When I attended the World Economic Forum in Davos back in 2009, I could sense fear and anxiety among the participants. What a difference four years can make: This year the theme was Resilient Dynamism. It reflected a marked shift in sentiment from crisis response to long-term sustainable growth, now that the balance sheet has been mostly repaired.
Of specific interest to FedEx and our customers were discussions about the idea of “resilient supply chains.” In our hyperconnected world, any shocks to the supply chain — a natural disaster or financial crisis — can wreak havoc on the global economy. By focusing more on the supply chain as a whole, nations and businesses can work together to create a more stable global economy.
Enabling Trade, Valuing Growth Opportunities, produced by the World Economic Forum and released at the annual meeting, turned a lot of heads: In short, reducing supply chain barriers to trade could increase GDP up to six times more than removing tariffs. It’s clear that supply chains have been undermanaged by countries and companies alike.
The opportunity is huge, according to the report: “If every country improved just two key supply chain barriers — border administration and transport and communications infrastructure and related services — even halfway to the world’s best practices, global GDP could increase by 4.7 percent and exports by 14.5 percent.”
Here’s how supply chains have inhibited trade in two countries:
- China: Studies suggest that China focused on exports because of the barriers to transportation and distribution within China. Supply chain–related costs are more than twice the cost in the U.S. Chinese producers often elect to export because it’s less costly than producing goods for the domestic Chinese market.
- India: The cost of domestic supply chain barriers is even more pronounced in India. If you want to create a product and ship it to different Indian provinces, you have to pay customs and complete a lot of paperwork every time you cross into another province. Exporting a product is the path of least resistance for many Indian producers.
To reduce barriers to trade among countries, and even within countries, governments must prioritize investments and collaborate across borders. When we reduce the cost of supply chain barriers, the door will be open much wider, and access to markets will be that much greater.
And let’s not forget the greater good that access brings to the world: The report concludes that “reducing supply chain barriers lowers costs and hence lowers prices, both to consumers and to firms that import production inputs. Consumers gain access to a wider variety of goods. Workers benefit as well, as the boost to GDP is likely to stimulate employment growth. In the long run, trade facilitation promotes a shift in resources to more productive industries and firms, thereby increasing productivity and wages.”
At FedEx, we couldn’t agree more. When we connect people and possibilities around the world, businesses prosper. They hire people and communities flourish as a result. Building resilient supply chains and making improvements may require investment, but the payoff is undeniable. Efficient supply chains ultimately deliver more opportunity.