Global supply chain risk fell to an 18 month low, but there are concerns it could rise again given increasing political and social instability.
The latest CIPS Risk Index said the drop in risk in the second quarter of the year represents a fall for three consecutive quarters for the first time since 2008.
However, the Ebola outbreak in West Africa, wars in the Middle East and economic and political sanctions on Russia amid broader instability in Eastern Europe, could increase the risk over the next three months and “undermine the global economic recovery,” the report said.
The Index, which tracks the effect of economic, political and social factors on the security of global supply chains, has fallen from an all-time high of 82.4 in Q3 2013 to 78.1 in Q2 2014. “The fall is in large part due to the German industrial recovery with the country’s exports shoring up supply chains across Europe and beyond,” the Index said.
The report also noted sub-Saharan Africa has seen supply chain risk stabilise this year, despite an increase in risk in the second quarter. The Index said this will “lay the foundation for export-led growth in 2014 and beyond”.
It added: “Yet on top of the mounting human cost of the Ebola outbreak in West Africa, Q3 could see the region become isolated from world trade. With the World Health Organization ruling out a general ban on travel or trade in the near future, the outbreak has not yet led to a major disruption of supply chains but that could change if the virus continues its spread throughout West Africa and beyond.”
According to the Index, the Middle East also faces threats to its stability. The study pointed out the “success in Kuwaiti infrastructure projects and previous stability in Iraq’s oil-rich Kurdistan region helping to settle supply chain risks in Q2”. Rsing conflict between Arabs and Israelis, and the evacuation of workers from Kurdish Iraq over the past couple of weeks “threaten to reverse this trend in Q3”.
John Glen, CIPS economist and senior economics lecturer at the Cranfield School of Management said: “The economic recovery in Europe, which is admittedly slow, coupled with lower bankruptcy levels in Europe, is good news for UK supply chains which are heavily reliant on Europe in general and Germany specifically.
“Nevertheless, global supply chains still face significant risks. The Ebola outbreak in West Africa, combined with, political unrest in the Ukraine, Iraq and Libya, have the potential to create significant risks to global supply chains. These risks must be monitored and managed and where necessary contingency plans must be developed.”
Andrew Williamson, lead economist at Dun & Bradstreet, added: “The unbalanced nature of the global recuperation reinforces the need to proactively monitor events at the country level to ensure that appropriate response planning for potential supply interruption is considered in detail.”
☛ John Glen and Andrew Williamson will be among the speakers at the CIPS Annual Conference and Exhibition in London on 2 October. Click here to book your place.