The Coronavirus pandemic has thrown a wrench in almost every business, but those that deal in importing and exporting goods are especially challenged.
To try to contain the spread of the disease, many countries have closed ports, imposed travel restrictions, and shut down factories, negatively disrupting global trade and international supply chains.
An article in the Financial Post compares COVID-19 to the Great Trade Collapse during the global recession following the financial crisis of 2008.
But whereas the 2008-09 shock was largely a demand-side shock, 2020 is both a demand and supply shock, as manufacturing activity has been disrupted by the pandemic. This means supply chains are being disrupted, and manufacturers everywhere are facing shortages in imported industrial inputs.
Whether you import and export on a large scale or you are just concerned about ordering items online or shipping on a smaller scale, this is important information you need to have right now.
What does the border closing mean?
The closing of the U.S.-Canada border to stem the spread of the novel coronavirus caused a slowdown as the two countries worked out what business purposes would be deemed “essential.”
As both the US and Canada struggle to contain the coronavirus, bear in mind that we sell one another vast amounts of pharmaceuticals and medical devices. As one writer in Barron’s puts it, “We are literally saving each others’ lives.”
Threats to the supply chain
Supply chains are being disrupted due to COVID-19 even more so than they were with SARS because 10% of unfinished products used to make final goods in Canada are sourced from China, which has been leveled by the coronavirus. An additional 4% are sourced from Italy, South Korea, and Japan, which have also suffered a veritable standstill due to the virus.
As coronavirus spread, small business owners who import from China were on edge, and who could blame them?
For small business owners who sell products on Amazon, prolonged factory closures threaten supply, and falling out of stock can mean losing a prized ranking on Amazon’s site.
Financial Times reports that Chinese exports plummeted by 17% in the last half of 2020.
Some of the largest Chinese exports affected are:
From printers to mobile phone manufacturing to PCs to set-up boxes and inverters–so much is sourced from China. Similarly, copper, aluminum, and chemicals in electronics manufacturing are sourced from China as well.
Importers are also relying heavily on China for many other goods–pharmaceutical and leather goods are heavily hit. There is no doubt that the disruption to the supply of raw materials from China hurts local industries.
Canada is important to the supply chain, however, most Canadian companies don’t make a lot of finished products. This leaves us exposed when things close down like during the pandemic.
What can you do to adapt?
As an importer, it behooves you to seek alternate supply chains for your business. Going forward it is probably best to diversify suppliers and not have all your needs being met by one factory. While we are all in a wait-and-see mode it is a good time to explore other manufacturing options, especially those that would bolster the economy here at home.
Now, more than ever it is critical that you find hidden costs in your manufacturing and your supply chain and start cutting them down.
Consider issues that you don’t realize are decreasing your bottom line.
The “Walker Sands Future of Retail 2016” study, which was reported on by Marketing Land and found 9 out of 10 survey participants expected free shipping on their eCommerce orders, while 68 percent said they expect free returns and exchanges.
Are you considering these factors when you budget for overall transportation/logistics spending? These things impact profit, so costs need to be built in to protect your bottom line.
It’s very difficult to compete with a giant like Amazon, still, you need to find ways to accommodate customers’ expectations of free (or inexpensive) shipping. If you don’t want to build it into the cost, you’ve got to find other ways to cut down on manufacturing.
Most shipments generally weigh less than 5 kilograms, but these small shipments cost roughly six times more per kilogram than larger shipments. If your company manages to consolidate deliveries into larger shipments, make sure cost-saving opportunities are implemented.
Many products are damaged in transit due to improper packaging. Make sure to properly seal and protect your goods to keep unwanted returns from cutting into your bottom line.
Although warehouse and transportation functions account for a large percentage of overall logistics costs, most companies have not implemented “lean” techniques that could greatly reduce costs in these areas.
Reduce the time to market
- Review your sourcing methods and reduce the time your stock spends on ships, trucks, and warehouses
- Use the services of a third party to check for quality control
Modernize and streamline
- Use the cloud for efficiency.
- Install and use whatever chat or messaging apps your customers are using.
- Use inventory management software.
- Use barcode technology to dispatch your products before shipping them out.
- Develop a currency strategy to protect your margins, balance sheet, and business bottom line.
- Buy Large Quantities to Keep Your Transportation Cost Down
- Import From a Country Close to Yours to Save on Transportation Costs
- Purchase the Same Product in Different Colors
- Track Your Imports with Online Software
- Negotiate Creative Payment Terms
- Negotiate competitive freight rates
- Capitalize on free trade agreements
A solid strategy for exporters
If you are an exporter, you need to have a solid risk management strategy in your toolbox for times like this. It is important to get ahead of the problem and be proactive, rather than reactive to the crisis at hand.
These are four important ways to strategize:
- Lowering Risk. Do you have a backup plan? If you manufacture product overseas, you need to explore manufacturing locally. If you’re selling internationally, are you selling to different markets or are you relying on one particular customer? Should currency fluctuate, do you have a strategy in place for foreign exchange?
- Risk sharing. If you are focused solely on one product line you may want to branch out, so that if one side of your business takes a hit you have another business that is still healthy. Diversification is the answer.
- Risk reduction. Get the right professional help with your contracts. Allow for contingencies for working capital.
- Risk transfer/insurance. The biggest asset on your books is accounts receivable. Amira Dali, Senior Accounts Manager of EDC’s Commercial Markets and Small Business advises, “If you’re a company that’s working with customizable goods, do you have contract cancellation insurance in case your contracts get canceled and you’ve already incurred all those costs? If your goods are transported through the sea, do you have marine cargo insurance? Depending on the industry you’re in, sometimes your contracts have letters of credit or bonding needs – performance bonds, advance payment bonds – are you protected? Do you have wrongful call insurance?”
Protection from payment default
The risk of non-payment as a result of COVID-19 is top of mind for many Canadian exporters. Dali says credit insurance is essential to protect your business.
Check out EDC’s website for more about COVID-19 Business Credit Availability Program (BCAP).
If your business involves importing anything related to food, animals or plants you need to make sure you have the latest information about restrictions and regulations surrounding the virus on the government website.
COVID-19 is the Canadian Food Inspection Agency (CFIA’s) current priority. Please check their page first to get the latest information.
If you have a question not answered on their website, they provide a link so you can send your question by email.
Concerns about how the virus is transmitted
In terms of goods coming into Canada, there are currently no cases that have shown any evidence of humans being infected with coronavirus by the consumption of contaminated food or via imported toys.
There are also no known reports about coronavirus infections due to food or contact with dry surfaces. Transmission via surfaces that have recently been contaminated with viruses is, nonetheless, possible through smear infections. However, this is only likely to occur during a short period after contamination, due to the relatively low stability of coronaviruses in the environment.
Can imported goods from regions where the disease has spread be sources of an infection in humans?
Due to the transmission methods recorded thus far, and the relatively low environmental stability of Coronaviruses, it is unlikely that imported goods such as imported foods or consumer goods and toys, tools, computers, clothes, or shoes may be sources of an infection with the new type of coronavirus, according to the current state of knowledge.
Protecting your workplace
The WHO offers these valuable guidelines for getting your workplace ready for COVID-19 on their site. It is critical to start doing these things now, even if the virus has not arrived in the communities where you operate. You can already reduce working days lost due to illness and stop or slow the spread of COVID-19 if it arrives at one of your workplaces.
- Make sure your workplaces are clean and hygienic. Surfaces (e.g. desks and tables) and objects (e.g. telephones, keyboards) need to be wiped with disinfectant regularly. Why? Because contamination on surfaces touched by employees and customers is one of the main ways that COVID-19 spreads.
- Promote regular and thorough hand-washing by employees, contractors, and customers by putting sanitizing hand rub dispensers in prominent places around the workplace. Make sure these dispensers are regularly refilled and posters promoting hand-washing are on display.
- Promote good respiratory hygiene in the workplace. Display posters promoting respiratory hygiene. Combine this with other communication measures such as offering guidance from occupational health and safety officers, briefing at meetings and information on the internet, etc.
- Require everyone on the premises to wear a face mask. Ensure that face masks and/or paper tissues are available at your workplaces, for those who develop a runny nose or cough at work, along with closed bins for hygienically disposing of them. Why? Because good respiratory hygiene prevents the spread of COVID-19.
- Postpone all business trips unless it’s absolutely critical to the operation of the business.
- Brief your employees, contractors, and customers that if COVID-19 starts spreading in your community anyone with even a mild cough or low-grade fever (37.3 C or more) needs to stay at home. Proactively, you can elect to send as many employees home to work remotely if possible to avoid interaction with other employees at this time.
Financial aid/government assistance
From the trade commissioner’s site, Canada is committed to keeping the industrial sector supported by ensuring the free flow of goods and services across our international borders.
On March 13, 2020, the Government of Canada announced a $65-billion Business Credit Availability Program (BCAP) to help Canadian businesses facing economic challenges due to the virus. The new program enables EDC, along with the Business Development Bank of Canada (BDC) and private-sector lenders, to enhance their financing and insurance programs to ensure impacted Canadian companies have access to the credit they need during this crisis.
The EDC Business Credit Availability Program (BCAP) Guarantee can help both Canadian exporters and domestic businesses impacted by COVID-19 get the financing they need to cover their payroll and operating costs. To reduce the risks to financial institutions, they will guarantee 80% of a new operating line of credit or new one-year term loan, up to a maximum of $6.25 million. The EDC is actively working with its financial institution partners to make this solution available to your business as quickly as possible. More details will be provided soon.
How is EDC helping non-exporting Canadian companies?
On March 27, 2020, the Government of Canada expanded EDC’s domestic capabilities to further help Canadian businesses facing extreme financial challenges brought on by the COVID-19 pandemic.
When a catastrophic event of this magnitude happens, it’s important to remember that the world of importing and exporting has absorbed some big landmark shocks, and our business will endure.
This isn’t a time to panic. China has already begun its recovery, which is good news for the supply of goods from China to resume.
As we start to move past the worst of it, this challenge presents a good opportunity to step back and reflect on how we can strengthen our independence and resilience. Certainly, when it comes to the production of medical necessities Canada has learned a lesson not to be beholden to supply chains outside the country that can be cut off in times of crisis.
What can we do better, more efficiently? How can we ensure we don’t put all our eggs in one basket and diversify our supply chain? How can we all work together to make sure the world trade system can handle whatever political, environmental, and biological challenges arise in the future? If we can’t uphold trade in crisis, we all lose.
At BorderBuddy we have done our due diligence regarding exporting to countries especially impacted by coronavirus, including mainland China, Italy, the United States, and Spain. We are privy to any and all restrictions, limitations, and new documentation requirements.
Navigating the world of importing and exporting is a nuanced process that involves a working knowledge of government paperwork, trade agreements, and policies that change due to evolving world events.
Border Buddy is here in challenging times to help your business survive and thrive.