Global supply chains face heightened risks

The risk of disruption to corporate supply chains is running at an almost record high, according to an index created by the global trade body for purchasing managers.

Just as it appeared that dangers for businesses were starting to recede, a drop in commodity prices and a slowdown in China heightened the risk to supply chains, according to the Chartered Institute of Purchasing and Supply.

The CIPS's new quarterly risk index, backdated to 1995, found that although supply chain risk fell in North America and western Europe last year it increased sharply in Latin America, eastern Europe, Asia and sub-Saharan Africa.

The index's overall "risk score" has more than tripled from 23.7 in 1994 to 78.7 today.

John Glen, economist and senior economics lecturer at the Cranfield School of Management, said there had been a step-change in risk since the financial crisis in 2008 and that dangers had been increasing ever since.

"Supply chains have become a lot more complex in the past 20 years. It's not necessarily the case that there is more risk out there but that our supply chains touch them more," he said.

In Asia-Pacific, the vital Chinese manufacturing and heavy industrial sectors are at risk of defaulting on state-backed loans.

Meanwhile, in Latin America, Brazilian, Chilean and Argentine suppliers are all suffering from lower soyabean and copper prices.

Brazil, in particular, cut infrastructure investment over the past two quarters as it sought to improve its credit rating. Although it is the world's second-largest producer of hydroelectric power, it struggled to maintain a consistent supply of power to businesses during a drought.

This raised concerns about the reliability of supplies of iron ore, gold, poultry and sugar cane to China, the US and Europe, CIPS said.

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As finances deteriorate further into 2016, investment in transport is expected to slow, undermining the reliability of gold, rubber and cocoa supply chains as well as petroleum.

The same forces are at work in parts of the Middle East. Although Bahrain is more diversified than economies such as Nigeria, it still relies on commodities for 80 per cent of its revenue and the resulting economic slump has helped to fuel political unrest.

Australia, meanwhile, is experiencing the highest unemployment for 13 years as iron ore prices worsen and investment continues to fall.

Supply chain risk has been a source of concern since the financial crisis, especially as pressure to keep costs low means that multinational manufacturers often operate complex networks of component supplies on a just-in-time basis.

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