APEC's Supply Chain Framework: A Boon for Business

Plumes of ash from the eruption of a volcano in the tiny, isolated island-nation of Iceland have delayed flights from and to Europe, stranding passengers and goods. It disrupted trade flows and had the potential of turning into a major headache for businesses around the world.

In a downtown flower shop in Hong Kong, China, the owner was concerned that their supply of fresh flowers from Holland was running out, "Because of the volcano, the flight delays from the Netherlands will affect our business by 15-20 percent."

"There's [been] a major disruption of the supply chain," said Paul Tsui, vice chairman of the Hong Kong Association of Freight Forwarding and Logistics, a trade body representing logistics players like DHL. According to some analysts, the disruption could cause worldwide losses for passenger airlines and cargo companies of as much as US$3 billion.¹

But while economic losses may have been relatively small and short-lived, the fact remains that no one was really prepared to handle such an unprecedented event.

APEC's push to enhance connectivity in the Asia-Pacific region, particularly in terms of transport and logistics, is therefore timely. The flow of goods in the region would thus not have to depend solely on airplanes (or on any one mode of transport), but, instead, would be offered other efficient transportation options.

"It's really about choice," says Elizabeth Chelliah, the Chair of APEC's Committee on Trade and Investment (CTI) which is leading the development of a new APEC Supply Chain (SC) Framework, "You don't always need to go by air; you don't always need to go by sea because you [would] have so many better networks and choices to choose from."

Of course, geographical factors play an important role in determining the type of transport linkage (and there is also the question of infrastructure). But potentially what can be done and the positive outcomes that result from a well-connected region are many, far-reaching and wide. In broader terms, the efficiency gains in an interconnected network for transport (and trade) would lead to more than just easier movement of goods; overall, it would result in higher growth and greater prosperity.

In fact, a one percentage point increase in the ratio of trade to GDP would lead to a two to three percent increase in income per person, while a 10 percent efficiency gain in supply-chain connectivity would lift APEC's real GDP by US$21 billion per year and generate thousands of jobs. ² Clearly, the implications of an integrated region are tremendous - and APEC has already begun work to enhance transport and logistical networks across the region's entire supply chain.

Through the years, APEC has made great strides in reducing "at-the-border" (e.g. tariffs) and 'behind-the-border' (e.g. regulatory impediments) barriers to trade. In 2009, in order to address the remaining frontier - namely 'across-the-border' barriers - APEC launched the Supply Chain SC Framework to set down what needs to be done to forge an integrated supply chain and an interconnected region.

The goal is clear: to achieve multi-modal connectivity by air, land and sea; and to facilitate a seamless flow of goods, services and people throughout the Asia-Pacific.

This is part of APEC's aim to speed up regional economic integration.

To do this, a collaborative effort is necessary on all fronts. Inside APEC, the CTI takes the lead in coordinating the SC Framework and works together with the Economic Committee (EC) and other related APEC groups such as the Transportation Working Group (TPTWG) and the Sub-Committee on Customs Procedures (SCCP).

Outside APEC, forums such as the Association of Southeast Asian Nations (ASEAN) and think-thanks such as the Centre for International Economics (CIE) are also undertaking work to improve the functioning of the region's supply chain.

It is said that the supply chain is only as good as its weakest link. For example, if air freight connectivity is improved, but goods are held up at customs, the former effort would be of no benefit. Everything is connected; and, indeed, in today's world, everything is interdependent. That is just one example of a bottleneck (customs) and there are numerous bottlenecks across the entire supply chain.

In collaboration with business, academia and government sectors, APEC has identified eight critical chokepoints and is focused on relieving them.³ Broadly, they relate to regulatory impediments, customs inefficiencies, and inadequate transport networks and infrastructure.

Tackling these chokepoints requires a coordinated and concerted effort by all APEC members. As Chelliah aptly points out, "You can't talk about connecting the region if a group of economies do not participate." A seamless and efficient supply chain would therefore only be possible if everyone gets involved.

Under the CTI's lead, focus group discussions for each of the eight chokepoints are currently in session. APEC members are developing concrete action plans which will be further fleshed out at the second CTI meeting in May 2010 and full implementation will start next year.

"The key challenge is to make sure that what we do enables businesses to see results immediately," Chelliah notes. Accordingly, APEC will seek wider business participation. Riding on the success of the May 2009 APEC Supply Chain Connectivity Symposium, the 2010 Symposium slated for September will garner more inputs from relevant businesses, particularly those from the logistics and transportation sectors.

The APEC Business Advisory Council (ABAC) is already spearheading a preliminary feedback exercise with logistics and transportation companies based in Singapore. Businesses in these sectors are asked to rank the eight critical chokepoints according to what they feel is most important to them. In this way, business-relevant solutions and recommendations will be channelled back to APEC to provide policy-makers with up-to-date industry views.

A team of delegates from the APEC Secretariat will also visit the work site of the global express delivery service company, the United Parcel Service (UPS), in April 2010. UPS together with business representatives from DHL, FedEx and TNT are also involved with APEC through ABAC and the Conference of Asia Pacific Express Carriers (CAPEC) where efforts are being made to bridge public policy and business interests.⁴

"APEC's initiative to improve supply chain connectivity is crucial to businesses across the region," says Dave Tan, the Executive Director of CAPEC. "Supply chain connectivity is also important to SMEs trying to succeed in a globalised economy," he adds, emphasising that the benefits of improved logistics connectivity extend beyond big businesses to small and medium enterprises.

The formulation of the Supply Chain Connectivity 'Framework' - in the past 'Initiative' and in the future 'Work Plan' - is intended to be an organic, ongoing process that will incorporate imaginative ideas and inputs from policymakers, academics and businesses.

According to Chelliah, APEC is particularly well-suited for such an undertaking because APEC is, by design, exploratory and creative. The absence of rules and the presence of an open and consensual environment provide much needed space for ingenuity and for closer collaboration with business. As a result, there is potential for the SC Framework to be much more than just a logistics roadmap. In addition to making it easier to trade across borders, it will contribute to a more efficient - and hence greener - supply chain, greater productivity and employment, and increased personal mobility. In this way, the SC Framework will also play an important role in achieving APEC's new vision of balanced, inclusive, sustainable and knowledge-based growth.