Risks in international trade

International trade carries with it a number of risks. One of the biggest risks associated with international trade is the potential for delays in the supply chain. With businesses increasingly globalised, their supply chains are often spread across the world.

This increases the risk of disruptions due to political or economic instability, natural disasters, and other unforeseen events. In order to mitigate these risks, companies need to insure their goods and choose reliable shipping partners. While companies can insure against some of these risks, it is not always possible to predict or mitigate them all.

Despite the various risks associated with supply chain management, international trade has been growing rapidly in recent years. In fact, many companies are now willing to take on these risks in order to access new markets and gain a competitive advantage.

International trade’s growth at present

The COVID-19 pandemic has been a devastating crisis that has affected countries all over the world and has posed several socio-economic risks. However, despite the global economic slowdown, international trade has continued to grow. According to the World Trade Organisation (WTO), global trade is expected to grow by around 3.9% in 2020, which is higher than the 3.2% growth that was forecast before the pandemic.

The DHL Trade Growth Atlas tracks global trade patterns and recent data shows that international trade in products has increased by up to 10% over pre-COVID-19 levels. This is a positive sign for the global economy as a whole, as trade is a key driver of growth.

Trade is anticipated to expand more quickly in 2022 and 2023 than it did during the previous ten years, notwithstanding the conflict in Ukraine.

It was also discovered that trade growth is dispersed among a larger range of nations. For example, China was responsible for one-fourth of the global trade increase from 2016 to 2021. According to the most recent projection from the IMF, China would continue have the highest rate of trade growth from 2021 to 2026, but its percentage of global growth will decrease to 13% from 21% currently.

Furthermore, it was demonstrated that Sub-Saharan Africa’s exports have increased significantly. Given that Sub-Saharan Africa had the lowest rate of export growth over the preceding five years, the predicted increase in this region’s exports is particularly notable. Through 2026, five of the ten nations with the greatest anticipated trade growth are in Africa, while three are in the Caribbean.

The report also identified Southeast Asia as one of the region’s new global leaders in trade growth. To be specific, the Philippines and Vietnam are two of the countries that stand out in terms of the predicted speed and magnitude of trade expansion through 2026. Furthermore, according to data from the International Monetary Fund (IMF), ASEAN is predicted to have the highest export growth rates in the world from 2021 to 2026, at 5.6%.

With reference to Vietnam, particularly, the country has grown to be one of the most sought-after locations for businesses wishing to shift production to Southeast Asia thanks to a solid industrial base, a prime geographic position, and a thriving middle class. In fact, we have a new blog on Vietnam and why the country is an attractive option for US businesses. Read it here and get a closer look.

India’s potential for a significant increase in trade growth is another interesting finding. The country’s trade volume growth rate is expected to increase from 3% to 6%, raising its scale and speed rankings from 11 to 5 and 72 to 34, respectively, making it an increasingly important player in the global economy.

Steven Altman, senior research scholar and director of the DHL Initiative on Globalisation at the NYU Stern’s Center for the Future of Management stated that “The trade landscape is shifting and presenting new challenges, but this report strongly rebuts predictions of a major retreat from global trade.”

The New York University Stern School of Business collaborated on the report’s development. The report offers politicians and business executives business intelligence covering 173 nations and examines international commerce in products, broken down by area and for both developed and developing economies.

“Our aim is for the DHL Trade Growth Atlas to become a go-to resource for understanding and navigating shifts in the global trade landscape,” CEO of the DHL Express, John Pearson, shares.

“In the current global business environment DHL can help customers rethink certain supply chains, basing them on a sensible trade-off between cost and risk, so that they are both efficient and secure.

Key findings from the report

Contrary to expectations, the pandemic has not significantly hampered international trade. Even with major supply bottlenecks limiting future expansion, global trade in products has increased by 10% from pre-pandemic levels.

The pandemic has resulted in a rapid increase in cross-border e-commerce sales. Predictions indicate that this trend will continue in the future. This growth is driven by a number of factors, including the increasing popularity of online shopping, the expansion of e-commerce into new markets, and the growing number of consumers who are comfortable making purchases online.

Despite the conflict in Ukraine, future prospects for trade expansion are still favourable. Trade growth forecasts have been revised downward, but in 2022 and 2023, commerce is expected to expand at a rate greater than it did in the ten years prior.

Further analysis on the DHL report

Despite the COVID-19 pandemic, international trade has grown. In 2020, global commerce did fall precipitously, but in 2021, it surged. This is a striking takeaway that highlights the resilience of the global economy.

One of the reasons is how many countries have worked hard to keep their borders open in order to maintain trade flows.

For example, the European Union has kept its borders open throughout the pandemic and has even introduced a “Green Lane” system to facilitate the movement of goods. Similarly, China – which is the world’s largest trading nation – has also kept its borders open and has been working to ensure the smooth flow of trade. Moreover, the WTO’s regulations have maintained the flow of international trade during the pandemic and have made the responses of various nations to the crisis more transparent.

Second, in line with the key findings of the report, the shift to online trade has helped to offset some of the decline in physical trade.

Online trade has been growing in recent years, but the pandemic has accelerated this trend, as more businesses move to sell their products and services online. This has helped to offset the decline in physical trade, which has been impacted by travel restrictions and shutdowns of businesses.

Third, governments have provided financial support to businesses to help them weather the pandemic.

To illustrate an example, the US government has provided $350 billion in loans to small businesses through the Paycheck Protection Program. Similarly, the UK government has also provided financial support to businesses, including a £330 billion fund to help businesses with the costs of switching to online trade. In Singapore, small- and medium-sized businesses (SMEs) continued to get assistance in 2021 as part of extra support measures estimated to cost S$1.2 billion in order to help them deal with the COVID-19 pandemic.

Lastly, the internet has significantly made it easier for people to buy goods and services from foreign countries.

According to the report, trade is also projected to grow faster in 2022 and 2023 than it did during the previous decade, despite the conflict in Ukraine. One of the main reasons why is because many countries have benefited from trade agreements signed in the past. These agreements have lowered barriers to trade and have made it easier for companies to do business with each other. Once more, because of the development of the internet and online shopping, it is now much simpler for consumers to purchase products and services from other nations. As long as there is a demand for goods and services, international trade will continue to thrive.

Conclusion

The continued growth of international trade is a good indicator for the global economy. Countries have worked hard to keep their borders open and businesses have adapted to the new reality of the pandemic. This has helped to offset the decline in physical trade and has ensured that trade flows continue. This is good news for the global economy, as it shows that countries are committed to keeping trade flowing despite the disruptions in supply chains and the challenges posed by the pandemic.

As DHL Express CEO John Pearson said, “International trade is considered especially important in the present context because of its power to accelerate economic growth, reduce inflation, and enable countries and companies to access multiple sources of key inputs.”

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