Hello,
From now on, through the Obje Dergi channel, I will be sharing current developments in business life in my own way, in a language I prefer to keep away from the corporate register. Naturally, since we cannot focus on any other subject, my first piece will be on the expected effects of the coronavirus on global trade.
Ever since the coronavirus became a global pandemic, experts have been examining in detail the psychological, sociological and economic effects it has had and will have on society, and sharing various scenarios with us. We have heard many times, along these different headings, the claim that nothing will be the same once the pandemic is over. But what does that sentence mean for the business world, and for global trade in particular?
Apart from consumption covering food, cleaning products, medicine and protective measures, sectors dominated by face-to-face interaction came almost to a standstill. This affected the flow of cash and the circulation of goods negatively. Products with no consumption, or with sharply reduced consumption, stopped being produced depending on stock levels. Businesses without production, and operational and service sectors with reduced activity, cut employment as work slowed. Those with weak cash positions turned to short-term remedies such as borrowing, public support and loans. Exports, apart from the items listed above, came almost to a halt; countries turned to using their resources to meet domestic consumption and introduced restrictions or quotas. After the outbreak, in many regions across the world, borders between countries and even within countries are closed and commercial flights are greatly reduced. In many countries, port operations have also slowed.
In the period ahead, because the ratio of producers to consumers in the world is not balanced, and because the key to what we call globalisation rests on cheap, regular and fast transport, this will emerge as the most important problem in the foreign trade supply chain. The customs arrangements known as the open-door policy have already begun to falter.
The break in the world logistics chain will be observed first in food. Unless an import-substituting production policy begins, food may not even be enough for the producing country. To give an example, Indonesia is one of the world's largest rice producers, yet interestingly it imports rice, because consumption per capita is very high. The item where the result will be seen most clearly is transport cost. Normally a container ship leaving Türkiye reaches the east coast ports of the United States in 16–21 days and, thanks to successful port management, unloads its cargo and takes on new cargo within 1–2 days. If, however, this period is extended by various quarantine practices at ports because of the outbreak, transport costs will rise incredibly and the number of voyages that ship can make will fall. This will both strain the supply chain and push transport costs through the roof. Ships do not only charge per tonne on their voyages; they also have time agreements. For example, a 50,000-tonne ship allows 3 days for loading and a maximum of 3 days for unloading, excluding transit. Holding a ship in port beyond that period means demurrage of at least 50,000 USD per day. Rising freight costs, especially for goods heavy in weight and light in value, cause significant breaks in the chain. Taking wheat as an example, one tonne of wheat is about 90 USD and the freight for this product to the United States is around 40 USD at minimum. Even a 20% rise in freight alone would have a very large effect on the food supply chain. In the same way, falling production will make access to vital needs such as medicine harder and lead to the emergence of a black market.
In this period, as McKinsey has also warned, companies should plan and take precautions against the possibility of receiving heavy orders from other companies wanting to build stock once online sales of products begin. At the same time, companies may need to make medium and long-term stabilisation plans, develop their business networks and find new sources of supply.
After the coronavirus, if the world evolves in a different direction and the shifts in perception people have experienced on many subjects throughout this quarantine move on the wind of humanism and the coming together of humanity, then we should expect days in which borders fall further and the international movement of goods and people increases. This may bring with it the globalisation of a human-centred approach, and the thought of why not a common world currency — though for now that seems more likely to happen through safe-haven assets.
My forecast, and perhaps my wish, of a transformation into a large society built on radical state socialism and mutual aid seems possible only as long as societies do not return to barbarism through a psychology of scarcity, or turn into a firm state capitalism.
Wishing to live it and to experience it,
Aslı Arslan
