From A2B: Decoding the global supply chain

Supply Chain Icon

Read time: 5 minutes

The global supply chain has grown increasingly complex, particularly within the shipping sector, where goods and services traverse numerous countries, customs jurisdictions and regulatory frameworks. Disruptions such as pandemics, geopolitical tensions, labor shortages and climate-related events have amplified vulnerabilities across industries. These disruptions, in turn, have the potential to impact the financing of shipping operations, influencing costs, cash flow and risk management for shipping companies and their financiers.

In this article, we provide a brief overview of the key effects that supply chain issues could have on ship finance.

1. Increased costs

Rising freight rates

Supply chain disruptions – such as port congestion, a lack of available shipping containers and logistical delays – drive up the cost of shipping goods. These elevated freight rates may require shipping companies to allocate more working capital to finance their operations, thereby affecting profitability and pricing strategies.

Fuel costs

Delays in supply chains can force ships to take longer or alternative routes, or idle for extended periods at ports, increasing fuel consumption. Similarly, as a result of the current Red Sea crisis, many shipowners and charterers are diverting via the Cape of Good Hope, which is adding significant costs to their fuel bills. These higher fuel costs strain shipping companies' financial planning and directly affect their bottom line, leading to additional financial burdens.

2. Delayed cash flow

Longer delivery times

Disruptions in the supply chain can cause significant delays in the delivery of goods, which translates into longer times for companies to sell their products. This slowdown in sales results in slower cash inflows, putting pressure on the liquidity of the shipping companies and the firms transporting goods. Such delays can make it challenging for businesses to meet their short-term financial obligations.

Increased inventory holding costs

When goods are delayed, companies often have to hold inventory for longer periods, tying up capital that would otherwise be in circulation. This can create cash flow issues, as funds that could be used for repaying loans or expanding operations are instead spent on storage and warehousing.

Key takeaways
  • Supply chain disruptions affect financing of shipping operations
  • This includes higher costs, delayed cash flows and increased risks for shipping companies and financiers
  • These factors could reshape the financial landscape for shipping, requiring adaptation to a more volatile and uncertain global environment