FINANCIAL CLIMATE CHANGE HITS SUPPLY CHAIN

Businesses operating in the supply chain are feeling the pressure of the cost of living crisis – but now’s not the time to scrimp on ESG projects.

By MARTIN WANLESS

From port closures and shipping delays to vehicle and staff shortages, businesses forming part of the global supply chain have faced significant challenges over the past few years.

And while those issues haven’t been entirely resolved, there are some green shoots of recovery. However, new challenges are also emerging.

The financial climate is among the factors contributing to a slowing of demand for global freight services.

“The ongoing geopolitical instability, the impact of inflation on the economy and increased stock holding have contributed to a downward shift in demand,” says Kurt Herron, Logistics Risk Engineer – Marine, at NTI.

“After the major shipping delays we saw during the COVID-19 period, many businesses have shifted from the just in time (JIT) logistics model to just in case, which has also reduced demand.”

But it’s the ongoing cost of living crisis and high inflationary environment that’s having a significant impact on many businesses operating in this area.

“Some clients have expressed concerns regarding the ongoing challenges of maintaining business profitability and sustainability amid the current economic climate,” says James Pasfield, General Manager of HMIA.

“These pressures can encompass several key factors. Firstly, sustained interest rate hikes can have a significant impact on financed equipment used for business operations. The rise in interest rates also places additional pressures on drivers themselves, sometimes compelling them to work longer hours or seek higher-paying opportunities with different operators, which can lead to wage inflation and higher overall running costs.

“Secondly, inflationary pressures affect the costs of goods and services necessary to keep the business functioning, which is extending beyond rising fuel costs.”

Driving Forward

Driver shortages continue to create challenges, and with an ageing, in-demand workforce, wages are being pushed up.

“The industry is struggling to find new entrants to the employment market,” says Mervyn Rea, Head of Zurich Resilience Solutions (AU and NZ).

“There are multiple ways in which critical employees such as drivers can fail to turn up for work, for example, illness, stress and injury. But with drivers in high demand, staff turnover is increasing, and it’s proving a challenge to retain drivers.”

However, softening demand may be beginning to ease those difficulties a little – although inexperienced drivers are having an impact on losses.

“Because operators are starting to see a downturn in freight volumes, the issues around driver shortages are also starting to soften,” says Paul Bressan, Heavy Motor Risk Engineer, NTI.

“Experienced drivers are still, however, in short supply, and the level of inexperience presented by drivers is impacting the severity and frequency of losses.”

Those shortages, says Pasfield, have heightened expectations, compounding the cost impact.

“The driver shortages have led to heightened expectations and pressure to complete jobs promptly, and smaller operators have faced increasing challenges, with some even closing their doors,” he says.

“Staying competitive against larger operators in terms of economies of scale has proven difficult for some smaller businesses.”

Esg Importance Continues To Grow

Across all sectors of business, ESG is a subject that’s quickly becoming a key priority – and a major cause of headaches for business leaders.

Taking positive action is now essential – as is steering clear of greenwashing accusations.

And, with many entities interconnected in a supply chain, the challenge of ensuring that not only your business is doing the right thing, but so too are all partners in the supply chain, is significant.

“The focus of ESG within the supply chain has shifted away from being a nice to have towards a must-do,” says Herron.

“Understanding green credentials from supply chain partners is imperative to ensuring cargo owners and carriers are monitoring their accountability within their ESG policies.”