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Financial Risks in Supply Chains Emerge as COVID-19 Pandemic Enters Third Year

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Financial Risks in Supply Chains Emerge as COVID-19 Pandemic Enters Third Year

by Richie
02/28/2023
in Risk Mitigation, Security & Risk

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As the COVID-19 pandemic extends into its third year, the focus in supply chain challenges is shifting from physical and logistical issues to financial risks. James Gellert, CEO and chairman of financial analytics firm RapidRatings, has highlighted the substantial increase in debt within the global supply system since the pandemic’s onset. Initially, debt functioned as a critical response to the pandemic’s economic impact, with central banks globally offering affordable capital to sustain businesses. This financial strategy helped many retailers and suppliers stay operational despite fluctuating supply and demand.

However, this reliance on debt may conceal underlying financial vulnerabilities within the industry. Gellert points out that continuous borrowing has made it difficult for companies to face traditional failure, such as default or bankruptcy. According to RapidRatings’ data, retailers and suppliers of all sizes experienced a decline in their cash to current liabilities ratios from 2020 to 2021. Notably, the smallest companies (revenue between $10 million and $50 million) saw this decrease lead to a negative cash-to-current-liabilities ratio.

The data also indicates varying impacts of the pandemic across different-sized retail companies. The smallest retailers and suppliers saw a decline in financial health and core operational health. In contrast, larger retailers and suppliers saw improvements in these areas, suggesting that larger companies have become stronger, partly due to their enhanced supply chain leverage and resources.

Despite the apparent stability provided by access to capital, this doesn’t eliminate supply chain risks. Gellert warns that companies under financial strain might cut corners, leading to potential risks in areas like cybersecurity, environmental, social, and governance initiatives, research and development, and product quality. These risks could eventually affect retailers and brands upstream.

Regarding supply chain disruptions experienced last year, forecasts from the National Retail Federation and Hackett Associates anticipate a slowdown in import growth for the first half of 2022. This slowdown is expected to provide some relief to congested North American terminals, offering an opportunity to address existing congestion, according to Ben Hackett, founder of Hackett Associates.

Discover supply chain news insights on The Supply Chain Report. Enhance your international trade knowledge at ADAMftd.com with free tools.

#SupplyChainChallenges #FinancialRisks #COVID19Pandemic #RapidRatings #DebtInSupplyChain #RetailersAndSuppliers #CashFlowConcerns #SupplyChainDisruptions #DebtImpact #FinancialVulnerabilities #RetailFinancialHealth #SmallBusinessStruggles #LargerRetailers #NationalRetailFederation #HackettAssociates #ImportGrowth #NorthAmericanTerminals #SupplyChainResilience

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The Supply Chain Report is your essential daily news website, serving as a trusted source for comprehensive coverage of the complex and ever-evolving global supply chain dynamics. Our expert team delves into the intricacies of international trade, manufacturing, logistics, importing, exporting, and supply chain management; providing in-depth analysis and up-to-date news on the latest trends, disruptions, and technological advancements affecting industries worldwide. From detailed reports on international trade through to insights into procurement strategies and inventory management, we offer valuable content that helps professionals stay informed and make knowledgeable decisions in a fast-paced market.

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