Just getting back from South Korea has made me realize how amazing it is that we live in a world sustained by global trade. The stark difference between North and South Korea prompts a lot of reflection about the benefits of global trade. America’s longest-serving Secretary of State, Cordell Hull, reportedly said, “If goods cannot cross borders, armies will.” But business faces its own struggles in its own trenches trying to make goods cross borders, whether these are company, state or international borders. Here is a list of 10 challenges businesses face today in trying to make trade work better.
• New lease-accounting rules. Changes in accounting rules (earliest, 2013) will make it more expensive to lease capital assets. Leases will show up on balance sheets as assets or liabilities, which will make balance sheets grow. This will affect leverage and capital ratios. Many managers may ask, “So what?” But they shouldn’t: logistics and supply chain management tends to have higher leased assets than most industries (“nonasset based”), so this change has the potential to alter the market structure.
• Credit availability. The financial meltdown and mortgage crisis may be over, but credit is still tighter and more difficult to obtain. Pending inflation has firms scrambling for credit now before it becomes too expensive
• Tepid consumer demand. The economy is slowly coming back but not as fast as expected. Unemployment reached record levels in recent times, with Rhode Island still at 10.9 percent in July and 8.3 percent nationally (4.8 percent is “full employment”). The ISM index for manufacturing has contracted for the past two months, reflecting a slowing in demand; the non-manufacturing index has grown for the past 38 months, but its growth also has slowed in the past two months.
• Site selection. Businesses will need to reassess what your network looks like and assess system utilization. As transportation and other costs increase, more warehouse locations are called for. Businesses that don’t stay ahead of real estate and other aspects of site selection will pay the consequences in reduced customer service.