CONSTRUCTION & INFRASTRUCTURE SUPPLY CHAIN
In an increasingly challenging and busy period, builders keen to collaborate up and downstream to fight a stubborn inflationary outlook
FOOD & BEVERAGES SUPPLY CHAIN
Lack of liquidity available to SME suppliers may prevent them from joining a strategic industry shift towards 'just-in-case' procurement
INDUSTRIAL SERVICES SUPPLY CHAIN
Consolidated early payment opportunities from large customers in Earlytrade is being used as a hedge against rate rises for large and medium suppliers in the sector supply chain.
Universal inflation an impetus for change?
As Earlytrade's September and December Supply Chain Scorecards flagged, rampant inflation across sectors and under capitalised SME suppliers will continue to hamper the productivity of already disrupted Australian supply chains well into 2022 and beyond.
With the war in Ukraine pushing up oil and fuel prices, the RBA signalling interest rate rises, and China’s zero COVID policy choking shipping freight, Australian businesses are - as they did at the start of the pandemic - turning to homegrown tech to solve old supply chain and procurement problems.
During the March quarter, new businesses registering with the Earlytrade network increased by 25% versus the prior comparable period, highlighting the need for them to gain greater flexibility on accounts receivables with large customers. Early payment volumes also continued to exhibit strong growth in Earlytrade’s working capital markets, more than doubling from the prior comparable period in FY21 (+122%), as businesses of all sizes continued to diversify their working capital options.
The degree of cost and disruption pressures differ from sector to sector. The IMF recently outlined its expectation that Australian inflation would average 3.9% this year versus 7% on building materials according to analysis of ABS figures. This was validated by the 5.1% CPI increase witnessed during the March quarter - the largest increase in 21 years.
Head contractors in the construction sector now face delivery of a once in a generation major infrastructure boom with overworked and highly cautious subbies, following the much publicised Probuild and Condev collapses. These industry solvency risks were pre-empted by Earlytrade's December Scorecard: Focus on Construction edition, that flagged a 40% rise in voluntary administrations in Q2 FY2022.
In the food and beverage supply chain, industry is debating a shift from 'just-in-time' procurement to 'just-in-case'. However, this will require significant capital to invest in stockpiling and warehousing which has prompted buyers to work with suppliers to provide on-demand liquidity opportunities.
The more concentrated supply chain of the industrial services sector has had a less volatile quarter in terms of cash flow demand. Medium to large suppliers have been able to hedge against interest rate rises by accessing early payments from several buyers.
Construction & infrastructure supply chain
Builders are keen to collaborate up and downstream to fight stubborn inflation outlook
As Earlytrade’s previous Scorecard predicted last quarter, cash flow stress in the construction industry continues to pressure firms with low cash holdings and a high proportion of fixed price contracts, highlighted by the collapse of Probuild and Condev in Queensland.
The impact of these liquidations has been well documented in the media, with small and medium subcontractors and material suppliers showing the most significant signs of stress.
The cost of essentially every material and service required to deliver a building has increased, with the rate of total cost inflation expected to be the same in 2022 at 7% as it was the previous calendar year.
Earlytrade data shows that subbies are looking to bring cash in quickly from their most reputable and trusted head contractors. Early payment demand continued to grow strongly in the March quarter from subbies, increasing by 190% QonQ, on top of the 150% increase during the December quarter.
Year-on-year this represents a 500% increase in demand for early payments, while early payment volumes are already 6.3 times higher compared to FY21, underscoring the case for technology to unlock liquidity in project supply chains to turn the tide on inherently challenging working capital pressures.
Overall, the quarter marked a record level of subcontractor registrations with Earlytrade. This was driven by partner launches from Boral, Richard Crookes Constructions and Mainbrace, who have prioritised collaboration with subcontractors in order to secure top trades across projects.
Feedback from subcontractors in the Earlytrade network indicates that a shift in dynamics is taking place, with many subbies performing due diligence on head contractors to ensure they are well positioned to manage project costs as inflation steadily increases.
From a broader industry standpoint, as the $52 billion tsunami of major infrastructure projects peaks, head contractors find themselves in a position where there are enough projects available for them to be more selective towards those with palatable and sustainable risk profiles to avoid mistakes of the past.
Food & beverage supply chain
Lack of liquidity may prohibit SME suppliers from industry shift to 'just-in-case' procurement
Given their direct impact on household budgets, food and beverage supply chains often provide the earliest and loudest signals for cost pressures being passed through to suppliers and consumers.
The supermarket giants, major suppliers, and industry bodies were all vocal in the national media about the cost burden of inflation, fuel prices, and other supply chain issues, with some looking to finance shifts in procurement models to 'just-in-case' supply chain strategies.
Such changes are more difficult for small and medium suppliers, who lack sufficient capital and warehousing to stockpile additional produce and other goods, especially those who were anticipating 2022 to be an opportunity to come up for air after nearly 24 months of rolling lockdowns.
During the pandemic, early payments were a critical liquidity source for suppliers in the Earlytrade network who were able to first weather the storm in 2020, then accelerate new product go-to-market strategies to secure lucrative supply agreements through 2021.
“When you’re ranging and your product becomes so popular, you have to keep up with demand. Our product is premium and we don’t skimp on ingredients… we need [to purchase those] first before we can deliver.”
MEGAN DONSKY, WINSTON QUINN GIN
The trend continued in the March quarter, with year-on-year early payment volumes remaining robust with a 58% increase from FY21. New registrations also surged during the quarter, up 132% year-on-year, largely driven by a 231% increase in March, with levels reaching those seen during the initial peak of the pandemic lockdowns in 2020.
Upstream in the sector’s supply chain, agriculture benefited from strong rainfall supporting better business performance, and more stable cash positions. The seasonality of the sector was represented by a QonQ fall in early payment demand, following a 55% increase in Q2.
Industrial services supply chain
Consolidated early payment market offers hedge against rate rises for large and medium suppliers
Despite rising fuel costs squeezing margins for transport and logistics, industrial services businesses experienced relatively stable cash flow demands. Early payment demand remained flat QonQ (-5%), following a strong Q2 (+62%), which is a smaller reduction than expected given the supply chain is typically cyclical. Year-on-year, demand for early payments from the industrial sector was strong, up 264%.
Particularly in NSW and Victoria, where provision of highly specialised industrial services is concentrated among a pool of suppliers for the similarly smaller number of corporate buyers, Earlytrade’s consolidated early payment marketplace allowed suppliers to bring forward cash from multiple customers at once.
“It’s so much easier having it consolidated on one platform as opposed to using 3 or 4 different types. When you log in, everything is there right in front of you. The rates are competitive and we can decide if we want to get paid early. We can enter the market, see what discounts work and receive prompt payment.”
CARLEY McCOLL, AIR POWERED SERVICES
Consequently, during the quarter, average early payment amounts increased by 18%, indicating those large and medium-sized suppliers were diversifying their working capital and liquidity options with Earlytrade as the RBA flagged rate rises within the year.
The increases in early payment transaction amounts also reflect pressures from rising fuel prices, specifically in the transport sector, where the National Road Transport Association flagged cash flow pressure among members, who it states are running margins as narrow as 2.5%.
Fuel prices rose steadily across the March quarter, with the ACCC reporting in March that the war in Ukraine had pushed average fuel prices to record highs in the five largest cities, to levels not seen since early 2014.
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