Reconfiguration of supply chains and geopolitical tensions, as well as non-payment risk—and the rise in the length of payment terms—are top of mind concerns for global exporters, according to a study by trade credit insurance firm Allianz Trade.
The group polled 3,200 companies in China, France, Germany, Italy, Poland, Spain, the U.K. and the U.S. on their outlook for global trade in the year ahead, finding that they’re also concerned about input shortages, labor and global shipping disruptions.
Supply chain
The firm’s survey found that the majority of respondents (53 percent) are actively taking steps to relocate parts of their supply chains due to geopolitical risks. That share rises to 57 percent for firms with long supply chains and more than half of their production located abroad.
Companies with shorter supply chains are most concerned about geopolitical risks in their region, while those with longer supply chains are most concerned with U.S.-China trade relations. Firms looking to relocate parts of their supply chain tend to remain in, or close to, the same region.
Per the study, 84 percent of respondents said they expect sales generated through exports to increase, with exporters—especially in Spain, France, and Italy—that have a higher exposure to e-commerce a bit more optimistic. Moreover, 82 percent of respondents expect export prices to rise in 2024, with 24 percent expecting export prices to rise significantly. The largest share of corporations expecting export prices to increase are based in Germany (87 percent), Spain (87 percent), and France (85 percent). Allianz is projecting global trade to rise 2.8 percent, ending a recession that began last year but remaining “substantially below the long-term average of 5 percent.” The 2.8-percent estimate reflects the risk of disruptions in global shipping that include the Red Sea crisis as well as rising protectionism, Allianz said.
The top three risks threatening export activity were cited as geopolitical and protectionism, shortages of inputs and labor, and financing and non-payment. And while geopolitical and protectionism was the top choice across all countries, the share of U.S. exporters worried about this risk was comparatively lower, at 65 percent. That’s because American companies are focused on the upcoming national elections in November, with concerns about the indication that U.S. tariffs could triple under a second Trump presidency.
In China, exporter respondents who have offshore production sites in North America cite the U.S.-China trade war as the main geopolitical factor that poses an immediate risk to the supply chain, while those with offshore sites in Africa cite instability in the Middle East as a top-of-mind concern. In contrast, German companies cite the Russia-Ukraine conflict as their largest source of consternation, while those with offshore production sites in China view China-Taiwan relations as a chief challenge that could pose an immediate risk to the supply chain in the coming year or two.
Most respondents also indicated that they don’t see a future that involves fully decoupling from China. Rather, diversification seems to be the trend, as their footprint in China represents a smaller share of their global supply investments going forward. For now, China remains the world’s critical supplier, accounting for more than 50 percent of imports of a particular product—a rate that makes a total break difficult, if not impossible, the Allianz study found.
For companies looking for a new supplier, or to relocate an offshore production site, Western Europe is the preferred destination overall, while Chinese exporters prefer Asia-Pacific locales. Firms that already have offshore production sites in China and the Middle East see Asia-Pacific as the alternative, while those with production sites in North America and Western Europe tend to choose new suppliers or relocate offshore production closer to their respective regions.
Financial considerations
Allianz also said it expects a rise in insolvencies this year for the first time since 2020, up 4 percent after a 14-percent decline in 2023.
Allianz noted that disruptive events in recent years have highlighted the risks of trade choke points. Those events include the accidental obstruction of the Suez Canal in 2021, droughts in the Panama Canal, and more recently, the crisis in the Red Sea. All these events reflect how many global shipping routes depend on certain tight passages.
However, the ongoing Red Sea crisis has occurred at a time of sufficient shipping capacity, even if alternatives that are available have seen higher costs. Container freight rates remain 1.9 times above the pre-Covid 19 average, and that points to potential scrutiny at other choke points: the Hormuz Strait, the passage way for 30 percent of oil that’s traded; the Malacca Strait, which accounts for 25 percent to 30 percent of global trade, and the Taiwan Strait, where 40 percent of the world’s container ships pass through. To mitigate supply chain disruptions, more respondents this year said buying supply chain insurance was a top preferred mitigating action. The option moved up to third place from last year’s seventh place ranking. The top two this year were improving supply chain risk management and increasing ESG due diligence for suppliers.
Meanwhile, exporters in Spain and Germany expressed worries that the length of payment terms will increase in the next six to 12 months. Forty-two percent of respondents expect export terms to increase, while 24 percent expect them to remain stable. The Allianz data found that only 11 percent of export firms are paid within 30 days, with the share in the U.S., Poland and France below their peers. Close to 70 percent of companies are paid between 30 to 70 days, with the U.K., France and the U.S. slightly more often than their global counterparts. In contrast, Poland, Germany, Italy and China have the larger shares of the longest export payment delays, with at least 7 percent of company receiving payment after 90 days. While some sectors such as construction and machinery equipment have the longest export payment terms, the retail sector has a slightly shorter export payment term at less that 50 days on average.
In addition, 40 percent of exporters expect non-payment risk to rise in 2024. Most respondents (63 percent), said they are either already invoicing electronically or are making preparations for this and expect to be ready in one year or less. Exporters in the U.S., at 73 percent, said they are already invoicing electronically or plan to within one year.
Reshoring, AI and climate change
Separately, the survey also found that reshoring is expected to continue at the same rate over the next two years, although many don’t expect that to accelerate. High costs due to lack of free-trade agreements, labor concerns and local suppliers were cited as the main hurdles to reshoring.
As for AI, companies in the survey cite optimism about its potential benefits. Poland and China are investing in AI as a tool to enhance supply chain management. And the thinking is that AI tools can can facilitate smoother and more efficient customs by streamlining aspects of the import-export processes.
Respondents also said that progress on sustainability remains slow, as emissions-reduction actions are falling short of what’s required to meet global net-zero targets. While they said firms acknowledge the importance of emissions mitigation, there seems to be recognition that policy action involving coordinated solutions is needed due the global challenges of climate change. “Fragmentation in the global economy driven by strategic or geopolitical motives can further complicate environmental sustainability efforts, disrupting trade relationships and impeding innovation and technology diffusion,” the Allianz study noted.
