Related News

Late payment issues worsening in global supply chains, Taulia data reveals

Authorities urged to target refineries as Russian-origin fuel imports soar

Dollar alternatives not a major illicit finance threat, US says

US government faces industry backlash over halt to LNG export permits

Oil trading scheme netted vast sums for Iran’s Revolutionary Guard: US prosecutors

European exporters are growing increasingly concerned over the threat of non-payment and payment delays, as the dual impact of the Ukraine war and Covid-19 lockdowns in China roil global business conditions.

A recent survey of nearly 3,000 exporting companies across the US, China, UK, France, Germany and Italy, who were polled before the start of the Ukraine crisis and after, shows fears over non-payments have shot up since the conflict began.

According to the research from credit insurer Allianz Trade, more than half of respondents in Europe now expect non-payment risks to grow and over 40% anticipate payment terms will lengthen in the next six to 12 months, an uptick from roughly a third who harboured such concerns before the crisis.

The war has broadly dented exporter confidence and seen the share of respondents anticipating an increase in turnover slumping from 94% to 78%, with energy costs flagged as a key worry for many European corporates.

The number of European companies that foresee higher energy prices becoming a challenge this year jumped from 37% prior to the invasion to 56%, with those in large gas importing countries, namely Italy, the UK and Germany, the most concerned about this trend.

Maxime Lemerle, lead analyst for insolvency research at Allianz Trade, tells GTR non-payment fears are partly being driven by concerns exporters will not be able to receive payment from buyers in Russia or Ukraine.

But he says indirect effects related to the war in Ukraine and strict Covid-19 lockdowns in China are the main cause of worsening exporter sentiment.

“We have the spillover effects from the two shocks on the bottom lines of companies: a rise in energy prices for input costs, food prices for the agri-sectors, and more importantly there is the rise in transport prices,” Lemerle tells GTR.

Transport fees were a major headache for trading companies in the latter months of 2021, and there are fears of a resurgence in this trend, with Allianz Trade warning sustained high oil prices could lead to a new record high in freight rates in Q2 this year – up by as much as 40% from the previous peak.

The credit insurer also forecasts exports to Russia and the eurozone economies will plummet by US$480bn due to confidence and demand shocks, while Covid-19 outbreaks in China and the Asian nation’s zero-Covid policy will extend supply chain bottlenecks and keep suppliers’ delivery times elevated.

With Beijing continuing to put cities such as Shanghai under heavy lockdowns, European manufacturers say they are facing production snarls and lower export orders in the coming months.

“The current set of restrictions in China is contributing to a further wave of bottleneck pressures in global supply chains and limiting domestic demand in a major region of the world economy,” said European Central Bank chief economist Philip Lane in a speech in early May.

The automotive sector is acutely exposed due to high levels of integration in global supply chains, with firms such as Volvo having warned recent events will worsen a shortage of semiconductors ongoing since late 2020.

“The situation in the global supply chain for semiconductors and other components remains unstable, characterised by disruptions, unpredictability and lack of freight capacity,” said Volvo in a quarterly report published in April.

“We will therefore continue to have disruptions and stoppages both in the production of trucks and in other parts of the Group. The continued spread of Covid-19 particularly in China and the war in Ukraine are putting additional pressure on the already strained supply chain and production system.”

Exporters are also facing plummeting demand in markets beyond China, as economists revise global growth forecasts due to the Ukraine crisis, and are touting the possibility of recessions in Europe and the US.

Allianz Trade has cut its forecast for worldwide GDP growth to 3.3% following Russia’s invasion of Ukraine, a downward revision of 0.8% and a steep drop from the 5.9% increase seen last year.

A further escalation of the war, resulting in even harsher sanctions and counter sanctions, could see inflation soar to 7% this year and growth plummet to 2.5%, with the global economy at risk of entering a recession (-0.3%) in 2023, it says.