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Global Supply Chain Risk Highest in Three Years

Risk has always been present in supply chains, but now that risk has worsened and continues to rise.

A recent risk index out by the Chartered Institute of Procurement & Supply (CIPS) said supply chain risk is the highest it’s been since 2013, driven largely by the political and economic climate and increased risk in developing nations.

Risk rose the most in Western Europe, climbing to 2.63 in the third quarter from 2.60 in the previous quarter, owed mostly to Brexit and its effects.

The U.K.’s decision to leave the European Union set markets in a tailspin and the pound sterling in a downward spiral. Depreciation as a result of the currency slide has hit manufacturers in the country hard, and some have even started passing on increased costs to the consumer.

All of that uncertainty hasn’t helped the outlook for trade either.

The Transatlantic Trade and Investment Partnership (TTIP) between the EU and the U.S. almost surely won’t move any further forward this year and with the incoming U.S. president still unknown, there’s little telling what will happen next with the deal. The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada had looked set to progress until hangups in Belgium held things up, and the deal hit another speed bump on Tuesday when the Netherlands said it wants a referendum on the deal because it overly favors multinational companies.

Supply chain risk in North America was flat, coming in at 2.101, though conditions could get riskier as the U.S. settles into new leadership that may or may not help advance global trade.

But apart from Brexit and the U.S. elections, consistently low commodity prices are only fueling the cash flow crisis for oil exporters in Eastern Europe, Central Asia, the Middle East, North Africa and Sub-Saharan Africa, according to Supply Chain Digital, and that raises risk for supply chains that pass through those regions.

Supply chain risk in Eastern Europe and Central Asia has risen from 5.396 to 5.424. In the Middle East and North Africa, risk ramped up from 4.406 in the second quarter to 4.413 in the third.

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And despite eyes increasingly turning to Sub-Saharan Africa as a new manufacturing location, the region still has the world’s highest level of supply chain risk, increasing to 5.558 in the quarter. Ethiopia’s current unrest won’t do well for the region as far as risk either.

Asia Pacific was the only region that saw supply chain risk decrease, falling slightly from 3.424 in the second quarter to 3.415 in the third.

In other parts of Asia, however, logistics issues have added to risk. According to Supply Chain Digital, Taiwan’s super typhoon Meranti caused disruptions in flights, ports, rail schedules and power supplies in the country, while excessive winds forced the temporary closure of two nuclear power stations.

Hanjin Shipping’s bankruptcy in August only made matters worse for logistics as the South Korean shippers’ failure tied up supply chains and left goods stranded all over the world. What’s more, the bankruptcy meant a 3 percent loss in global shipping capacity.

“Supply chain managers are facing a new wave of impediments to the flow of goods across borders,” CIPS economist John Glen told Supply Chain Digital. “Skilled supply chain managers are adept at managing the short-term supply chain disruptions but with supply chain risk returning to record levels, businesses must be continually vigilant in vetting their suppliers and preparing contingency plans.”