• 2023 January 17 14:47

    96% of companies make changes to their supply chains due to geopolitical events - DP World

    New research has revealed the emergence of major shifts in globalisation, as companies rush to move manufacturing closer to home to protect against supply chain disruptions while increasingly protectionist policies are breaking the world into trade blocs.

    The latest Trade in Transition study, commissioned by DP World and led by Economist Impact, captured the perspectives of company leaders as they navigate the latest disruptions to global trade – from the conflict in Ukraine to inflation and extended covid-lockdown policies in some markets.

    Its key finding is that 96% of companies confirmed they are making changes to their supply chains due to geopolitical events.

    The change has been swift. In the space of just a year, the number of companies shifting their manufacturing and suppliers – either to their home markets or nearby – has doubled compared to 2021. This is driven mainly by efforts to reduce costs and the risk of disruption.

    While 27% of companies said they were decreasing the length of their supply chains due to geopolitical events such as the war in Ukraine, another 33% plan to expand into more stable and transparent markets.

    The persistent threat of inflation was cited by 30% of the 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.

    In a scenario of monetary tightening, companies across Europe, North America and Asia-Pacific anticipate exports to be 1% lower than under a business-as-usual situation due to decreasing production and demand.

    If inflationary pressures continue, exports in the Middle East and South America are expected to be hardest hit, declining by 3.52% and 2.74% respectively. Only Africa is expected to see its exports rise by 0.26%.

    The fragmentation of the world into trade blocs was also cited by 10% of respondents as limiting the growth of international trade. Beyond the war in Ukraine, US-China tensions and cyber warfare are preventing the efficient functioning of economies worldwide.

    This is leading to increasingly protectionist policies such as the US Infrastructure Bill and the CHIPS and Science Act, which aim to incentivise and prioritise US and North American manufacturing. Similar protectionist policies are popping up all over the world, leading to further fragmentation of the global trade system.

    The global survey of 3,000 company executives found that companies in North America and Europe are most likely to outsource more than half of their services within their region. This is followed by 40% of companies in South America, 36% in the Middle East, 32% in Asia-Pacific and 18% in Africa, outsourcing within their regions.

    The widespread and increasing adoption of technology is another way to build resilience into the supply chain. Some 35% of respondents said they were currently implementing Internet of Things (IoT) solutions to facilitate the tracking and monitoring of cargo, while another 32% of companies are adopting digital platforms to enable direct business with customers or suppliers.




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