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Firms near-source to boost supply chain resilience – updated

[ January 19, 2023   //   ]

New research commissioned by DP World shows that there has been major shifts in globalisation, as companies move more manufacturing closer to home to protect against supply chain disruptions and enhance resilience.

The latest Trade in Transition study, led by Economist Impact, found that 95% of companies in are making changes to their supply chains, due to geopolitical events.

In the space of just a year, the number of companies shifting their manufacturing and suppliers – either to their home markets or nearby – has more than doubled in Europe compared to 2021, driven mainly by efforts to reduce costs and the risk of disruption.

While 30% of companies said they were decreasing the length of their supply chains due to geopolitical events such as the war in Ukraine, another 27% plan to expand into more stable and transparent markets. Further, 40% of companies in the region are expecting exports to contract in 2023 due to the war in Ukraine.

The persistent threat of inflation was cited by 35% of executives as having the most significant negative impact on trade over the next two years. Inflationary pressures are seen in input costs — from supply shortages – and transport, through high energy costs and shipping capacity constraints

Companies across Europe, North America and Asia-Pacific anticipate exports to be 1% lower and Europe’s GDP to be 0.24% lower than under a business-as-usual situation due to

Some 40% of executives said their primary approach to reconfiguration is diversifying their supplier base regardless of location with overall cost reduction and increased resilience cited as the main reasons for doing so.

The widespread and increasing adoption of technology is another way to build resilience into the supply chain. Some 38% of respondents said they were currently implementing Internet of Things solutions to facilitate the tracking and monitoring of cargo, while another 34% of companies are adopting digital platforms to enable direct business with customers or suppliers.

The researchers added that UK trade experienced strong growth in 2022, with the value of exports growing by 26% and imports by 35% in the first eight months of 2022 compared to the same time period in 2021. But they added that the country is expected to enter a challenging macroeconomic environment in 2023, with GDP growing by just 0.3% amid inflationary pressures and stagnant productivity.[1]

The biggest drivers of export growth in the UK, according to the executives surveyed in the country, are growing demand in key markets, cited by 30% of respondents while 21% also cited the expansion of operations into new markets as the opportunities from non-EU trade increase following the UK’s exit from the EU single market. On the import side, increase in production levels driven by growing demand and improved efficiency through increased digitisation of supply chains are expected to play a key role in growth, cited by 26% and 21% executives respectively.

There are significant constraints to trade in 2023,. Higher costs and worsening macroeconomic conditions are limiting exports and imports with 28% of UK executives saying that higher transport costs were the main barrier to increasing international sales revenues. Analysis of transport costs suggest that the UK’s short haul freight costs account for 7.5% of the value of exports, up from 3.5% pre-pandemic, while the long haul freight costs have spiralled to 20.4% of the value of exports, up from 7.5%.

[1] https://www.imf.org/en/Publications/WEO

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