Importers, particularly those reliant on container shipments, are facing a storm of disruptive factors. The COVID-19 pandemic has created winners and losers as it has across the economy. The pandemic has been joined by several other factors that are disrupting international markets and business for importers. On top of all that, there have been the post-Brexit challenges of managing imports.
Disruptions to shipping and challenges for importers
The blockage of the Suez Canal in March 2021 caused major disruption to shipping schedules and a backlog in deliveries. Secondly, following the initial decline at the onset of the pandemic, there has been a strong recovery in demand since the summer of 2020. Finally, international shipping is being affected by container shortages and port congestion which are causing operational challenges.
These market dynamics have created what many are describing as a perfect storm driving a significant surge in prices. Indeed, container price indexes showed record increases over the last 12 months.
The question is whether this is a passing or lingering storm? The unwinding of the Suez-related backlog may take some pressure out of the market but as economies recover from the pandemic there is scope for consumer spending and demand to increase. This will, inevitably, prolong the current market challenges for many import businesses.
As well as supply volumes being jeopardised as businesses struggle to book container shipments, margin levels are being eroded where the significant shipping cost increases cannot be passed entirely on to the consumer. Unsurprisingly, this is inevitably leading to some price rises for consumers.
While many businesses are sufficiently financially resilient to manage the negative impact of these issues, some businesses will be facing financial challenges. In particular, those whose cash reserves have already been weakened by the COVID-19 pandemic will be facing additional cash pressure. Businesses relying on working capital debt facilities are also likely to see a reduction in liquidity as volumes decline.
Despite these significant headwinds for importers, some shipping and freight businesses are generating significant profits on the back of record pricing levels.
How importers can manage these challenges
While the market remains fluid and challenging, there are several actions you can take to reduce the impact of market factors:
- Operational improvement through efficient operational processes and planning will mitigate the impact of wider market risks as well as improving profitability and cash generation
- Improving liquidity through efficient working capital management
- Adopt appropriate forecasting tools and practices to improve cash management
- Maximise available liquidity by reviewing funding structures and financing options
- Improve your financial scenario planning through robust financial forecasts and consider the range of options available to manage future funding requirements in varying scenarios
- Adopt a more proactive and collaborative approach to stakeholder management.
Source: BDO