Over 50% of exporters considering moving supply chains due to geopolitical risk

More than half of corporates globally are considering relocating supply chains because of geopolitical risks, according to Allianz Trade as it published its Global Survey 2024. The survey of more than 3,000 exporters in China, France, Germany, Italy, Poland, Spain, the UK and the US name geopolitical risk as the leading threat to exports in 2024, followed by production and labour shortages, and then non-payment risk.

Companies with long supply chains and more than half of production sites located abroad are particularly concerned about any escalation in the US-China trade war, the survey finds. US corporates emerge as the least interested in relocating parts of their supply chain, ahead of its national election, at just 40%.

“Companies are in wait-and-see mode, mostly focused on upcoming national elections,” said Ano Kuhanathan, head of corporate research at Allianz Trade. He said the big question remains whether corporates will walk the talk and make changes to secure their supply chains or not. The survey finds that relocating production sites is currently not a top three step being taken by firms to mitigate supply chain disruption, with the exception of exporters in Spain and Germany.

Allianz Trade finds geopolitical risks polled as the second-biggest concern for supply chains, behind their complexity and concentration, while ESG-related risk came third.

“To mitigate supply chain disruptions, companies are primarily improving their supply chain risk management, increasing ESG due diligence on suppliers and buying supply chain insurance,” Allianz Trade says, with diversification the main strategy to boost supply chain resilience.

“But this brings its own risks, increasing complexity and potential choke points, and isn’t a perfect solution,” explained Ana Boata, global head of economic research at Allianz Trade. “48% of US exporters that have production sites or suppliers in China would consider countries in Asia Pacific or Latin America to diversify their supply chains. However, they would still be exposed to China indirectly, given its critical role as a global supplier in the manufacturing sector,” Boata said.

Allianz Trade says progress on climate targets across supply chains remains slow. Just 27% of respondents say their companies have implemented significant ESG actions. Of these firms, 26% have shifted logistics to be more sustainable, while others have developed more sustainable products (25%) and improved the climate resilience of their supply chains (23%).

Further, while 76% of companies say they are on a path to transition away from fossil fuels, two out of three only plan to cut emissions by between 1% and 5% in the next 12 months, which Allianz Trade says will fall short of net-zero targets set for 2025.

The vast majority of respondents (82%) say they expect business turnover generated through exports to increase in 2024, and 40% expect an increase of more than 5%. However, Allianz Trade highlights similar optimism in last year’s survey, when 70% of companies said they expected an increase in business from exports, only to see the year close with a trade recession and demand slowing more than expected.

Allianz Trade itself forecasts more conservative growth from exports, anticipating global trade to increase by 2.8% in 2024. This takes into account disruptions to global shipping from the Red Sea crisis, and follows a contraction of -2.9% in 2023.

“After more than a year of recession, exporters are now looking forward to a rebound in the second half of 2024 as the restocking of manufactured goods is gaining traction, along with global demand,” said Françoise Huang, senior economist for APAC and global trade at Allianz Trade.

The survey also finds non-payment risk remains top of mind for corporates, with 40% of respondents expecting the risk to increase in 2024. This is in line with Allianz Trade’s forecast for global business insolvencies to rise 9% in 2024. Allianz Trade says 42% of companies surveyed expect export payment terms to increase within the next six to 12 months.