Global supply chain risk at its highest level in 24 years

Global supply chain risk at its highest level in 24 years

2016 was the year of economic nationalism as supply chain risk reaches record high, according to CIPS.

  • Global supply chain risk climbed to its highest level in 24 years, as measured by the CIPS Risk Index, compiled by Dun & Bradstreet.
  • Western Europe’s contribution to global risk steadily increased throughout 2016.
  • Rise of economic nationalism causes uncertainty for global supply chains.

Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index, compiled by Dun & Bradstreet, rose to 82.64, from 79.14 at the end of 2015. The figures put global supply chain risk at the highest level in 24 years following a year in which the pace of globalisation appeared to slow.

Global supply chain risk Q4 2016

The index, produced for the Chartered Institute of Procurement & Supply (CIPS) by Dun & Bradstreet economists, tracks the impact of economic and political developments on the stability of global supply chains. A combination of economic nationalism, rebounding commodity prices and the growth of a burgeoning Chinese middle class is making long international supply chains a more risky prospect, while there has been an average of 22 new trade restrictive measures a month in the World Trade Organisation’s latest report.

The upward trend in supply chain risk is clearest in Western Europe, where contribution to global risk rose to 30.681 in Q4 from 30.048 in Q1. Amid sluggish growth across developed and emerging market economies in Q2, the UK’s vote to leave the EU at the end of June heightened global supply chain risk for the rest of the year. Supply chains in the UK were severely hit by a depressed pound that followed the Brexit vote in June. This pushed up the cost of imports, leading to some early conflicts in Q3 between retailers and their suppliers over who should shoulder these costs. The increasing likelihood of a ‘hard’ Brexit, and the UK’s departure from the single market, will add further disruption to supply chains throughout Europe.

In addition to the UK’s vote to leave the EU, there has been a wider revival of interest in trade restrictive measures across Europe. Elections across Europe in 2017 are expected to see gains for populist parties with France’s National Front, Italy’s Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany all placing Euroscepticism and restrictive trade measures at the centre of their policies.

At a global level, Donald Trump’s election success in November confirmed a wider shift towards protectionism in global trade policy. The adoption of protectionist trade policies, closing of borders and pursuit of bilateral trade deals over multilateral ones, all signal that the gap is widening between an interdependent global economy and the sole pursuit of national interests. As multilateral trade agreements, such as the Trans-Pacific Partnership are dismantled, global supply chains face unparalleled uncertainty and stress.

North America’s contribution to global risk remained static over 2016 as the North American economy continued on a trajectory of growth and US consumer spending remained strong. This risk score is likely to increase in 2017 if the USA builds trade barriers with Mexico and China who are significant players in the global manufacturing supply chain network.

Asia Pacific remained the highest contributor to supply chain in risk in 2016, due to the region’s importance to global supply chains. Asia Pacific’s contribution to global risk fluctuated between 33.566 in Q1 to 33.168 in Q4. The emergence of a larger middle class in China has gradually reduced the competitiveness of Chinese exports in 2016 with wages increasing by 10%. As a result, suppliers have begun moving their supply chains into nearby Indonesia or even beginning the process of reshoring back into their domestic markets. Going forward, the rising tide of global protectionism 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 Donald Trump’s election.

New Zealand’s risk score improved with the recovery of the country’s economy in Q4. The economy grew 4.5% in real GDP and private consumption growth from a reduced forecast at the beginning of the year. Despite this stability, New Zealand suffered following the 7.2 magnitude Kaikoura earthquake on the 14th November, which resulted in severe damage to major highways and rail lines along the coast of South Island north of Christchurch. Rebuilding costs for rail and road links and Kaikoura harbour are projected at USD 1 billion.

General manager CIPS Asia Pacific Mark Lamb said: “We’ve seen a significant rise of economic nationalism in 2016, with UK’s vote to leave the EU last June heightening global supply chain risk for the rest of the year and the election of Donald Trump.

“This trend is set to continue and supply chain risk to increase further, in particular with upcoming elections in Europe this year, which are expected to see gains for populist parties.

“Our region remained the highest contributor to supply chain risk last year due to APAC’s importance to global chains, and this could increase further as China’s export competitiveness continues to reduce and suppliers are moving their supply chains into Indonesia and even into their domestic markets.”

Lead economist at Dun & Bradstreet Bodhi Ganguli said: “Dun & Bradstreet’s Global Risk Score measuring supply chain risk rose to an all-time high in Q4 2016, reflecting a rise in political and economic risk.

“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. The process of Brexit is also set to start in Q1, and will roil the current supply chain environment in Europe. Emerging markets dependent on trade will also be affected by both these factors and commodity price fluctuations remain an ever-present threat to global supply chains.”

You may also like to read:


Comments are closed.

Newsletter

Sign up with your business email address to keep up with the latest industry news from T&L. Newsletter sent every week.

Most Read

Truck drivers fear raising safety concerns
A Macquarie University report has revealed the major reasons...
New range of light forklifts from Kalmar
Kalmar, part of Cargotec, is launching a new range of diesel...
Visibility up to 97% with voice technology
Honeywell, VoiceID and Icon Integration have completed a pro...
Is there a future for delivery drones?
Gartner says almost 3 million personal and commercial drones...

Supported By