international trade lost due to the post-Brexit trading arrangement with Europe. Liz Truss has managed to overcome protectionist instincts in the Cabinet and fairly half-hearted opposition from Labour to secure an FTA with Australia. She also looks to be on course to secure the huge prize of the UK’s ascension to the CPTPP. But free-traders in the government cannot afford to be complacent. The rapid ascendency of trade scepticism in Europe and US shows how quickly protectionists can change the political environment if they succeed in portraying trade deals are as threat to livelihoods or cultural values.

Contact Us

FTI Consulting’s UK Public Affairs team works with clients of all sizes, and in all sectors, to design and deliver bespoke programmes which strengthen reputation, protect and promote interests, and generate commercial and political capital. Our approach is underpinned by our unrivalled understanding of the public policy environment and thinking of senior decision-makers, combined with sector-specific expertise and experience in delivering integrated public affairs and communications strategies across international borders and party-political lines. We offer our clients a unique advisory experience, drawing not only on the expertise of the core Public Affairs team but also FTI Consulting’s broader experience as one of the world’s largest, independent global business advisory firms.

If you would like to understand more about how we can help you, please contact Alex Deane at [email protected], Josh Cameron at [email protected] or Ollie Welch at [email protected].