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Global supply chains remain volatile despite improvements

The status of global supply chains “remains volatile”, an expert has warned, despite evidence that the worst of the pandemic-related pressures appear to be easing.

Clare Francis of Pinsent Masons said that constant planning and review was required to allow businesses to adapt to external changes. “Businesses have adapted supply chains many times to deal with some of the recent crisis such as Covid-19 and Brexit. However, the job is not done – we learnt from this that supply chains need to be agile and stay ahead and this includes to deal with external market changes like softening demand,” she said.

Her comments came after research published by HSBC (7 pages / 346KB PDF) suggested that congestion at ports was abating, and container backlogs falling. The report said the trend could cause a slowdown in goods inflation next year. “Improvements in supply chains and weaker consumer demand are leading to a world where inventories are higher, discounting is more likely and input costs for businesses are lower. All in all, this should mean a lower rate of goods inflation, and possibly even goods deflation in the course of the year,” it added.

Francis said: “While recently we have seen supply chain disruption in the form of shortages of goods there are equal but different challenges for businesses if they have too much inventory. Storage costs are high or space-limited which can result in businesses needing to discount in order to turn stock into cash quickly and effectively”.

The report warned wider other factors could still keep inflation rates high over the course of 2023, including food and energy prices as well as services demand and rental increases. “This near-term shift also doesn’t tell us anything about some of the more recent structural changes which may result in inflation settling at a higher rate than pre-pandemic, but in the near-term downside surprises in goods inflation should make for better headlines,” it concluded.

Francis added: “We know in complex global supply chains that are susceptible to changing external pressures. Where supply chains don’t adapt to these it can lead to disruption, higher costs and impacts on customers. Businesses should plan ahead now and collaborate with suppliers to minimise these shocks as far as possible”.

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