This expectation is reflected in new research conducted by HSBC. Between August and October 2022, HSBC surveyed financial decision makers from 787 organisations across 14 markets, including 68 in the UAE, to find out how business decision-makers are reshaping their supply chain and working capital strategies considering such global developments.
According to the findings of this survey, HSBC Supply Chains Research, the top three macro factors driving changes to those supply chains are counterparty risks, changes to trade corridors, and border restrictions. North America is seeing the most dramatic realignment or replacement of supply chains with 63% of finance executives admitting they were looking to streamline their supply chain.
As supply chains are reshaped – and shortened – new trade corridors are emerging. These include between the Middle East and East Asia, the Middle East and ASEAN and the Middle East and Europe. Corporates in the region are taking advantage of these new corridors and increasing their flows.
Aligned with the rest of the world, UAE-based companies are further mitigating trade volatility by increasing inventory holdings. According to the survey, the average increase in inventory holdings above normal levels reached 82.6% in the UAE, compared to 85.3% globally. Increases in excess inventory are down to three main issues: Covid-19 restrictions (61.8%), freight rates (52.9%), and better preparation for future (20.6%) – all symptoms of those macro headwinds and broadly in line with international responses.
There are benefits and drawbacks to this approach. Companies can more quickly fill customer orders as they come in and, as a mitigation strategy, reduce the risk of being affected by item/component shortages within the supply chain.
But increases in trade inventory tie up capital and reduce liquidity, which means finding ways to make supply chains more efficient and transparent becomes more urgent. Digitisation – through online banking solutions – could be an option to boost working capital and improve oversight of the supply chain.
“The UAE has proven its resilience as a financial, manufacturing, and trading hub, emerging from the pandemic in a position of economic strength,” says Chaker Zeraiki, Head of
Global Trade and Receivables Finance at HSBC UAE. “Global trade patterns remain in a state of flux and navigating new market conditions requires resilient and sustainable supply chains.”