Business research

The Changing World of Imports: An Inside View

In March 2021, the container ship Ever Given infamously blocked the Suez Canal for six days. Although it caused a lot of joy on social media, more seriously, the incident was valued by the insurer Allianz to have suffered between 6 and 10 billion US dollars on world trade.

Ever Given’s costly shipping error came as the global pandemic was already disrupting supply chains and increasing transport costs, and it highlighted just how complex and interdependent Australian import businesses are by relative to global factors.

Michael Saadie, Executive Business Banking Metro at NAB, spoke with experts in the field to see how these critical importing companies are balancing competing pressures on their operations and how they can capitalize on strong consumer demand for the goods.

Q&A participants

  • Moderator: Michael Saadie, Director of Metro Business Banking, NAB
  • Speaker: Anthony Vinson, Head of International Trade and Logistics, Freight & Trade Alliance
  • Speaker: Jackie Cooper, Executive, Trade & Working Capital Business & Private Banking, NAB

Michael Saadi: So we all know it’s been a hard a few years for many Australian companies, but can you tell us about some of the specifics The factors who have impacted importers?

Anthony Vinson: COVID has really impacted importers as it has dramatically changed the supply chain globally. The supply chain is very complex and there are so many interrelated factors that feed into it. Before COVID, around 80% of air cargo was transported in the holds of passenger planesso the decline in the number of passenger aircraft led to a decline in capacity and a shift to ocean freight, which drove up prices for importers.

At the same time, the pandemic spurred a shift in consumer behavior – when people were in lockdown, they spent less on services and more on goods, especially those used around the home, like furniture. Overall, global demand far exceeds supply, which is difficult for importers.

Michael Saadie: It seems like every time we overcome one challenge, another arises – from a pandemic to wars to floods. The lesson is that adaptation has become critical in these times. What tactics and models have importers used and how will these actions strengthen their operations for the future?

Anthony Vinson: Many have adopted a “just in case” model. For example, it can now take 16 weeks for an importer to import stock that took six weeks before COVID. Previously, this importer could hold one month of stock, but now he holds three months, just in case he receives a lot of orders and cannot import additional stock in time.

Those who have adapted best are those who have worked with their logistics providers and manufacturers to find solutions. SMBs in particular are looking at areas such as debt management, faster billing times and improved cash flow.

Jackie Cooper: Importers have become very good at adapting to a lack of certainty in international trade. These disruptions and the shift to “just in case” inventory management have resulted in them holding more inventory in their warehouses, which means they need additional working capital. To raise this capital without having to secure it against a fixed asset (such as real estate), we have seen our importers increasingly use a range of trade finance or invoicing solutions.

Clients also use a range of traditional international payment solutions to manage buyer and supplier risk, such as documentary letters of credit and other risk management techniques such as interest rate management and currency management. . Because when there is a supply chain disruption and it takes longer to import goods, you have an increased risk of fluctuations in the Australian dollar.

Michael Saadie: New international developments that impact importers are emerging all the time, such as embargoes imposed on Russia during the war in Ukraine, and geopolitical tensions with China that have caused some importers to turn to alternative markets, such as Vietnam and India. Will the impacts continue?

Anthony Vinson: I think so, as it is important to remember how Australia’s import and export markets are always affected by global factors. For example, look at the impact of the Suez Canal blockage on global trade delays.

Furthermore, we should also think of exporters in the context of capacity constraints for importers. Agricultural exports are set for another record year, and exporters are all battling for capacity. Even though Australia imports more than we export, agricultural products are quite heavy and bulky – we still see empty shipping containers returning to Asia because shipping operators want to redeploy them from Asia to lucrative markets like Australia. ‘Europe.

Michael Saadie: We are seeing a shift in expectations around ESG (environmental, social and governance). Many companies now ensure that their suppliers provide statements on how they comply with regulations such as modern slavery legislation and the ban on forced labour. What do you think of the impact of these regulations on commercial enterprises?

Jackie Cooper: Importers are increasingly aware of their supply chain and ensuring that it is managed ethically. This is both driven by consumer demand and to meet regulations and legislation. We are also seeing an increase in the percentage of consumers willing to pay more for sustainable products, which is even more prevalent among our younger generations.

More and more consumers want products that are of consistent quality, sustainably produced and that feel like they are “doing good”. That’s why we’ve also seen an increase in social enterprise. A good example is the social and ethical consumer brand Merci which, to paraphrase, “provides consumers with a choice of products to end extreme poverty”. Profits from sales are used to provide access to clean water and health and sanitation programs, as well as access to food aid. This focus on value for social good really resonates with consumers.

We certainly see commercial businesses continuing to adapt to meet consumer demand. They know that if they don’t they will just be left behind.

Michael Saadie: As a country that imports about $400 billion goods per yearthere is a national interest in supporting our importing companies. For example, we help businesses prepare by putting in place trade finance facilities to ensure they have the necessary working capital. What are your prospects for this crucial sector?

Anthony Vinson: We will continue to see huge shipping demand globally, and COVID impacting the workforce. This of course means increased costs. I was recently working with a food importer who had seen their freight costs go from 3% of expenses to 20%. And however smart they are in their operations, importers cannot absorb these costs. They will ultimately be passed on to the consumer. We also need to watch other factors such as rising interest rates.

Of course, while it’s easy to get caught up in all the bad news, it’s important to remember that the situation depends on what we do with it. Look at the flip side of the coin and you’ll see that increased consumer demand due to COVID presents a good opportunity for those who can adapt.

Michael Saadie: I completely agree. There’s a lot of good news – and the new free trade agreement with the UK, signed in December 2021, will have a huge positive impact. We’ve already had UK-based companies inquire about exporting to Australia, so the deal will amplify that. This, added to the changes made by importers over the past few years, should mean that they are well placed to take advantage.

Thank you Anthony and Jackie for your ideas.