The pandemic has disrupted almost every aspect of global supply chains. A combination of record consumer demand, unexpected bottlenecks in supply and delays in shipping from China has created a perfect storm. Facing major delays and increasing costs, businesses in almost every industry are feeling the impact. And with Christmas fast approaching, the situation is predicted to become even more challenging.
So let’s explore the global supply chain squeeze, what this means for the economy and what you can do to help your business navigate the disruption.
Increased demand creates increased pressure
Over the past 18 months, the world has been in various stages of lockdown with Australia continuing to ride out these phases of the pandemic. While this has been catastrophic for some industries, others have thrived and people who are still employed have money to spare. Dollars usually reserved for big-ticket items like holidays appear to have been redirected online. As a result, retail spending in categories such as ‘home & garden’ and ‘beauty & health’ have experienced record sales.
This has placed increased pressure on global supply chains that are feeling the squeeze from all areas on the supply side. This includes:
- Unscheduled and/or sudden closures of manufacturing and distribution facilities, often with no clear time frame for re-opening.
- Bottlenecks at borders as a result of new protocols, additional border controls and documentation requirements.
- Reduced capacity due to sick or isolating workers who have been exposed to COVID-19.
- Limited air freight options because of significantly reduced commercial flights in and out of countries.
- Over-reliance on shipping channels, resulting in 90 per cent of the global fleet of freighters currently being in use.
Supply chain impacts
This increased demand plus supply chain constraints have created a perfect import-export storm around the world. Flow on effects have impacted almost every industry including building materials, foodstuffs, furniture, replacement parts and more. In an increasingly interconnected world that is dependent upon global supply chains, it means unexpected events can yield serious consequences.
Impacts on retailers
In response to these changes, major retailers are moving away from just-in-time delivery models and are instead ordering stock 8-12 months in advance. This has resulted in an automatic increase in their inventory holding costs. To add to this, shipping container space is at a premium, costing up to four times as much as it did just a year ago.
The impact of low supply chain diversity has also come to light during the pandemic. Due to an overreliance on China for importers and exporters, some retailers are looking for other supply chain solutions in countries such as India and Vietnam.
Impacts on consumers
Consumers who were used to fast, reliable delivery will need to re-adjust their expectations. Shipping delays in all sectors are becoming business as usual, with major retailers suggesting consumers start their Christmas shopping months in advance.
Impacts on the economy
The economic impact of the pandemic on global supply chains also has far-reaching implications for our domestic economy. The situation has exposed the vulnerabilities of the pre-pandemic model, placing complex challenges upon all players in the economy.
While international trade had started to decline in recent years, the pandemic has certainly accelerated this trend. This means manufacturers will be facing greater political and competitive pressures to increase production at home to help reduce the reliance on international suppliers. However, at the same time, consumers are likely to still want the same competitive prices they’re used to. Businesses will be left with the challenge of maintaining a competitive edge while balancing the cost of goods, price points and delivery costs.
With the expectation that COVID-19 is here to stay, global supply chain issues are likely to continue as the virus becomes endemic and the world adapts to living with it. For businesses that rely heavily on global supply chains, management will need to review their export-import logistics management.
Prepare your business for post-pandemic supply chains
For proactive businesses looking to prepare their business for the unexpected, it helps to draw from the lessons learned in 2020. Businesses that were able to get their supply chain moving – and fast – were more able to absorb pandemic shocks. There’s no question that getting organised now can help in the future.
Review your existing model
Now is an ideal time to take a holistic view of your entire value chain and conduct a supply chain analysis. By identifying issues and moving fast, you can help mitigate some of the pandemic impacts. Questions to consider include:
- What part can be sourced or managed locally? If choosing local, how can you work with suppliers to help reduce costs?
- How can you negotiate better terms and agreements with global supply chain partners?
- What are the tax and risk implications of these decisions?
- Do you have the right insurance and financial protection in place to help respond to unexpected events?
Since the pandemic began, business continuity has never been more in the spotlight. Exploring ‘what-if’ scenarios can help build robust continuity plans that will help your business survive during disruption. It can also reveal areas of operations that require new processes and inspire ideas for more immediate workarounds.
Another important aspect of planning ahead is to determine the minimum viable level of sales you need to ride out any disruption. Once you have this calculated, ensure your cash flow is under control so it can cover your short-term needs.
Unreliable timelines, new suppliers and currency fluctuations can place significant financial strain on your business. Building a financial buffer and adopting the right tools can help your business adapt quickly to whatever challenge may lie ahead.
Our financial tips include:
- Ensure that you have flexible finance options in place. Import-export trade finance solutions can help you negotiate better terms, take advantage of discounts and build stronger relationships with your suppliers. In an environment where suppliers have the balance of power, this can be especially useful.
- Consider reducing the administrative burden of working with multiple suppliers by using financial software to automate your processes.
- Verify any new suppliers and provide a secure transaction environment to keep payments safe.
A recent survey of over 200 supply-chain senior-level executives in the US revealed that supply chain visibility is now their number one priority. Recognising that visibility is the key to identifying issues and making strategic value chain decisions, businesses are increasingly turning to digital transformation to help.
This can improve visibility across two major areas:
The physical supply chain
Advances in AI and IoT technology can transform the way you track the movement of goods. This might include sensors tracking goods in shipment, warehouse robotics, driverless transportation and more.
Supply chain management
Automation across planning, procurement, manufacturing, finance and logistics can be improved with the help of supply chain solutions providers. With the right supply chain technology solution, you can gain better insights across the supply chain.
There’s no doubt that the impact of the pandemic will continue to create a ripple effect on supply chains around the world. This places significant challenges on businesses, but also opportunities to better manage their value chain. Proactive businesses that take considered action fast will be better positioned to survive through ongoing supply chain challenges.
Interested in learning more about how our trade finance solutions can help your import and export operation? Get in touch today to discover what options might best suit your business.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.