Political effects on the logistics industry

Milad Nabi|Aug 8, 2022|No Comment

political factors effecting logistics

One of the most significant concerns for the logistic industry is the political factors which can have both negative and positive effects on supply chain management.
Politics is related to the regulations that government officials implement in order to control a range of business activities. Regarding logistics there are many ways governments can disrupt or benefit global supply chain processes. At every step of the process, freight forwarders and shipping companies must cooperate with government regulations of the origin country and the destination.

CEO of TGL talks all things politics, together with Pete Mento La Chang discusses the various key factors which effects the logistics industry 

What are the key regulations and global incidents which affect logistics processes? 

Some of the regulations and unexpected global incidents which can significantly affect supply chain management include:

Free trade agreements

A free trade agreement is a treaty between two or more countries that eliminates or reduces specific barriers to trade goods and services around the world. As of 2022, Australia has 16 trade agreements in place; the top 3 includes

China

  • The ChAFTA Trade Agreement  was Signed in 2015.
  • Duty-free entry on 96 per cent of Australian goods exported on the full implementation of the agreement.
  • Imports from China to Australia in 2020 was $57.2B.
  • This agreement has become one of Australia's most successful Free Trade Agreements, contributing 30.7% share of imports and exports in Australia.
  • This agreement meant that costs on Chinese manufactured goods could reduce with the 5 per cent tariff placed on these items. This agreement was also beneficial for Australia as it protected the government from policy changes that would affect their interests.

USA

  • The US and Australia free trade agreement began in 2005.
  • Tariffs that averaged 4.3 per cent were eliminated on more than 99% of tariff lines for qualifying US manufactured goods exported to Australia.
  • US goods and services exports to Australia increased by almost 90 and 100%, respectively, primarily due to the FTA.

Japan

Each of these agreements has significantly improved Australia's GDP and overall economic growth. 

FTA Additional information

Australia is currently working on gaining these FTAs:

  • Australia European Union Free Trade Agreement.
  • Australia-UAE Comprehensive Economic Partnership Agreement.
  • Australia-Pacific Alliance Free Trade Agreement.
  • Australia-Gulf Cooperation Council (GCC) Free Trade Agreement.

China vs USA trade war

The Chinese and US trade war began in 2018 when the Trump administration placed tariffs on China due to the allegations of intellectual property theft. Although both countries signed a deal in January 2020, the current US president Joe Biden is still dealing with the fallout of the trade war. The president placed the tariffs in order to encourage customers to buy American-produced goods over Chinese imported goods by making them more expensive. China retaliated by also placing $110b tariffs on products manufactured in the USA, the same time, it also lowered tariffs on imports from the rest of the world. The tariff increases were a major departure from long-run trends towards tariff liberalisation across the globe.

This trade war caused significant ramifications around the world the global supply chain. US exporters may need to reconsider allocating  business in a volatile state. The trade war may also affect the prospect of the world economy and slow down economic growth, which in turn may affect the demands for Australian exports of trade and investment. However, some countries benefited from this trade war, including; ASEAN countries, France, Spain and much more. France and Spain increased their exports to the US and other countries in response to the tariffs. Taiwan was one of the biggest winners as they gained $4.2 billion from the surge in US exports.

Trade war additional information
  • America places tariffs, some over 25%, on some of the critical industries out of China
  • The US was able to drive economic policy through trade agreements, but this changed when the global economy became truly global – in the late 90s when the internet began to interconnect markets around the world
  • The USA was the leading trade economy until China and Europe became more predominant; this was due to the lack of the US's ability to build better relationships with Europe and other growing counties like India

Ukraine war

Yet another global event that caused significant complications for the global supply chain was the Ukraine and Russia war. In early 2022, Russia invaded Ukraine to take over their government and gain control over the country. The outfall of the invasion caused many countries to place sanctions on Russia, causing significant implications for many western countries. Australia placed various sanctions which would see Russia’s imports and exports coming to a halt; sanctions were also placed on Russian ships, Russian oil, gas and much more. The price of gas and oil increased drastically, triggering all-time high prices for air freight services; this would create more congestion for ports and sea freight services. Some of the other major sanctions which affected global logistics are as follows:

  • Russian ships: sanctions placed by USA, Norway, New Zealand, E.U., U.K. and Canada.
  • Russian airlines: E.U., USA, Canada and U.K.
  • Oil and gas: E.U., Switzerland, U.K., USA and Canada
  • Finland also placed sanctions on Russian transit, suspended railway service to and from Russia.Politics has become more and more relevant for the logistics industries due to a globalised and connected supply chain.

The effects of political regulations have changed the industry in both positive and negative ways.