As exporters step into the unknown that is 2023, many—if not all—of us are perhaps hesitant about what we might find in the next year. And for good reason! If you’ve been in business for more than a minute, you’ve no doubt been exposed to a barrage of challenges since 2020, with no clear end in sight.
And while no one can predict exactly what the next year holds, we’ve compiled some data and made observations about some of the top challenges facing international trade in 2023—and some tips on how small and midsize exporters can still be successful. Of course, this is only a slice of what may be on the horizon, but we feel these items are crucial to address as exporters look toward the new calendar year.
Top 5 Challenges Facing Exporters in 2023
1. Increased sanctions, which require compliance diligence.
The global stage is set for increased sanctions, particularly against Russia and China, many of which will be levied under the Global Magnitsky Act, a 2016 law authorizing the U.S. government to sanction foreign government officials worldwide who are deemed to be human rights offenders, and also freeze their assets and ban them from entering the United States.
As sanctions are levied, it will be of utmost importance for small and midsize exporters to make sure they’re following the letter of the law in each and every export transaction. Whether or not your shipment requires an export license from the U.S. government has until now been primarily determined by the Export Control Numbers (ECNs) of your products, of which there are two types:
- Export Control Classification Numbers (ECCNs), which are reserved for items considered “dual-use,” meaning they have a commercial use but could be applied in a military or weapons-related use, and which may need a license from the U.S. Department of Commerce depending on the destination country.
- United States Munitions List (USML) Categories, which are reserved for explicitly defense- or space-related items and that always require a license from the U.S. Department of State, regardless of destination country.
The new Russian Industry Sector Sanctions are unique in that they are based on Schedule B codes and Harmonized Tariff Schedule (HTS) codes instead of ECNs. Schedule B and HTS are the general commodity schedules for export from and import into the U.S., respectively. They are based on the global Harmonized System (HS), and are designed to be able to classify every product imaginable. We discuss this in detail in our article Exporters Beware: New Russian Sanctions Based On Schedule B and HTS Codes.
2. Continued issues with the global supply chain.
In 2020, the global supply chain as we knew it was disrupted by the COVID-19 pandemic—and to this day, it continues to be disrupted. As we discuss in our article What is Supply Chain Management, we will never go back to the “old normal”—and the new normal we’re heading into will not be anything anyone in the global trade industry has experienced before. Supply chain disruptions include:
- The rising cost of fuel globally.
- The growing role of technology in supply chain management.
- Continuing political disruption, including Ukraine, the potential blockage of Chinese merchant marine shipping lanes, and more.
Needless to say, there’s never been a greater need for exporters and importers to understand how supply chain management (SCM) works. As our world changes, end users no longer find a five- to seven-day day delivery time acceptable. Buyers and sellers who meet the demands of their end users will survive and grow, and those who cannot refine their SCM processes will lag behind.
3. Hiring shortages.
Related to global supply chain challenges, the lack of workforce involved in trade and logistics, and challenges around recruiting and retaining essential staff, are not anticipated to change. According to PMI, the Organization for Economic Cooperation and Development (OECD), which includes 38 member countries, found that 20 million fewer people are working now compared to before the pandemic, with a slow rebound predicted. And while some of these roles can be given to machines or reallocated, many cannot—and when there are not enough trained bodies to perform certain tasks, all tasks in the supply chain slow, and everyone, including end users, are affected.
For this reason, we suggest improving efficiencies wherever possible in your small or midsize business—tools like Shipping Solutions software make this easy by reducing redundant data entry and completion of export shipment information. With Shipping Solutions, you can enter your information once, and the software automatically formats and places it on the right spot on the right forms.
Not only does Shipping Solutions save you time, it improves the accuracy of your export paperwork by reducing typos and inconsistent documents that slow shipments and can delay payment for your exports. You can see exactly how it with a free demo.
4. Inflation and the risk of recession.
Obviously, inflation and recession are on the tips of our tongues daily. In October 2022, the WTO warned of a sharp slowdown in global trade for 2023, citing high energy prices paired with high prices of essentials like food, which in turn cause (in part) households to spend less money on other goods and services.
World trade is expected to lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks weigh on the global economy. For 2023, economists foresee a 1.0% increase, which is down notably from a previous estimate of 3.4%. According to the WTO, “risks to the forecast are numerous and inter-related.”
- Major central banks are already raising interest rates in a bid to tame inflation but overshooting on tightening could trigger recessions in some countries, which would weigh on imports.
- Alternatively, central banks might not do enough to bring inflation down, possibly necessitating stronger interventions in the future.
- High interest rates in advanced economies could trigger capital flight from emerging economies, unsettling global financial flows.
- Escalation of the Russia-Ukraine war could also undermine business and consumer confidence and destabilize the global economy.
- An underappreciated risk would be the decoupling of major economies from global supply chains. This would exacerbate supply shortages in the near term and reduce productivity over the longer term.
For new and established exporters alike, these prospects may feel overwhelming.
5. Climate change and its ramifications.
Global trade and climate change are inextricably linked. The ramifications of climate change affect trade. For example, extreme weather events caused by climate change affect maritime shipping, which accounts for around 80% of global trade by volume. Conversely, international trade practices historically have contributed to factors that are believed to cause climate change, including pollution and emissions, deforestation, and agricultural practices, to name a few.
However, global trade can also have positive effects on the environment. According to the OECD, “increased trade can support economic growth, development and social welfare, which in turn contribute to a greater capacity to manage the environment more effectively. More importantly, open markets can improve access to new technologies that make local production processes more efficient by diminishing the use of energy, water and environmentally harmful substances.”
In 2023, we expect trade policies to favor climate change policies. While this will benefit our world, the process will be slow and may impact environmental policies that were previously more lenient on exporters. In some cases, it will cost more to do business in an environmentally responsible way.
What should exporters do to prepare for the challenges they will face in 2023?
While we don’t have all of the answers to each of these big-picture problems, there are some things exporters can do to ensure the success of their businesses in challenging times.
- Stay diligent about your compliance efforts. From looming sanctions to export controls to product classification, there is a plethora of knowledge free for the taking to all exporters savvy enough to make use of it. Much of that knowledge in the form of blog posts, webinars, white papers, etc., is available on our website—if we don’t have it, we share where you can access it. Additionally, Shipping Solutions Trade Compliance Wizards are practical importing and exporting tools that help you stay compliant in all export transactions, no matter how small. These Wizards help product classification, restricted party screenings, and export and import controls as easy as possible.
- Take advantage of software and other tools that improve efficiencies in your business. If you’re working with a leaner staff, you need to make the most of every role, which means eliminating redundant tasks and freeing your staff up to focus on the important things. As previously mentioned, Shipping Solutions software not only helps you complete paperwork faster, it also improves the accuracy of your export paperwork by reducing typos and inconsistent documents that slow shipments and can delay payment for your exports. And, you can quickly file through AES right through the software with just the click of a button. It couldn’t be any easier.
- Follow this checklist to make sure you’re prepared for 2023. Whether or not we face a global recession, inflation, or anything else, you should take care of the things you can take care of—and that includes making sure your processes are in top shape for the new year.
Like what you read? Subscribe today to Passages: The International Trade Blog to get the latest news and tips for exporters and importers delivered to your inbox.