Amount of cash held up between companies and suppliers at record high
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The amount of cash held up between corporates and their suppliers hit a record high in 2020 as the Covid-19 crisis upended the supply chains and stalled consumer demand worldwide, leaving firms with excess inventory levels.
This is among the key findings of the 2021 edition of JP Morgan's Working Capital Index report published this month, Global Trade Review reported.
The annual report, which analyses the working capital metrics of companies listed on the S&P Composite 1500 index, found an estimated $507 billion of liquidity trapped within the supply chains of the S&P 1500 companies at the end of last year, the highest level in 10 years and a marked increase on 2019's figures of $497 billion.
"Covid-19 has further exposed the vulnerabilities of global supply chains, which were already under pressure in recent years as a result of the geopolitical trade tensions," said Gourang Shah, global head of treasury and working capital optimisation for wholesale payments at JP Morgan, who is an author of the report.
"A key focus for finance practitioners will be to continue building supply chain resiliency in their operations, in order to withstand future shocks as well as to mitigate the negative impact on working capital," Shah said.
A closer look at the figures shows that almost two-third of the companies experienced deterioration in their working capital efficiencies in 2020, with aerospace and defence and airlines sectors unsurprisingly among the hardest hit as the demand for travel collapsed amid widespread lockdowns and movement restrictions.
Meanwhile, the semiconductor industry showed the most improvement in working capital efficiencies, on the back of strong sales of consumer electronics goods and increased demand for cloud services as the global working population pivoted to remote work arrangements.
According to the report, the top four industries expected to show the most growth as they rebound from the pandemic include the semiconductor, e-commerce, pharmaceutical and technology hardware sectors.
