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Proactively managing supply chain risk

by Media Xpose

If you’re in the business of importing or exporting, you will be acutely aware of the current pains caused by global supply chain problems. With the help of expert advice, there are several steps you can take to protect your business.

Shipping congestion

While supply chain logistics have yet to recover fully from the severe lockdowns at the start of the Covid-19 pandemic in the first quarter of 2020, further port closures and other disruptions are impacting negatively on supply chains and causing rising costs. But there are other consequences too. The closures have led to congestion and long delays in shipping, as well as a shortage of empty containers for loading and moving goods elsewhere around the globe.

China has seen several port closures over the past year as that country grapples with repeated Covid-19 outbreaks and opts for a drastic response. In addition, we have seen shipping disruption resulting from the Ukraine-Russia hostility and even South Africa’s harbours have seen interruptions this year from extreme flooding and damage to key infrastructure.

A Royal Bank of Canada (RBC) study in May found that a fifth of the global container ship fleet was currently stuck in congestion at various major ports, while the local computer and network industry has been warned of delays that will last into 2023 due to the shipping backlogs.

Business impact

“The implications for importers and exporters are enormous and the effect on a business can range from potentially crippling it to throttling its growth prospects,” says Gary Swinson, Head: Global Trade at DG Global Forwarding.

“Anyone involved in moving goods globally needs to pay attention to their supply chain management – not only those at risk of folding.”

Organisations need to consider:

Stock availability – delays mean that firms are running low or even running out of stock, leading to lost sales.

Costs – insurance premiums are up, fuel costs have risen markedly, shipping costs are higher, plus there is the additional holding cost of the delayed freight, all putting additional pressure on businesses.

Cash flow – the higher costs combined with longer lead times mean that capital is tied up for longer adding to cash flow pressures.

Be proactive

It doesn’t matter if the supply chain struggle is strangling your business or simply preventing its growth, your best option is to take active steps to address the issues facing you.

There are four areas where a firm can take action to manage its supply chain risks:

1.         Start with planning and stock management – you can’t sell product if you can’t land it.

“Even if your landed costs are rising, your opportunity cost of lost sales is higher still – not having stock to sell is far costlier to you than having expensive stock on hand,” notes Swinson.

If your pain point is running out of stock, you need to plan for that, especially with lead times doubling (or worse). This could involve placing an additional order in-between your normal order cycle or even air freighting some stock instead of shipping it. Using an expert freight advice team can help to ease that pain and manage the planning process, finding solutions and solving problems.

2.         Manage your funding requirements – establish your funding needs and then the freight and forex can be put into place.

“While not all businesses require funding, some do require finance to meet an increase in sales and purchase order requirements. Longer shipping times which have developed is another reason that adequate funding is essential,” comments Arno van Niekerk, Director at DG Capital Funding Solutions.

Van Niekerk cites an example of a client in the telecommunications industry that required purchase order funding due to a sudden rise in orders from well-known telecommunications companies in South Africa.

“The business was unable to fulfil these orders due to capital constraints,” he says. “We facilitated the funding, forex and freight on these orders, thereby enabling our client to increase turnover by 300% within a year.”

3.         Enlist the aid of freight experts.

Once you are on track in terms of your planning model and your funding, look for optimal freight and logistics management to ensure a streamlined process that saves time and costs. Freight experts will look at the supplier’s manufacturing time and the time required to market in order to determine the best shipping options and plan accordingly.

“By the time the supplier has the stock ready to move, the payments will have been made and the shipping booked to ensure minimal delays,” adds Swinson.

“When the goods are landed, clearance, duties and VAT payments are made and, if necessary, funded on behalf of the client. Warehousing and distribution can be arranged while document archiving can also contribute to trimming delays.”

4.         Optimise your forex and hedge the risk.

With currency fluctuations a key risk for importers and exporters, using a forex dealer who will craft a solution to suit your needs, will ease the burden. But also integrating the forex function with the freight and the funding functions can avoid delays in the chain.

“We look at the pricing, products (such as Forward Exchange Contracts, currency futures, options or collars), payment terms and the prevailing market environment to reduce a client’s currency risk,” explains Ryan Booysen, MD, DG Capital Forex Solutions.

“We will consider if the rand is moving in your favour or against you, what the business implications would be for you, and what the optimal solution would be.”

An export client, which used to sell all its US dollar receipts at spot prices because “the rand always weakens”, is now using a strategy that includes forward contract and spot transactions.

“Since April 2020, the rand has strengthened considerably having a negative impact on exporters’ margins, but our strategy has created a “banked profit” element to our client’s business while still leaving room for the company’s risk appetite,” adds Booysen.

“While the volatility in the rand does provide opportunities for both importers and exporters, their timing and cash-flows aren’t always matched to those opportunities. This is why having an expert to determine the opportunity and employ the correct product to take advantage of it is beneficial.”

Every business is different and each one requires a bespoke solution for its own circumstances. Whether your business is struggling to stay afloat in the midst of stock arrival/departure delays with resultant cash flow issues or thriving in the vacuum left by exiting competitors, the supply chain risks inherent in today’s environment require active intervention.

“It is important for the market to realise that that funding, freight and forex advice is available to participants in both scenarios. Advice and expertise to navigate risks can support businesses in difficulty as well as aid growth,” adds Swinson.

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