43% of UK exporters expect an increase in the risk of non-payment in 2023 (up from 27% last year), landmark survey shows.
- Allianz Trade research shows 57% of UK exporters said to have been disrupted by the energy crisis;
- Top 3 challenges ahead for UK exporters are high energy prices (for 73% of them), followed by shortage of input (73%) and political risk (71%);
- Almost one fourth of companies in the UK said they had to move their production plants due to the Covid-19 pandemic (41% intended to just after the Covid-19 crisis) and only 18% changed suppliers (vs 53% which intended to), the lowest share among peers;
- However, the ‘homecoming’ remains timid despite Brexit: only 25% of UK companies would plan to relocate production or find local suppliers against 40% in the US. Supply chain diversification seems to be the preferred strategy for UK exporters as they are more numerous compared to peers to scout for new suppliers in Western Europe, APAC, North America, China and Middle East (in this order).
Disruptions over the past few years, from the Covid-19 pandemic to the invasion of Ukraine, seem to be leading to a rethink of global supply chains. How are these events affecting companies, their willingness to trade and the way they operate abroad?
Allianz Trade today releases the second edition of its Global Survey. The world’s leading trade credit insurer surveyed nearly 3,000 exporters from France, Germany, Italy, Spain, Poland, the UK and the US. Allianz Trade asked these companies about their export expectations in 2023, their experiences with supply-chain disruptions, their plans to make their supply chains more resilient and their ESG strategies.
Non-payment risk is the fear factor
While companies are relatively optimistic about export prospects in 2023, economic uncertainty remains strong.
Globally, roughly 70% of companies expect business turnover generated through exports to increase year-on-year, down from 80% in the 2022 edition. In the UK, 83% of exporters expect an increase in exports in 2023 against 89% in 2022. A majority of them (57%) expect a moderate increase in export turnover (+2% to +5%) after two years of double-digit growth. This echoes the less favourable environment for global trade in 2023: Allianz Trade expects global trade to grow slowly in volume terms (+0.7% vs. +3.8% in 2022) and to decline in USD terms (-0.1% vs. +9.7% in 2022).
Companies also appear to have a smaller appetite for new markets, favouring a consolidation of existing ones. 63% of respondents favour increasing investment in countries where they are already present (vs. 60% in the UK), while 47% plan to invest in new countries with 43% in the UK. When exporting, more than 55% of corporates plan to gain further market share in current countries (51% of UK exporters) where they are present, whereas 52% want to diversify and target new countries (49% of UK exporters). The UK exporters along with the US ones are the least favourable at investing in new countries (43% and 39% respectively, against 45% in Germany, 50% in Italy and 51% in France).
Compared to last year, more respondents expect the length of export payments terms to increase (42% vs. 31%), with the share this year reaching levels close to 50% in both the US and the UK. The share of respondents expecting an uptick in the export non-payment risk has increased compared to our early 2022 survey, rising +11pps to 40% overall. The increase is widespread across countries but especially visible in the UK and Germany (both +16pps), while it is only +6pps in Italy.
“Companies are facing a combination of lower demand, additional pressure on profitability and squeezing credit conditions as central banks continue to increase interest rates to bring down inflation. In this context, they are clearly bracing for longer export payment terms and higher non-payment risk in 2023. This is in line with our outlook for global insolvencies, which we expect to rise by +21% in 2023 (after +2% in 2022),” says Aylin Somersan Coqui, CEO of Allianz Trade.
Despite improvements, companies are still worried about supply-chain disruptions
Nearly 75% of respondents rated logistics hurdles and high transportation costs as having a moderate to significant impact on export activity in 2023, making it the top challenge in Germany, Italy and Poland. For companies in the US and Spain, the top challenge is the cost and availability of financing. In contrast, for companies in the UK, high energy prices remain the top challenge to overcome this year. In France, companies are most concerned about non-payment risk.
“To mitigate disruptions to their supply chains, the top three strategies are monitoring, risk management and ESG due diligence on suppliers. But despite fears about overlapping crises triggering deglobalization, reinventing supply chains or relocating production sites are the least favoured options. However, companies hit the hardest by the energy crisis are leaning towards more supply-chain diversification. Companies that report a fair to severe disruption to their supply chains due to the energy crisis seem to be more concerned with making changes, with 35% expecting to relocate suppliers and production sites in the medium to long-term (against 11% for the least-impacted companies),” explains Ana Boata, Global Head of Economic Research at Allianz Trade.
Cash is still king for export financing
To fund export development plans, firms expect to continue to rely on cash, bank loans and payment terms. The former two options were also the top choices in last year’s survey – though the margin compared to other means has clearly declined this year, in a context of declining cash buffers at firms’ disposal and tightening bank lending conditions. In the UK specifically, payment terms are the most preferred option for 48% of exporters ahead of cash, Buy Now Pay Later and bank loans.
“Interestingly, beyond traditional sources of financing, companies are increasingly turning to Buy Now, Pay Later schemes to finance their exports. For companies in the UK and France, this is cited as the third source of financing after cash and bank loans. This growing interest could also unlock trade financing for Small and Medium Enterprises that were previously shying away from global trade,“ states Ano Kuhanathan, Head of Corporate Research at Allianz Trade.
Even when considering public policies, firms are mostly calling for financial support. Active labour policies for labour upskilling ranks second for 42% of UK exporters after state-guaranteed loans and grants (for 44% of them), stressing the importance of securing financing in the current environment. While for the other markets, cost control seems to be the top priority as the third preferred public policy measure is lowering barriers to trade, including dropping the Carbon Border Adjustment, it is better information and operational support in the UK (37% of UK exporters) followed by new Free Trade Agreements (36%) and energy price subsidies (35%), +5pp more compared to the other surveyed markets.
When it comes to ESG, companies favour baby steps and business continuity for now
The energy crisis is accelerating the green transition. Amid the economic slowdown and financing constraints, more than 80% of respondents say that they will prioritize business continuity over ESG commitments in 2023. However, companies have not entirely given up on ESG targets: most respondents (85%) are stepping up efforts to shift to green energy sources over the long-term, especially in Spain, the US and France.
“The main priorities in terms of ESG measures still revolve around short-term actions, such as making environmentally friendly transportation choices, increasing ESG standards expected from suppliers or enhancing health and safety standards within the supply chain. But more structural measures are also being prioritized, such as developing sustainable and innovative products and services, and reducing exposure to brown activities,” adds Aylin Somersan Coqui.