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Andrew Viteritti is the commerce and regulation lead at the Economist Intelligence Unit (EIU). He serves as a senior member of the EIU's global forecasting team and broader editorial operations. His research focuses on key regulatory and business climate issues involving international trade, investment, and competition, among other policy areas. He regularly presents the EIU's research and forecasts to international clients and the general public. Viteritti joined the EIU's senior research team in 2015 after serving as a regulations analyst.
Early in his career he worked for several years on issues related to international development, migration, and trade with the World Bank and the Migration Policy Institute. He has lived and worked in a number of countries across the Americas, Europe, North Africa, and Asia. He is a graduate of Georgetown University (B.A.), the London School of Economics (M.S.), and the University of Chicago (M.P.P.), where he was a Dean’s Scholar. He also studied on exchange at Sciences Po Paris. He is based in Washington, D.C.
David Maloney, Editorial Director, DC Velocity 00:00
Will reshoring happen anytime soon? New economic numbers are out for the supply chain industry. And what's it going to take for workers to return to the office safely?
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the group editorial director at DC Velocity. Welcome.
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As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: We've all seen the many supply chain disruptions this year, and we've heard about how many companies are looking to reassure their manufacturing away from China and other Asian countries and closer to home. But with such complex supply chains, how practical is reshoring, and how long will it take before we see companies coming back to North America? To answer those questions, here is Ben with today's guest. Ben?
Ben Ames, Senior News Editor, DC Velocity 01:35
Thanks, Dave. That's exactly right. The reshoring trend is something that has seen growing optimism among U.S. policymakers after some of the great challenges of the last 18 months. However, such moves might remain exceptional in the first couple years. We have with us today, Andrew Viteritti, who's the commerce and regulation lead at the Economist Intelligence Unit, or the EIU. Thank you for being here, Andrew.
Andrew Viteritti, Commerce and Regulation Lead, Economist Intelligence Unit 02:04
Thanks so much for having me.
Ben Ames, Senior News Editor, DC Velocity 02:05
Yeah. Just heading off into our discussion today, maybe you could give a quick explanation to our listeners what the Economist Intelligence Unit is, and what sort of research it does in the supply chain sector.
Andrew Viteritti, Commerce and Regulation Lead, Economist Intelligence Unit 02:16
Sure. So, the EIU is the research and analysis division of The Economist Group, and we're the sister company to The Economist magazine. In fact, we were founded back in 1946 to answer the specific types of country, industry, and business intelligence questions that readers of The Economist magazine were asking. We have an international team of analysts based in our offices across the world, and we're very excited to be celebrating our 75th anniversary this year providing actionable insights and research to businesses, governments, international organizations, think tanks, research universities, and the like. Now, we've been looking at the issue of supply chains quite a bit, and when it comes to our research in that area, well, everything that we do is forward-looking. We certainly have been looking at these these issues around supply chains extensively, and from many different angles.
Ben Ames, Senior News Editor, DC Velocity 03:16
Thank you fascinating stuff, Andrew, I understand that you recently released a report about one of the possible solutions to the challenges that we've been talking about,a and that's reshoring, the concept that some companies could bring their production operations out of Asia, out of China specifically, is one of the most, of course, popular places, and locate them here in North America, thus avoiding some of the global shipping problems we've been discussing. But I understand that your recent report said that's not very likely, at least not in the upcoming five-year timeframe.
Andrew Viteritti, Commerce and Regulation Lead, Economist Intelligence Unit 03:49
That's right. So, we're forecasting, essentially, that businesses will be unconvinced that North America, and especially the U.S., can serve as a viable substitute for current global supply chain networks, particularly those involving Asia. There are four main reasons to this forecast. I'm going to try to breeze through them as fast as I can. So, the first has to do with Asia's high degree of resilience during the pandemic, particularly when it comes to production and trade. Now, Asia's exports recovered faster than exports from any other region worldwide last year, and even exceeded their pre-pandemic levels by early 2021—so earlier this year. Much of that had to do with Asia's generally successful Covid-mitigation measures which allowed the region's factories to continue to operate while the rest of the world was going into lockdown last year. Now, Asia has suffered from a rise in infections very recently, but we're not expecting that to compromise the region's steady and impressive export growth going forward, and that's because any new Covid-containment measures or lock downs that we're likely to see are going to be very targeted, short-lived, and specifically designed so that they're not going to disrupt production and trade. Now, the second reason of the four is that Asia remains a key consumer market for companies. It's a market that's very large, it's growing, it's becoming ever more diverse. And that's going to encourage companies to view it as essential that they keep production in close proximity to the Asian market to ensure easy access. Now, the third reason has to do with North America's relative lack of competitiveness with Asia. [North American countries have] very strong business climates, that's clear, and they're very attractive to companies and foreign investors, but, crucially, production there remains very expensive, and while companies do have some options for working around this—automation is one of them—those are options that require substantial upfront costs, and they're ones that not every company is going to be willing to make. And that's particularly the case when business risks and uncertainty are high,a nd those are very much the dynamics that we see a play in North America right now, particularly concerning protectionism and cross-border tensions within the region. Just to give you a few examples of what that's looking like: So, we've seen this flare up, notably, between the U.S. and Canada with their relations, especially involving uncertainty around the implications of Joe Biden, the U.S. president's, efforts to revitalize us manufacturing output and jobs. For example, since Mr. Biden entered office, there have been questions around whether Canada would get an exemption from his new buy-American procurement rules, or whether his administration would double tariffs on Canadian lumber, or whether it would sue Canada for allegedly failing to open up the stereo market per USMCA requirements. Of course, all of that has been building on top of disagreements that we were already seeing around the future of cross-border oil pipelines, and more recently about how to open the U.S.-Canada border in mid-Covid. We've also seen protectionism as a big issue in Mexico, with the current Mexican president, Andres Manuel Lopez Obrador—AMLO, as he's often known—essentially pursuing highly nationalist and statist agenda that we expect to chill investor sentiment at least until the end of this term, in late 2024. And that's a big problem, since Mexico plays a key role and giving credibility to the North American reshoring narrative, particularly because production costs are much lower than they are in the U.S. and Canada, and even competitive with Asia. And so then, the fourth and very final reason, which I'll get through very quickly, it has to do specifically with costs. So, reshoring is very expensive. It's time consuming. It's risky. These are changes that can't happen overnight, and likewise, can't be reversed quickly, and so companies will make those decisions, especially at a large scale, only if they're certain that there's going to be a clear payoff. Now, even though Covid and supply chain resilience, those issues were very much front and center, when it came to company decision-making at the onset of the pandemic, we're expecting those to fade into the background as the pandemic becomes more contained via things like widespread vaccinations, or more effective treatments, and simply as businesses continue to master how to operate alongside the virus. And as that happens, we're going to see the simultaneous return of the primacy of cost and price when it comes to company decision-making, and that's going to temper down this drive to reshore, and we'll see a greater willingness by businesses to operate with pre-Covid structures that were in place. So, those are the four reasons to behind our core forecast.
Ben Ames, Senior News Editor, DC Velocity 08:59
Really interesting. Yeah, that reshoring is easier said than done, it sounds like. It's expensive, and we can't forget about Asia's rising consumer market, you know, it wouldn't make sense to get production out of there, if that's going to be one of the main buying locuses coming up, so. From your descriptions—and just to have our final question here—it seems like a lot of the factors you were discussing are really sort of long-term trends. Is it safe to say that the dynamic on these issues, particularly I guess, on those four variables,will probably stay the same for the upcoming years?
Andrew Viteritti, Commerce and Regulation Lead, Economist Intelligence Unit 09:35
Well, we could see some change, and I think the biggest risk right now has to do with Covid, at least when it comes to how we're shaping our forecasts. For example, if we see infection outbreaks last longer than we're currently expecting, or if they're more disruptive to production and trade, especially in Asia, that certainly would delay our timeline for a return to the so-called pre-Covid normal for business decision-making. It also would make businesses think more aggressively about pursuing more robust changes in their supply chains, be it through reshoring, or, I would say more realistically, through some combination of nearshoring and supply chain redundancy. So, time will tell, certainly, but we're we're definitely keeping an eye on all of these dynamics in the meantime.
Ben Ames, Senior News Editor, DC Velocity 10:25
Gotcha. Really interesting analysis. Andrew, thank you for being with us and talking about some of those issues. It's great to get a look at what some of the real levers are that are moving companies' decisions.
Andrew Viteritti, Commerce and Regulation Lead, Economist Intelligence Unit 10:37
Thanks so much for having me.
Ben Ames, Senior News Editor, DC Velocity 10:39
Great. We've had with us today Andrew Viteritti. He's the commerce and regulation lead at the Economist Intelligence Unit. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 10:49
Thank you, Andrew, and Ben. Now, let's take a look at some of the other supply chain news from the week. And Victoria, you wrote about some new economic reports for the supply chain industry that came out this week, and some long-term prospects for continued expansion. Can you tell us more about that?
Victoria Kickham, Senior Editor, DC Velocity 11:06
Absolutely, Dave. Happy to. Yeah, so the tight market conditions we've been seeing in logistics and transportation are set to continue. According to an industry economic report released this week, as you said. The Logistics Managers' Index, or LMI, maintained its strong pace in July, and that's according to a monthly report on the index that was released, actually, this past Tuesday. The LMI is a survey of logistics and transportation managers that gauges economic activity in the industry, and it's compiled by researchers from five U.S. universities. And again, for July, the LMI was strong. Again, it registered 74.5, which is down slightly from June's reading, but it's still the sixth straight month that the index has come in above the 70-point mark, and that indicates strong expansion across the industry, according to the researchers. I should know that the LMI—an LMI reading above 50 indicates growth in the industry, and a reading below 50 indicates contraction. So, a consistent reading in the 70s shows, really, a considerable and sustained growth. The researchers also pointed out that pricing pressures are fueling much of what's going on here. Warehousing and transportation prices, as well as inventory costs, which are three of the LMI's key price metrics, have remained high for many months as well, and in July all of them registered at 88 or above. These pressures stem from a lack of available capacity and rising demand, which we've talked about many times here, and all of that, essentially, makes for a very busy logistics and transportation market. We just saw more of the same, as I said, for July.
David Maloney, Editorial Director, DC Velocity 12:42
And Victoria, you said the outlook is for more of the same. So what did the report say about that?
Victoria Kickham, Senior Editor, DC Velocity 12:48
Yeah, that's—yeah, good question. The managers polled for the report said that current conditions are likely to continue over the next year. And that's based on the LMI's Future Conditions Index, which essentially asks respondents for their 12-month outlook. In July, respondents predicted a growth rate of almost 72 for the overall LMI over the next 12 months, and that's up nearly eight points above the index's all-time growth rate of about 64 for that metric. This essentially means that industry leaders expect a substantial rate of future growth and that the current conditions are likely to continue. I've also spoken with some other industry professionals who say this, you know, they're hopeful this will eventually level off, at least the higher pricing that we're seeing. In talking with some freight technology vendors last week, for instance, they said they're hopeful that fuel prices, which have been rising along with everything else recently, you know, may start to ease in early 2022, for instance. So, hopefully, there's some relief on the horizon when it comes to the higher costs that many shippers are facing these days.
David Maloney, Editorial Director, DC Velocity 13:53
Well, let's certainly hope so. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 13:56
David Maloney, Editorial Director, DC Velocity 13:58
And Ben, you reported that with rising Covid cases once more, many employers may be reconsidering how their employees return to work in the fall. Can you share more?
Ben Ames, Senior News Editor, DC Velocity 14:08
Yeah, that's right, Dave. It really touches on two of the themes that we've just been talking about today. Victoria said the LMI is riding high and the U.S. economy has been rebounding this summer. So, of course, you know, a lot of businesses, and of course schools and universities, are hoping to have their employees or their students back to in-person workspaces in the fall. But as Andrew warned, as well, the virus has proven to be unpredictable, particularly, of course, the Delta variant that we've all heard so much about, has been spreading very fast. It's a problem because it's really filling hospitals up with, you know, people on ventilators, as we've been hearing about for the past years, and that means that hospitals, you know, can't have more Covid patients or any other type of patients. In response, some private employers, as we head into the fall, have started requiring their workers to get vaccinated. Of course, they're not forcing them to do so, but there's a choice: testify to the vaccination or else follow a regimen of mask wearing, social distancing, weekly testing, these things that we've all been hearing about. But they're really some big names there. Examples include transportation, companies like Delta Airlines and United Airlines, some delivery folks like DoorDash, Uber, and Lyft. Also, in the retail section, we've had Saks, Tyson Foods, Walmart—so, you know, a lot of people involved in some of those new rules and regulations, and in fact, even the country's largest employer, which you might remember is the federal government, has done the same thing, so the numbers are in the millions, for sure.
David Maloney, Editorial Director, DC Velocity 15:47
Ben, do we know how this trend will affect the logistics sector in particular?
Ben Ames, Senior News Editor, DC Velocity 15:52
Great question. That's why we're all here to the podcast to talk today about that. It's, of course, you know, not clear which specific logistics companies have joined the trend, but as an indicator, we did hear support for the trend for greater vaccination this week from two of the largest industry groups. And it's important here, of course, to remind our listeners that these are business arguments, not medical advice, but the National Retail Federation, the NRF, called vaccination, "the key to further economic recovery, reopening, and rebuilding." So, the NRF chief economist, somebody named Jack Kleinhenz, pointed out that our gross domestic product had surpassed its pre-crisis peak during the second quarter of this year. And that growth is expected throughout the rest of the year. That also sort of backs up what Victoria was talking about with the LMI. But but he did warn that, you know, with the markets and consumer sentiment, that it can be restricted if there's growing fear about Delta variant. Likewise, the National Association of Manufacturers has been making efforts to equip its member companies with the resources they need to get people vaccinated. That includes producing things like videos and graphics and vaccine locating apps. So thy NAM, National Association Manufacturers, president Jay Timmons said the vaccines were, quote, "proven safe, and the only way we can save lives, end the pandemic, and sustain that economic recovery. So, you know, lots of voices joining here, and, you know, as the company—that's the country, excuse me—continues its great rebound, you know, we have a lot to protect here, and hopefully we can keep the momentum going.
David Maloney, Editorial Director, DC Velocity 17:42
Yeah, great. It would be interesting to see what the individual employers do, as well as what guidance and maybe even requirements we may see from the individual state governments. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 17:52
Glad to do it.
David Maloney, Editorial Director, DC Velocity 17:54
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast Notes section for some direct links on the topics that we discussed today. Thanks, Ben and Victoria, for sharing highlights from the news this week.
Ben Ames, Senior News Editor, DC Velocity 18:09
Glad to be here.
Victoria Kickham, Senior Editor, DC Velocity 18:10
Yes, me too. Thanks, Dave.
David Maloney, Editorial Director, DC Velocity 18:12
And again, our thanks to Andrew Viteritti from the Economist Intelligence Unit for being our guest today. We encourage your comments on this topic and our other stories. You could email us at firstname.lastname@example.org.
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