Stay ahead of disruption with Prological’s market update for Q1 2024

What’s been happening this quarter in global trade, supply chain and tech? Prological’s Managing Director Peter Jones takes a deep dive into six critical areas – inflation, Red Sea disruptions, ESG reporting, industrial property trends, onshoring and AI – to help organizations stay up-to-date and ahead of trends in the year ahead.

Red Sea disruptions

Persistent attacks in the Red Sea continue to delay and raise the cost of shipping. The impact of the disruptions may have had not been felt so acutely in January and February due to relatively softer demand during those months, but if the disruptions persist into April and May, there could be a serious supply chain crisis that will inevitably reach our shores.

If the conflict persists, retailers could face further inventory shortages, higher transportation costs and potential out-of-stock events, ultimately affecting the availability and pricing of goods for Australian consumers.

It is crucial for businesses to closely monitor the situation and develop contingency plans to mitigate the potential impact of these disruptions on their supply chains. At the heart of this risk mitigation strategy will be supply chain visibility and agility, facilitated by flexible network design and diversity in suppliers and networks.

Inflation

Australian consumer price inflation held at a two-year low in January despite forecasts for an uptick. Interest rates stabilizing or dropping will have a positive impact on Australian supply chains and businesses – lower borrowing costs are needed to ease the financial burden on companies and encourage investment in supply chain infrastructure, technology and resource allocation.

One of the primary challenges inhibiting local production in Australia is the availability and cost of skilled labor.

This is good news for businesses relying heavily on debt financing and consumer spending and opens the door for strategic investment and growth forecasting for a 10-plus year period, rather than for more immediate success. As borrowing costs decrease, businesses may look to invest in expanding their operations, improving supply chain infrastructure and implementing new technologies, ultimately enhancing their efficiency and responsiveness to customer demands.

ESG reporting

On 12 January, 2024, the Australian Treasury released its anticipated policy position and exposure draft legislation for the Australian mandatory climate-related disclosure regime, following two rounds of consultation in 2023. This development highlights the growing importance of ESG reporting for businesses operating in Australia.

While many Australian businesses have taken steps to address sustainability and climate-related issues, the introduction of mandatory reporting requirements will likely pose challenges for organizations who haven’t established robust data collection and reporting mechanisms.

Engaging with stakeholders, setting ambitious yet achievable targets and implementing sustainable practices across the supply chain will be crucial for businesses to demonstrate their commitment to ESG principles and meet the new reporting requirements.

Industrial property

After two record years of industrial/logistics property activity, the moderation observed in 2023 seems to be continuing in the early part of this year. However, given the outlook for stabilizing or decreasing interest rates, there could be renewed interest and investment in the industrial/logistics sector. Lower borrowing costs could incentivize businesses to expand their operations or acquire new properties to support their supply chain needs.

The ongoing growth of ecommerce and the increasing demand for efficient logistics solutions will continue to drive investment in industrial/logistics properties. Businesses seeking to optimize their supply chains and enhance their distribution capabilities may be more inclined to invest in modern, well-located facilities that can support their operational requirements.

Local Manufacturing

Companies are now proactively seeking ways to make their supply chains more resilient in the face of future crises, which is resulting in a shift toward onshoring and ‘friend-shoring’ as viable options for maintaining more control over operations.

It is crucial for businesses to closely monitor the situation and develop contingency plans to mitigate the potential impact of these disruptions on their supply chains.

However, one of the primary challenges inhibiting local production in Australia is the availability and cost of skilled labor. Manufacturing requires specialized skills and expertise, which commands higher wages in Australia compared to other regions. The cost of raw materials, energy and infrastructure is another roadblock, but more businesses are moving from a single point of supply to multiple points in their network, particularly for critical business elements.

AI

Any aspect of supply chain management with a critical predictive element will be well-served by AI, and in combination with big data, AI will support ‘stepped change’ in supply chain execution. In Australia, businesses are expected to accelerate their adoption of AI in forecasting and inventory management throughout 2024, recognizing the competitive advantages it can provide. However, Australia’s progress in this area still lags behind regions like the United States, Europe and Asia, underscoring the need for increased investment and proactive adoption strategies.

To download Prological’s full market update, click here.