17 January 2024 (Lloyd's List) - IN what could be an ominous sign for shipping, the latest "Trade in Transition" study by Economist Impact and DP World found that more than a third of companies are using 'friendshoring' to shape trade and supply chain operations, while 32% are creating parallel supply chains or dual sourcing.

The fourth edition of the annual trade survey, released at the World Economic Forum, found that more than a quarter of respondents are also cutting the number of their suppliers, a 16-percentage point increase from the previous year.

"In the new era of globalisation, a landscape of heightened geopolitical risk is shaping the contours of global trade as businesses attempt to reduce risks across their supply chains," the report said.

Of note were increasing concerns among respondents that political instability, rising trade friction and global fragmentation could hamper growth. A fifth of businesses are concerned about higher tariffs, or uncertainties around tariffs, in key markets they export to or import from.

Meanwhile geopolitical uncertainty also figured high on the list of concerns, with 22% of executives worried about political instability in their sourcing markets, and 23% concerned about heightened geopolitical uncertainty.

These fears may be justified. Economist Impact's quantitative trade analysis of potential global output loss from a scenario focused on significantly increased trade barriers on high-tech goods projected a 0.9% decline in worldwide GDP.

"This trend towards streamlined supplier engagement was consistent across regions and sectors, reflecting a structural evolution in supply chain practices," the study added.

Furthermore, transport costs were predicted to be the leading obstacle for firms trying to boost exports in 2024, with 24% of respondents citing this as a factor, similar to the previous year.

At the launch of the report DP World group chairman and chief executive Sultan Ahmed bin Sulayem said: "Governments can maximise the significant economic benefits of trade by providing the predictability that businesses need, while reducing trade friction."

Economist Impact globalisation head John Ferguson said: "In 2024, amidst heightened geopolitical risk and the rising impact of climate change, there is an observable increase in the variability of approaches businesses are taking to their supply chains."

However, there is a growing belief that technology will transform the efficiency and resilience of supply chains, particularly by integrating the use of artificial intelligence in operations.

The study found that a third of businesses are using AI to deliver a reduction in overall trade operation costs, as well as to enhance resource and supply chain planning. 

In addition, over a third of companies view boosting the use of digital tools for enhanced inventory management as the most effective strategy in cutting overall trade and supply chain costs.

As part of efforts to boost efficiency and resilience by using innovation, businesses expect to ramp up their technological adoption further this year, the study said.

Of these, a third will focus on advanced automation and robotics, 28% will adopt blockchain applications and 21% will use artificial intelligence, big data and predictive analytics.

The respondents expect these technologies to increase logistics efficiency, traceability and data security and provide better real-time insights and disruption forecasting.

The fourth annual "Trade in Transition" study is a global survey of 3,500 company executives across a variety of regions and sectors.