Inflation and geopolitics dominate supply chain concerns in 2023

Companies look closer to home to cope with conflict and continuing cost increases

DP World’s survey, “Trade in Transition”, conducted by Economist Impact, identifies inflation as the biggest threat to the supply chain, followed by the Ukraine-Russia conflict and geo-political tensions between the US and China.

Executives cited the ongoing threat of inflation as the most significant negative impact on trade expected in the next two years, at 30% of those surveyed.

These ongoing geo-political issues and the long tail of COVID have pushed 96% of companies to pursue measures to improve the resilience of their supply chains.

Supply chains move closer to cope

Supply chain diversification is going to be the centrepiece of that reaction. Forty-seven percent of executives surveyed cited diversification as the primary strategy for overall cost reduction and increased resilience. Government financial incentives have increased the take-up of such moves found the research.

To accomplish that diversification, 27% said they were shortening supply chains and 33% said they were looking to expand into “more stable and transparent markets”. Furthermore, the number of companies moving their manufacturing and suppliers to either home markets or near to home, has doubled.

Nearshoring/regionalisation has increased by 8% compared with 2021. Reshoring has seen a 10% increase.

Companies conservative to avoid stock-outs

The report acknowledges that global shocks caused by the pandemic, originally seen as an anomaly, are now considered commonplace.

This is leading to conservative approaches to inventory to avoid being caught shorthanded with stock in moments of crisis. The report noted that: “Average inventory held regionally increased between 2020 and 2021 from 8.9 weeks of stock to 10.1 weeks, which has increased interest and storage costs. It appears to offset potentially greater losses incurred through failure to hold sufficient inventory. With higher interest rates in some of the largest economies, the cost of working capital (including the opportunity cost of holding inventories) is much greater.”

Turning to growth prospects, 25% of respondents said demand in key markets would be their significant growth driver, while 20% said the move into new markets was also important. 

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