When international borders were free-flowing, shipping containers plentiful and COVID-19 unheard of, ‘just-in-time’ supply chains made sense.
With the pandemic-induced logistics and supply chain management bottlenecks, many companies switched to a ‘just-in-case’ approach.
It’s easier to meet fluctuating customer demand with a just-in-case inventory model. But it also means increased warehousing costs and the requirement to have more upfront capital to buy extra stock. It’s one of many reasons why Australian businesses are concerned about the ongoing supply chain disruptions.
Supply chain logjams were predicted to ease considerably in 2022. However, the Omicron variant and Russia’s invasion of Ukraine have thrown a spanner in the works.
Now, experts are saying that supply chain disruptions are more “deep-rooted” than previously thought and “any hopes of near-term improvement in supply chain conditions have been shattered.”
However, it’s not all bad news. Even with these recent forecasts, your business can take active steps to protect itself from supply chain disruptions. Here’s how you can prevent a ‘just-in-case’ supply chain from becoming a ‘just-can’t-win’ situation.
First, let’s explore the factors creating the ongoing supply chain issues and their impacts in greater depth.
What’s behind the continuous supply chain crunch?
The pandemic has put enormous strain on supply chains due to:
- Shifts in consumer spending from services to goods. During lockdowns, consumers had to change their spending habits. Instead of spending money on in-person services such as dinner at a local restaurant, overseas holidays or an evening at the movies, consumers bought stuff. A lot of stuff. This, in turn, increased demand for shipping and transporting goods.
- Manufacturing and distribution disruptions. Lockdowns, staff illness and quarantine requirements meant that manufacturing and distribution facilities experienced unscheduled closures and production pressures.
- Border procedure bottlenecks. Additional protocols, border checks and documentation procedures all contributed to transport delays.
As a result of these supply chain disruptions, businesses and consumers were impacted by increased shipping costs and delays.
During initial lockdowns, goods movement was significantly reduced. This meant interruptions in the normal circulation of shipping containers from port to port, causing an imbalance of empty shipping containers across locations. Some ports desperately needed more, while others had an influx.
Ultimately, increased shipping demand, combined with empty container shortages, port congestion and labour shortages, led to surging costs and lengthy delays for businesses and their customers. And these impacts are expected to “persist through 2022”.
Like highway traffic jams, it takes time to clear supply chain congestion and return it to normal flow. The problem is that supply chains were hit with too many curveballs and haven’t had a decent chance to recover.
In 2022, the rise of the Omicron COVID-19 variant impacted major ports in China, as cities were locked down in response. If you’ve been importing from China, you’ll know that shipping delays and congestion have increased again.
Russia’s invasion of Ukraine has also caused supply chain disruptions. According to a recent Australian Financial Review article, the war has increased shipping costs due to route closures, fuel increases and ‘war risk surcharges’ imposed by some carriers.
Real world impacts of ongoing supply chain woes
Despite rising costs, delayed deliveries and a shortage of key materials, some Australian companies could face even more significant problems given the persistent supply chain challenges.
Australian importer of premium natural stone slab and tile, Worldstone Solutions, have experienced these issues first hand.
“Factory shutdowns and capacity issues, shipping container availability and port closures have all contributed to the supply chain bottlenecks we’ve had to overcome in the past 18-24 months. We’ve seen client demand change as a result though. Clients are ordering more, and earlier; they’re more focused on delivery timeframes over price or are willing to compromise by selecting in-stock products only,” says Paul Nahon, Director at Worldstone, an Octet Finance client.
Even global, well-established brands have not been immune. In June, Revlon declared bankruptcy, saying that supply chain disruptions had caused a runaway increase in raw materials costs. In response, vendors insisted on upfront payments, and it became all too much for the cosmetics giant.
The RBA released its latest Financial Stability Review in April, which indicated that although the insolvency rate is rising from a relatively low base, more pain is on the horizon. The report states:
“Further increases in insolvencies are also likely, particularly as vulnerable businesses continue to draw down on cash buffers to cover lost revenue or higher costs.”
Mr Nahon concurs with this as he’s witnessing the trickle down pressure of these supply chain disruptions on his business and supply chain partners. He says, “the risk of insolvency is particularly high when we’re supplying stone to a builder who agreed a fixed price to deliver the project. In these situations, there’s an increased risk to all the builders’ suppliers as the builder has to either break supplier contracts for cheaper alternatives or put themselves in a loss-making situation.”
These pressures aren’t going away any time soon, which is why it’s more important than ever to work to protect your business from them.
How to protect your business from supply chain pressures
Working capital is crucial for your business to weather the ongoing supply chain disruptions. Never has the phrase ‘cash is king’ meant more. However, it can be challenging to manage the funding gap between paying suppliers, waiting for goods to arrive and waiting for buyers to pay.
With Octet’s Trade Finance facility, you can bridge these cash flow funding gaps. It gives you access to a flexible line of credit with up to 60 days’ interest-free and up to 120-day repayment terms.
Alternatively, our Debtor Finance solution may be an option for your business. It lets you tap into up to 85% of the funds tied up in your accounts receivable straight away. Instead of waiting up to 60 days for payment, make your unpaid invoices work for you by converting them into fast working capital.
Through our working capital solutions, you can better manage your cash flow, minimise financial risks and maximise the efficiency of your supply chain.
Power your business growth
In the face of ongoing uncertainties in the business landscape, now is the time to adapt. There are still significant growth opportunities afforded by Australia’s international trade relationships, particularly the interim India-Australia trade agreement signed earlier this year.
Our intelligent supply chain finance and payment solutions can help to satisfy your working capital requirements, particularly for overseas business transactions.
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.