Global supply chain risk Q3 2016
Global supply chain risk Q3 2016

Risk on the rise as global commitment slides

posted by Jacki Buist
in Risk
9 November 2016

Supply chain managers are facing a new wave of impediments to the flow of goods across borders, said CIPS economist John Glen, as the latest CIPS Risk Index continued to climb to levels not seen since 2013.

Global risk for the third quarter of 2016 reached 81.6, where risk is rated between 1 and 100. This is the fourth consecutive global increase, with Asia Pacific the only region to record a decline in risk.

The quarterly report, produced in association with Dun & Bradstreet, tracks the impact of economic and political developments on the stability of global supply chains to provide an early warning of changes in supply chain risk.

A disintegration of the political consensus over globalisation is a key factor in the increased risk, said the report, with the an average of 22 new trade restrictive measures introduced a month from October 2015 to May 2016 compared with 15 during the same period last year, according to World Trade Organization figures.

“With international trade deals under threat around the world, supply chain managers must be as aware of political risks as they are of natural disasters and economic hardship,” said Glen, who is also director of the Centre for Customised Executive Development at The Cranfield School of Management. 

“A more protectionist approach to trade around the world will threaten the health of supply chains, and we have already seen some indications that this may start to have an impact soon in some regions of the world,” he added.

While Western Europe’s risk rating remains low compared with other regions, it has risen on the previous quarter. This is the first full quarter since the UK voted to leave the EU, and the report said many more challenging negotiations were expected, such as Tesco’s stand-off with Unilever over who carries the increased cost of products such as Marmite.

A positive effect of a weak currency on UK exporting businesses has not been sufficient to offset the rise in risk in the UK. Additionally, the prospect of far-right political gains across Europe added further uncertainty, with France, Italy, the Netherlands and Germany all facing elections in the coming 12 months.  

The three other regions to suffer increased risk – Eastern Europe and Central Asia, MENA, and sub-Saharan Africa – were largely affected by persistently low commodity prices, particularly oil. Ongoing civil wars in Iraq, Libya, Syria and Yemen also affected MENA’s risk rating.

While sub-Saharan Africa reported greater risk overall, commodity importers Kenya and Ethiopia managed to grow solidly. Nigeria and South Africa – both commodity exporters – face strong headwinds, said the report.

Asia Pacific benefited from Australia’s good iron ore and metallurgical coal prices, a positive response to tax cuts and increased defence spending and a recovery from China’s economic slowdown. A reliance on temperamental Chinese demand continues to pose risks and elsewhere in the region logistical routes have been hindered. The report predicted Hanjin’s bankruptcy is also likely to have an impact on trans-Pacific and Asia-Europe supply chains. 

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