(30 August 2024 – Global) Heightened geopolitical concerns and financing costs are making major global trade routes even more inaccessible, forcing CFOs and treasurers to become ever more creative in how they fund their complex supply chains.
According to the Q3 global freight transportation and logistics trends update from UPS, pressure on the global ocean supply chain from eight months of Red Sea diversions is reaching a tipping point. The report notes that disruption to service patterns has caused port and terminal productivity to decline as well as causing berthing delays, congestion and equipment imbalances.
Not only does moving goods around the Cape of Good Hope rather than the Suez Canal add about ten days to a ‘perfect’ supply chain with the added cost of ten extra days of fuel, labour and docking, it also attracts additional insurance costs with some insurers quoting premiums up to 70 times higher than before the Houthi revels started attacking ships in Q4 2023.
“The thing about the global supply chain is that it is so finely calibrated that once you change one element, the entire thing starts collapsing a bit. All the ships that go around the Cape of Good Hope have to go back and what we are now seeing is under capacity and over activity in European, African and even Asia ports such as Singapore, which is reporting over five days delays at the moment” stated Coface UK & Ireland Chief Economist, Jonathan Steenberg for Treasury Today.
“This is more significant for SMEs because they usually operate with variable debt to a far larger degree than large companies, who may have fixed their bonds or other debt products for a longer period, Most SMEs are suffering from rollover risk at the same time as credit standards from banks have gotten tighter” Steenberg added.
“Higher-for-longer interest rates driving companies to access lower cost forms of capital. We are seeing growth pick up as a result of treasurers looking to make greater use of receivables discounting in particular, but they are also more sensitive to utilisation,” he says. “That is hitting take-up of payables finance programmes especially hard in jurisdictions where companies were using dollar-based funding, particularly in Asia. The dollar has strengthened significantly and they are reweighting themselves towards local currency borrowing” stated Demica Chief Commercial Officer, Maurice Benisty.
“We were talking to one treasurer who was looking at whether they wanted to move from a structure where they were selling down large quantities of receivables as part of a programme to one where they were able to be more selective, looking at different structures” Benisty added.