New York — December 18, 2008 — When considering the global trade environment in 2009 there are a number of potential issues looming that can disrupt global supply chains, sourcing strategies and the flow of working capital. Several issues are hangovers from 2008's economic turbulence and some are just starting to develop. If not properly addressed, importers and exporters may face significant unexpected costs and increased disruptions to their supply chain.
But the news for 2009 isn't all bad. A number of promising opportunities exist as well. Below are nine trends that will continue to challenge multinational businesses for at least the next 12 months.
Supply Chain Risk Mitigation in an Economic Downturn
In times of economic downturn, leading companies will focus on restructuring supply chain operations to better position themselves to grab additional market share and profits as economies around the world start down the path of recovery. A large part of supply chain re-engineering efforts focus on driving out inefficiencies while balancing risk. Supply chain risk mitigation will receive increased focus this coming year versus past downturns due to many factors:
- Supplier financial risk. As financial weakness permeates the marketplace, we already are seeing a rise in supplier bankruptcies. Companies will need to re-evaluate their supply chains to identify and support their key partners and reduce the number of potential "weak link" suppliers. At the same time, multiple suppliers for a single product or part must be secured to ensure supply chains keep running. Expect more dual or multi-source procurement of raw materials, parts, subcomponents and assemblies to counter supplier financial risk, to develop sources closer to end-markets, and to hedge currency swings and future inflationary pressures in different regions and economies.
- Volatility in energy, commodity, labor rates and currency exchange. Companies need to factor into their decisions potential fluctuations in future energy and commodity prices, as well as labor and currency exchange rates. Some industry sectors, such as industrial goods and construction, are likely to see robust price increases as major economies around the world announce economic stimulus packages focusing on major infrastructure programs. Any resulting boom could produce another run of sharp increases in some commodities and energy.
- Unpredictable economic recoveries. Economic recoveries will likely be unpredictable and somewhat choppy across regions. The ability to quickly react to global shifts in demand will be critical for success. More redundant manufacturing capability should be established across multiple geographies in order to realize better time-to-market for end customers and to be able to balance and buffer demand globally. Redundant manufacturing also can serve as a hedge against currency swings and future inflationary pressures in different economies.
Searching for Working Capital
As traditional sources of capital — such as bank lending — dry up or become more expensive, companies will look for alternative sourcing of working capital — and looking at internal operations is a logical direction. This trend will bring increased scrutiny to the supply chain as companies look to reduce inventory and lower operating or carrying costs.
In addition, buyers will look to extend payment terms, while suppliers will drive to collect receivables more quickly, creating the need for a liquidity buffer — such as supply chain financing — to mitigate this brewing payables/receivables conflict. The current credit environment is pushing buyer/supplier partnerships to look to their trade flows to drive the creation of additional liquidity.
A Resurgence in Letters of Credit
The recent downturn in global markets is expected to reduce demand for commodities and associated goods and services from recent peaks, but the reduction in available credit for trade financing has been much sharper.