Sea shipping container

International Trade in the current climate

Darren Rigden, Partner, Audit and Business Solutions
26/05/2022
Sea shipping container
As ever international trade continues to be challenging in the aftermath of a global pandemic, supply chain issues and the ongoing war in the Ukraine. Brexit seems a distant memory, but is still causing some issues.

Challenges facing international trade

Many of our clients and contacts remain concerned about further disruptions to supply chains, both through further outbreaks as seen in China recently, and also due to cashflow issues with ongoing supply chain disruption leading to rising costs, business failures and stock shortages. Companies are trying to mitigate this through diversification of suppliers and geographical origins of supplies, but for specialist products this is difficult as it is where longer-term contracts are in place. The war in Ukraine has highlighted the importance of diversification whilst also demonstrating how closely integrated the global economy is.

As we came out of the pandemic, inflation and supply chain issues became headlines along with the war in Ukraine. More support will be required for the businesses and hopefully the government will not be too quick to raise taxes as this could be the final straw for some.

Working capital management remains a concern across the sector, especially the collection of payments from customers and stock management. Companies are trying to balance holding enough stock (if they can source it) to cope with disruption, with the cost of cash being tied up in stock and needing the cash to pay suppliers and employees. So far, most companies are understanding of rising prices driven through inflation and shipping costs but this will intensify over the next few months and some companies will not be able to pass on costs thereby coming under considerable pressure to remain a going concern.

The future outlook for international trade

Practical issues with dealing with the post lockdown climate in different countries, understanding the rules across borders, dealing with localised outbreaks as seen in China recently are all concerns facing international businesses.

Obtaining access to enough labour is becoming a key issue in restricting growth, with attracting employees from overseas continuing to hinder certain sectors.

Inflation with potential “Stagflation” in the UK are likely to dominate the next 12 months along with the war in Ukraine. Resolving the conflict in Ukraine would have a significant impact on improving International Trade and supply chains along with helping with global food security.

To counter the issues technology will need to be continually monitored and improved to ensure companies have the ‘best of breed’ to enable them to capitalise on opportunities trade starts to recover and will also provide protection against future shocks to the global economy. Different forms of communication such as video conferencing will continue to dominate as many have seen the advantages of these forms of communicating compared to face to face meetings, for example through time saved by not travelling. The UK has invested in the technology sector and could be set to benefit in the coming months and years.

Cash will become tighter as companies start to pay back loans taken out during the pandemic and inflation starts to bite. To kick start growth, businesses need governments across the word to promote global trade and investment. In addition, they need to take steps to keep trade flowing by reducing red tape, particularly in relation to tariffs, customs and border controls. Our government should do everything it can to ensure a rapid increase in trade.

Free trade agreements will play a critical role in our recovery and how these progress will have a major impact on how successful businesses will be.

How can we help?

We can help at this critical time with the production of cashflow forecasts and business models, which need to be regularly monitored and updated as the inflation will impact on costs and will need to be reflected in sales prices as far as possible. This is key to managing cash and therefore, essential for the survival of most businesses.

We can also help with finding additional funding to finance the business and increased working capital requirements. Linking in with the above, a professional firm helping with applications and forecasts can add real credibility. This can both speed up applications and make them more likely to be successful as finance providers will gain more comfort if professional advisors are involved.

For some there will be opportunities to merge or acquire businesses, our Corporate Finance team can support with due diligence and transactional support.

We have a Global Mobility team who can help with global mobility and ensuring companies have access to the right employees at the right time.

Our VAT and Customs Duty team can help with tariffs and are currently very busy dealing with Brexit and keeping our Brexit hub up- to-date alongside the Customs Hub.

Tax advice should also be sought to ensure any changes in structuring is efficient and is correctly budgeted for. Tax rates are likely to change in the longer term in order to pay for government support therefore tax planning will also be key to mitigate the costs to businesses in the future.

The next 12 months are likely to be as challenging and the past 12 months and businesses will need to keep on top of events as they develop and ensure that they can take advantage of any support or tax reliefs provided.

For more information, contact Darren Rigden or you usual Crowe contact

Contact us

Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions
Kent