APAC remains weakest point in global supply chain amid rising risks

Asia-Pacific remained the biggest contributor to supply chain risk in 2016 because of the region's importance to global supply chains, according to latest analysis from Dun & Bradstreet, the US-based data and credit analysis firm. The firm notes that Asia-Pacific's contribution to global risk fluctuated between 33.566 in the first quarter of last year and 33.168 in the final quarter. This compares with North America, which ranged from only 8.125 to 8.084. “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,” states Dun & Bradstreet. “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,” adds the firm in its study. Supply chain risk is likely to be right at the top of the agenda for the international risk and insurance management community in 2017, along with cyber, as risk managers and insurers wake up to its massive potential. Catastrophic events in Thailand back in 2011 and more recently Tianjin last year have underscored the vulnerability of the global economy to this risk. Unsurprisingly, Dun & Bradstreet notes that global supply chain risk grew to a record high at the end of 2016 as its CIPS Risk Index, produced for the UK-based Chartered Institute of Procurement & Supply (CIPS), 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. The CIPS Index tracks the impact of economic and political developments on the stability of global supply chains. The latest report concludes that 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. There has been an average of 22 new trade restrictive measures a month in the World Trade Organisation's latest report, the authors point out. Asia-Pacific may be the riskiest region for supply chain risk but the upward trend in supply chain risk is clearest in western Europe, where contribution to global risk rose to 30.681 in the fourth quarter of last year, from 30.048 in the first quarter. Brexit inevitably had an impact. “Amid sluggish growth across developed and emerging market economies in Q2, the UK's vote to leave the EU…heightened global supply chain risk for the rest of the year. Supply chains in the UK were severely hit by a depressed pound, which 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,” states Dun & Bradstreet. Donald Trump’s arrival in the White House and the collapse of the Trans-Pacific Partnership have also been factors in raising the risk in Asia and worldwide. “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,” adds the report.

APAC remains weakest point in global supply chain amid rising risks

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