Global supply chain risk reached its highest level in 24 years as globalisation fell out of favour and risk increased across Western Europe, according to the CIPS Dun & Bradstreet Risk Index for the end of 2016.
Global supply chain risk rose to 82.64 out of a maximum possible 100, compared with 79.14 at the end of 2015. The index scores global supply chain risk based on socio-economic, physical trade and business continuity factors and weighted according to region’s contribution to global export.
Supply chain risk has been on the rise since the second half of 2015, and the report predicts further increases, making the work of supply chain manager even more important for corporate success. “Uncertainty stemming from significant trade and foreign policy changes implemented by the new US government will be one of the main drivers of supply chain risk over the next few quarters,” said Bodhi Ganguli, lead economist at Dun & Bradstreet.
Western Europe has been a key contributor to the global risk, with the region’s own risk on the rise since the Brexit vote of last June last year. Supply chains in the UK were first severely hit by a depressed pound which pushed up the cost of imports, causing negotiations between retailers and suppliers over who should carry the burden of reduced profit margins, said the report. Across Western Europe, risk is expected to rise as the UK faces the likelihood of a hard Brexit, and elections in France, Italy, the Netherlands and Germany are predicted to see increasing support for parties that put Euro scepticism and restrictive trade measures at the centre of their policies.
North America saw a fall in risk during the last quarter of 2016, with strong US consumer spending. However, the report expects this to change this year if the Trump Administration puts in trade barriers with Mexico and China, two major global players in global manufacturing supply chain network.
Globally, President Trump’s activities from November to move away from global trade policies has confirmed a wider shift towards protectionism, with cancellation of the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership in greater doubt. Global supply chains face unparalleled uncertainty and stress, stated the report.
The rise of protectionism also poses a considerable threat to supply chains relying on Chinese exports with the yuan falling to an eight-year low against the US dollar in the week of President Trump’s election, the authors point out.
“Amidst exchange and commodity volatility, currency hedging will remain vital, while contingency plans must be put in place to protect supply chains from foreseeable trade barriers,” advised John Glen, CIPS economist and director at The Cranfield School of Management.