Supply chain risk remains high, but falls slightly

posted by Anna Scott
in Risk
18 November 2015

Global supply chain risk has decreased slightly for the first time in a year but the overall global operating market remains conflicted, according to the CIPS Risk Index.

A CRI score of 79.1 was recorded between July and September, down from 80.1 recorded for the second quarter, but the score was still higher than 2014’s average of 78.5.

The slight improvement is thought to be the result of upgrades to seven countries in western and central Europe, particularly following the agreement between the Greek government and its international creditors.

In addition, Canada and the US’s scores were unchanged, with predictions of real economic growth of 2.2 per cent underpinned by healthy domestic demand.

However, despite an unchanged score for eastern Europe and central Asia, the countries involved in the Ukraine conflict have not been upgraded due to the lack of a complete resolution in the near term. The situation in this region is expected to deteriorate as a result of ongoing concerns regarding the effect on the Russian economy of the oil price slump and Western sanctions.

“Despite a ‘Grexit’ being avoided (again), global financial markets lurched abruptly a few months back as concerns intensified over the extent of the growth deceleration in China and its ramifications for many other emerging markets and even the advanced economies,” said Andrew Williamson, leading economist at Dun & Bradstreet.

The four remaining geographical regions assessed for nine risk categories – Latin America, Asia Pacific, Middle East & North Africa and sub-Saharan Africa – all experienced deteriorating scores.

Latin America’s supply chain risk levels increased as a result of decelerating economic activity, political tensions, poor weather and natural disasters, including several eruptions of the Turrialba volcano in Costa Rica.

Australia and New Zealand’s scores were downgraded following China’s reduced import requirements and negative outlook. Despite overcapacity industries, and a series of chemical explosions, damaging Tianjin port’s operations, China’s supply chain has been relatively benign.

The slowdown of the Chinese economy has also negatively affected sub-Saharan Africa, due to the drop in demand for commodities, and knock-on effects on regional growth.

Security concerns following Islamic State-claimed attacks in cities including Souss and Tunis in Tunisia, have led to the downgrading of a number of countries in the Middle East and North Africa. And the impact of last week’s Islamic State attacks in Lebanon, Iraq and France have yet to be assessed.

"Although there is much to be gloomy about, consensus estimates for next year are still pointing to a respective acceleration in overall economic activity,” Williamson said.

CIPS’ chief economist John Glen added supply chain managers “need their wits and skills about them” to navigate uncertain times in an interconnected world.

“The European migrant crisis and conflicts in the Middle East mean that the risks are getting closer and are feeling more acute,” he said. “An ability to interrogate and innovate to provide solutions for businesses and customers will be paramount if we are to keep global supply chains flowing.”

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