For the seventh year in a row, we have earmarked a short list of what we humbly predict to be the most impactful evolving trends in global trade for the year ahead.
So how do we choose these 10 focus areas? It comes from a combination of research, monitoring of news and developments at the time leading up to publication, and an assessment of what seems to be most likely to affect global trade practitioners and import-export businesses in the coming months. We comb through social media trends, news trends, track the developments of the biggest economic and business trends from the past year, and consult with some knowledgeable CITPs to compile the list.
And even with all of that prep work, we often get it wrong. Because one of the most thrilling and nail-biting aspects of international business is the unpredictability of it.
For instance, you might be amused to note that our predictions for 2020 had no mention of the small matter of a worldwide pandemic and economic crisis — in fact we predicted a rather uneventful year:
“This year looks to be less explosive, with fewer conflicts but a general slowdown in trade growth.”
At least we weren’t alone in failing to predict it.
What may be most appropriate in summarizing what to expect in the global business environment for the foreseeable future is to revive a popular acronym originally coined in 1987: VUCA
- V = Volatility
- U = Uncertainty
- C = Complexity
- A = Ambiguity
In fact, let’s get this out of the way from the start—the first trend we’re going to explore is the expected sharp downturn in global trade growth in 2023. While there is a lot to be hopeful and excited about in the year ahead (growth in renewables, skills-focused hiring, fintech developments), there are also some persistent global challenges that will carry over from 2022, including sustained inflation, high interest rates and energy costs, and the continuing effects from the war in Ukraine.
Read on for our 10 2023 trends.
Curious about our past predictions? Check out what we thought 2017-2022 had in store.
10 global trade trends we’ll be watching in 2022
10 global trade trends we’ll be watching in 2021
10 global trade trends we’ll be watching in 2020
10 global trade trends we’ll be watching in 2019
10 global trade trends we’ll be watching in 2018
10 global trade trends we’ll be watching in 2017
1. Global Trade Growth Slowing in 2023
In October, the World Trade Organization (WTO) readjusted its projection for merchandise trade growth from 3.4% to 1% for 2023 among continuing geopolitical tensions, inflation and lower global demand. The UNCTAD agreed, lowering their projections for 2023 in their latest Global Trade Update, published in December.
EDC published their annual year-end Trade Confidence Index, reporting that trade confidence has declined sharply for Canadian businesses over the past year and continues to decrease among concerns over rising interest rates and a looming global recession.
What’s particularly interesting about EDC’s findings is that of the 1,600 businesses surveyed for the report, a majority (62%) are still considering diversifying their markets and entering new international markets.
So, it seems that while there are challenges to be faced in the year ahead, trade remains resilient.
We’ll be watching to see if the projections pan out.
2. N-Tier Transparency
The N-Tier supply chain is made up of the suppliers that supply your suppliers. Put more plainly, it is the network of suppliers that provide components and services to “tier 1 suppliers,” the ones you directly engage as the buyer. This extra level of removal is what makes is so difficult to obtain a full picture of your entire supply chain from end-to-end.
Getting the full picture of N-Tier suppliers is key in risk management; this became apparent during the supply disruptions caused by the pandemic. Advanced risk management involving full transparency of higher tiers is becoming more common in the face of potential disruptions, such as natural disasters caused by climate change, political upheaval, and future health crises.
Environmental, Social and Governance (ESG) regulations are also becoming more prevalent and ramping up within both investors and governing bodies around the world. We see this continuing to evolve in 2023 and impact the way companies build and track their supply chains.
Having full transparency of all tiers is becoming more important for companies who want to stay on the right side of fines and other enforcement measures on the horizon.
However, this is still substantially difficult for companies to obtain as most risk management solutions are adept at identifying risks within the first tier of the supply chain but not those existing in the “N-Tier” level. In fact, in one recent McKinsey survey only 2% of companies surveyed had full visibility of their third tier or higher.
“That matters because many of today’s most pressing supply shortages, such as semiconductors, happen in these deeper supply chain tiers.” – Steve Banker, Forbes
Just under half had a full picture understanding of their first-tier suppliers and the potential risks in those environments. Solutions that can provide companies with a deeper understanding of their N-Tier suppliers through sophisticated analytics and AI are understandably increasing in demand, and this is something we will be watching develop as the year goes on.
3. ESG Regulations
You can’t talk about supply chain in 2023 without talking about Environmental, Social and Governance (ESG). The social and environmental impacts of supply chains have been making headlines and leading trends in the industry for years now. We included increasing regulations around sustainability and emissions in our Trends article from 2018, for instance.
In 2023, we seem to have reached a critical mass where ESG can’t be ignored. This January, the Germany Supply Chain Due Diligence Act came into effect in the fourth largest economy in the world. This legislation requires businesses to ensure that their entire end-to-end supply chains are free from environmental and human rights violations.
Gone are the days where companies can claim ignorance for what is happening in the higher tiers of their supply chains.
Investors and self-governing agencies are increasingly forming their own actionable ESG regulations as well. If that’s not enough motivation yet, consumers and employees are also putting the pressure on for companies to be more ESG focused.
KPMG provided three points of action that companies can take to ensure their supply chains are best equipped to track, report, and optimize for ESG:
- Operationalize your ESG strategy by aligning the objectives of each function within your business including Finance, HR, IT, Operations and Commercial. Ensure that there is internal collaboration and alignment with each function accessing and tracking the same ESG data.
- Capture real-time operational data along your supply chain for measurement and reporting of ESG matters.
- Build end-to-end visibility of the supply chain to see where your goods move, the organizations that are moving them, and their sustainability credentials. With this insight, make active decisions about your partners to reduce your scope 3 total.
4. Increasingly sophisticated cyber threats
As supply chains integrate more technology into their systems, they are also introducing more opportunities for criminals to exploit vulnerabilities and hack into them. Alongside the adoption of IoT devices, or equipment like barcode readers, cyber criminals are getting more sophisticated and able to cause breaches in your company or your suppliers’ data.
To compound this, companies are also combining their data into centralized databases and systems. This makes a lot of sense from an operational standpoint, but causes further risks when these systems are breached.
According to a recent KPMG study, 60% of companies surveyed said that their supply chains were leaving them vulnerable to a cyber attack.
To combat these threats, organizations need to conduct thorough cyber-risk assessments and ensure that any suppliers in their chains do the same.
According to the National Institute of Standards and Technology, “Cybersecurity in the supply chain cannot be viewed as an IT problem only. Cyber supply chain risks touch sourcing, vendor management, supply chain continuity and quality, transportation security and many other functions across the enterprise and require a coordinated effort to address.”
The Canadian Centre for Cyber Security provides this approach organizations can use to assess and mitigate risks within their supply chains. We’ll certainly be keeping an eye on developing solutions to mitigate cyber security risks in 2023.
5. Friend-shoring leading to onshoring
Coming off of three years of supply chain disruption and instability, an environment of uncertainty continues into 2023. Port congestion and high shipping rates are expected to continue well into the year. Food, energy, and technology supply chains are projected to be impacted by the ongoing Russia-Ukraine conflict and ongoing tensions between China, Taiwan and the U.S.
The long-term aspect of continued disruption is causing many organizations to start bringing manufacturing closer to home. Even prior to the 2019 COVID-related supply chain disruptions began, “near-shoring” and “friend-shoring” were gaining momentum as tactics to protect against the political and climate change disruptions already affecting global supply chains.
Friend-shoring will still be a popular strategy in 2023 bringing production out of riskier environments and into “friendlier” regions, reducing the risks offered by geopolitical instability.
However, risks of friend-shoring do include ESG-related compliance issues, so any new manufacturing location would have to be carefully vetted.
To reduce risks further, onshoring will be another popular option in 2023. Despite the higher costs of production that often come from bringing it onshore, reducing disruption risks seems to be a worthwhile endeavor for many companies and even countries. For example, the U.S. took a big step forward in onshoring crucial technology inputs by passing the CHIPS and Science Act which increased investment in semiconductor production on U.S. soil.
6. Manufacturing continues to leave China
According to the Economic Times,
“In 2023, companies will evaluate lead times and the cashflow impact of potential geopolitical conflicts and focus on building alternative options for raw material and component supply, to reduce an overdependence on individual countries, and distribute risk.”
Tensions and disruption from China, in particular, over the past few years, has led many Western companies to divert their supply chains away from the country to nearby neighbours that pose fewer risks.
In late 2022, the U.S. actioned their CHIPS and Science Act, to bolster the country’s domestic semiconductor capacity and at the same time set some tough export controls in an effort to slow down China’s chip manufacturing industry. Chinese exports of high-tech products dropped 23.6% in November 2022.
China’s neighbours have been picking up a lot of this manufacturing business.
“Meanwhile, countries, like Vietnam, Singapore and Malaysia are grabbing markets China is ceding. Vietnamese exports, for example, rose 23% year-on-year to $185 billion over the first six months of 2022. Malaysia’s outward shipments increased 21% to $294.5 billion over the first 10 months of 2022.” – WITA.org
China is also importing fewer commodities as their manufacturing export market falls.
China is likely to react to the U.S.’ export controls by putting up trade barriers of its own. All in all, it looks like 2023 will continue to be a volatile time for trade in this region as tensions remain high. We’ll be watching to see how things develop.
7. Continuing war in Ukraine
Last year at this time, we were looking ahead at what we hoped would be a return to a more stable trade environment with gradual easing of the disruptions caused by the COVID-19 pandemic. However, the Russian invasion of Ukraine in February 2022 saw a new wave of instability arrive in the form of sanctions, higher energy prices, and supply chain disruption on a global scale.
It’s hard to predict how the conflict will unfold in the year ahead, but one thing many global economists and trade experts agree on is continued disruption and knock-on effects including high inflation, commodity price surges, food shortages, and energy constraints exacerbating the probability of a global recession in 2023.
8. Global Renewable Market continues growth
Over the past year, costs of fossil fuels rose while renewable energy sources continued to become more affordable.
“The world is facing a simultaneous inflation crisis, national security crisis, and climate crisis, all caused by our dependence on high cost, insecure, polluting, fossil fuels with volatile prices,” says Professor Doyne Farmer, author of a recent study detailing the forecasted costs of the global energy system.
He states that research shows the costs of renewable energy continues to trend down and will become cheaper than fossil fuels in the near future across all industries.
BDO Global has provided its predictions for the Global Renewable Industry in 2023, including the following highlights:
The future of solar and wind power is bright – Solar capacity will continue to grow over the next several years—surpassing a terawatt of global solar power generation by 2023. Wind power will also continue to grow, with increased storage capabilities developed specifically for on and offshore wind, helping to improve the economics and productivity of such projects.
The energy convergence continues – Natural resources companies, from mining to oil and gas, will continue to invest in clean or renewable energy technology, including carbon capture, utilisation and sequestration—both to diversify their portfolios and reduce their corporate carbon footprints.
Cleantech investments soar – Whether called cleantech or climate-tech, the regulatory, economic and scientific impetus for these technologies will see $600 billion dollars in global private investment by 2023.
9. Digitization continues to drive trade finance developments
Despite the adoption of blockchain technology by global financial institutions in recent years, there is room for further growth, according to Carl Wegner, CEO of Contour. Digitizing trade documents such as bills of lading has the potential to save billions of dollars in costs to organizations and improve efficiency and collaboration.
In place of cryptocurrencies, the “real economy” is set to make a resurgence after the crypto market took a two trillion dollar dive in 2022. Central banks in 114 countries are creating and are set to distribute their own digital currencies (CBDCs), both to transfer funds between commercial banks and for the use of the general public.
Digitalization in trade finance is continuing to develop and we will be watching to see how it impacts trade transactions and processes this year.
10. The future of work continues to be flexible and skills-focused
In the wake of the “great resignation,” labour shortages, the “quiet quitting” trend and a new generation moving into higher-level positions, the workplace continues to evolve in 2023.
Many offices are moving back to in-person work or hybrid models this year, but workers are still demanding flexibility and remote-work options. So, we can’t expect a “return to normal” or anything resembling the pre-pandemic model.
“New technologies seem set to usher in changes to the way workers are surveilled and monitored as they go about their daily activities, either remotely or in centralized workplace environments. Managing this balance between expectations of flexibility and a need for accountability will be a key challenge that employers and managers will face in the coming 12 months.” Bernard Marr, Forbes
So, companies will need to continue to balance flexibility— which has been shown to increase productivity and worker satisfaction— and things like security and tools to carry out reasonable tracking and surveillance for project management.
The hiring and recruiting process continues to evolve as well. More candidates available for remote-work opportunities, but in many industries, labour shortages persist this year.
Digital credentials are popping up with increasing regularity on digital CVs and LinkedIn profiles, and can be a useful tool for both hiring managers and job seekers, acting as a quick and easy way to verify skills and experience at a glance.
As recruiters increasingly shift to a “skills-first” hiring approach, digital credentials will continue to aid the process, making verifiable skills front and centre.