- Supply chain risk from Asia Pacific breaks record for third consecutive quarter
- Rare weather conditions and Chinese credit risk provides uncertain outlook
Global supply chains suffered from growing risk in Q4 2015, led by the slowdown in China’s economy, according to the latest CIPS Risk Index, powered by Dun & Bradstreet.
The CIPS Risk Index, powered by Dun & Bradstreet, produced for the Chartered Institute of Procurement & Supply (CIPS), tracks the impact of economic and political developments on the stability of global supply chains.
Asia Pacific is again driving up global supply chain risk in Q4 2015, breaking the Index’s record for the third consecutive quarter, up to 26.68 in Q4 from 25.73 in Q1 2015.
The slump in Chinese demand for industrial commodities, especially steel and coal, has put a strain on Australian suppliers.
Meanwhile the El Niño effect (a band of warm ocean water which occasionally hits the Pacific) threatens dairy output in New Zealand and agricultural production in Australia.
Together Asia Pacific now amounts for 34% of global supply chain risk.The heavy industries located in the north of China are proving to be a stubbornly weak link for global supply chains.
Commodity suppliers in Australia are tapering down production in response to both China’s economic slowdown and the shift of energy policy away from coal. However, it is the uncertainty which is hitting many producers the hardest.
Chinese state lenders have propped up industrial production with cheap credit, a practice which has undermined their ability to pay suppliers on time. Combined with a global commodity price slump, Australian iron ore and coal producers are under particular strain to understand the pressures further up their supply chain.
The El Niño effect is also having an uncertain impact on suppliers in the region. The resulting drier weather may yet hit agricultural production in Australia, but it is New Zealand’s milk exports which could have the biggest knock-on effect. New Zealand produces a third of global dairy exports and even a small reduction in output could affect global milk prices. The impact on New Zealand itself is significantly wider.
Following New Zealand’s GDP growth, performance for 2015 depressed by a drought earlier in the year, a slow recovery in milk prices could result in a 10% decline in land prices and an 8% rise in non-performing loans. Combined with a fall in NZ employment figures in Q3 the country is experiencing challenges.
Growing risk in Asia Pacific has also nudged global supply chain risk up for the second quarter in a row, standing at 79.3 in Q4 2015, almost twice the pre-financial crisis high of just 40.7 at the end of 2002.