Many UK firms will be rightly concerned about the scale of the global supply chain crisis. But is it time for import-reliant businesses to start seeing this problem as an opportunity?
The Covid pandemic, Brexit teething issues, and latterly Russia’s invasion of Ukraine all prompted a relentless cycle of supply chain issues. Now, even two-and-a-half years on from the first Covid infections in Wuhan, the pandemic is having a renewed impact on supply chains.
This, in some respects, can be attributed to China – the world’s biggest exporter and a key UK trading partner, with imports worth £66bn last year – which is enforcing draconian lockdowns following Covid outbreaks in the spring. The ramifications of those lockdowns are being felt around the world, with huge shipment backlogs at Chinese ports, which experts have said could continue well into the summer. There have been suggestions corporate giants such as Apple, which relies heavily on Chinese manufacturing facilities, will move their supply chains out of China in the face of these vulnerabilities.
According to the latest Office for National Statistics trade data, the UK imports more goods from China than any other country. Given the current issues, however, there could be opportunities for companies looking elsewhere.
First of all, it’s important to note why so many companies choose to import from China in the first place. When not restricted by various quarantine measures, it has an exporting system that is fundamentally sound in its operation and extremely well-versed as a consequence of a perpetual and sophisticated system. As a result, firms are familiar with the system and network that is already in place. This model is not only dynamic in its functionality but refined to a point that it compliments the necessary logistics and freight, which can take years to embed. Furthermore, as a major manufacturer, there are also a significant amount of import options and opportunities.
But it’s also important to note a lot of the components of the supply chain cycle emanate from China. In the current climate, that comes with a huge risk as it causes a delay in the basic business functioning. The disruption is causing a spiralling effect in that supply cycle as it prevents products from being made, payments and invoices from being settled, and ultimately obligations from being met. There is also the destabilising effect of cash inflow not being the same as outflow and this leads to a string of liquidity complications.
It can quickly get to the point where you actually start considering the viability of a business and being able to serve its own interests. If you’re not getting the parts, items, or products you rely upon, how are you going to generate income?
Meanwhile, there are also Covid uncertainties in the future. China has shown it enforces extremely strict lockdowns, so if there are further major Covid outbreaks in the future, will similarly supply chain logjams resurface once again as a result of restrictions? Hopefully, organisations and critical bodies will have learned the lessons in previous years.
In recent years, we have seen a notable slowdown of China’s previously rapid GDP growth. With its economy further impacted by the “zero Covid” approach to lockdowns, it could be argued China is starting to lose its clout as an exporter.
With this challenging predicament – and in line with the difficulties exposed in trading with EU countries following Brexit – a lot of companies will be looking at their capacity for diversifying into new markets and countries in a quest to bridge that trade deficit, especially countries with improving and developing infrastructure in the Asian and South American regions.
This is a whole process of feasibility and risk assessment, costing investment and time. But digging deep to understand a market – and where its economy is going – can pay off. Firms may find a country where the risk of delay to receipt of goods is far less, and where freight and logistics are cheaper and more efficient. Where there is now risk in China, there is opportunity elsewhere.
Even in so-called “normal” times, companies have always served themselves well by not being reliant on trade from one country. But given the current – and future? – disruption to supply chains and diversification of imports has never been as pertinent.