The Australian Federal Budget announcement for 2024-25 presented a number of initiatives aimed at alleviating the cost of living pressures, driving innovation through the ‘Future Made in Australia’ initiative, and addressing various economic and fiscal challenges. Here we summarise the key highlights and provisions of the budget, along with a specific focus on its implications for Australian businesses.
The overall economic and fiscal outlook:
Forecasted real GDP growth of 2% in 2024-25
Expected average inflation rate of 2.75% in 2024-25
With the aid of a $9.3 billion surplus, some of the key measures designed to ease cost-of-living pressures include:
$300 electricity bill rebate for all Australian households
Stage 3 personal tax cuts from 1 July 2024, with an average annual tax cut of $1,888 (or $36 a week)
Personal income tax compliance program extended for one year from 1 July 2027
10% increase in Commonwealth rent assistance
Payment of $5,000 to help meet the costs of leaving a violent relationship
Payment of superannuation on paid parental leave
Investment of up to $3 billion to strengthen the pharmacy sector and keep medicines cheaper
What did the budget deliver for businesses?
The Budget offers little in the way of significant support for small businesses, with the extension of the instant asset write-off being a notable exception. Aside from this extension, it has been reported that business owners have expressed disappointment with the limited relief on energy costs ($325 electricity bill rebate for one million businesses) and the absence of initiatives to stimulate innovation and technology adoption.
Small business support – $20,000 instant asset write-off
Small businesses with aggregated turnover of less than $10 million will be eligible for the $20,000 instant asset write-off for an additional year. This will enable small businesses to immediately deduct eligible depreciating assets costing less than $20,000 that are first used or installed ready for use by 30 June 2025. From 1 July 2025, the asset cost threshold will revert to $1,000.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly deduct the cost of multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
Future Made in Australia initiative
As part of the Budget, the Federal Government has allocated $22.7 billion over the next decade to the “Future Made in Australia” initiative. The bulk of this will be directed towards tax incentives for renewable hydrogen and critical minerals processing. This includes $1.7 billion to support innovation, commercialisation, pilot and demonstration projects in priority sectors. The Government has indicated that this measure aims to provide immediate relief and encourage investment in business assets.
In summary, the Labour Government has stated that the 2024-25 Australian Federal Budget strives to balance key economic priorities amidst challenging circumstances. While efforts to alleviate cost of living pressures and drive innovation are evident, the level of support for small businesses appears to have fallen short of expectations.
Maximising cash flow is crucial for business growth
In today’s uncertain economic climate, maintaining robust financial health is vital for businesses. Tailored working capital solutions not only empower enterprises to seize opportunities during peak seasons but also provide resilience to navigate through slower periods.
Are you seeking innovative working capital solutions to accelerate your business growth? Contact our team of finance specialists today to discuss tailored strategies that help to bolster your cash flow, enabling your business to thrive in any economic conditions.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
When it comes to complex and interconnected global trade, robust supply chain management practices are increasingly important to ensure your business is operating as efficiently as possible. As your business navigates through current geopolitical turbulence and economic uncertainties, the importance of having strong supply chain strategies becomes even more important. These global issues need to be considered not only in the context of supply chain management, but also in terms of critical external funding and cash flow solutions including supply chain finance, trade finance and debtor or invoice finance.
Impact of recent geopolitical events: Iran Drone Strike on Israel
The recent Iran drone strikes on Israel have sent shockwaves across international borders, igniting concerns over heightened tensions in the Middle East. As geopolitical tensions escalate in this already volatile region, businesses worldwide are left to grapple with the potential repercussions on their supply chains and such critical items as oil, iron ore and other natural resources. With inflation and interest rate volatility still a key concern here in Australia and other countries, robust supply chain management will continue to be a vital tool for mitigating risks and ensuring operational resilience.
By integrating risk assessment practices into your businesses supply chain management, you can proactively identify vulnerabilities and implement contingency plans. From diversifying supplier networks in other regions (or locally where possible) to leveraging advanced technologies for real-time monitoring, you can help to protect your businesses supply chain against geopolitical disruptions. On face value most of these global events appear a literal world away, but the impacts often hit a lot closer to home on real world items such as fuel and shipping container costs.
Strategic importance of China ties in supply chain management
Navigating this scenario could become even more intricate due to China’s involvement. China appears to strive for a delicate equilibrium in its Middle East relations, maintaining robust connections with various stakeholders. Notably, its close ties with Iran have come to the forefront, with reports suggesting Chinese support for Iran’s actions against Israel.
China’s pivotal role in the global economy underpins the strategic importance of its trade relationships. As a leading manufacturing hub and a key player, particularly in Australia’s supply chain networks, China’s economic movements exert significant influence on our fortunes. The interconnectedness of supply chains means that any developments affecting China can reverberate across industries and continents.
For Australian businesses engaged in international trade, maintaining a resilient and diverse supply chain often means spending time understanding China’s economic policies, trade agreements, and geopolitical positioning. The often discussed ‘Chinese housing bubble’, long-term tensions with Taiwan and many other areas have the potential to materially impact the Australian economy, with SMEs particularly vulnerable.
By forging strategic partnerships and adopting agile supply chain management practices, businesses can navigate through uncertainties and capitalise on emerging opportunities in the Chinese market.
Adapting supply chains to global uncertainties
Amidst geopolitical upheavals and geopolitical rivalries, the question arises: How does this affect global and local supply chains? The interconnected nature of modern supply chains means that disruptions in one region can trigger cascading effects across the entire network. From transportation delays to trade restrictions, businesses must contend with a myriad of challenges in sustaining the flow of goods and services.
Effective supply chain management means taking a proactive approach to risk mitigation, encompassing scenario planning, supply chain mapping, and supplier diversification strategies. By fostering transparency and collaboration across supply chain partners, businesses can enhance their agility and resilience in the face of geopolitical uncertainties.
Navigating geopolitical risks: implications for Australian businesses
For Australian businesses, the evolving geopolitical landscape poses both challenges and opportunities. As a nation heavily reliant on international trade, Australia’s economic prosperity is directly linked to global supply chains. The ramifications of geopolitical events, such as the Iran drone strike and geopolitical tensions in the Asia-Pacific region, reverberate throughout Australia’s economy.
From the mining sector to the agricultural industry, Australian businesses must assess the geopolitical risks inherent in their supply chains and devise strategies to mitigate potential disruptions. One emerging trade partner outside of China is India. In 2023 Australia and India signed the historic India-Australia Economic Cooperation and Trade Agreement (IA-ECTA):
making Australian exports to India cheaper
opening up new import opportunities
creating a slew of new job prospects for Australian businesses
The IA-ECTA is but one avenue that your business can diversify its global trading partners, ensuring that global geopolitical risks such as those currently occurring in the Middle-East and from China through Asia Pacific have a minimal impact on the supply chain and ultimately cash flow and bottom-line profitability.
Easing cash flow challenges via smart working capital solutions
In times of supply chain disruptions caused by geopolitical events, your business will often encounter cash flow challenges due to delayed payments or interrupted production cycles. This is where working capital solutions such as trade finance and debtor finance play a crucial role in mitigating financial strain.
Trade finance provides a flexible line of credit to power your businesses international and domestic trade transactions. It helps you manage the complexities of buying and selling goods and services across borders by providing flexible finance solutions tailored to your needs. Trade finance ensures parties involved in the transaction can navigate issues like payment delays, currency fluctuations and credit risks, enabling smoother and more secure trade operations.
Similarly, debtor finance, also known as invoice financing or receivables finance, offers businesses immediate access to cash by leveraging their accounts receivable as collateral. In the event of delayed payments from customers due to supply chain disruptions, debtor finance provides businesses with the liquidity needed to maintain operations and seize growth opportunities.
By integrating working capital solutions into your business’s financial strategies, you can effectively manage cash flow fluctuations arising from geopolitical events, thereby enhancing resilience and enabling cash flow for long-term growth.
Detailed and strong supply chain management practices are critical for businesses seeking to navigate the complexities of global commerce amidst geopolitical uncertainties. By embracing innovative technologies, forging strategic partnerships, and adopting agile supply chain practices, businesses can enhance their resilience and thrive in an increasingly competitive and global economy.
Octet’s tailored working capital solutions have supported many businesses with supply chain finance strategies. Contact our team of experts today for more information on how we can help power your business.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
When you’re busy growing a business, it can be easy to focus on day-to-day operations and let the big picture take a backseat. For many buyers, this can see them taking their suppliers for granted and expecting them to deliver more, without first building the foundational relationship to support it.
Due to COVID and the subsequent pressures placed on supply chains around the world, things are changing. More and more businesses are recognising the benefits – and the necessity – of strategic buyer/supplier relationship management. The stronger the relationship between your business and its suppliers, the easier it is to negotiate, meet your customer’s needs and seize opportunities that will help you grow together.
This article will look at why it’s critical for businesses to go beyondbuilding efficiency and cost-effectivenessinto their supply chain, and invest in fostering stable, reliable supply chain relationships.
A close supplier-customer relationship is a win-win
While a business is always focused on the customer, in a relationship between a business and their suppliers, it is about much more than the buying transaction alone.
From navigating problems together to striking stronger deals, taking the time to build a longstanding relationship is in both of your best interests.
Rather than one business holding the balance of power, this is instead shared across both parties as they reap rewards from the mutually beneficial relationship.
It’s more of a human relationship, as opposed to a transactional one.
The risk of a one-sided business relationship
Although a close supplier-customer relationship is ideal, there are businesses that struggle to recognise and respect this arrangement. To combat this, the Australian Government officially introduced the Payment Time Reporting Scheme (PTRS) in January 2021.
Recognising the imbalance of power between small businesses and the large corporations that pay them, this scheme aims to facilitate greater transparency around payment times. It also helps to create incentives to improve payment times and practices to encourage cultural change. This cultural change focuses on a ‘people centric’ approach, where suppliers are treated fairly and paid on time.
Fair treatment and on-time payments not only improve the relationship, but businesses who fail to pay on time risk serious reputational damage. Recently, companies like Visy, Cleanaway and Coles Liquor took longer than 30 days to pay suppliers. Reports of their actions brought consequent damage to their reputations.
This highlights the importance of being transparent about and managing your financial supply chain. It also highlights the effectiveness of using fairly-negotiated early payment discounts as an incentive and tool to build relationships. Businesses that do this create better relationships with their suppliers, ultimately offering an added cash flow benefit to their client rather than a default payment choice.
It’s about the intention behind the incentive.
Good relationships are worth the investment
Beyond regulatory and reputational risk considerations, businesses that foster close supplier-customer relationships have a lot to gain. Building these relationships by taking the time to get to know your suppliers, their business goals and the way they operate, can bring a host of benefits.
These include:
making often complex negotiations easier
the ability to secure better deals
reducing quality control issues and delays
supporting new product or sales initiatives
improving efficiency
enhanced customer service.
Together, these benefits can create a hard-to-replicate competitive advantage. They can touch multiple areas of your business and highlight the role of your supplier as a strategic partner. With solid relationships in place, your business is better positioned to adjust to changing customer needs, take advantage of opportunities, and ultimately, grow.
How to build business relationships with suppliers
There are several ways to improve your relationship with suppliers and set the foundations for a long-term partnership, apart from discovering how supply chain finance works.
Choose suppliers with values that align to yours
Building strong relationships tends to be easier when you work with businesses that have values that align with your own. A lack of alignment on values can lead to miscommunication and conflict. This impacts not only your supply chain, but also your relationship with your customers.
For example, perhaps your business has a strong environmental focus. Working with a supplier that can support recycled packaging for products and adopt eco-friendly manufacturing would be a good fit. Partnering with like-minded businesses helps you demonstrate your commitment to your values and builds trust with your customers.
Maintain clear, consistent communication
Communication between different parties is critical across your business, and your supplier relationship is no different. Clarity and transparency help build shared understanding, trust, and a smoother partnership. It also helps reduce misunderstandings, delays and errors which can significantly impact your processes and customer service.
To foster clear, consistent communication, consider:
What tools or tech will you be using to communicate? Are they easy to use and accessible by both your staff and your suppliers?
Is everyone clear on terms, turnaround times, and quality standards? Ensuring everyone is clear at the outset can avoid potential issues down the track.
How often will communication occur? What is the process to communicate when things go wrong?
Is communication two-way, with the opportunity to proactively share issues or information? How can you make communication an equal process?
Consider cultural differences
With the ongoing growth of global supply chains, being mindful of cultural differences is now a big part of doing business. It helps to avoid misunderstandings, build good rapport, and strengthen goodwill.
If you’re working with suppliers in countries you haven’t previously worked with, it helps to do your homework and background research. Another option is to work with an experienced local consultant to help you through the process.
It’s important to build rapport by understanding cultural sensitivities, communication styles and business practices, so your supplier knows that you’re committed to the relationship.
Establish clear processes
Unclear and complicated processes can cause major issues to supply chains and relationships, especially when it involves finance. On the other hand, clear, streamlined processes mean fewer errors, issues and less miscommunication on both ends.
Good processes help build strong relationships by ensuring everyone is clear on who’s doing what and when. They help facilitate on-time delivery, prompt payments and high quality standards. Exploring different automation options and digital platforms can be a valuable investment in this space.
Practise loyalty
For some businesses, the pursuit of the best deal and the lowest costs is a major driver. And when they find a better option elsewhere they’ll switch, often with little thought to their supplier.
Smart, successful businesses understand that price is not just about the cost, but also about the value a supplier can bring to the table. Good suppliers that are responsive, flexible, offer great quality and suitable shipping times may cost higher upfront, but ultimately save you more in the long run.
Rewarding suppliers with loyalty and respecting the mutually beneficial nature of the relationship is a powerful way to strengthen key relationships.
Relationships first
Despite the rapid digitisation occurring across almost every industry, buyer-supplier relationship management remains a key component of doing business – and succeeding in business. Getting this right not only makes day-to-day operations easier but also improves your business’s long term success.
By recognising the dynamics of the buyer-supplier relationship and nurturing a people-driven, partnership-focused approach, you can build a unique competitive advantage. This will help your business grow in an increasingly complex and unpredictable environment.
Interested in building stronger relationships with your suppliers? Get in touch today to discover how we can help.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
The world of finance is changing. Disruptive technologies, an increasingly connected financial landscape and global uncertainty are challenging traditional finance models. The financing trends we’ve seen shape previous years are evolving, while innovative new products are forcing businesses to rethink the way they approach their business funding.
So, what are the trends in financial services that will shape 2024 and beyond? We explore 6 key trends that could change the way we all do business.
6 financial services trends in 2024 and beyond
1.Blockchain technology in financial servicesis on the rise
Blockchain technology is most commonly associated with cryptocurrencies, but its applications extend beyond the realm of digital currencies to a range of industries and users.
The use of blockchain tech in financial processes will rise in 2024, including supply chain management. Blockchain-based structures offer increased transparency, security and efficiency, which can lead to a reduction in costs and a streamlining of processes.
“A prominent application of blockchain technology is decentralised finance,” says Octet’s Supply Chain Finance Manager, Joe Donnachie. “In traditional centralised finance, consumers and businesses borrow from a bank or via a broker. Decentralised finance challenges this by allowing peer-to-peer exchanges.
While blockchain tech is currently used in the finance sector, Joe believes its use will increase exponentially in the years to come.
2. The industry is embracing AI and data analytics in financial services
Artificial intelligence (AI) and machine learning (ML), which provide insights and solutions at unprecedented speeds, are being used in tasks such as research and fraud detection. In 2024, we expect to see an even greater uptake of these tools.
“AI and data analytics have transformed the finance industry,” says Joe. “AI algorithms can analyse large data sets to identify anomalies that detect fraudulent activities and measure risks with greater accuracy than ever before.”
These technologies will also be increasingly used to enhance efficiencies, make decisions and improve customer service. “AI-powered chatbots and virtual assistants are getting better and better,” adds Joe. “The technology is also enabling more accurate and dynamic credit scoring by considering a much broader range of factors.”
3. Global growth to remain weak
In late 2023, the resilience of the global economy exceeded expectations, but challenges persist. China’s recovery was weaker than forecast, global core inflation is rising, and high public debt continues in many countries. These factors led the OECD to project lower global growth in 2024 compared with 2023.
“Looking at Australia, our GDP for 2023 was predicted to be 1.8%. For 2024, it’s forecast to be 1.3%. That’s a significant slowdown,” says Joe.
He adds that while previous interest rate rises are having a cumulative effect, he doesn’t believe those rates will come back down quickly in 2024. “As such, businesses of all sizes are going to be really conscious of their cash flow and the levers they can pull to become more streamlined.”
4. Increasing cybersecurity concerns
As the number and complexity of financial transactions online increases, so too do cybersecurity concerns. It’s estimated that cybercrime around the world is costing $8 trillion a year, and that figure will only rise. In the coming years, enhanced cybersecurity measures will be essential to ensure businesses can preserve their assets.
When combined with disruptive technologies such as AI and a shift to cloud-based systems, financial service providers will have to become more adaptable to protect their customers and offer the best services. Business leaders are being compelled to develop new strategies and explore innovation to counter challenges to security systems.
5. Innovative financial products are more readily available
While challenges are increasing, so too is innovation. The range of financial products available to businesses and consumers is growing, and as more businesses and consumers adopt digital solutions, new technologies and financial services have emerged.
“For example, a growing environmental awareness has increased the focus on sustainable financial products. So, there are now green bonds and sustainable investment funds,” says Joe. “Healthcare supply chain financing is an emerging area too.
“Another innovation is the tokenisation of assets, which involves converting real-world assets into digital tokens on a blockchain. This has led to the creation of tokenised securities and other asset-backed tokens.”
6. Banks are being forced to embrace change
Deloitte predicts that in 2024, the banking industry will face challenges from a slowing global economy, divergent economic conditions and disruption to their general business models. Traditional banks must adapt amid higher interest rates, stricter regulations, climate change and technological advancements. The shocks of 2023 have again forced the banking industry to change to better serve customers and manage risk.
“Traditional financial institutions have obviously been embracing tech for years, but it’s only in more recent times that it’s really pervaded certain products based upon business demand,” says Joe. “At Octet, we have fundamentally changed the way buyers and sellers engage with each other on one platform — both in a local and international trading context. Traditional banks are also starting to invest in robust platforms and adopt open banking requirements to collaborate with third-party providers.”
Joe says banks are increasingly being forced to improve their customer service and engagement to retain important business customers.
The future of finance
The disruptions experienced in the finance sector are unprecedented, but they’ve given rise to innovation and more choice for business customers. As we move into 2024, businesses can stay ahead of the curve by embracing the financing trends that will define their future. Partnering with an intelligent finance provider who is ahead of the current trends in finance is essential.
Our innovative working capital solutions help you unlock the power in your business to thrive. Need a cash flow injection without the need for personal asset security? Our Debtor Finance facility allows you to convert up to 85% of your unpaid invoices into immediately available funding.
If it’s a revolving line of credit you’re after, our Trade Finance facility offers up to 60 days interest-free and 120-day repayment terms to pay local and international suppliers.
Our Supply Chain Accelerate product is a highly innovative finance solution that frees up working capital by paying your supplier invoices immediately while giving you up to 90 days to repay.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
There’s no doubt global supply chains continue to face a multitude of challenges that demand innovative solutions. As we head into 2024, continuing disruptions caused by the COVID-19 pandemic, ongoing global tensions, inflationary pressures, supply uncertainty and environmental concerns are all forcing companies to re-evaluate their traditional supply chain models.
So, what are the future supply chain issues facing Australian businesses and their global trading partners? We explore the complex challenges confronting supply chains into 2024 and beyond, and touch on strategies to help organisations adapt and thrive.
6 global supply chain issues and trends in 2024
Many global issues have highlighted the vulnerabilities in supply chains over the past few years, says Octet’s Supply Chain Finance Manager, Joe Donnachie. So, what are the major supply chain challenges and trends as we move into 2024 and beyond? Here are our top six.
1. More circular supply chains
Manufacturers continue to move towards a circular supply chain model as we enter 2024. Gartner reports that in 2023, 20% of tech hardware vendors’ products were associated with circular initiatives. By 2030, that figure will increase to 80%. As businesses in various industries look to re-use and re-manufacture end-of-life products, vendors in the tech hardware industry will be particularly aware of mitigating the environmental impact of their products.
Every business has a different focus on creating a more sustainable supply chain. For some, it’s about making packaging more sustainable. Others will concentrate on the product and incorporate recycled materials into their manufacturing processes. While some businesses will repair, refurbish and recycle their goods to increase product lifetimes.
“Consumer demands have definitely changed,” says Joe. “While inflationary pressures mean most people have less cash to spend on disposable goods, there’s a lot more focus on where the goods come from and the sustainability of those end products.”
2. Ongoing skills shortages
Those in the distribution industry continue to experience talent shortages, affecting production and service delivery. Companies are having to employ technology to help workers access systems easily and securely, while automating routine tasks and creating a positive work culture to attract and retain employees.
As the skills shortage and increasing labour costs continue to affect output, margins are being reduced, and businesses will have to look to AI, digital transactions, robotics and automation to remain competitive.
Joe says an increase in automation and digital documentation requires workers along the supply chain to adapt and gain new skills to incorporate this new technology into their work routines.
3. Increased consumer pressures
While traditional supply chains were a relationship between a business and its suppliers, a recent, more active addition has complicated that relationship — the consumer. According to Forbes, thanks to digitisation, consumers are now more aware of how products are made, where they come from, and other options available to them. This new relationship adds further complexity to supply chain management, and that will only increase in the future.
“There’s a lot more pressure from the consumer,” says Joe. “They’re substantially more conscious of the source of products. I see it in items such as clothing, food and alcohol. For example, there’s now a big shift towards low- or non-alcoholic drinks, and that industry has just boomed over the last three years. All driven by consumer demand and using social media and other tech-driven forums to amplify word of mouth.”
4. Rising inflation and economic instability
The Reserve Bank’s efforts to ease inflation through numerous steady rate hikes have led to economic uncertainty for consumers and a reduction in spending, which will no doubt continue into 2024. Adapting to a changing economy is vital for businesses to stay competitive in the years ahead. All businesses will need to be flexible and prepared to change their services, products and marketing plans to meet consumer demand.
It’s a pressure felt around the globe as other central banks’ efforts to tame inflation continue to dampen economic growth. The IMF reports the factors that could potentially hinder economic growth in the future include the risk of inflation staying high or rising further, the chance of further extreme weather events, China’s economic recovery slowing and an escalation in the Ukraine war, which could lead to even more restrictive economic policies.
The global financial pressures causing supply chain disruptions will not likely ease in 2024, particularly when we consider the current Israel/Palestine conflict in the Middle East.
5. Ongoing supplies shortages
From minerals to medicine, building supplies and grocery staples — supplies of materials around the world failed to meet consumer demand during COVID-19 and in the years that followed.
While the semiconductor supply to the automotive industry is finally improving, chip shortages could still affect manufacturers in 2024 as demand outstrips supply.
Closer to home, medicine shortages are still affecting Australians. The TGA reports that hundreds of medications are in ‘short supply’, with the nation’s pharmacists forced to offer substitutes to their customers.
6. Easing of shipping pressures
Shipping delays, bottlenecks, container shortages and Russia’s war on Ukraine have heavily affected shipping in the past few years, but the outlook is more positive for 2024. International Cargo Express predicts the industry will return to normal in 2024 with new capacity coming into the market, while carriers will balance their supply with new procedures, and ships will become more reliable. There will also be a steadying of freight rates.
DHL predicts a steadying of rates later in 2024, and reports that as new containers enter the market, the industry will enjoy more capacity and an improvement in the reliability of schedules.
Allianz reports the world’s container fleet grew by 6.3% in 2023 and will continue to grow by 8.1% in 2024. Considering congestion at ports is also easing, supply will likely rise.
How to overcome supply chain challenges
As we head into 2024, geopolitical uncertainty, economic pressures and ESG demands are forcing a rethink of conventional supply chain models, which will need to better balance sustainability, speed, responsiveness and cost. So what can businesses do to alleviate supply chain issues, protect their supplier relationships and ensure longevity?
Diversification
Relying on limited suppliers left businesses vulnerable in the years during and after COVID-19. “A solution is to diversify that risk to multiple supply chain sources, and that’s what has really happened over the last few years,” Joe says.
Diversifying a business’ supply base is, in theory, a great idea, but Joe warns it’s not as simple as it sounds. “It comes back to how dependent businesses are on a particular product or component coming into the country and whether or not they have the ability to, say, start setting up a workforce in another country, which obviously has its own tax implications and regulations. What is the competition in that area as well? These factors make it very challenging, but necessary, to diversify your supply chain.”
Analytics
All businesses should be looking to implement a digital supply chain that takes advantage of analytics and uses consumer data to inform decision-making. By aligning supply with real-time demand, businesses can ensure more products are delivered on time while offering exceptional customer service and minimising costs, such as warehousing and storage.
AI and Robotics
Forecasting has always played a role in supply chain management, as it enables businesses to plan for increases in demand, supply shortages and unforeseen events. Now, AI is allowing predictions to be made from massive amounts of data faster and more accurately than ever before. The pandemic showed just how important it is to plan for unexpected circumstances. AI has the potential to become an essential risk management tool.
As the world’s businesses continue to grapple with worker shortages and inflation, they are turning to automation and robotics. Prices of robotics are dropping, and when coupled with AI, can become a powerful and viable business tool.
Other technologies
New technologies are being embraced along the supply chain. 3D printing is allowing businesses to print parts or whole products and reduce reliance on overseas suppliers or vulnerable supply chains. Blockchain solutions are also providing increased accountability and responsiveness along complicated networks. Blockchain technology could centralise and streamline processes in an industry such as shipping, which requires considerable documentation and complex procedures.
Maximise your supply chain performance with Octet
Octet’s supply chain finance solutions power your business to thrive, no matter what supply chain issues you’re facing. With our secure supply chain platform, you can use your credit or debit cards to ride fluctuations in commodity prices and exchange rates and make cross-border payments easily.
With ourDebtor Finance facility, you can access up to 85% of your unpaid invoices to boost cash flow in your business and capitalise on opportunities. Need to increase your purchasing power? OurTrade Finance facility is a convenient line of credit that allows you to pay both local and global suppliers with up to 60 days interest-free and 120-day repayment terms. Contact our team of working capital specialists to discover how Octet can help accelerate your cash flow and improve supply chain dynamics today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
With the breaking of the three-year east-coast drought in 2020, many agricultural regions shifted from poor to good conditions in a single season – and years of record-breaking production have followed.
However, the challenges and uncertainties for agribusinesses remain, and climate variability isn’t the only thing Australian primary producers, and the businesses that support them, need to manage. In this volatile and unpredictable environment, the right agricultural finance is vital for agribusinesses to manage the numerous challenges and thrive.
Here, we examine the key obstacles facing Australian agriculture and explore the agriculture finance options that can best support agribusinesses into the years ahead.
Agribusiness finance: the unique needs of Australian agribusinesses
It’s an extraordinarily diverse industry that plays an important role in the broader Australian economy – and those operating in the sector face a unique set of challenges.
Agriculture is an inherently seasonal industry. It’s also vulnerable to risks ranging from the weather to supply chain disruptions and natural disasters. There can be high upfront and ongoing costs for insurance and maintenance, as well as long investment cycles.
We spoke with Octet’s Supply Chain Finance Manager, Joe Donnachie, to gain a deeper understanding of the key agriculture industry challenges.
Joe describes the challenges as “incredibly complex and multifaceted. Australia has recently gone from fires to floods and back again. We’ve had population change, volatile food prices and record price peaks. Then you’ve also got shifting dietary demands, which plays directly into the agri space.”
Something that has also significantly impacted agribusinesses in recent times is staffing issues. “Australia’s closed borders during COVID meant that the regular stream of backpackers couldn’t emigrate, and particularly in the Northern Territory and Far North Queensland, they simply didn’t have enough workers to properly staff farming operations.”
In addition, farm loan interest rates in Australia have obviously been rising, and inflationary pressures and tariffs have been wreaking havoc.
“In 2020, China imposed tariffs on Australian barley and a range of other agricultural commodities,” Joe says. “That alone wiped out around $1.2 billion worth of trade a year. In August 2023, the barley tariff was lifted. However, wine, seafood and red meat are all still subject to those restrictions.”
An intelligent supply chain finance partner can add some certainty to the equation in these highly variable and volatile conditions. “It can give a degree of certainty for an agribusiness when it comes to managing cash flow. A tailored working capital facility can assist with the uncertainty and ensure there is sufficient funding to tackle cash flow issues and take advantage of growth opportunities when they arise,” Joe explains.
Agriculture loans: the limitations of traditional finance
Banks were traditionally the first consideration for agribusiness lending, with an overdraft providing a general line of credit.
Traditional bank lending can come with several limitations, however, including:
Speed: Banks often have slow loan approval processes, meaning you could miss out on time-sensitive business opportunities due to delayed funding.
Restrictions: Traditional bank loans can come with restrictive covenants and fixed limits on funding. These limitations might not align with the dynamic nature of your business, especially in a rapidly changing sector like agribusiness.
Security: Banks typically require specific forms of collateral, which might not fit well with the unique structure of your business. This can be particularly relevant for agribusinesses with complex ownership arrangements.
Technology: Many traditional banks lack user-friendly and streamlined digital platforms for financial interactions. In contrast, non-bank lenders often provide innovative technology solutions that better suit a business’ supply chain needs.
Joe also explains that the challenges most agribusinesses face “make consistent profits year in year out unlikely, and annual profits difficult to forecast”. This can then act as a barrier when applying for traditional bank finance.
Better finance solutions for agribusinesses
These days, innovative finance products and non-bank lenders are available to help agribusinesses both survive and thrive. Octet provides a range of working capital solutions to power Australian agribusinesses, including:
Trade Finance: This solution is a great way to bolster your business’ purchasing power, with a revolving line of credit, allowing up to 60 days interest free and 120-day repayment terms.
Debtor Finance: This facility enables you to access unpaid business invoices as an immediate cash injection quickly and efficiently. Octet can help you convert up to 85% of invoices to immediately boost cash flow.
OctetPay: This allows you to use your credit or debit cards to pay any supplier invoice to an extensive list of countries and currencies. Access market-leading FX rates, Octet’s supply chain technology, plus standard credit card rewards points with this intelligent solution.
When exploring an agriculture finance solution, Joe recommends simply choosing a product that best suits your business. “Don’t be pigeonholed into one product if it’s not suitable – especially where a lender has only one type of facility available. Understand the working capital requirements and the total cost of the facility. Make sure that when it boils down to marginal cash flow, that the facility works for you, and is commercially viable.”
Case study: Trade Finance solutions for a grain trader
One of Octet’s loyal clients, a prominent grain trader, had the opportunity to procure substantially more stock. The business had existing bank loans, however, to obtain another line of credit to purchase the additional grain, their bank would take about six months to provide an answer. Given the cyclical nature of the business, that just didn’t work.
So they discovered Octet, who, in a matter of weeks, provided a $2 million Trade Finance line of credit that didn’t impede upon the client’s existing bank facility. The business used the funds to efficiently pay their grain suppliers and local transport companies that moved the grain.
Weather the storms and make hay with Octet while the sun shines
Your agribusiness needs a strong and flexible finance partner to grow and flourish. Explore Octet’s range of working capital solutions to find the right product for your fast-growing operation. Contact our team of supply chain finance specialists today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
After a simple summary of the 2023-24 Budget handed down by the Federal Government, and what it means for you and your business?
We’ve got you covered, as Treasurer Jim Chalmers has presented the Labor Government’s first full year budget, outlining a range of key measures.
The announcements focused on easing the cost of living over the coming years, addressing the challenges of a slowing economy, and bolstering the healthcare system.
Treasurer Chalmers highlighted a few key economic forecasts, including
GDP – Real GDP growth is expected to be at 1.5 per cent in 2023-24, before rising to 2.25 per cent in 2024-25
Falling Inflation – Government predicts inflation has peaked and is starting to moderate. Inflation is projected to fall to 3.25 per cent by 2023-24 and will return to the Reserve Bank’s target band of 2-3% by 2024-25
Cost of Living – The first initiative is targeted at reducing energy bills for eligible Australian households. The second initiative announced was the establishment of the Household Energy Upgrades Fund to support home upgrades that improve energy performance and save energy.
The Labor government surprisingly announced a surplus for the 2022-23 financial year of $4.2 billion, which represents significant turnaround from the projected $36.9 billion deficit forecast in the October 2022 Budget. There is an expected deficit of $13.9 billion in 2023-24.
What did the budget deliver for small businesses?
A $20,000 instant asset write-off for small businesses with annual turnover below $10 million will be in place from 1 July 2023 to 2024.
A new Small Business Energy Incentive will also be introduced, providing businesses with turnover less than $50 million with a bonus 20% tax deduction for eligible depreciating assets up to $100,000 for energy saving upgrades.
The Budget will also provide $23.4 million to support small businesses to build resilience to cyber threats.
Support to help SMEs compete for tenders and improve SME awareness of federal government contracts
Cash flow support by halving the GDP adjustment factor to 6 per cent (applied to PAYG and GST instalments).
Accelerated cash flow of utmost importance
In these still turbulent economic conditions it is critical for a business to be on top of its finances. Having a strong working capital base to not only take advantage of opportunities in peak seasons, but also ride out the slower periods, will often be your biggest competitive advantage. Want to understand what the best working capital solutions are to help accelerate your business growth? Contact our team of finance specialists today.
Over the past few years, the food and beverage industry in Australia has faced a series of events that seem to be growing in intensity. The global pandemic created supply chain challenges and skills shortages, while political tensions and social unrest continue to send shockwaves across global markets. The growing urgency of the climate crisis is also putting pressure on consumers and manufacturers to act now to create a sustainable future for their businesses and the world.
Although it’s been hit hard, the food and beverage industry has remained resilient. According to an October 2022 report, the global industry grew by 8.7% from 2021 to 2022, and this growth is set to continue. Whilst the Australian Food and Grocery Council reports that the local industry has the potential to become a $250 billion powerhouse by 2030 — double its current size.
However, for your business to claim its share of the pie, you need to clearly understand the specific challenges and opportunities that exist in the industry today.
Let’s explore the most significant trends in the food and beverage industry and uncover how you can overcome these challenges to harness current and future opportunities.
10 trends that will shape the future of the food and beverage industry in 2023 and beyond
Supply chain challenges to continue
Supply chain disruptions will continue to be one of the most significant challenges in the food and beverage industry in 2023. Although the days of domestic lockdowns are gone, disruptions to the global supply chainremain, with Toll Group Managing Director, Thomas Knudsen revealing that supply chain issues are likely to persist in 2023.
The Russia-Ukraine conflict has greatly impacted supply chains, with economic sanctions, undersupply of products and a surge in commodity prices affecting the food and beverage industry worldwide.
Congestion and backlogs in ports around the world are also causing delays in supplying key ingredients. This has forced many food and beverage organisations to develop workarounds, such as formulating alternative recipes to continue production without key ingredients. They are also adopting circular supply chain models and embracing technological innovations, such as AI to streamline processes and gain more control of their supply chain.
Fruit and vegetables have experienced the biggest price increase, with data from Deakin University suggesting that fresh produce has risen 6.7% in just over 12 months. This is being driven by a number of local and global factors, including flooding, supply chain issues and rising fuel and transportation costs.
This inflation will have varying impacts across the food and beverage industry. While it’s good news for large supermarket players, others in the industry may well feel the price squeeze.
And given the integral role of food and beverage products in the hospitality industry, rising food inflation is a critical factor to keep an eye on. For example, restaurants typically increase their menu prices when ingredient costs rise, but if wage inflation doesn’t keep pace, price increases may dampen consumer demand.
Staff shortages set to linger
Staff shortages are another pressing challenge in the food and beverage industry today. According to the latest ABS Business Conditions and Sentiments report, accommodation and food services businesses were the most likely to report difficulty — 51% of businesses stated they were struggling to find suitable staff to fill jobs.
Low unemployment rates and a continued shortage of international workers has meant a critical undersupply of staff, forcing some businesses to reduce hours due to a lack of workers.
What was an emerging issue in the hospitality industry back in 2020, is still one of the current trends in the food service industry in 2023. And, as per warnings from KPMG, it may remain a concern for the next three to five years.
Conscious consumers to drive growth
Rising consumer concerns about environmental issues and sustainability are also forecast to drive food and beverage industry growth.
Consumers are making efforts to choose seasonal and local produce and reduce carbon emissions, making small and independent businesses more attractive options.
Packaging is another area that’s coming under increased scrutiny, and the food and beverage industry is taking action on this trend. A recent McKinsey global survey of packaging purchasers across industries reported that 75% of organisations have already made clear sustainable-packaging commitments.
Uptake of digitalisation and automation to increase
Creating efficiencies and cost-cutting while maintaining quality is one of the many challenges in food industry finance. In 2023, organisations will be looking to digital and automation technologies to solve some of these challenges, from digital expiration date labels, sensors that gather data on machine performance and analytics that assess shelf life and product traceability.
Technology in the food and beverage industry has come a long way. For example, e-commerce in the food and beverage industry has proliferated to match consumer preferences for online shopping. But the Australian Food and Grocery Council has warned that significant tech development investment in local food manufacturing is required or the industry risks losing ground to imports.
Growth of meal prep kits and food boxes that offer consumers convenience
Meal prep kits are one of the big success stories in the food and beverage industry in recent years, with pandemic lockdowns kickstarting their popularity.
In 2023, amid rising food costs, an increased focus on nutrition and more awareness of the value of reducing waste, meal kits are set to become one of the biggest growth areas in the food and beverage industry.
According to Future Market Insights, the meal kit delivery services market is expected to grow 15% over the next decade to represent a US$59.2 billion sector.
Healthier consumer food preferences to trend upwards
Health concerns are on the rise and people are becoming increasingly focused on what they eat. In a recent Deloitte survey, 93% of consumers said they wanted to eat healthily at least some of the time.
And with consumers becoming more aware of the link between food and overall health, they’re changing their shopping habits accordingly. This means a shift towards fresher produce, less meat and reduced sugar.
Companies can take advantage of this trend, by offering healthier products or adapting existing products for certain diets (such as gluten-free or vegetarian).
Demand for non-alcoholic drinks to keep rising
In line with an increased consumer focus on health, non-alcoholic drink sales have skyrocketed in recent years.
According to the International Wines and Spirits Record, the no- and low-alcohol beverages market has reached US$10 billion and is set to grow by 8% to 2025. This is compared to only 0.7% growth of regular alcohol volume during the same period.
Increased awareness of the value of a balanced lifestyle has fuelled this growth, with millennials and higher-income earners the biggest spenders in this category.
Demand for plant-based and alternative proteins to grow
Plant-based ‘meat’ is set to become one of the biggest growth areas in the food industry in 2023. Already accounting for $150 million in consumer spending, it’s projected to contribute almost $3 billion in domestic sales by 2030.
According to Food Innovation Australia Limited (FIAL), this potential growth represents $5 billion in value-added opportunities and 6,000 new jobs in the sector over the next decade. There are countless opportunities for manufacturers that embrace alternative proteins such as seaweed, nuts and seeds and edible insects.
Payment delays and insolvencies to increase
Rising inflation, increased transport costs, supply chain issues and global uncertainty are putting financial pressure on many organisations in the food and beverage industry. These factors could lead to an increase in industry payment delays and insolvencies in 2023.
Insurance company Allianz predicts an acceleration in business insolvencies globally, and the food and beverage industry has been pinpointed by some as one of the sectors with the highest probability of payment default in 2022-2023.
How to harness opportunities to grow your food and beverage business
Some of these trends need to be overcome and others harnessed. Regardless, these are the tangible actions you can take to help grow and protect your food and beverage business.
Investing in digitalisation and automation technologies
For those in the food and beverage industry, technology is one of the most powerful ways to gain a competitive advantage. For example, automation and robotics can help improve productivity, particularly for food manufacturing businesses. Sensors and predictive analytics can improve competitiveness by reducing water and energy consumption, as well as minimising equipment downtime. Meanwhile, artificial intelligence and virtual reality can also speed up the product development process within the food industry. E-commerce digital infrastructure allows businesses to better meet the growing consumer preference for online shopping. Online wine retailer Vinomofo is a successful e-commerce business example to take note of.
Adapting products to meet changing consumer preferences
Growth opportunities exist for food and beverage businesses to adapt or introduce non-alcoholic drinks or other products, focusing on health, sustainability and plant-based/alternative proteins, all while promoting convenience.
Sustainable packaging should also be considered. It’s a commitment that Mars Wrigley Australia has made. The creator of Snickers and Milky Way has a goal of transitioning its products to 100% recyclable paper-based packaging by 2025. To do so the company will not only redesign its packaging, but also support recycling infrastructure and educate consumers.
Undertaking robust business continuity planning
Global economic uncertainty is one of the most significant challenges facing the food and beverage industry today. To help prepare for future market uncertainty, Food Innovation Australia Limited (FIAL) suggests that food and beverage businesses rethink their business continuity planning, including cash and liquidity planning.
Unlock your business potential with Octet
At Octet, we can help you capitalise on these industry opportunities with our intelligent working capital solutions. Designed for the unique requirements of the food and beverage industry, our smart, fast and flexible finance solutions give you the power to leverage opportunities as they arise.
We’ll work with you to unlock your business potential by:
Strengthening your cash flow. Our Debtor Finance solution lets you access up to 85% of the funds from your unpaid invoices within 24 hours. That means you get cash when you need it most to help your business withstand the payment delays forecast to impact the industry in 2023. The result is increased cash flow, more liquidity and — ultimately — less risk for the entire supply chain. For beverage company Saintly, this facility allowed it to grow the brand while alleviating the pressure of cash flow fluctuations.
Helping you ride out pricing and exchange rate fluctuations. Our secure supply chain platform helps to manage the peaks and troughs of commodity-price and exchange-rate fluctuations. It allows you to make cross-border payments with your existing debit/credit cards, bank accounts and Octet finance solutions.
Giving you the flexibility to adapt. Meeting changing consumer preferences requires flexibility. Having cash flow available in line with your invoiced sales lets you evolve your product offerings or invest in food-and-beverage-industry-specific technology without going into uncharted financial territory. With our Trade Finance facility, you’ll have access to a convenient, revolving line of credit (with up to 60 days interest free and 120-day repayment terms) so you can seize opportunities as they arise.
Improving business efficiency. Our working capital solution, Supply Chain Accelerate, allows more sophisticated businesses to access an unsecured, off-balance sheet source of funding, settling 100% of your supplier invoices upfront, while you can repay 30, 60 or 90 days later.
Reinforcing your supply chain. By using Trade Finance as an intelligent procurement tool, you’re also able to take advantage of any available early payment discounts with both local and overseas suppliers. This might allow you to buy extra stock or take advantage of bulk purchases to attain discounts. In turn, this can help you to reduce the potential supply chain disruptions that are forecast to impact the industry in 2023.
Powering the food and beverage industry
Octet provides solutions for all of your supply chain business finance requirements in one central location. We can help you better manage your cash flow, grow your business and leverage both global and local opportunities.
Get in touch today to discover which options will best suit your business.
The Australian pharmaceutical industry has certainly had its challenges in the past year. The ongoing effects of the global pandemic have continued to put pressure on the industry, while rising inflation, geopolitical instability and a shift in workforce behaviours have added to the already burdened sector.
Amid this growing list of challenges, pharmaceutical companies are looking for ways to build business resilience so they can continue to develop lifesaving solutions for patients both locally and around the world.
As we kickstart 2023, let’s take a look at the biggest challenges in the Australian pharmaceutical industry.
Adding to this challenge is the shift in the way we work. The rise of remote working has caused a spike in employee expectations, with more people opting for organisations that offer flexible working arrangements, hybrid set-ups and remote opportunities.
Organisations are increasingly looking for ways to attract and retain skilled talent and are focusing on reskilling, upskilling and automation to solve one of the biggest challenges facing the pharmaceutical industry today.
Challenge 2 — Clinical trials playing catch up
For pharmaceutical companies running clinical trials for anything other than COVID-19 vaccines, the pandemic caused huge interruptions. And although the primary effects of the pandemic are receding, we’re still feeling the impact as we move into 2023.
Because new drug approvals depend on successful trials, this has meant the loss of a staggering amount of research, drug development and funding. As a result, both the industry and those who fund it have suffered financially, and many are still playing catch-up in their trial programs.
Companies in the pharmaceutical industry are now looking to technologies such as AI and virtual platforms to either restart or recreate trials with less face-to-face interaction. However, this new technology comes at a cost — significantly lowering or even erasing profit margins.
Challenge 3 — Supply chain disruptions
Although the pharmaceutical industry has historically been protected from supply chain disruptions because of high inventory levels, there have been widespread supply chain pressures across almost every sector, particularly over the past year.
ABS data from June 2022 shows that more than two in five businesses (41%) have faced supply chain disruptions, and the Australian pharmaceutical industry was no exception.
There continues to be a strong reliance on raw materials from abroad, with pharmaceutical companies relying heavily on imports from China while also looking to India for generic drug production.
According to the US Food and Drug Administration’s Center for Drug Evaluation and Research, China and India combined account for 31% of FDA-registered facilities around the globe. This heavily dependent supply chain continues to be one of the major challenges facing the pharmaceutical industry, with the drug shortages that peaked during the pandemic being more than likely to continue into 2023.
Many pharma companies are looking to supply chain innovations and circular supply chain models to tackle these challenges and build business resilience. Examples include establishing robust supply chain relationships and networks to better take advantage of market demand and moving to dual or multi-sourcing models backed by intelligent supply chain technology.
Challenge 4 — Cultural focus on prevention, rather than treatment
For humans in general, the cultural shift towards preventing rather than curing many diseases is great news. However, for the pharmaceutical industry, it means a serious drop in funding — both government and otherwise.
As new developments in ‘lifestyle cures’ such as elimination diets, improved sleeping conditions and increasing physical activity become commonplace, consumers are moving away from medication as the primary treatment for disease. With this trend comes lower medication turnover and more roadblocks to securing desperately needed funding.
Challenge 5 — Developing new cures for presently incurable diseases
Identifying cures for presently incurable diseases, such as cancer, Alzheimer’s and epilepsy, is a challenge that the pharmaceutical industry has always faced. Quick solutions are rare, and research and development is a long game.
Here in Australia, the Albanese Government is boosting stem cell research by offering $25 million in grants. This is part of a $150 million commitment over nine years, showing just how big a drive is needed in this area.
But developing new and innovative treatments requires continual and substantial investment. Without it, the goal of discovering cures that work well enough to earn strict regulatory approvals will be difficult to achieve.
Power your business growth with Octet
Although these challenges vary significantly in their origins, the solution to them is often to strengthen business cash flow. Exploring healthcare finance solutions could make a difference in addressing and overcoming all of these hurdles. Access to strong, diverse and reliable sources of cash flow can be a make or break for pharmaceutical companies.
Octet has a range of solutions to help your pharmaceutical business meet the current challenges and grow in 2023 and beyond. That way you can remain focused on serving your customers, not worrying about cash flow. These solutions include:
Our Trade Finance facility, a flexible line of credit that you can use to pay your suppliers earlier at home and around the world, with up to 60 days interest free and 120-day repayment terms
Debtor Finance, which allows you to convert up to 85% of your unpaid invoices into funding within 24 hours
Supply Chain Accelerate, an unsecured, off balance sheet source of funding, which settles 100% of your supplier invoices upfront, while you can repay 30, 60 or 90 days later
Our team of working capital specialists has helped business owners around the country overcome financial challenges, explore new avenues for success and achieve sustainable business growth. Talk to us today about which finance solution is right for your fast-growing pharmaceutical company.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as at the date of publication and are subject to change without notice.
The International Monetary Fund (IMF) recently downgraded its 2022 global growth forecast to 3.6%. This was largely in response to Russia’s invasion of Ukraine.
But despite the latest global economic challenges, the IMF forecast an 8.2% economic growth rate for India this year. Compare that to the following growth rate projections for:
China at 4.4%
the United States at 3.7%
advanced European economies at 2.8%
It’s no wonder that world leaders have been trying to beat a path to India’s door. And the good news is that Australia got there first.
The two countries signed an interim India-Australia trade agreement on 02 April 2022, with it enterted into force on 29 December, 2022.
Known as the India-Australia Economic Cooperation and Trade Agreement (IA-ECTA), its aims include:
making Australian exports to India cheaper
opening up new import opportunities
creating a slew of new job prospects for Australian businesses
To help your company take advantage of the potential opportunities, we’ve created a guide to the Australia free trade agreement with India. It covers everything from background on the historic trade agreement to what the deal could mean for critical Australian industries.
Understanding Australia-India trade relations
According to the Department of Foreign Affairs and Trade (DFAT), two-way trade in goods and services between Australia and India grew “in value from $13.6 billion in 2007 to $24.3 billion in 2020.”
Additionally, in 2020, India was Australia’s:
seventh-largest trading partner
sixth-largest goods and services export market, valued at $16.9 billion
third-largest market for services exports
As background, India is the world’s largest democracy and has a population of 1.3 billion people.
Over the past decade, India has also experienced significant economic growth, emerging as an influential global player. In terms of purchasing power parity, it has become the world’s third-largest economy.
As stated by DFAT, “India is an attractive market for Australian exporters due to:
a fast-growing and increasingly affluent consumer market
a transforming economy that offers fast-growing opportunities for Australian businesses
an appetite for Australia’s premium products and services.”
Given the opportunities it creates and the fact that negotiations on a trade deal like this originally started in 2011, calling the agreement ‘historic’ is not an overstatement. Just over a decade ago, the two countries started negotiations for a Comprehensive Economic Cooperation Agreement (CECA). However, despite negotiations undergoing nine rounds, an agreement never eventuated. So both countries agreed to suspend negotiations in 2015. Then, in June 2020, the two countries formally re-launched CECA negotiations, leading to the recent signing of the interim IA-ECTA in June 22. This Agreement is in force from 29 December, 2022. Looking ahead, both countries are expected to continue working towards a full Comprehensive Economic Cooperation Agreement.
Business impacts of the India-Australia free trade agreement
The IA-ECTA eliminates tariffs on over 85% of Australian goods exported to India. This figure will then rise to almost 91% of tariffs over ten years. DFAT estimates that this will be “commercially significant for up to $14.8 billion worth of Australian merchandise trade destined for the Indian market each year.”
In return, the Australia-India trade agreement will allow around 96% of Indian imports to enter Australia duty-free. The IA-ECTA will also have additional benefits for specific Australian industries. Let’s take a look at some of these for each relevant industry.
Agriculture
Overall, Australia’s agricultural industry will win big from the IA-ECTA. However, the agreement doesn’t include some trade-sensitive goods for India, such as beef, dairy, chickpeas and wheat.
The IA-ECTA exclusions for beef and dairy are unlike the China-Australia Free Trade Agreement (ChAFTA) goods provisions, which we explored in our recent article on importing from China. However, despite ChAFTA, China introduced trade restrictions in 2020 on Australian exports of:
beef
lobster
cotton
coal
copper
timber
China also introduced significant tariffs on Australian wine and barley.
While our country’s trade with China heads into unknown territory, the IA-ECTA provides plenty of opportunities for Australian businesses.
According to an Australian Government media release, key IA-ECTA benefits for the agricultural and food industries include:
Current sheep meat tariffs of 30%: immediately eliminated, providing a boost for Australian exports that already command nearly 20% of India’s market.
Current wool tariffs of 2.5%: immediately eliminated, “supporting Australia’s second-largest market for wool products”.
Current tariffs of 150% on wine with a minimum import price of US$5 per bottle (based on Indian wholesale price index for wine): immediately reduced to 100%, and subsequently reduced to 50% over ten years.
Current tariffs of 150% on wine bottles with a minimum import price of US$15 (based on Indian wholesale price index for wine): immediately reduced to 75%, and subsequently reduced to 25% over ten years.
Current tariffs of up to 30% on avocados, onions, broad beans, kidney beans, adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries and currants: eliminated over seven years.
Current tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries: reduced, “improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.”
In addition, DFAT states that the following preferential tariffs will apply:
Seafood: immediate elimination of tariffs for fresh rock lobster, and elimination over seven years for other fresh, frozen and processed seafood products.
Infant formula: elimination of tariffs over seven years.
Barley, oats and lentils: locked-in duty-free entry for barley and oats, and immediate 50% reduction for in-quota exports of lentils.
Materials
The mining and resources sector will also enjoy significant benefits from the IA-ECTA including:
Coal, alumina and metallic ores, including manganese, copper and nickel: tariffs immediately eliminated.
Critical minerals, including titanium and zirconium: tariffs immediately eliminated.
LNG tariffs: immediately bound at 0%.
Given that India is Australia’s fifth-largest energy and resources market, tariff eliminations are particularly relevant.
According to global law firm, Norton Rose Fullbright, “the growing importance of India to global manufacturing means that Australia’s critical minerals and resources sector can expect greater certainty in the export of minerals required to produce mobile phones and monitors.”
Additionally, Australia is in a favourable position to supply India with critical minerals to power clean energy. These include the minerals required to manufacture solar panels and electric cars.
Pharmaceutical and Healthcare
The agreement is also good news for the pharma and healthcare industries: eliminating tariffs on pharmaceutical products and certain medical devices over five and seven years.
And the IA-ECTA benefits Australian service suppliers too, including business services (medical and dental) and hospital sectors. Specifically, it states that these suppliers will “receive the best treatment accorded by India to any future free trade agreement partner.”
Meanwhile, for pharmaceutical imports to Australia, the IA-ECTA includes provisions stating that the therapeutic goods regulators of each country must work together to facilitate trade.
According to a recent Australian Financial Review article, this means that:
“Australia has agreed to recognise approvals gained by Indian products in major markets, including the European Union, the UK, and the United States, and to speed up the assessment of manufacturing facilities in a similar way.”
Construction and Engineering
The IA-ECTA guarantees that Australian construction and engineering service suppliers will “receive the best treatment accorded by India to any future free trade agreement partner.”
In other words, the agreement will help Australian-based businesses that need employees skilled in science, technology, engineering, maths (STEM) or information technology (ICT).
Under the deal, DFAT also states that Australia will extend access time in the country for former Indian students after completing a:
diploma or trade qualification (up to 18 months)
bachelor’s degree (up to two years)
master’s degree (up to three years) or doctoral degree (up to four years)
An additional year (increasing from two to three years) will be available for Indian students who graduate with bachelor’s degrees in STEM and ICT with First Class Honors.
Finally, the IA-ECTA also sets the foundations for each country to negotiate potential mutual recognition between professional services bodies of:
qualifications
licensing
registration procedures
DFAT states, “Australian professionals such as architects, engineers and accountants will benefit as this framework will help improve the recognition of professional qualifications, and promote two-way mobility.”
Retail and Wholesale
According to DFAT, “India will provide market access for single-brand retailing and franchising, as well as commitments regarding wholesale distribution services.
Australian internet services businesses in India will also have more opportunities to expand their portfolio with a foreign equity limit of 74% for commercial presence.”
Finally, several Indian exports into Australia will have duty-free status, with the following being most relevant to the retail and wholesale industries:
pharmaceutical
clothing
textiles
footwear
leather
gems
engineering goods
How Octet can help to power business growth into Indian markets
The Australian Government’s goals for the IA-ECTA are to make India:
one of the country’s top three export markets by 2035
the third-largest destination in Asia for outward Australian investment
With all the potential on offer for Australian exporters, you might be considering ways to successfully enter the Indian market or expand your company’s existing trade in the country.
Octet can help with both goals. Here’s how.
Boost your cash flow confidence
If you’re looking to enter the Indian market, it’s vital to ensure that your local Australian operation has enough cash flow sustainability to support international growth.
Our Debtor Finance solution lets you leverage your unpaid invoices to get the revenue from your sales faster. You can use it to access up to 85% of your accounts receivable value within 24 hours. And as your business grows, so too does your available cash flow.
Similarly, our Debtor Finance solution can help to fund business growth for exporters who want to expand their presence in the Indian market. This ensures your receive payments from your local buyers within 24 hours – on time, every time. You can then use that money to invest in strategies to grow your market share in India, such as:
developing a new marketing plan to appeal to new buyers
increasing business development activities to build relationships with those buyers
acquiring talent, technology or competitors to increase your competitive advantage
You could also consider our Trade Finance solution, which gives you a convenient line of credit for your business. This innovative solution essentially allows you to:
set your own trading terms, with up to 60 days interest-free and 120-day repayment terms
negotiate early payment discounts with both local and international suppliers
receive your imported goods earlier, and therefore commence the local sales process faster than competitors
Essentially, our Trade Finance solution unlocks working capital. This is essential because the longer the period between your supplier receiving payment and actually shipping the goods, the longer your working capital stays tied up in the transaction.
Simplify your overseas trades
Keeping on top of the steps in your supply chain, from initial enquiry all the way through to product or service delivery, can be a challenge. That doesn’t even factor in coordinating communication between multiple stakeholders.
Thankfully, our intelligent supply chain platform connects every step and stakeholder in a central location to simplify exporting to India.
The platform’s multilingual capabilities let you easily communicate with international partners in their own language. As a result, you’ll save time and eliminate errors.
Plus, we verify all platform members through comprehensive security processes that include:
Anti-Money Laundering (AML)
Know Your Customer (KYC)
Counter-Terrorist Financing (CTF)
Economic Trade Sanctions (ETS).
As a result, you can have complete confidence that your transactions are safe and secure.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
The past few years have presented the Australian food and beverage industry with exceptional and unforeseeable challenges.
While demand for essential food and beverages will always exist, many businesses in the industry are experiencing significant challenges, primarily due to:
changing customer needs
supply chain disruptions
currency fluctuations
climate change
cost-of-living pressures
skills shortages
Now, more than ever, managing finances in the food industry is crucial to staying profitable and building a resilient business. Let’s take an in-depth look at the challenges facing the food and beverage industry and how businesses in the sector can best manage their risk.
The importance of Australia’s food and beverage industry
The food and beverage sector is Australia’s largest manufacturing industry, accounting for 32% of the country’s total manufacturing turnover. According to the Australian Food and Grocery Council’s 2021 State of the Industry report, the food and beverage, grocery and fresh produce sector is worth $132 billion and employs more than 270,800 people.
And perhaps most importantly, it’s the heart of regional Australia, with 40% of these employees living in regional and rural communities.
Together, these businesses supply a diverse range of products, including:
meat
grains
dairy
fruits
vegetables
seafood
confectionery
beverages (including wine)
And they cover all distribution channels, from retail to food service and food ingredients.
Food and beverage industry challenges
Strong financial performance in the food and beverage industry is vital to the Australian economy, now more than ever.
Some businesses are booming in the current climate, while others’ creativity and ability to adapt amid constant change has kept them going. Regardless of the status of each individual business or their finances, the food and beverage industry as a whole will face five unique challenges in 2023.
Challenge 1: Unpredictable customer patterns
Rising interest rates and cost-of-living pressures will continue to create unpredictable customer spending patterns in 2023. McKinsey found that price sensitivity has continued to grow during 2022, particularly among consumers from lower income brackets. This cohort is looking to save money on food and beverages where they can — even more so than during the pandemic.
This is driven by cost-of-living pressures due to rising inflation, which has reduced incomes and available cash for the weekly grocery shop. Switching to cheaper brands, favouring value retailers (such as Aldi) and seeking out better deals and promotions are ways that consumers might be looking to save money.
Challenge 2: Disrupted supply chains
Disrupted supply chains are currently one of the biggest challenges in the food and beverage industry. Business is also facing pressure to adopt circular supply-chain models. Internationally sourced ingredients and packaging supplies are taking longer than average to arrive, with the ongoing economic unrest causing global supply chain disruptions.
Transport costs have also skyrocketed, and this is putting increased financial pressure on the food industry — both for international and domestically sourced items. For example, Klaus Pamminger, chief operating officer at GrainCorp, said in a recent interview that transport costs have almost tripled in the last two years.
Finding quick cash flow solutions can be a challenge right now for many in the food and beverage industry. Some are considering different supply chain innovations, such as introducing more flexibility into their processes. An example of greater flexibility would be experimenting with different recipes in case key ingredients become unavailable.
Australian food and beverage manufacturers are also pivoting by diversifying their pool of suppliers, incorporating new technologies into their supply chain systems and training their supply chain workers to become more adaptable.
Challenge 3: Currency fluctuations
Even under normal circumstances, currency fluctuations can cause cash flow issues for businesses that either export or source materials internationally.
Currency fluctuations mean many businesses are currently paying more than they usually would for imported goods and services, while also earning less from any exports. Uncertainty has created downward pressure on the Australian Dollar, which dropped 11% against the USD in September 2022. This was its lowest level in two and a half years.
Without the cash flow to cover these often meaningful currency fluctuations, food and beverage businesses increase the risk of negatively impacting their bottom line during this extraordinary time.
Challenge 4: Climate change
Unpredictable weather patterns, such as long periods of drought, major floods and storms, can negatively impact supply chains and production processes. And with climate concerns intensifying into 2023, businesses in the food and beverage industry are challenged to find solutions to combat the associated risks.
Amid growing concerns about climate change and sustainability, consumers are paying closer attention to the personal impact their choices have on the environment. For example, Deloitte’s 2022 Sustainability Report found that 64% of consumers surveyed have reduced their consumption of single-use plastics. But in the coming years, consumers will have no choice. Australia’s states and territories, apart from Tasmania, have either banned or committed to banning single-use plastics — including cutlery, straws, plates, bowls and drink stirrers — by 2025.
In 2023, this increased scrutiny may shift consumer buying behaviour, not only around the products and brands they choose, but also in areas like packaging, sustainable waste reduction and ethically sourced products.
Challenge 5: Skills shortages
The food and beverage industry faces two key challenges in 2023 when it comes to resourcing: shortage of available talent and attrition of existing employees.
Retaining talent is also a big challenge in the food and beverage industry, particularly in hospitality, as people are seeking better conditions. Many employers are considering incentives to attract and retain talent, such as sign-on bonuses, paid time-off and more flexible hours.
How can food and beverage businesses enjoy a cash flow boost in 2023?
Strong cash flow can help F&B businesses weather many of the current challenges. But how do you boost cash flow in such an unpredictable environment?
Our Trade Finance facility gives you access to a flexible line of credit to pay your suppliers earlier, whilst strengthening key business relationships. As it did for online wine retailer Vinomofo, which used the facility to take advantage of local growth opportunities during the pandemic.
Another way to boost cash flow is to leverage the funds tied up in your supply chain via our Debtor Finance solution.
It funds up to 85% of the value of your unpaid invoices within 24 hours. Your cash flow is boosted based on your invoiced sales so that you have the funds available to take action against the impacts of these industry challenges.
Improved cash flow can help you:
Leverage opportunities to grow or pivot. Meeting new market demands or changing your distribution network requires flexibility. Having cash flow available in line with your invoiced sales lets you jump on those opportunities without going into unchartered financial territory. With Debtor Finance, the more you sell, the more finance you’ll generally have available.
Reinforce your supply chain. Freeing up the money in your accounts receivables might allow you to buy extra stock or take advantage of bulk purchases to attain discounts and prevent supply chain disruptions.
Ride out exchange rate fluctuations. Access to increased working capital gives your business flexibility to better respond to currency fluctuations. And using our secure cross-border payments platform gives you upfront Australian Dollar visibility for international supplier payments, so you don’t get any nasty surprises.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as at the date of publication and are subject to change without notice.
As a business owner or director, there will be times when you need to access finance for your business.
You might need finance to grow, to buy stock or to see you through difficult times. But which method of business finance is right for your organisation? In this article, we explore some of the general challenges facing businesses, the traditional methods of business finance and some alternative financing solutions.
Why you need business finance
According to the Australian Government’s business.gov.au website, fluctuations in cash flow can have a serious effect on a business’s viability. As a result, one of the most common reasons a business seeks financial assistance is due to cash flow. But there are many other reasons why a business owner might seek funding. You might need business financing:
to help establish a new business
to purchase or lease property such as a factory or store
for investment in vehicles, machinery or other tools and equipment
for research and development
during times of difficulty to help the business survive
New challenges in business finance
The global pandemic and its aftermath wreaked havoc on the world’s businesses, but when we finally emerged from COVID, business leaders and owners faced new challenges.
The smallest SMEs to the largest multinational companies felt the impact of global supply chain issues, increased costs, skilled worker shortages and ongoing global uncertainty. Record levels of inflation and rising interest rates put pressure on households, consumers and business owners alike.
According to a recent KMPG report, business leaders have also been left with concerns about staff acquisition and retention, cybersecurity and digital transformation, the disruption of remote workplaces as well as new technologies. If businesses are to survive in the future, they simply have to innovate.
There is no doubt that the way we do business has changed, and that includes finding new ways to access business finance. The good news is there are a variety of methods available to finance your business. Options range from the traditional, like loans and overdrafts, to the more flexible, like Debtor Finance and Trade Finance.
You’re probably familiar with the traditional funding options, but the more innovative types may actually suit your business better.
Let’s examine the various finance options available.
Traditional methods of financing a business
The Reserve Bank of Australia reports that since the second half of 2021, small and medium businesses have experienced relatively strong growth conditions. As a result, demand is high for business finance. But though demand is strong, businesses face many hurdles, including rising interest rates. This makes accessing traditional bank funding difficult.
So, how do you finance a business? Many business owners still default to familiar, conventional options when they need financing, and there are three basic ways to go about it. It can be achieved by:
using internal funds
organising debt finance
arranging equity finance
Each of these options has benefits and drawbacks. Let’s take a look at each.
Business Financing Method #1 — Internal Funds
As a business owner, you might prefer to fund your expenses and growth through internal funds, such as the cash and savings you already have sitting in your business. These internal funds might come from profits you’ve already enjoyed or by selling assets the business no longer needs. The main advantage of using internal business funds is that you don’t have to take on debt or repay any money to a third party.
However, internal funding or internal financing uses up your company’s available cash or assets, which may cause cash-flow problems later on when it’s time to pay expenses. It may also stifle your business’s growth by keeping you from taking advantage of opportunities that require readily available funds.
Business Financing Method #2 — Debt Finance
Financing your business through debt involves borrowing money from a lender, such as a bank or other financial institution. It most often takes the form of credit cards, overdrafts, lines of credit or loans.
On the plus side, this generally allows you to keep control of your business and profits, because no other parties have any ongoing shared ownership over your business. Plus, the interest paid is often tax-deductible.
The main disadvantage, of course, is that you need to repay the money you borrow — usually with interest. And in the days of rising interest rates, that’s of real concern. The RBA has recently indicated that not only will rates not fall in the near future, they will probably continue to rise.
So, while debt finance can be a good short/mid-term fix, it can also lead to more problems in the future. Many businesses also find it challenging to get debt finance without offering personal asset security, particularly if they’re just starting out or don’t have sufficient equity. But for an established business that is looking for funding to grow, debt finance is often a solid option.
Business Financing Method #3 — Equity Finance
The third popular business capital solution is equity finance, where an investor provides funding in exchange for owning a piece of your business. Typical examples of investors include venture capitalists (professionals who invest in existing companies) and angel investors (individuals who invest in start-ups).
This can be less risky than debt financing, as the investment isn’t a debt you need to repay.
The downside is that you lose control and ownership of part of your business. It can also be hard to find the right investors — people who are both willing to invest and who you want to share future ownership with.
Alternative, flexible business capital solutions from Octet
The pressures and challenges on businesses are changing, but so too are business owners and leaders. According to the report Where Opportunity Lies: Australia’s new small business boom, created by Xero in partnership with Accenture, a new generation of business owners is emerging.
The report shows that of the latest wave of entrepreneurs, 45% are aged under 35. Of those who started a small business recently, 37% were born overseas. Meanwhile, 36% of small business owners are women. The report also reveals that over the next decade, 3.5 million new small businesses are expected to be registered.
Without a solid credit history, this new wave of business owners might find traditional funding difficult to access and will be looking at non-traditional means to launch and grow their businesses.
Alternative, flexible business capital solutions are almost certainly the way of the future.
At Octet, we believe that businesses should ideally be able to fund themselves. Business owners and managers who can think laterally about funding are the ones in the best position to grow.
That’s why ‘funding your own business’ is at the heart of all our financing options. We offer three alternative business working capital solutions:
The right one for you depends on the size of your business and your unique needs.
Business Financing Method #4 — Debtor Finance
Debtor Finance uses the biggest ongoing asset most businesses will have: their accounts receivables. Briefly, this solution lets you convert up to 85% of your unpaid invoices into immediately available funding within 24 hours. This means you can have the funds straight away, without waiting the 30, 60 or 90 days it might normally take your customers to pay you. Just imagine how much that would improve your cash flow cycle!
Better yet, we offer this without requesting you use your property as security, which many banks require. Using the Director’s personal assets as security isn’t an issue when the property market is going well (assuming you own property). But if you’ve maxed out your property equity — or you don’t own any — you do need another option.
Our Debtor Finance solution is available to Australian businesses across a wide range of industries, from newer companies to well-established ones. Ideally, you’ll have an annual turnover of at least $1 million, and at least two years of business operation.
Business Financing Method #5 — Trade Finance
Trade Finance gives you a revolving line of credit to pay your suppliers both locally and in more than 72 countries. Again, we don’t need you to provide personal asset security. Instead, you’re generally securing funding against the strength of your balance sheet, with just a company and director guarantee.
With up to 60 days interest free and 120-day repayment terms, our Trade Finance facility is flexible too. You can use it either as your primary funding source or to supplement your current bank or other financing arrangements. So if your bank can’t offer all the funding your business needs, or you want to diversify streams, we’re happy to help.
To be eligible, your business ideally needs an annual turnover of at least $3 million to $5 million and to have shown a profit for the last two financial reporting periods.
Business Financing Method #6 — Supply Chain Accelerate
Our Supply Chain Acceleratefacilityis like a hybrid of Trade Finance and Debtor Finance. It links suppliers and buyers in one process to free up working capital, which you could use to invest in supply chain innovation or other business growth strategies. The supplier gets paid 100% of their invoice upfront while the buyer has 30, 60 or 90 days to repay us.
Supply Chain Accelerate is completely unsecured, with no director or company guarantees required. And because it’s an off-balance-sheet source of funding, it doesn’t interfere with you taking out other business loans.
If you’re a supplier, this facility is hugely beneficial when you deal with larger companies that have an extended payment cycle. It means you generally access the credit rating of the bigger company to get paid earlier. Meanwhile, as a buyer, you can take advantage of potential early payment discounts to pay upfront and free up cash flow.
Supply Chain Accelerate is available to larger, profitable businesses with a substantial annual turnover.
Power your business with Octet’s supply chain finance options
Every business, from the smallest enterprise to the largest company, will need access to financing at some stage in their lifecycle. Having reliable, accessible business finance is a must, particularly during times of uncertainty.
The best funding method for your business will depend on a range of factors. At Octet, we help you find the business financing solution that’s right for you. We not only power your business growth, but we also empower you as a business owner or executive with better control over your supply chain.
Our team of supply chain finance specialists have helped Australian business owners and their local and global trading partners access the funding required to succeed. And we’re ready to help you better understand your business finance options.
Ready to take the next step with your business? Let’s take it together… Talk to us today about how to finance your business.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as at the date of publication and are subject to change without notice.
Want to know what the world’s most popular supply chain planning method is?
Spreadsheets.
Yes, you read that right.
A McKinsey & Company survey of global supply chain leaders in 2021 revealed that almost 75% of respondents rely on spreadsheets to do their supply chain planning. However, 61% believe technology enhances their competitiveness, according to a recent Gartner survey. Why, then, isn’t there more urgent investment in supply chain technology innovation?
90% of the McKinsey & Company survey respondents indicated that they plan to adopt a new supply chain planning system in the next five years. However, this may not be fast enough – especially when you consider the second most popular supply chain planning method is SAP’s Advanced Planning and Optimisation software, which they’ll no longer support from 2027.
Companies need to invest in supply chain technology now if they’re going to reap first-mover benefits and not be left behind. But, in upgrading digital supply chain technology, the challenge is not to get swayed by the latest shiny thing. Instead, companies need to choose wisely, based on real business needs.
To help your business find the right solution, here’s an overview of the most promising supply chain tech on offer, and what to consider before investing.
But how do you know which technology is right for your business? Let’s explore three types of technology that you can use to create a more efficient supply chain.
The internet of things (IoT)
The Internet of Things (IoT) describes a network of devices that communicate and exchange data wirelessly. IoT can remotely track physical items, such as goods in transit, and monitor environmental conditions, such as the temperature inside a transport vehicle or the moisture content of soil.
When combined with predictive analytics (the use of data, machine learning algorithms and modelling to make predictions), IoT in the supply chain can deliver immense benefits. As just one example, logistics companies can leverage IoT and predictive analytics to deliver real-time route optimisation to their drivers, factoring in goods-on-board, goods-for-pick-up, traffic congestion, distance and weather. This saves time, fuel, vehicle wear and tear and, ultimately, money.
Besides streamlining delivery processes, IoT can:
increase the visibility of goods and assets
improve customer experience
enhance product traceability, transparency and speed of delivery.
If you are considering investing in IoT, make sure that you factor in the security of your IoT devices so that they maintain data privacy requirements and are protected from cybersecurity vulnerabilities. You may also need to consider how you will integrate the data from different devices and sensors to your internal CRM and other systems.
Robotics
Robots are being put to work across the supply chain, from assembling and inspecting electronics components to picking and heavy lifting in distribution centres.
For example, advanced-technology company Honeywell has found that mobile robots powered by artificial intelligence can dramatically reduce picking times in the warehouse by nearly 50%. And that’s just when they take over the transport tasks of the workflow.
A Deloitte analysis has found that using autonomous robots in the supply chain has the potential to:
ensure long-term cost savings
create stability in labour and utilisation
boost productivity
decrease errors
enable fewer inventory checks
streamline picking, sorting and storing
improve safety by decreasing access to dangerous areas or performing dangerous tasks on behalf of humans.
To reduce risk and maximise your investment, experts recommend performing smaller-scale tests of robotics before doing a complete rollout. It’s also important to deliver an effective change-management process for existing workers to alleviate fears about potential job losses. Currently, robots are doing the more mundane or dangerous tasks so that people don’t have to.
Data science — AI, machine learning and analytics
As we saw above, data science — which includes AI, machine learning and analytics — can strengthen the effectiveness of other supply chain technologies, such as IoT and robotics.
You can use data science for supply chain forecasting to identify any future problems so that you can take action now to prevent them from occurring. You can even use it to enhance your decision-making. The technology can analyse your data and provide actionable recommendations to streamline and optimise your supply chain.
However, before you invest in data science technologies for your supply chain, you need to consider both your data sources and capture methodology and whether you have enough digital supply chain talent and expertise on your team (to actually interpret, communicate and drive action on any data insights).
Supply Chain Management platforms
The lowest risk, lowest initial investment supply chain tech innovation for most companies would be moving from spreadsheets to a supply chain management platform. Octet’s proprietary supply chain management tool makes tracking, validating and authorising every step of your supplier and customer transactions simple, taking the hassle out of managing your supply chain.
Save time by centralising supply chain management – get clear visibility across each stage of a transaction and every purchasing document. No more information scattered randomly across email, messaging and paper notes.
Reduce confusion by eliminating the language barrier – avoid expensive – and potentially relationship-damaging – misunderstandings by easily communicating with your suppliers in their own language using a multilingual supply chain management tool.
Decrease costs by paying suppliers in up to 15 currencies from multiple funding sources with competitive FX rates. Make payments to 68 countries and close your working capital gap by having up to 120 days to repay us, if you pay using our Trade Finance solution.
Real-world supply chain innovation examples
To get a better understanding of the impact of supply chain technology innovation, let’s take a look at two real-world examples.
Officeworks employing autonomous mobile robots (AMRs)
In their Victorian distribution centre, Officeworks has deployed 86 AMRs and 30 sortation robots. Working with fulfillment team members, the robots are helping with picking from more than 25,000 stock-keeping units (SKUs).
By using robots, the distribution centre’s human employees have been able to spend less time walking around since the robots can take the fastest and most direct route. Previously, the human team walked a startling 10–12 kilometres each shift before employing the robots.
This has enabled Officeworks to have better inventory control and an expanded delivery window for its next-day and express delivery services.
Coca-Cola uses AI and machine learning to enhance supply chain efficiency
To enhance its sourcing and procurement processes, Coca-Cola uses a software platform based on AI and machine learning technology.
The platform allows managers to explore “direct and indirect procurement bid information from suppliers and then analyse multiple awarding scenarios based on those criteria and other constraints”. After analysing the relevant data, including supply chain disruptions and vendor information, the platform provides recommendations.
Coca-Cola has found AI and machine learning instrumental in simplifying its procurement process. For example, at previous procurement events, Coca-Cola staff had to manually cleanse and validate bids from over 200 potential suppliers. Now, they have an automated bid cleansing process.
So, if you’re ready to power innovation in your supply chain, get in touch with the team to find out how we can help.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
When international borders were free-flowing, shipping containers plentiful and COVID-19 unheard of, ‘just-in-time’ supply chains made sense.
With the pandemic-induced logistics and supply chain management bottlenecks, many companies switched to a ‘just-in-case’ approach.
It’s easier to meet fluctuating customer demand with a just-in-case inventory model. But it also means increased warehousing costs and the requirement to have more upfront capital to buy extra stock. It’s one of many reasons why Australian businesses are concerned about the ongoing supply chain disruptions.
Supply chain logjams were predicted to ease considerably in 2022. However, the Omicron variant and Russia’s invasion of Ukraine have thrown a spanner in the works.
Now, experts are saying that supply chain disruptions are more “deep-rooted” than previously thought and “any hopes of near-term improvement in supply chain conditions have been shattered.”
However, it’s not all bad news. Even with these recent forecasts, your business can take active steps to protect itself from supply chain disruptions. Here’s how you can prevent a ‘just-in-case’ supply chain from becoming a ‘just-can’t-win’ situation.
First, let’s explore the factors creating the ongoing supply chain issues and their impacts in greater depth.
What’s behind the continuous supply chain crunch?
The pandemic has put enormous strain on supply chains due to:
Shifts in consumer spending from services to goods. During lockdowns, consumers had to change their spending habits. Instead of spending money on in-person services such as dinner at a local restaurant, overseas holidays or an evening at the movies, consumers bought stuff. A lot of stuff. This, in turn, increased demand for shipping and transporting goods.
Manufacturing and distribution disruptions. Lockdowns, staff illness and quarantine requirements meant that manufacturing and distribution facilities experienced unscheduled closures and production pressures.
Border procedure bottlenecks. Additional protocols, border checks and documentation procedures all contributed to transport delays.
As a result of these supply chain disruptions, businesses and consumers were impacted by increased shipping costs and delays.
During initial lockdowns, goods movement was significantly reduced. This meant interruptions in the normal circulation of shipping containers from port to port, causing an imbalance of empty shipping containers across locations. Some ports desperately needed more, while others had an influx.
Ultimately, increased shipping demand, combined with empty container shortages, port congestion and labour shortages, led to surging costs and lengthy delays for businesses and their customers. And these impacts are expected to “persist through 2022”.
Like highway traffic jams, it takes time to clear supply chain congestion and return it to normal flow. The problem is that supply chains were hit with too many curveballs and haven’t had a decent chance to recover.
In 2022, the rise of the Omicron COVID-19 variant impacted major ports in China, as cities were locked down in response. If you’ve been importing from China, you’ll know that shipping delays and congestion have increased again.
Russia’s invasion of Ukraine has also caused supply chain disruptions. According to a recent Australian Financial Review article, the war has increased shipping costs due to route closures, fuel increases and ‘war risk surcharges’ imposed by some carriers.
Real world impacts of ongoing supply chain woes
Despite rising costs, delayed deliveries and a shortage of key materials, some Australian companies could face even more significant problems given the persistent supply chain challenges.
Australian importer of premium natural stone slab and tile, Worldstone Solutions, have experienced these issues first hand.
“Factory shutdowns and capacity issues, shipping container availability and port closures have all contributed to the supply chain bottlenecks we’ve had to overcome in the past 18-24 months. We’ve seen client demand change as a result though. Clients are ordering more, and earlier; they’re more focused on delivery timeframes over price or are willing to compromise by selecting in-stock products only,” says Paul Nahon, Director at Worldstone, an Octet Finance client.
Even global, well-established brands have not been immune. In June, Revlon declared bankruptcy, saying that supply chain disruptions had caused a runaway increase in raw materials costs. In response, vendors insisted on upfront payments, and it became all too much for the cosmetics giant.
The RBA released its latest Financial Stability Review in April, which indicated that although the insolvency rate is rising from a relatively low base, more pain is on the horizon. The report states:
“Further increases in insolvencies are also likely, particularly as vulnerable businesses continue to draw down on cash buffers to cover lost revenue or higher costs.”
Mr Nahon concurs with this as he’s witnessing the trickle down pressure of these supply chain disruptions on his business and supply chain partners. He says, “the risk of insolvency is particularly high when we’re supplying stone to a builder who agreed a fixed price to deliver the project. In these situations, there’s an increased risk to all the builders’ suppliers as the builder has to either break supplier contracts for cheaper alternatives or put themselves in a loss-making situation.”
These pressures aren’t going away any time soon, which is why it’s more important than ever to work to protect your business from them.
How to protect your business from supply chain pressures
Working capital is crucial for your business to weather the ongoing supply chain disruptions. Never has the phrase ‘cash is king’ meant more. However, it can be challenging to manage the funding gap between paying suppliers, waiting for goods to arrive and waiting for buyers to pay.
With Octet’s Trade Finance facility, you can bridge these cash flow funding gaps. It gives you access to a flexible line of credit with up to 60 days’ interest-free and up to 120-day repayment terms.
Alternatively, our Debtor Finance solution may be an option for your business. It lets you tap into up to 85% of the funds tied up in your accounts receivable straight away. Instead of waiting up to 60 days for payment, make your unpaid invoices work for you by converting them into fast working capital.
Through our working capital solutions, you can better manage your cash flow, minimise financial risks and maximise the efficiency of your supply chain.
Power your business growth
In the face of ongoing uncertainties in the business landscape, now is the time to adapt. There are still significant growth opportunities afforded by Australia’s international trade relationships, particularly the interim India-Australia trade agreement signed earlier this year.
Our intelligent supply chain finance and payment solutions can help to satisfy your working capital requirements, particularly for overseas business transactions.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
In the last few months, the Reserve Bank of Australia has been on a mission to keep inflation under control with interest rate rises. In early July, it announced another rate hike of 50 basis points, taking the cash rate to 1.35%, citing the need to curb inflation as a key driving factor. The next RBA Board meeting and Official Cash Rate announcement will be on the 2nd August 2022.
These are the biggest cash rate surges in over 22 years, and many Australian businesses, much like homeowners, will have little to no experience of how rising interest rates will impact their outstanding bank and other loans.
For businesses with existing debts, rising interest rates essentially mean bigger repayments and less free cash to spend on inventory or business expansion. Customer’ borrowing capacity will reduce significantly, dampening demand in some areas. In turn, as costs increase, businesses will often have to pass this onto customers in the form of higher prices. This creates a spiralling cycle of inflation that will make it more expensive for businesses to secure stock and harder to sell goods.
Given that inflation won’t be easing any time soon, your clients may well be struggling to access the same funds they were able to only 6-12 months ago. Rather than helplessly watching the business’ working capital position suffer, you could be in a position to help them manage their cash flow issues with products that are outside of the usual service you provide. You should see this as an opportunity to support growing business owners who have profitable operations but need a helping hand to fulfil their potential. This includes offering reputable non-banking options as an alternative to traditional asset-secured finance.
Here are some items that accountants and other financial advisers should be considering to keep their SME clients across during the current economic conditions.
Tailor your advice to the unique conditions
In a time of great uncertainty, many SME leaders won’t have the know-how to react quickly to new financial crises. Financial advisers can therefore offer their valuable knowledge by running “what-if” scenarios to test various potential impacts of inflation, with a view to creating an effective ‘cash flow runway’ for ‘just-in-case’ situations. This is essential in maintaining a solid balance between growth, profitability, and liquidity.
Improving the efficiency of accounts receivable and accounts payable processes will also be vital to ensuring steady cash flow. Accountants particularly can help their clients keep an eye on metrics like expenses, past-due invoices and operating cash flow. Generating and tracking cash reports daily can help business leaders plan for the future, but they’ll need to lean on their accounting and other specialists to make truly informed decisions.
At a high-level, SMEs will likely also have to find a balance between increasing prices for their products or cutting costs in their companies. Some of the key questions that financial advisers can help their clients with include:
Should the client be implementing strategic pricing increases (over a given time period) so that their business isn’t absorbing all of the higher costs of materials and goods, while reducing wastage in an economy that’s becoming increasingly expensive? How will any impacts on customer retention be measured?
Consider ‘trimming the fat’ in your business and ask the hard questions: Do we need to hire more staff? Can we afford to enter new markets or product categories? Do we need to cut down on inventory levels, or is the risk too big, given global supply chain delays?
Find smarter forms of finance that exploit growth opportunities
Given that traditional banks will now be more reluctant to lend and likely to set more stringent terms, satisfaction and in turn, trust may dwindle. In these conditions, SMEs often lean on their accountants and other business advisers for guidance around alternative finance options regarding the procurement of goods from Asia or a local business acquisition or expansion of some variety.
One alternative working capital solution for these procurement and growth type business objectives is Trade Finance, which provides a flexible line of credit to pay local and international suppliers immediately, while the financier is repaid over an extended period of time (often with an initial interest-free period). This guarantees that the business doesn’t miss out on any available sales and discounts due to not being able to afford to buy stock or is unable to take advantage of other time sensitive business opportunities.
However, as non-bank lending is still a somewhat unregulated market, it is often difficult for the uninitiated to access and assess the quality of a lender. SMEs will be depending on their accountants and other financial advisers to connect them with reputable non-bank lenders that proactively meet the responsible lending laws overseen by the ASIC.
The landscape for business financing is ever-changing. But the economic path forward in 2022 has already been somewhat laid out in the ongoing announcements by the Reserve Bank, and via the rapidly increasing inflation figures. It’s not too late to effectively plan for the next six months, when we are almost certain to experience more interest rate increases. With the cost of doing business on the rise, it’ll pay to create a cash flow runway and at least be aware of all available finance options, particularly those that consider the strength of your balance sheet in assessing funding, as opposed to strictly personal property secured lines of credit.
Get in touch with one of our supply chain finance specialists today to discover how we can power your business to help your clients through the current economic climate.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
International trade is vital to Australia’s economy. It represents 44% of our gross domestic product (GDP) and generates one in five Australian jobs.
These statistics really bring home how essential international market access and favourable trading conditions are for Australia’s prosperity. Trade agreements are an important aspect of improving market access across all industries in Australia.
While international trade opens significant opportunities for business growth, it can be a little daunting to know where to start. We’ve put together this overview of Australia’s international trade and the trade agreements we have with other countries to help your company reap the benefits.
The benefits of international trade for Australian businesses
Australia’s domestic market is relatively small compared to other countries. International trade allows Australian goods exporters to reach larger and more diverse consumer (and business) markets than they would domestically.
To put Australia’s economy in perspective, our national GDP represents only 1.7% of global GDP. In contrast, rapid growth in Asia is forecast to represent 44% of global GDP by 2026.
Overseas market access is particularly important for Australia’s agricultural and resource commodities. For example, 65% of Australia’s exports in 2020 were primary products.
What’s more, 8 of the top 10 Australian goods and services exported in 2020 were primary products.
Similarly, international trade offers access to a much broader client base for Australian service providers. In fact, services represented over 45% of Australian exports in 2020.
The Department of Foreign Affairs and Trade (DFAT) has prioritised the following sectors to improve “market access in global services trade reform efforts”:
Professional services
Education and tourism
Financial services
Energy and mining services
Environmental services
Financial technology
International trade also attracts foreign investment. Australian businesses benefit from extra capital injections that support new industries, strengthen existing industries and finance additional infrastructure.
Ultimately, whether it’s goods, services or investment, international trade helps to maintain and stimulate the competitiveness of Australian firms by encouraging:
innovation from the introduction of new technologies, services and ways of doing business
productivity via increased competition in the marketplace
How Aussie consumers benefit from international trade too
It’s not just Australian businesses that can benefit from international trade, but consumers too.
By boosting our GDP, international trade helps raise the income of everyday Australians and promotes economic growth. DFAT stated that in 2020 trade as a whole was equivalent to 45 per cent of Australian GDP and directly responsible for one in five Australian jobs.
Australian consumers also benefit from international trade by gaining access to a much wider range of goods and services. And businesses have greater choice of suppliers.
Greater choice encourages competition, which can make products cheaper for consumers. For example, small electrical appliances in Australia were 11.5% cheaper in the 2017–18 financial year than they were ten years prior.
Taking advantage of Australia’s international trade agreements
Like many countries, a key component of Australia’s international trade strategy is the negotiation of free trade agreements (FTAs). Essentially, FTAs benefit importers and exporters by reducing and eliminating tariffs and other trade barriers such as quotas and licences.
Australia has 16 FTAs currently in force, three FTAs not yet in force (including the Australia-India Economic Cooperation and Trade Agreement) and seven FTAs under negotiation.
Here’s a quick overview of Australia’s FTAs currently in force:
Free trade agreement
Key benefits for Australian companies
Australia-New Zealand (ANZCERTA or CER)
Free trade in services, with mutual recognition of goods and occupations.
ASEAN-Australia-New Zealand (AANZFTA)
Extensive tariff reduction and greater certainty for services suppliers and investors.
Singapore-Australia (SAFTA)
Increased market access for Australian exporters of services.
Australia-United States (AUSFTA)
Local companies now have access to federal government procurement in the US.
Thailand-Australia (TAFTA)
Eliminated the majority of tariffs and quotas on Australian exports.
Australia-Chile (ACl-FTA)
Removal of 92% of tariff lines
Creation of a liberalised investment and services system.
Malaysia-Australia (MAFTA)
Tariff-free treatment for 97% of Australian exports.
All tariffs eliminated for Malaysian goods imported into Australia.
Korea-Australia (KAFTA)
Provides tariff elimination on nearly all Australia’s current exports by value once fully implemented.
Japan-Australia (JAEPA)
Provides Australian services exporters with treatment equivalent to the best Japan has agreed with any other trading partner.
China-Australia (ChAFTA)
China eliminated or rapidly reduced tariffs on several key Australian exports.
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam (CPTPP)
Eliminated 98% of tariffs in the free trade area for Australian goods exports.
Improved market access for Australian services exporters.
Australia-Hong Kong (A-HKFTA) and associated Investment Agreement (IA)
Locks in continued access to the Hong Kong market for Australian exporters of education, financial and professional services.
Peru-Australia (PAFTA)
Gives Australian service providers a more transparent and predictable operating environment in Peru.
Indonesia-Australia(IA-CEPA)
99% of Australian goods exports by value are duty-free or have significantly improved preferential arrangements.
Pacific Agreement on Closer Economic Relations (PACER Plus)
Supports Pacific Island countries to become more active partners in, and benefit from, regional and global trade.
The potential economic benefits of the Quad
The Quad, formally known as the Quadrilateral Security Dialogue, is a collaboration that was established between the US, Japan, India and Australia in response to the 2014 Indian Ocean tsunami.
The Australian Financial Review recently described the Quad as “a co-ordinating body for joint efforts to win friends and influence other Indo-Pacific nations …”
DFAT officially described the Quad as “a diplomatic network of four countries committed to supporting a free and open Indo-Pacific that is inclusive and resilient.”
Given that 70% of Australia’s international trade is with Asia-Pacific countries, closer diplomatic ties with Quad members could have important economic implications for our economy.
For example, the Quad has announced its intention to form a green-shipping network to encourage the greening and decarbonisation of the shipping value chain. For Australia, it means that Sydney may be included in two or three “low-emission or zero-emission shipping corridors by 2030.” The other Quad ports nominated for involvement include Los Angeles, Mumbai and Yokohama.
Australia’s economy could also benefit from the establishment of a clean hydrogen partnership proposed by the Quad. The partnership could involve initiatives such as:
technology development
identifying and developing delivery infrastructure
stimulating market demand among the Quad countries
If the clean hydrogen partnership proceeds, it could help to realise the Federal Government’s National Hydrogen Strategy and position Australia “as a world-leading supplier of clean hydrogen.”
How Octet can help you leverage global opportunities
Effective international trade management in Australia is crucial for local companies wanting to enter overseas markets. It means streamlining your entire supply chain, from ordering processes and logistics to making international payments. And the end result is a healthier cash flow with increased operational efficiency.
Octet can help streamline your supply chain by:
Centralising your documentation. Our Supply Chain Management Platform lets you store all the relevant documentation and correspondence together with each transaction to reduce confusion and achieve full visibility.
Eliminating the language barrier. With multilingual capabilities, our Supply Chain Management Platform allows you to communicate in your preferred language, while your supplier chooses their preferred language too.
Increasing payment flexibility. Octet gives you the power to pay your suppliers in the way that best suits your business using our Digital Wallet, with added Trade Finance and Debtor Finance solutions.
Making cross-border payments easy. We take care of the hard work for you with one-click payments. Just click, and we pay your suppliers the same day, in their choice of up to 15 currencies.
Expand your business globally
Whether you want to start importing from China or become a services supplier in Korea, Octet can help.
Get in touch with one of our international finance specialists today to discover how we can power your business to expand globally.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
With Australian borders now open to the world, there are more opportunities to establish or deepen relationships with overseas suppliers. For many local importers, the People’s Republic of China is a popular choice for sourcing goods.
Given China’s advanced manufacturing capabilities and competitive pricing, it’s understandable why it’s been Australia’s number one source of imports from 2009-2020.
To help your company successfully navigate the process, here’s our guide to importing from China to Australia. It covers everything from taxes to the current state of trade relations.
China and Australia’s trade relationship
According to a recent report from AMP Capital, “China has been Australia’s largest two-way trade partner” since 2009. During this period, Australian exports to China represented 41% of total exports, and 32% of all Australian imports were from China.
Currently, two-way trade with China is worth more than $246 billion a year. In 2018, a PwC Australia report stated that two-way trade with China was more than 2.5 times that of Australia’s next largest two-way trade partners, Japan and the US.
What’s more, according to the PwC report, “Australia has not had a trade relationship of this significance since the 1950s, when the United Kingdom was our major trading partner”.
So when political relations between the two countries deteriorated in 2020, it was understandable that concerns about potential trade impacts would increase.
Initially, the friction stemmed from Australia supporting “a call for a global inquiry into China’s handling of its initial Covid-19 outbreak.” In response, China introduced trade restrictions on several Aussie exports such as lobster, barley, beef, wine, cotton and coal.
However, despite the tensions, AMP Capital reported that the impacts on the Australian economy were mild, and most sectors found alternative export markets. And, as it turns out, 2020 still ended up being a massive year for Australian trade with China.
“Australia’s total goods exports to China reached $145.2 billion. This was just 2% lower than the record high set a year earlier. In comparison, goods exports to all other countries fell by 10%, causing China’s share of Australia’s total goods exports to reach its highest ever level of 40.0%. Australia’s goods imports from China also hit record highs both in terms of value ($84.4 billion) and as a proportion of the total (28.8%).”
While trade tensions are ongoing, the Australian government is under pressure to stay committed to a strong trade relationship with China from sources as diverse as:
Australian business groups
universities
think-tanks.
Benefits of the China-Australia Free Trade Agreement
The China-Australia Free Trade Agreement (ChAFTA) came into effect in mid-December 2015. Some of its key elements include:
Tariff reductions: before the free trade agreement (FTA), Australian exporters had a competitive disadvantage. They had to pay significant tariffs that other countries with existing FTAs with China, such as Chile, didn’t have to pay.
After ChAFTA, China eliminated or rapidly reduced tariffs on several key Australian exports.
Meanwhile, Australia completely eliminated tariffs on Chinese imports into Australia. However, you do need to follow some procedures to take advantage of preferential ChAFTA tariff treatment. We’ll go through these in more detail in the guide below.
Most favoured nation clause: this clause means that Australian businesses get access to the same trade terms that other trading partners receive in FTAs with China.
Foreign investment screening threshold increases: these increase the threshold allowed for potential Chinese investment into certain non-sensitive sectors.
Your guide to importing from China to Australia
Navigating your way through the importing process can be confusing. For example, you might wonder if you have to pay import tax from China and if so, how much this import tax is?
To help make it easier, our guide below has all the answers you’ll need to successfully import goods from China.
Importing basics
Firstly, it’s helpful to know that you can import many goods which don’t need a formal import declaration and are free of taxes and charges. In general, these goods tend to be:
Let’s explore in more detail what you need to know to import higher-value goods, which will of course be more relevant to most Australian business importers.
Clearing customs
When your goods arrive in Australia, they’ll need to clear customs, which is run by the Australian Border Force (ABF). To clear customs, all arriving goods require a declaration, unless you have an exemption.
Additionally, goods may need to go through checks for:
biosecurity
food safety
drug control requirements.
You might also need a licence or a permit for some goods.
Importing licences and permits
Currently, the ABF website states that “there is no requirement for importers (companies or individuals) to hold an import licence to import goods into Australia.”
However, for biosecurity reasons, some goods require a permit to be imported (see next section).
Biosecurity and quarantine
To mitigate biosecurity risks, some goods need an import permit from the Department of Agriculture, Water and the Environment (DAWE). DAWE operates a system called the Biosecurity Import Conditions system (BICON).
As an importer, you’re responsible for ensuring that goods imported from China into Australia comply “with all mandatory product safety standards, labelling, lab testing, and certification requirements.”
Additionally, you need to ensure that the goods you import don’t infringe:
copyright
trademarks
protected Olympic expressions
IP relating to major sporting events indicia and images.
Labelling
Certain goods need a trade description, which must be a true description of the goods in English. You may also need to show information about the country of origin for certain food products.
Find more information on the specific requirements for trade description compliance and product labelling on the ABF website.
Importing costs
Once you’ve covered all the key documentation requirements, it’s time to check some of the costs involved in importing goods from China.
Transport costs
You’ll need to factor in the following transport costs:
Shipping: in general, shipping by sea is more economical than by air. While some shipping costs have reduced since 2021, the Australian Financial Review (AFR) recently reported that, “the cost of shipping freight to Australia remains near record highs.”
Insurance: according to Freightos, “insurance costs are typically around 0.3%-0.5% of your Commercial Invoice Value, which is the amount you paid for the goods.”
Storage charges: generally, storing your goods at the arrival airport or wharf is free for around three days. From there, it gets expensive, so try to avoid this wherever possible.
You may also need to pay a detention fee if you don’t return an empty shipping container within around seven days. According to International Cargo Express, “you can expect charges of $150-300 per container per day.”
Other handling charges: the AFR recently reported that ports and logistics operators have been charging additional ‘COVID levies’ on top of ‘congestion and port access fees imposed by stevedores’. These COVID levies are meant to cover the costs of having healthy staff work overtime to clear shipping container backlogs caused by the pandemic
Customs duties and ChAFTA
While ChAFTA eliminated some customs duties (tariffs) on products when it took effect, others are still being reduced over time. The easiest way to check the applicable import tax on goods from China is through the FTA portal website.
To access preferential tariff rates under ChAFTA, goods must ‘originate’ from either China or Australia. To prove your goods’ origin country, you’ll need either a:
If you need an import permit, the lodgement fee is $120. The assessment fee can then vary between $60 and $480, depending on the category of your goods.
Biosecurity management fees
If DAWE needs to inspect your goods for biosecurity and quarantining purposes, additional fees will apply.
Generally, they charge these in 15-minute increments. DAWE recommends providing all the required documents with your goods to reduce the likelihood of needing an inspection.
whether you submit paperwork electronically or use hardcopies
Goods and Services Tax (GST)
Irrespective of whether you’re registered for GST or not, GST is payable on most imported goods. That said, there are some exemptions that you can check on the ABF website.
The GST rate for imports is 10% of the value of the ‘taxable importation’, which is the total of:
the customs value (CV) of the imported goods
any duty payable
the amount paid or payable to transport the goods to Australia and insure the goods for that transport (T&I)
any Wine Equalisation Tax (WET) payable, if applicable
Generally, the free on board (FOB) value of the goods is taken to be the customs value. FOB is, “the value of the goods excluding overseas transport and insurance”. However, certain charges can be excluded or included in the CV.
It’s also important to note that customs value is expressed in Australian dollars, “at the rate of exchange prevailing on the day of export of the goods (not on the day the goods arrive in Australia).”
Finally, GST credits and deferrals may apply in some circumstances.
If you import goods into Australia at a lower price than is charged in the manufacturing country, you may have to pay dumping and countervailing duties. You can check theAnti-Dumping Commission’s Dumping Commodity Register to check whether your goods are subject to the anti-dumping measures and any applicable rates.
Customs brokerage fees
A licensed customs broker can navigate the complexities of clearing customs on your behalf. However, brokerage fees vary between agents, so it’s worth getting quotes from different providers.
create new import opportunities for Australian businesses
According to the Department of Foreign Affairs and Trade (DFAT), the agreement will immediately eliminate tariffs on over 85% of Australian goods exported to India. Then, over the next 10 years, this figure will rise to 90% of tariffs. DFAT estimates that this will be “commercially significant for up to $14.8 billion worth of Australian merchandise trade destined for the Indian market each year.”
In return, the Australia-India trade agreement will also allow around 96% of Indian imports to enter Australia duty-free.
As background, India is one of the world’s largest democracies whilst also being one of the fastest-growing major economies. National GDP in India is projected to grow at 9% in both 2021-22 and 2022-23, and 7.1% in 2023-24. Additionally, India was Australia’s:
seventh-largest trading partner in 2020, with two-way trade valued at $24.3 billion, and
sixth-largest goods and services export market, valued at $16.9 billion.
The latest advancement in Australia-India trade relations will support the Government’s goal of lifting India into our top three export markets by 2035. It will also make India the third-largest Asian destination for outward Australian investment.
How Octet makes importing smoother, simpler and more secure
The unpredictability of recent years has curbed international travel while creating shipping delays, lengthier quarantine times and delayed payments. As a result, many importers have experienced significant cash flow pressures and greater risks in supply chain management.
Here’s how Octet can help.
Smoother cash flow curves
Octet’s Trade Finance facility can help to smooth out the cash flow curves in your business. It gives your business the power to bridge cash flow gaps by providing:
a convenient revolving line of credit, with up to 60 days’ interest-free and up to 120 day repayment terms
security-free funding and payment options – with funds based on the strength of your business’s balance sheet, so there is no need for personal or director security
a way to take advantage of any early settlement discounts your supplier may offer, saving you money on imported goods
Superior supply chain management
While importing and exporting always carry an element of risk, the right financial management and tools can help your business increase security and trust with international suppliers.
One such tool is Octet’s Supply Chain Platform. It verifies and manages approvals for all transactions for suppliers and importers using the platform.
As a buyer, this means you get peace of mind that we’ve taken responsibility for onboarding and verifying every supplier. We have a team on the ground in Shanghai that can:
meet with your suppliers
do background checks
verify that they have all the relevant trade documentation
What’s more, our Supply Chain Management tool is multilingual, so you and your supplier can each interact in your preferred languages.
Powering international trade and global business
Get in touch today to discover how we can help power your business by making the importing process smoother, simpler and more secure.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
Sustainable, ethical business supply chains are no longer a ‘nice-to-have’ in today’s modern economy. Instead, they’re now a ‘must-have’, as shown by a recent European Commission proposal to change EU laws to crack down harder on companies with unethical supply chains.
The EU draft law would require any companies operating in the region to do due diligence on their suppliers concerning any human rights abuses or environmental breaches. Non-compliance could mean fines and compensation claims, even for companies based outside the EU.
These draft laws align with a developing global and local focus on more ethical and sustainable supply chains. In a growing trend over recent decades, consumers, investors, international bodies and governments alike have demanded that companies do more to:
protect human rights
ensure worker welfare and safety
reduce environmental impacts
improve environmental credentials by increasing energy savings and shifting to renewable energy
Given all the complex variables at play, you may be wondering how your business’ supply chain can be improved. The good news is that with the right strategies, it’s possible to make your supply chain more sustainable while still generating healthy financial returns.
Here’s what you need to know.
Why improving supply chain sustainability matters
The importance of environmental, social and governance (ESG) standards (also known as corporate social responsibility or CSR) in supply chains is forecast to continue growing.
47% of companies had received pressure to improve their supply chain sustainability
there was widespread agreement among survey respondents that interest in sustainable supply chains would continue to increase
And with increasing scrutiny, improving supply chain sustainability matters even more for these five key reasons.
Tightening regulations
In recent years, the Australian Government has introduced waves of regulations to improve supply chain sustainability. For example, the Modern Slavery Act 2018 introduced mandatory reporting on modern slavery risks in the supply chain for larger companies. It also required them to report on any preventative actions they’d taken.
And, as mentioned earlier, ethical supply chain regulations aren’t limited to Australia. Companies that fail to comply with certain regulations in the markets in which they do business can face fines, lawsuits and even prison time for executives.
Reputational risk
In addition to any financial penalties they incur, unethical supply chains can create significant reputational damage for your brand. Remember, for example:
the tragic loss of life in the Rana Plaza factory collapse. While no Australian companies were directly linked to that factory, local brands such as Just Jeans and Myer received negative press about not signing an accord on fire and building safety in Bangladesh
When Rip Curl sold clothes made by workers enduring ‘slave-like’ conditions in North Korea, despite labels saying ‘Made in China’
More recently, fashion retailer, Boohoo came to the world’s attention. Allegations of unethical factory working conditions wiped £1 billion off Boohoo’s value overnight.
Recent research from Boston Consulting Group (BCG) indicates that companies could, “enhance their investment attractiveness, and – in turn – total shareholder returns, by embracing greener operations”.
The researchers found that consumer packaged goods companies with reputations as ESG leaders had, “an 11% valuation premium over their competitors”.
What’s more, companies with lower carbon emissions in the chemical and steel sectors had valuation premiums of 14% and 12% respectively.
Consumer confidence
A growing number of consumers are choosing to buy from companies whose social and environmental values align with theirs. For example, a 2021 Gartner report identified that 54% of customers would only do business with companies that practised environmental and social sustainability.
57% were, “willing to change their purchasing habits to help reduce negative environmental impact”
71% indicated that supply chain traceability was, “very important,” and that they were, “willing to pay a premium for brands that provide it”.
Employee attraction and retention
According to a BCG study, brands that invest in sustainable supply chains tend to find it easier to attract and retain talent. That study revealed that 58% of employees consider sustainability when making employment decisions.
How to improve sustainability in your supply chain
The first step is to take stock of where your company’s supply chain is now in terms of sustainability. This also helps to identify key risk areas such as:
regulatory requirements
potential supply chain disruptions
supplier liabilities
It’s important to work out what your key stakeholder interests are, and select matching supply chain improvement goals that can create business value.
Create a visual representation of your supply chain that shows where your suppliers are, and how goods flow between them. This step aims to identify any information gaps you may not be aware of.
The MIT experts give the example of apparel and footwear group, VF Corporation’s online traceability tool for their Vans Checkerboard Slip-on shoe. It helps to see an actual supply chain map in action for your own visualisation efforts.
Track and assess every component
Actively trace your products through the supply chain to confirm each component’s source of origin and then assess every supplier against your supplier code of conduct practices.
Of course, it’s easier said than done if your supply chain involves multiple supplier tiers across hundreds of locations. This is where technology can really shine.
To improve the traceability of the supply chain, organisations are turning to blockchain technology. For example, the Australian wool industry uses blockchain to verify claims about origin and sustainability. It means that retailers and consumers have a credible way of knowing the garments they are about to buy are actually made from Australian wool.
Work together with your suppliers
Now that you know what needs to happen, engage your suppliers to address any problem areas. This step involves significant collaboration, monitoring and support to make change happen.
Promote your revamped supply chain practices
Once you’re satisfied with the improvements you’ve made, it could be time to go public via paid and organic advertising channels with your new, improved sustainable supply chain. This may have some financial benefits for your company by helping to increase consumer and investor confidence in your brand.
For example, a current food and beverage industry trend involves the health-conscious consumer segment driving increased growth. In response, industry players might adopt sustainable manufacturing practices, and publicise their actions to effectively capture this growth.
Our Supply Chain Management Platform and innovative Trade Finance solution can help with improving your supply chain sustainability in four key ways.
Track each critical step of the supply chain process, from procurement to payment, order to cash. Our platform stores and validates all of the important documents that are required at each stage, giving you and your supplier full transactional visibility.
Reduce misunderstandings. The platform has some multilingual capabilities so you can communicate in your preferred language, while your supplier uses their preferred language too.
Make strategic purchases from your suppliers at the right time. Our Trade Finance facility gives you access to a convenient, revolving line of credit to pay suppliers in over 65 countries. You can accelerate business growth and strengthen relationships with local and international suppliers – without the cash flow challenges, whilst taking advantage of in-built competitive FX rates.
Work with the best suppliers. The best suppliers for your business don’t always offer the best payment terms. The good news is that our Trade Finance line of credit means we pay your suppliers immediately, while you pay us back over time. Take advantage of any available early payment discounts, whilst receiving your goods quicker than the competition.
Powering sustainable supply chains
Get in touch today to discover how we can help power your supply chain visibility and sustainability, in addition to accelerating your supplier payments.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.