Mitigate risk and promote growth by tapping into insurance, research and diversification
International trade is a key pillar for many companies’ business models and of many countries’ economies. As part of this interconnectivity, global enterprises face a complex and ever-changing external landscape as they evolve and grow their businesses.
We know that businesses never stand still. And for businesses operating in the United Kingdom and overseas, recent years have seen a unique set of challenges. Alongside issues affecting global supply chains – including the impacts of the Covid-19 pandemic and Russia’s invasion of Ukraine – importers and exporters have also had to adapt to the impact of Brexit on their operations.
Whether it is expansion into new territories, new products and services, new business lines as a result of growth, or navigating economic trends – there is a lot for companies operating in the multinational environment to consider.
UK trade – and the challenges businesses face
One reason for the high level of goods trade in the UK is the role of foreign-owned firms—in particular, multinational enterprises with global supply chains. These strengthen international trade as they move goods between their various operations across the world.
The latest data suggests that more than half of manufacturing goods exports were made by five industries.[1] Manufacturers of vehicles, trailers, and semi-trailers were the biggest player, exporting £40.5 billion, which is equivalent to 24% of all manufactured goods exports. They were followed by air and spacecraft manufacturing (£16.4 billion or 10%), basic pharmaceuticals (£9.5 billion or 6%), petroleum and petcoke refining (£8.3 billion or 5%,) and manufacturers of rubber and plastic products (£7.7 billion or 5%).
Foreign-owned business made 53% of total UK manufacturing turnover in 2021.[2] In total, foreign-owned manufacturers made a £79 billion contribution to UK GDP, or 44% of the total made by the manufacturing sector.
For multinational companies, such as those in manufacturing, motor, energy, and pharmaceuticals mentioned above, international trade requires the physical transportation of goods. This brings with it additional risks, as was illustrated by the Covid-19 pandemic and global supply chain problems which in part reflected problems with transportation. Currently, global supply chain disruption can be seen in the typically busy shipping lanes of the Red Sea, as many of the world's largest shipping companies divert their vessels away from the region. Alternative shipping routes may remove the risk of attack in the Bab al-Mandab Strait – but will add up to 10 days shipping time and cost millions of dollars[3].
The recent challenges faced by UK manufacturers were captured by a survey by the Office for National Statistics.[4] Exporters said risks related to the movements in prices affected them the most, with 43% and 35% reporting that changes in transport costs and exchange rates were the most challenging.
Tariff barriers (in the form of custom duties and levies) and non-tariff barriers to trade (such as the additional paperwork required, and time taken for border checks since the UK left the European Union) also ranked highly in the list of challenges to overcome. Problems with logistics, such as a shortage of hauliers, were also an issue.
After the Covid pandemic and supply chain crisis, the terms ‘friendshoring’ or ‘allyshoring’ were coined. Both mean only sourcing inputs from countries that are geopolitical allies. While sourcing from and exporting to friendly countries reduces geopolitical risks, it may come with the drawbacks of increasing the costs of imports and restricting the size of potential export markets.
Macroeconomic risks in 2024
Our central forecast is that the value of goods exported from and imported into the UK will decline by 3.2% and 0.8% in real terms in 2023, reflecting the slowdown in world and UK growth[5].
Thereafter, we expect the annual growth in goods exports to recover to 1.7% in 2024 and 2.6% in 2025. The recovery in the annual growth in imports of goods is forecast to be more rapid, reaching 2.9% and 2.7%, respectively. This is likely to lead to a deterioration in the visible trade balance.
Advice for business
The most effective way of minimising the risks involved in international trade is to ensure business activities are insured. As a trusted multinational insurance partner, QBE can ensure that insurance is provided wherever it is needed. Our geographic footprint, with empowered underwriters and dedicated service hubs, marks us out as one of only a handful of truly worldwide insurance companies.
Our dedicated service team works with underwriters and local offices around the world to ensure the right basis and level of coverage, backed up by expert claims management and underpinned by the security you would expect from a global insurance company.
Additionally, firms may choose to carry out market research on current and prospective trade partners. Companies should be informed about the risks surrounding the other party’s business locations, transport routes, potential barriers or major cultural differences that may harm the business. This should also include potential political instability such as civil unrest, terrorism, or changes in government, which can disrupt trade and business activity.
Multinational insurance can support here – QBE’s team of multinational specialists work tirelessly on behalf of our customers to understand that insurance legislation varies greatly by territory and region – and that it can change fast. Our multinational proposition offers an integrated and centrally managed solution that combines certainty of coverage with regulatory compliance and the secure movement of money around the world, backed with a team who can rise to region-specific challenges.
When possible, companies should also try to diversify their export markets and supply chains. This should lower risk from one-off events in particular countries. This diversification should also potentially extend to the modes of transport and transport routes used to get the goods to and from the UK. For example, the alternative shipping routes taken around the Cape of Good Hope and away from the Red Sea at present will drive shipping rates up (4% in the first week of attacks on commercial vessels[6]) and place the biggest delay on consumer goods. Contingency planning to prepare for worst-case scenarios, such as alternative sourcing options or backup supply chains, is a sensible precaution for occurrences such as these.
Lastly, taking advantage of the products’ financial markets offer to reduce risk can help lower risk. For example, taking hedging positions in financial markets can offset potential losses from adverse movements in exchange rates or commodity prices.
[1] ONS. 2023. UK input-output analytical tables, industry by industry, 27 March 2023.
[2] ONS. 2023. Foreign-owned businesses in the UK: business count, turnover and GVA, from the Annual Business Survey 06 July 2023.
[3] What do Red Sea assaults mean for global trade? - BBC News
[4] ONS. 2023. Business Insights and Conditions Survey data, Wave 87. 27 July 2023.
[5] https://qbeeurope.com/sector-resilience/global-commerce-uk-forecast-for-international-trade/
[6] What do Red Sea assaults mean for global trade? - BBC News
