Dynamic Trade Policy and Supply Chain Design Within the Oil and Gas Industry

Abstract

Trade policies of the late 2010 decade are characterized by a unique combination of severity, shorter lifespan, and greater frequency. Supply chain leaders within the oil and gas industry may not recognize the full range of responses they might take when responding to this new dynamic. This report will do three things: first, understand how supply chains are currently reacting to this new dynamic; second, propose frameworks for outlining how supply chains could respond to this new challenge; and lastly, recommend a course of action given a certain supply chain design. This was accomplished using semistructured interviews, case studies, reductionism, and supply chain resilience literature to develop, propose, consider, and validate potential frameworks. Two frameworks are presented in the report. The first framework has four distinct sub-approaches to tariff impact: tariff acceptance, tariff reduction, tariff avoidance, and tariff elimination. As a supply chain moves from tariff acceptance to tariff elimination, cost appears to increase and disruption risk appears to decrease. The data suggest that supply chains within the oil and gas industry tend to implement a solution that does not change the risk profile. The second framework focuses on three approaches a supply chain leader can adopt when allocating cost associated with trade policy: first, the firm can pass along the tariff’s financial impact to the customer; second, the firm can push back on the supplier and force them to take the financial impact of the tariff; and third, the firm assumes a portion of the tariff’s financial impact. The data suggests that most oil and gas supply chains assume some portion of the cost.