Forum Institutional

We need to stimulate and sustain supply chain resilience to improve global trade. Here's how

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"Geopolitical tensions are not a valid justification for a contraction in trade." Image: Unsplash/Rinson Chory

Sultan Ahmed bin Sulayem
Group Chairman and Chief Executive Officer, DP World
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This article is part of: World Economic Forum Annual Meeting

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  • Companies wanting to optimize their global value chains have always had to find a way of circumventing trade tensions and bottlenecks.
  • There has been a recent shift towards reshoring operations to boost resilience while decreasing transport costs to meet demand for local products.
  • Governments need to avoid protectionist policies and work together to increase economic cooperation and liberalize global trade.

Businesses looking to optimize their global value chains have always had to find a way to circumvent trade tensions and bottlenecks.

Most recently, there has been a shift towards reshoring operations to increase resilience while decreasing transport costs to meet the growing demand for locallymade products and faster delivery times.

Geopolitical tensions are not a valid justification for a contraction in trade because companies will, and must, always find a workaround – whether outsourcing to new markets or near-shoring.

But public and private entities would be mistaken in believing that trade will find a way to flow. As our research with Economist Impact shows, more than half of the cargo owners say tightening monetary policy due to rising inflation will make imports and exports contract in 2023.

To ensure trade continues to catalyze foreign direct investment (FDI) and provide opportunities for local companies to export their goods, governments must step back from protectionist policies and work collaboratively to liberalize trade, increase international economic cooperation and remove trade barriers.

Here are three immediate steps that governments can take to stimulate and sustain supply chain resilience for their local economies:

1. Support the World Trade Organization

How supply chains and demand adapted and recovered after the pandemic causes cheer among supporters of trade and globalization. But trade – its origins, structure, and flows – requires a fundamental change in the years ahead. To counter protectionism, international economic cooperation is sought.

Therefore, strengthening trade governance, led by the World Trade Organization (WTO), will be imperative – and any weakening of the WTO would only increase uncertainty for firms worldwide.

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This is more than just a discussion between governments. In most cases, the private sector holds the most knowledge on the global obstacles and opportunities for imports and exports. It must focus more on communicating business needs and advancing multilateral trade negotiations.

In the WTO Business Survey, 95% said they believe the work of the WTO is vital for businesses. Private sector leaders must lobby for greater involvement to ensure we’re at the heart of the conversations that impact our communities most.

As the WTO is the only international organization dealing with the global rules of trade, it is critical that it holds a seat at the table. We must support it accordingly.

2. Boost digital accountability

In the 21st century, we see pioneering advanced technologies from robotics to the metaverse, yet the logistics industry often relies on paperwork and other outdated systems. This increases the risk for businesses, with many operating with blind spots on the location of their cargo worldwide.

Our goal at DP World is to do for logistics what Amazon has done for e-commerce. Digitalization – plus the broader adoption of data-sharing regulation – is pivotal in achieving this. While we have invested significantly to ensure greater technological integration, mainly through new digital solutions to work alongside our existing infrastructure, we cannot work in isolation.

We need governments to step in as a catalyst to drive better public-private data-sharing mechanisms that offer better visibility in understanding, evaluating and optimizing trade flows.

A great example of working together towards trade transformation is the Single Window initiative. Provided by the World Bank Group with funding from the Trade Facilitation Support Program (TFSP), this initiative serves as a path for paperless trade. It is the type of partnership needed to help standardize information reduce costs, and expedite international trade procedures without broad trade agreements.

3. Modernize trading infrastructure

Even if businesses have greater global access to markets – and minimal disruption over their cargo – we must ensure that physical infrastructure can accommodate supply. We risk excluding certain communities and countries from trade unless urgent action is taken to expedite the freight flow through developing markets.

Africa is one example; the proper physical infrastructure must underpin its new digital trading corridors. The African Continental Free Trade Area (AfCTA) came into force last year and promises to increase intra-African trade through greater liberalization and enhanced regulatory coordination. However, success depends on smart choices and collaborative policies to uncover end-to-end supply chain potential across the continent.

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In South America, the infrastructure gap also hampers trade volumes despite high commodity prices and free trade agreements. The Inter-American Development Bank estimates that the current shortage of adequate infrastructure creates a deficit of about $150 billion a year. And while business investment is essential to closing that gap, trade also needs to be facilitated by standardizing, digitalizing and simplifying trade procedures.

By following these three steps, governments can help strengthen supply chain resilience, to the benefit of local economies and businesses alike.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Forum InstitutionalEquity, Diversity and InclusionSupply Chains and Transportation
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