- Global supply chain risk fell for the fourth straight quarter to 79.5 in Q4, down from 80.3 in Q3, with risk at the lowest level since the beginning of 2016
- The Middle East and North Africa region remains a worry as risk goes up amidst ongoing insecurity in a number of countries, and the Islamic Cold War
Despite continuing political concerns across the world, strengthening global economic growth was instrumental to another drop in the level of global supply chain risk according to the Chartered Institute of Procurement & Supply (CIPS) Risk Index, powered by Dun & Bradstreet.
The CIPS Risk Index fell for the fourth consecutive quarter in 2017 to 79.5, down from 80.3 in Q3 2017, and dropped or remained unchanged in all regions measured by the Index apart from the Middle East and North Africa, and Latin America. The Middle East was impacted by the continuation of the ‘Islamic Cold war’, while Latin America was destabilised by a continuous cycle of elections, making trade and commercial progress difficult.
Despite recent falls, the Q4 2017 score remained close to the high of 82.6 in Q4 2016, but is the lowest since the beginning of 2016. The Index, produced by Dun & Bradstreet for CIPS, tracks the impact of economic and political developments on the stability of global supply chains.
The Index paints a hopeful picture for the US whose score remained unchanged and likely to improve still further in the coming months. Economic growth in 2018 is set to experience an uptick as labour market resilience strengthens and new business-friendly tax laws contribute to near-term growth as businesses look to expand their operations, create more jobs and release the squeeze on wage growth. The political risk indicator for the US is stuck on amber, however; across the aisle cooperation is likely to be limited ahead of the mid-term elections, while the evolving stance of US trade policy towards its partners could add to uncertainty.
In Western Europe risk improved and recovered further across most countries in spite of ongoing political uncertainty as macroeconomic conditions remained favourable. Consumer demand remained robust and investment growth continued with no major obstacles in sight. From a supply chain perspective there are three main areas to keep an eye on; first, the EU’s progress in free trade negotiations with several Asian economies. This could impact on the future success of the UK as it departs the EU as supply markets are opened and opportunities for diversification of supply chains are created.
Second, infrastructure growth in central Europe could be impacted with the loss of the UK’s contribution to the EU and in turn influence the strength and integrity of global supply chains.
Third, labour shortages in transport and logistics in Germany could lengthen delivery times and the efficiency of supply chains. Britain alone is suffering a shortage of around £50,000 lorry drivers and this is likely to become more severe as many drivers are now reaching retirement age.
The high levels of insecurity in the Middle East particularly in Iraq, Libya, Syria and Yemen had a major effect on the Index, along with the Islamic Cold war between Saudi Arabia and Iran. The continuing entrenchment in position between Saudi Arabia, the UAE, Bahrain and Egypt with Qatar is continuing to derail supply chains, creating new formations and supply routes and making commerce more challenging.
John Glen, CIPS Economist said:
“Given the threats looming over the global economy, it was a surprise to see overall risk in supply chains improving again for another quarter and the fourth in a row.
“The overall Index figure was at its lowest since the first quarter in 2016, as a period of stability descended over global supply chains, but the threat of trade wars between the US and China, and also the UK and Europe may severely impact this trend for improvement.
“Though the Index reported no change to risk in the US and Canada, the undercurrents are showing there are more expected improvements to come in 2018 with predictions for the strongest rebound in economic growth since the recession. And where America leads, the world is sure to follow.
“The drivers for this growth appear to be good labour conditions with more employment in more regions, consumer confidence resulting in strong spending patterns, and businesses benefitting from recent tax breaks as they re-invest their spare capital into business opportunities and higher wages.
“Though returning for a moment to focus on the dark clouds of potential trade hostilities alluded to earlier, it is largely political threats that could create an unwelcome adjustment in this trajectory of strong global economic growth, resulting in an undesirable start to what was a promising 2018.”
Bodhi Ganguli, Global Leader and Lead Economist at Dun & Bradstreet, said:
“Dun & Bradstreet’s Global Risk Index score improved for the fourth straight quarter, and dropped from 80.3 in Q3 2017 to 79.5 in Q4. The Q4 reading is the first time the index has dropped below the 80-point mark in the past two years, bringing it down to a level not seen since Q1 2016. Supply chain risks are lower and are expected to improve in the near term on the back of faster global growth.
“In line with the IMF and World Bank, we are currently forecasting strengthening growth in 2018. Our forecast of 3.2% would be the strongest global growth since the 2010 rebound from the 2008–09 contraction. In regional terms, the outlook for North America (in particular the US) is now improving, as is Western Europe, and we have recently upgraded our growth forecast for China (although we remain concerned about credit quality in both China and India). As a result, our outlook for Asia-Pacific remains at ‘stable’ for the present. Furthermore, strengthening commodity prices will boost growth prospects in the commodity-exporting emerging economies.”
Notes to Editors:
About the CIPS Risk Index, powered by Dun & Bradstreet:
First launched in April 2014, the CIPS Risk Index, powered by Dun & Bradstreet, is a composite indicator of pressures acting upon supply chains globally. The Index analyses the socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world, weighting each score according to that country’s contribution to global exports.
The Index helps sourcing professionals understand the risks to which their supply chains are exposed, articulate questions and scenarios for key suppliers, inform assurance activities, check the readiness of contingency plans, support the negotiation of risk transfer in contracts, and establish factors which may impact the financial stability of tier one and sub-tier suppliers upstream.
About the Chartered Institute of Procurement & Supply:
The Chartered Institute of Procurement & Supply (CIPS) is the leading international body representing purchasing and supply management professionals. It is the worldwide centre of excellence on purchasing and supply management issues. CIPS has a global community of 200,000 in 150 different countries, including senior business people, high-ranking civil servants and leading academics. The activities of purchasing and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions packages to improve business profitability. www.cips.org, @CIPSnews.
About Dun & Bradstreet
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