Supply chains are constantly susceptible to risk, and according to a new report, that risk cost $56 billion last year. And the number is rising.
Of the cross-border risks that plagued global supply chains in 2015, cargo thefts alone accounted for $22.6 billion, according to British Standards Institution’s (BSI) latest Global Supply Chain Intelligence report. Terrorism added billions in losses for global shipping companies, an influx of migrants in Europe harmed supply chain integrity and economic downturns in China, Brazil and Argentina didn’t help the situation either. Considerable instances of child and forced labor in manufacturing nations also had a part in contributing to disruptions in the supply chain.
Weather—which has been cited in nearly every major retailer’s financial reports as the reason for poor or lower-than-expected sales—caused supply chain disruptions, too.
“Companies are facing an increasingly wide range of challenges to their supply chain, from human rights issues to acts of violent theft and natural disasters,” BSI Global Intelligence Program Manager Jim Yarbrough said. “Such complexity creates extreme levels of risk for organizations, both directly affecting the bottom line but perhaps more seriously, hidden threats to the supply chain which, if ignored, could do serious harm to a company’s hard-earned reputation.”
The close to $23 billion in cargo thefts worldwide was driven largely by security concerns, BSI said. Cargo truck hijackings increased 30 percent in South Africa over the last year and thieves resorted to violence to score both high and low value goods. Vehicle shipment thefts have become “increasingly commonplace” in China, according to BSI, and in India, criminals are getting savvier, using new techniques to steal goods without breaking customs seals.
ISIS and its wanton terrorism reiterated the effect acts like that can have on a supply chain.
Ramping up border controls in France after the November attacks in Paris are estimated to have cost the Belgian shipping industry $3.5 million, according to BSI. Terrorist-tied smuggling rings between Spain and the Middle East were illegally transporting shipments of ill-gotten goods, and since conflict elevated in the Middle East in 2011, the Jordanian trucking industry has suffered $754 million in losses.
Weather and natural disasters
“In addition to theft, business continuity-related threats such as extreme weather events and political and social unrest, led to significant losses for individual companies and national economies last year,” BSI said. “2015’s top five natural disasters caused a collective $33 billion of damage to businesses.”
This year, the Zika virus could hamper global supply chains and force work stoppages and protests in conjunction with the latest Ebola flare up, the report noted.
Labor unrest in China last year was more apparent than in previous years as the country battles a slowing economy. Factory strikes were up 58.3% from the prior year over pay disputes with owners struggling to compensate workers and the wage withholding reportedly contributed to losses upwards of $27 million in the footwear industry.
And, as BSI put it, “Labor unrest is likely to continue in China in 2016, regardless of whether the economy improves.”
Despite the number of initiatives aimed at exposing child and forced labor, and the somewhat increased transparency in supply chains, numerous cases of the unethical labor practices were uncovered in 2015.
Almost 80 percent of Argentina’s textile industry was found to be sourcing from unregulated factories where poor working conditions, including child and forced labor, are common. BSI also found an increase in the risk of child labor use in India thanks to loopholes in labor reforms approved in 2015.
Supply chain risks in 2016
For 2016, there are seven major threats to global supply chains, according to BSI:
- Global cargo theft cost is estimated to grow by a further $1 billion this year, and China, Germany, India, Mexico, South Africa and the United States will be the areas of greater concern.
- Continued tensions in the South China Sea could lead to further protests and disruptions.
- Ongoing conflict in Syria will continue to impact supply chains—the migrant crisis will lead to port disruptions and the European Union/Schengen border is expected to have “far-reaching” impact.
- ISIS will remain a significant threat in terms of disrupting supply chains.
- Labor unrest in China will persist as the economic slowdown continues and more jobs migrate to neighboring countries.
- Weather disruptions like La Nina will remain a factor.
- Global heath crises like Zika and Ebola will have their impact on the supply chain this year.