LONDON, May 22, 2017 /PRNewswire/ -- Lack of trust
and transparency as a result of ideological and military conflicts
are undermining the international supply chains linking the world,
according to the Q1 2017 CIPS Risk Index, powered by Dun &
Bradstreet. Prolonged conflict is creating supply chain no-go
areas, cutting off local businesses and consumers from global
markets and potentially causing a scarcity of goods.
Military conflict
The conflict between Ukraine
and separatist rebels in the east of the country continued to
hinder both physical and digital supply chains this quarter. A
power cut in Kiev in December 2016 is now widely believed to have been
the result of a cyber-attack, while in March, Ukraine suspended all cargo from entering
separatist-held territory. Despite this, Eastern Europe and Central Asia only contributed 7.6% of global
supply chain risk this quarter, down from 8.5% in Q4 2016. The
change is the result of an update to the trade weightings used in
the Index as the fall in commodity prices has reduced the
importance of the region's trade flows in global supply chains.
Businesses have been busy re-routing supply chains away from the
conflict area, while sanctions have discouraged businesses from
dealing with Russia. This process
has accelerated as a result of persistently low commodity prices
which have seen the value of the region's exports fall.
Civil wars in Iraq,
Libya, Syria and Yemen are also disrupting traditional
land-based supply chains across the Middle East, curtailing the flow of goods from
Jordan and Lebanon through Syria and Iraq, and in North
Africa between Egypt,
Tunisia and Algeria. The conflicts look likely to continue
disrupting supply chains beyond 2017. As with Eastern Europe, international supply chains
have largely insulated themselves from the Middle East. The region's trade weighting has
been updated following the collapse in oil prices which reduced the
value of trade flows from the Middle
East, lessening its importance in the global supply
chain. The region therefore contributed just 7.9% of global
supply chain risk in Q1 2017, down from 9% last quarter.
Ideological conflict
Q1 2017 has also seen an escalation in the ideological conflict
between globalisation and economic nationalism, with the British
Prime Minister, Theresa May's, visit
to the White House in January 2017
symbolic of the shift in emphasis from multilateral to bilateral
trade deals. Despite President Donald
Trump's decision not to pull out of the North American Free
Trade Agreement (NAFTA) in April
2017, the future trading relationship between Canada, Mexico and the USA remains uncertain. As a result,
North America's contribution to
global supply chain risk rose from 8.1% in Q4 2016 to 8.6% in Q1
2017.
In France, Marine Le Pen's advance to the second round of
the presidential election raised serious concerns for businesses
with supply chains in the region. The failed candidate had promised
to close French borders immediately, abandon free-trade deals, tax
businesses with foreign employees and leave the European Union.
Collectively these measures could have significantly hindered
businesses that rely on French suppliers. The election of President
Emmanuel Macron should dissipate
these fears.
Elsewhere in Europe, the ideal
of a borderless Europe looks
increasingly secure. Whether Chancellor Angela Merkel, or her opponent Martin Schulz succeeds in Germany's parliamentary elections, the German
government looks likely to retain a pro-EU outlook. Although
temporary border controls have been extended in Germany and Sweden, they look likely to be abolished by
the end of the year, helping to reduce delays at these crucial
supply chain interchanges.
In China, meanwhile, exchange
controls implemented in November 2016
have prevented foreign businesses from transferring cash outside of
the country. The rules prevent overseas acquisitions of more than
USD10bn and require banks to keep net
cross-border Renminbi transfers balanced. The controls make routine
activity such as royalty payments difficult and pose a significant
risk to businesses with supply chains in the region.
National disruption
Localised conflicts have affected local supply chains in Q1
2017. In Chile a six week strike
ending on 24th March at La
Escondida copper mine reduced global copper capacity by 5%.
Terrorism also remains a risk for businesses working with suppliers
in Chile. Fires destroying 238,000
hectares of forest are widely thought to have been caused
deliberately, while a spate of bombings have continued in the
capital, Santiago. Latin America's contribution to global supply
chain risk has dropped however, from 7.5% in Q4 2016 to 7.15% in Q1
2017. The reduction is the result of falling commodity prices which
have considerably reduced the value of the region's exports to the
rest of the world.
The Indian Government's unexpected decision to withdraw 86% of
the country's cash as part of a crackdown on the use of counterfeit
money has left businesses struggling to pay suppliers and workers.
Combined with prolonged congestion at major Indian ports,
India has helped to push global
supply chain risk upwards. Asia
Pacific contributed 37.4% of supply chain risk in Q1 2017,
up from 33% at the end of 2016. In the long-term, however, progress
continues to be made to create a nationwide Indian customs union
which would see local tariffs abolished and encourage investment in
supply chain infrastructure across the country.
John Glen, CIPS Economist and
Director of the Centre for Customised Executive Development
at The Cranfield School of Management, said:
"Supply chains are a shared resource between consumers,
businesses and governments, with procurement and supply chain
managers acting as the guardians. When these links are effective,
businesses can benefit from lower prices, consumers from better
choice and society from greater knowledge sharing. It is therefore
crucial they are protected, made resilient and as effective as
possible, particularly when faced with a barrage of
challenges."
"Supply chain infrastructure can only function normally and
efficiently when there is trust and collaboration between all
nationalities and sections of society. Whether through military
confrontation in the Middle East
or political schism in Britain,
supply chain infrastructure is one of the first casualties of
conflict and the results can be devastating."
Bodhi Ganguli, Lead Economist,
Dun & Bradstreet:
"The improvement in the Global Risk Index (GRI) affirms that
after a rather torrid start to the year, the global economy is
settling down. The growth outlook is brightening, headwinds are
diminishing, and forecasts generally point to better outcomes than
we had expected a year ago. Yet, underlying this feel-good
momentum, the global economy continues to face risks, both systemic
and exogenous, that could flare up. From the fanning of
protectionist inclinations by the rise of right-wing populism, to a
one-off hit to supply chains from North Korean aggression, global
supply chains and cross-border business strategies must remain
cognisant of these risks, while utilising data and insights to take
advantage of the opportunities created by the rising tide of global
growth."
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. In the Q1 2017 index, the export
weights for the 132 countries covered from 2010 to 2015 have been
rebased. This is essential to capture the changing dynamics of
trade and supply chains and provides a more accurate assessment of
the global economy.
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. Regular production of this Index will help
procurement and supply professionals communicate and justify
risk-informed sourcing decisions and support effective Supplier
Relationship Management.
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 115,000 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:
Dun & Bradstreet
(NYSE: DNB) grows the most valuable relationships in business. By
uncovering truth and meaning from data, we connect our customers
with the prospects, suppliers, clients and partners that matter
most, and have since 1841. Nearly ninety percent of the Fortune
500, and companies of every size around the world, rely on our
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visit DNB.com.
Media Contact:
Deborah McBride
mcbrided@dnb.com
973-921-5714
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SOURCE Dun & Bradstreet