Major disruption risk for auto manufacturers

Matt Grimwade, JLT Specialty
posted by Matt Grimwade
3 September 2018

Escalating trade wars look set to be the new risk frontier in auto supply disruption. With countries and trading blocs around the world starting to retaliate against US moves to raise tariffs, open trade borders are closing in very quickly.

According to new data from supply chain analytics firm Resilinc, 42,000 parts and 5,000 companies across the automotive, high tech, life science, medical devices, pharmaceutical and industrial sectors could be affected by US tariffs on Chinese products alone. The prospect of a global tit-for-tat poses major disruption risks for auto manufacturers across several fronts.

Steel, aluminium and rubber were first on the hit list, but now entire vehicles are in their sights, with the EU just one of the global powers threatening to respond in kind with tariffs on $300bn worth of US goods.

Trade barriers have the potential to alter the risk landscape considerably as far as supply chain disruption is concerned. Last year, factory fires, hurricanes and labour strikes were among the top disruption events impacting the auto sector, according to Resilinc, while geopolitical risks only ranked mid-table. Given the current global tensions, it is very likely that geopolitical issues will rise up the list very quickly.

The length and complexity of global supply chains and the nature of component manufacturing make trade wars a major concern. Auto manufacturers may need to radically re-design their global supply map to ensure security of supply, otherwise reduced access to markets, capacity limitations, higher prices and brand damage could result.

It is vital that manufacturers know where supply chains are most vulnerable, so that informed decisions can be made, whether that’s re-adjusting current arrangements or putting in place a “Plan B”. This will give senior management and shareholders comfort that all efforts have been made to make sure the supply chain is as secure as possible. There may even be a competitive advantage to be gained.

The more visibility manufacturers have across their deep supply chains, the easier it is to ensure optimum coverage for their specific needs and risk profile. Even the biggest players in the auto sector can struggle to achieve this level of knowledge and visibility across supply chains, down through to sub-tier suppliers across thousands of parts.

As global economies intensify the protectionist rhetoric and with Brexit under a year away, auto manufacturers need to deploy all the weapons at their disposal, from risk mapping to contingency planning to business interruption insurance to limit the damage – they can’t afford to pin their hopes on a trade truce.

Matt Grimwade is head of automotive at leading global insurance broker and risk advisor JLT Specialty

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