Trade expected to expand in 2022 but supply shortages could fuel inflation

Higher transport costs could challenge export growth this year, DP World commissioned study finds

Thirty percent of executives surveyed as part of the study commissioned by DP World expect higher transport costs to be the top limitation for export growth in 2022. Pawan Singh / The National

Trade is expected to expand further in 2022 but pandemic-induced supply shortages owing to lower production levels will lead to higher inflation, a report has found.

The report, which was commissioned by DP World in partnership with Economist Impact, comprises the results of a global survey of 3,000 executives across six regions including North America, South America, Europe, the Middle East, Africa and Asia-Pacific between October and December 2021.

“The surge in global demand combined with supply shortages is increasing inflationary pressures,” the report said.

“New waves of Covid-19 cases led to disruptions in business operations, as staff had to stay away from work to quarantine or recover, reducing output in some industries.

“In others, such as agricultural or microchip production, supply is relatively inelastic. Together, these factors are resulting in supply shortages that are driving up prices.”

To cope with the problem, companies have diversified their supplier base, purchasing buffer inventories from suppliers that may be more expensive and some of this is being passed on to the consumer in the form of higher prices, the study showed.

Global trade surged 25 per cent last year to a record $28.5 trillion as pandemic-linked restrictions eased and demand for goods picked up, a report by the UN Conference on Trade and Development said.

However, the agency cautioned that world trade could be affected by various factors in 2022, including slower than expected economic growth and continued supply chain disruptions.

Companies polled were optimistic about a growth in trade this year, with 74 per cent of respondents saying exports will increase and 68 per cent believing imports will rise as global economies continue to recover from the pandemic.

The top three challenges with increasing exports this year would be high transport costs, high tariffs in key markets and uncompetitive pricing, the survey results show.

High transport costs, higher tariffs in the country of operation and a fall in production due to reduced demand would be the top three challenges for imports, it said.

“The report is evidence that rising freight rates and low production levels, coupled with a volatile social-economic situation in Europe, will keep inflation high in 2022 as companies navigate a risky trading environment,” DP World group chairman and chief executive Sultan bin Sulayem said.

“But supply chains are adapting and executives are positive about the future of trade, which will prove durable in the near to medium term despite any inflationary fears.”

In addition to rising inflation, geopolitical tension between the US and China continue to concern executives, with 30 per cent claiming that the trade tension between Washington and Beijing is the top reason to be pessimistic about global trade.

Digitalisation can also streamline operations and increase efficiencies in trade, the report said. Sixty-seven per cent of companies in the industrial sector are already using digital platforms for supply chain management.

“Businesses now have greater flexibility to move cargo faster, track progress in real time and automate customs clearance processes, helping address non-tariff trade barriers,” the report said.