As many as 96% of companies are incorporating changes to their supply chains due to geopolitical events, cost reduction and disruption risks, according to a study commissioned by UAE-based ports operator DP World.

In just a year, the number of companies shifting their manufacturing and suppliers – either to their home markets or nearby – has doubled compared to 2021, stated the Economist Impact-led “Trade in Transition 2023” report, which was released at the World Economic Forum annual meeting in Davos.

“By bringing production closer to the final customer, firms can reduce the number of touch points involved in the supply chain and build greater resilience into the flow of cargo around the world,” said DP World Group Chairman and CEO Sultan Ahmed Bin Sulayem.

The next challenge that will alter these trends is an economic slowdown looming over regional markets, he said, adding agility, real-time visibility and end-to-end supply chain capabilities will be critical to ensuring companies find new efficiencies in an increasingly challenging environment.

According to the report, 27% of companies said they were reducing the length of their supply chains due to geopolitical events such as the war in Ukraine, while another 33% plan to expand into more stable and transparent markets.

The widespread and increasing technology adoption is another way to build resilience into the supply chain. 

Some 35% of respondents said they were currently implementing Internet of Things (IoT) solutions to facilitate the tracking and monitoring of cargo. At least 32% of companies were adopting digital platforms to enable direct business with customers or suppliers, the report found.

Inflation a concern

The persistent threat of inflation was cited by 30% of the executives as having the most significant negative impact on trade over the next two years. 

Inflationary pressures are seen in input costs -- from supply shortages – and transport through high energy costs and shipping capacity constraints.

In a scenario of monetary tightening, companies across Europe, North America and Asia-Pacific expect exports to be 1% lower than under a business-as-usual situation due to decreasing production and demand.

If inflationary pressures continue, exports in the Middle East and South America will likely be hardest hit, falling by 3.52% and 2.74%, respectively.

The report said that only Africa is expected to see exports rise by 0.26%.

Trade Blocs

At least 10% of respondents said the fragmentation of the world into trade blocs was limiting the growth of international trade. 

Beyond the war in Ukraine, US-China tensions and cyber warfare are preventing the efficient functioning of economies worldwide.

In addition, the global survey of 3,000 executives found that companies in North America and Europe are most likely to outsource more than half of their services within their region. 

Nearly 40% of companies in South America, 36% in the Middle East, 32% in Asia-Pacific and 18% in Africa are looking to outsource within their regions.

(Editing by Seban Scaria seban.scaria@lseg.com )