Trade chain reviews: What are they, and when do you need one?

The U.S. has imposed tariffs on countries around the world. While Canada was not included in the April 2 tariff announcement, businesses are still exposed to risk. Some Canadian businesses import goods from the U.S. which may face retaliatory tariffs, or those goods could be more expensive if U.S. suppliers want to offset their increased input costs.

Tariffs can have sweeping consequences and unintended impacts, but there are some actions you can take now to prepare.

A trade chain review is a key starting point to understand the costs of trade, including the impact of customs duties, import taxes, and any other border tariffs. This process will help you understand your trade ties and identify risks and opportunities alike.

What is a trade chain review?

A trade chain is the full process of how a business sources merchandise, raw materials, components, or capital goods (such as machinery and equipment), and how it moves such goods across borders.

Trade, in this sense, occurs when such goods are purchased and/or when they are physically moved between two locations (especially across national borders). From the manufacture and sourcing of goods to the delivery of products to market, a trade chain review can help you understand the physical and financial trade flows with varied participants in the trade chain, such as suppliers, manufacturers, distributors, and customers.

A trade chain review, particularly in the international trade context, is a proactive exercise that analyzes what goods you trade, their sourcing and manufacture, and their customs classification. It also examines where your suppliers and customers are located, and helps establish a quantitative baseline of the value and volume of your trade to assess actual and potential costs. The insights can inform the strategic direction your business takes, helping to optimize costs and reduce inherent risks of trade.

Benefits of a trade chain review

A trade chain review can bring a range of benefits, depending on your organization.

Improved efficiency

By addressing bottlenecks and inefficiencies within the trade chain, you can streamline operations, reduce lead times, and lower costs. This leads to a more efficient and responsive trade chain.

Enhanced transparency and compliance

Trade chain reviews help ensure that all components of the trade chain comply with relevant regulations and standards. This enhances transparency, reduces the risk of legal issues, and builds trust with stakeholders and customers.

Stronger risk management

A thorough review can identify potential risks and vulnerabilities within the trade chain, such as supplier reliability or geopolitical factors. By developing strategies to mitigate these risks, businesses can enhance the resiliency and stability of their trade operations.

What are the key components of a trade chain review?

A trade chain review typically involves several key components to ensure a thorough evaluation of the entire trade chain. Here are the main steps:

1. Mapping the trade chain:

• Identify the goods, entities and the countries involved in the trade chain.
• Assess and itemize your trade flows, including the physical movement of goods, and the related payment transactions and valuation accounts.
• Create a visual representation of the trade chain to understand the interactions between entities and trade flows.

2. Import and export data collection and analysis:

• Leverage data gathered from internal and external sources.
• Produce descriptive figures to help assess the performance of your trade chain.
• Analyze the data to identify patterns, inefficiencies, and areas for improvement.
• Develop business- or event-specific data models for the evaluation of alternative scenarios.

3. Performance metrics evaluation:

• Establish key performance indicators (KPIs) to measure the efficiency and effectiveness of the trade chain.
• Evaluate the performance of each component against these KPIs.
• Glean insights and develop action plans for performance improvement.

4. Risk assessment:

• Identify potential risks and vulnerabilities within the trade chain, such as supplier reliability or geopolitical factors.
• Develop strategies to mitigate these risks.