Parliament blur

A New Government – a New Britain; Strengthening UK Supply Chains for Economic Resilience

Jul 10, 2024 | , , , , , , , , , , , ,

The Labour party’s manifesto outlines a commitment to bolster the resilience of supply chains in key sectors, a task that Transport Secretary Louise Haigh will spearhead.

Recent global events, such as the war in Ukraine and pandemic-induced disruptions, have underscored the necessity of this mission. These crises have driven up energy prices and disrupted the supply of critical goods, exacerbating inflation.

Enhancing supply chain resilience not only mitigates risks but also presents growth opportunities and as the world faces more frequent external shocks, a resilient supply chain becomes crucial to safeguard the economy, because vulnerabilities can halt or divert production.

Labour’s plan includes several key policies to strengthen supply chains:

  • Investing £1.8 billion to upgrade ports and build supply chains across the UK
  • Ensuring a robust defence sector and resilient supply chains through long-term business-government partnerships
  • Maximising the economic and security potential of AUKUS, the trilateral security partnership with Australia and the US
  • Adopting a strategic approach to managing UK-China relations
  • Striking targeted trade agreements aligned with the UK’s industrial strategy
  • Leading international efforts to modernise trade rules and agreements, promoting deeper cooperation through organisations like the WTO and CPTPP
  • Seeking a new strategic partnership with India, including a free trade agreement, and enhancing cooperation with Gulf partners on security, energy, and trade

The government will work with international partners to align capacities in key sectors and advance international standards for supply chain diversification. Labour’s plan includes creating a Cabinet Subcommittee on National Resilience, conducting a COBRA review, and appointing a Minister for Resilience to coordinate responses.

Looking to a New EU Relationship
Labour’s manifesto also includes policies to improve the UK’s trade and investment relationship with the EU, which includes negotiating a veterinary agreement to reduce border checks and lower food costs. 

Upcoming EU legislation, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), will impact UK companies. These regulations will require companies to disclose data on suppliers and emissions, impacting those with substantial EU activity or those part of the EU value chain.

For example, a UK auto parts manufacturer selling to an EU car company will need to comply with these directives. Labour’s approach aims to remove unnecessary trade barriers and improve economic cooperation with the EU, ensuring UK businesses remain competitive and compliant with new regulations.

For over 40 years Metro has been providing stable and effective solutions for customers entering new export markets, or sourcing from new suppliers.

Supporting their regulatory compliance and finance requirements, with multi-modal transport services and guidance on insurance and packing, to protect their products.

Our MVT supply chain platform incorporates a suite of reporting modules, including the tracking of global CO2 emissions and templates for CSRD reporting.

If you have any questions, rate requests or would like further information on our global export capability, please EMAIL our Chief Commercial Officer, Andy Smith.

City of London

Market Stability Following Labour’s Victory

Jul 10, 2024 | , , ,

The UK financial markets have shown remarkable stability following Labour’s landslide victory in the snap election called by Rishi Sunak. Labour’s win has bolstered investor confidence, with UK stocks, bonds, and sterling all seeing gains.

Since late May, the pound has been the only G10 currency to appreciate against the dollar, highlighting the UK’s appeal in a turbulent global economic climate.

Investors view Labour’s win as a turning point, marking the end of a period of instability under Conservative leadership. This political stability is seen as a positive signal for UK assets, especially as other major economies face political uncertainties.

The substantial majority achieved by Labour suggests the potential for a two-term government, which could lead to consistent and long-term policy implementation, including crucial planning reforms that could boost the UK economy.

UK’s Comparative Attractiveness
The UK’s calm financial environment contrasts sharply with the situation in France, where political turmoil has unnerved investors. The rise of the far right and President Emmanuel Macron’s unexpected decision to call an election have led to significant declines in French markets, with the Cac 40 stock index dropping nearly 4%. The yield premium on French debt over Germany has surged, reminiscent of the Eurozone debt crisis.

In the UK, the Labour government’s cautious borrowing plans are expected to attract foreign investors to gilts. The stability of UK gilts is further highlighted by the recent fluctuations in the US Treasury market, influenced by political developments and economic policy proposals under the potential second Donald Trump presidency.

The UK’s transformation in the mind of investors can be most clearly seen in the pound. The currency has been the best performer across the Group-of-10 this year and a gauge of expected price swings on sterling over the coming month fell to 5.76% last week, its lowest since May.

Challenges and Future Outlook
Despite the newfound stability, Labour faces significant challenges in delivering on its promises amid tight borrowing constraints and modest economic growth forecasts. Rachel Reeves, the incoming chancellor, has committed to maintaining debt reduction targets, limiting the scope for increased borrowing.

To address these challenges, Labour will need to focus on supply-side reforms aimed at stimulating investment, improving productivity and international trade. A softer approach towards the European Union might marginally enhance growth and trade prospects, though the extent of EU cooperation remains uncertain.

The relative calm in UK markets provides a contrast to the turmoil seen elsewhere, positioning the UK as a potential safe haven for investors seeking stability in a volatile global economic landscape.

How does this affect your logistics planning?

  • FX is stable – always a good thing to ensure predictability with currency exchange. Remember the Liz Truss impact a few years back – very painful
  • Probably closer and more desirable trading terms with the EU. Which has already been stated by the new government as an objective
  • Possibly better trade deals with other countries around the world, created through an energised and proactive approach by the government
  • More investment in UK infrastructure and logistics related routes to market, including the rail and energy markets

These are just a few of the potential benefits, but reality is, time will tell. One thing you can rely on is that as the evolution occurs Metro will be at the forefront of the market ensuring that you gain benefit with your own business strategy and global trading opportunities. We will adapt, as we always do.

We are constantly monitoring and sharing the latest news on market influences, including currency FX and macro-economic performances, which can impact our customers supply chains.

We follow the barometers of global trade and money markets and are happy to share knowledge, to help you de-risk currency fluctuations and achieve the best returns.

For advice and recommendations please EMAIL Laurence Burford, our Chief Financial Officer.

Auto industry Brexit warning

Europe may experience its own near-shoring boom

Jul 10, 2024 | , , , , , , , , , , , , ,

As planes descend into Monterrey airport, an expanse of warehouses and manufacturing complexes stretches out for miles, exemplifying the near-shoring boom that has swept through Mexico in recent years, as Asian companies and their supply chains move closer to the United States.

Drivers of Mexican Industrial Growth
One might argue that this surge in Mexican industrial production and exports to the US is part of a 30-year evolution, initially driven by the North American Free Trade Agreement (NAFTA), which established a free trade area among Canada, the US, and Mexico.

However, additional factors have recently propelled Mexico to replace China as the US’s most important trading partner.

1. US-China Trade War: Trade has shifted from China to countries like Mexico due to the ongoing trade conflict
2. Biden Administration’s Supply Chain Strategy: Emphasis on near-shoring has highlighted Mexico’s role in the China+1 strategy
3. Production-Sharing Schemes: Mexico’s longstanding expertise in these schemes makes it a valuable partner in regional manufacturing and trade
4. Low Labor Costs: Average manufacturing wages in Mexico are lower than those in China

Ironically, many of the companies that are being set up for manufacturing and transition to Mexico are actually owned by Chinese entities and companies. It is a migration of Chinese manufacturing to Mexico and this also has the benefit of lowering supply chain and shipping costs and the big one – reducing some of the duty and anti-dumping duty that has been, and will likely continue to be, levied on Chinese origin goods and raw materials.

Lessons for Europe
A critical element is the presence of a long-standing free trade agreement, because near-shoring thrives in an environment that fosters supply chain relationships and networks over time and effective near-shoring relies on a regulatory and trading environment that supports such activities. 

Expecting near-shoring to emerge without a developed and supportive environment is unrealistic. The EU, with its well-developed internal free trade and regulatory framework, together with external trade agreements with countries like Egypt and Morocco is well-positioned to adopt near-shoring strategies.

In Europe, geopolitical relations with China are a concern, but recent supply chain disruptions are increasingly driving the adoption of China+1 strategies. Europe has been shifting its manufacturing and supply chain activities eastward and into North Africa.

Opportunity
Countries like Turkey, Hungary, Egypt, Morocco, Poland, and Romania offer compelling near-shoring opportunities due to their lower wage rates and higher productivity compared to Western Europe.

The EU is well-positioned to capitalise on near-shoring activities and so too is the UK, with its close EU ties and inherited trade agreements. This has already been highlighted by the new UK government, as a goal to re-negotiate trade agreements with the EU and could make closer sourcing a more prevalent and cost effective strategy going forward in the next few years.

We are seeing regular migration of manufacturing and sourcing closer to the UK and EU and this has many benefits, as long as the material price is comparable with Far East manufacturing costs, which have been the big incentive.

Metro and our associate companies, are well positioned to give advice, recommendations and adapt supply chains regardless of the areas that you are sourcing from or selling to.

We have a variety of services and solutions covering overland trucking, rail freight, short-sea containerised solutions on our own vessels and local warehousing and distribution at most industrial hubs throughout Europe and North Africa. 

Please arrange a call/meeting and we can go through the current and future options, to add value to your global development strategy. We can guarantee that it will not be time wasted!

Stable, well-regulated trading environments and cost-effective, high-productivity production locations in Central and Eastern Europe and North Africa provide a strong foundation for supporting near-shoring initiatives.

Metro’s integrated transport services are designed to support JIT manufacturing requirements across the EU, North Africa and Turkey and are ideally positioned to support new near-shoring requirements.

Our partner network, multi-modal transport solutions and MVT supply chain platforms are all geared towards supporting an evolving sourcing programme and on-boarding new suppliers. 

If you would like to learn how we can boost your ability to source from alternative manufacturing regions, EMAIL our Chief Commercial Officer, Andrew Smith, to arrange a consultation and scoping discussion.

Parliament blur

UK is world’s 4th largest exporter – we look behind the headline

May 30, 2024 | , , ,

The UK, which ranked 7th in 2021, leapt up to become the world’s 4th largest exporter in 2022, according to new data published by the UN Conference on Trade and Development (UNCTAD). But it may not be all good news and there’s plenty to consider within the data.

The UK’s rise to become the world’s fourth largest exporter, behind China, the US and Germany in 2022 has given politicians an excuse to showcase the UK’s ‘economic resilience’, but the top-line export figures report the total value, which includes intermediate costs for parts and labour and much of this will have been imported.

So, the UK’s export ranking may not accurately reflect its economic strengths and manufacturing capability and the £0.8 trillion headline may hide a large portion of imported value.

The UK’s output produced domestically as a percentage of GDP (after adding all output and subtracting intermediate inputs) has been on a steady decline since the 1990s, while the value of imported intermediate inputs increased in 2022 by 4.8% and 11.9% from EU and non-EU countries respectively, confirming an increasing reliance on imported goods.

By contract, UK services export volumes have risen nine times faster than goods since 2010, suggesting a shift away from manufacturing, which some economists said was accelerated by Brexit.

Office for National Statistics showed a 63% real terms growth in the export of services in the 14 years to the end of 2023, compared with just a 7% rise for goods.

The 2022 data does show an impressive rise in UK exports, but it also shows an even faster increase in imports, which produced the highest trade deficit since 1989.

And even though a trade deficit is not necessarily indicative of an unhealthy economy, a prolonged deficit, especially where imports are replacing domestically produced goods, may highlight low productivity, a lack of international competitiveness, or both.

While the UK’s reliance on EU trade has diminished somewhat, the EU remains by far our largest and most important trading partner and despite the 2021 trade deal, leaving the single market introduced new trade frictions.

To counterbalance these frictions, striking more bilateral trade deals could increase UK exports to faster-growing overseas markets, but this depends on UK manufacturers breaking into these new markets, overcoming trade obstacles and establishing effective supply chains.

For over 40 years Metro has helped customers enter new export markets, supporting their regulatory compliance, finance requirements and multi-modal transport, alongside guidance on insurance and packing to protect their products.

If you have any questions, rate requests or would like further information on our global export capability, please EMAIL our Chief Commercial Officer, Andy Smith.

Category: Economics

Economics

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