Global supply chains are a key source of economic stimulation with the ability to generate billions of dollars in global markets. The purpose of supply chains is to improve efficiency, reduce costs and increase revenue through competitive advantage. However, the entire system of supply chains is contingent on consistency—so what happens when there is a disruption?

Why it matters: In recent years, the global pandemic was the main contender of supply chain backlogs and disruption. Now, supply chains are expected to be impacted by several other external factors. Let’s take a look at the top five:

1. Trade disruptions. Low water levels of the Panama Canal have restricted vessel volumes as well as the Houthi rebel attacks on ships in the Red Sea that has forced ships to avoid the Suez Canal and take longer routes around Africa—increasing shipping costs and freight prices. This has extended shipment times by up to two weeks, according to research from S&P Global.

• Geopolitical tensions. Multiple conflicts across the world such as the Russia-Ukraine war, US-China tensions, China-Taiwan tensions, Red Sea Crisis, trade restrictions of China and more can force countries and companies to change their trade routes that have been in place for decades.

• Labor shortages. Shortages in key supply chain sectors like transportation and warehousing have caused major delays and lack of sustainability, reduced productivity and increased costs.

• Climate change. Extremeweather events are expected to be the top risk to supply chains in 2024, with a risk score of 100%, according to Everstream Analytics. Inclement weather and disasters have led to longer delivery times, lower output and higher costs. This overall leads to port congestion and even warehouse shortages.
  
  
• Economic instability. Inflation has increased shipping rates, and higher rates feed into higher manufacturing production costs. Energy costs and raw material prices also have an inflationary impact below average with weak demand.

By the numbers:

37% of credit professionals said supply chain issues and shipping delays have increased in the last six months, whereas 32% said delays have decreased and another 32% said issues and delays have stayed the same, according to a recent NACM eNews poll.

• Environmental, Social and Governance (ESG) impact: In Q1 2024, the average Carbon Emissions Index reached above 100 globally for the first time, which is a 15.2% increase from Q4 2023.

• Cargo thefts have risen 9% YoY in 2023 which has also impacted the supply chain, and it is being predicted that theft volumes will increase another 35% by the end of 2024.

• The global supply chain management market is expected to increase from $25.7 billion in 2022 to $72.1 billion in 2032.

What they’re saying: “Certain industries are still facing labor challenges which can affect production and delivery times; and even though we are seeing the backlogs decrease, there are still some raw material shortages for many industries,” said Somer John, accounts receivable team lead at Trinity Logistics (Seaford, DE). “Credit professionals may seem removed from supply chain issues and delays, but there is a lot we can do on our end to mitigate risk. Open dialogue and good communication with customers are probably the most important piece.”

Communication is key for credit managers because simple questions can reveal important information. For example, possible payment delays from customers or department personnel changes (which can cause payment delays or general cash flow issues). Also, depending on the issues customers face, the credit department can also offer flexibility in payment terms or offer extended payment periods for certain projects.

“Maintaining good communication with the sales team is important as they can help us understand what a customer needs, what their challenges are, and potential risks,” John said. “Utilizing credit reporting sites and conducting regular assessments of the health of an account by looking at payment and communication trends is vital to keep ahead of the risk. We should also be looking for other early warning signs like public filings and news reports and work with customers that might be struggling with cash flow due to the supply chain issues.”