Trade Tensions, Raw Material Shortages, Climatic Disruptions Top Supply Chain Risks

Date: Thursday, March 28, 2019
Source: Sourcing Journal

Avoiding risks in the supply chain probably comes in second only to cost control for companies operating in a global environment.

For apparel, textile and footwear manufacturers, the prediction that manufacturing network disruptions and raw material shortages will be among the top risks in 2019, according to the first annual “First Resilience360 Risk Report” from DHL, will cause some concern.

The DHL report said key events in 2018 that impacted the global supply chain included climate-driven disruptions affecting shipping, higher than expected cyber-attacks targeting supply chain assets and industry zone shutdowns impacting production activities.

The report, based on risk and incident data collected by DHL’s cloud-based risk management provider, Resilience360, examined last year’s major supply chain challenges and identified trends that will shape the risk landscape in 2019.

“Risk assessment and building up supply chain resilience is a crucial part of our customers’ business,” Tobias Larsson, CEO Resilience360, said. “Wherever they operate, the report’s insights will make the re-evaluation of the respective risk environment easier and thus complement the existing Resilience360 offer.”

Three key risks surfaced as top issues plaguing supply chain stakeholders: uncertainties concerning trade flows, cyber security incidents, and climate change paired with extreme weather conditions. The report said uncertainty in trade increased over disputes between the U.S. and other countries, notably China, including new unilateral import tariffs. In addition, the ongoing question of the U.K.’s withdrawal from the European Union (EU) also contributed to uncertainty, as companies worried over border congestions and delays at ports in the event of a disorderly departure.

In the realm of cyber security, a rising number of incidents involving supply chain and transport infrastructure showed how actors are intent on obtaining trade secrets, engaging in blackmail or causing economic disruption.

Climate change presented a range of severe weather-related disruptions in 2018, now considered the fourth warmest year on record. Incidents like wildfires, droughts, low water levels and melting ice had the most significant impacts on supply chains, Resilience 360 said.

While North America experienced fewer disasters and weather-related incidents than in 2017, the Asia-Pacific region suffered eight major tropical storms that caused significant supply chain disruptions in Japan, China, South Korea, Taiwan and the Philippines.

In Europe, Resilience360 recorded the most incidents in Germany and the U.K., with two-thirds of high-impact events caused by cargo theft, industrial fires and explosions, and train accidents. Air and ground transportation incidents represented 44.7 percent of incidents. DHL said such events are especially relevant for supply chains.

Civil unrest accounted for the second-highest portion of events at 12.9 percent. Protests related to Labor Day on May 1 and the Yellow Vests in France and Belgium disrupted highways, ports, border crossings and access roads to industrial areas.

In the U.S., the report noted that while improved police work and security measures contributed to the reduction of cargo theft incidents in 2018, major areas of logistics importance, such as Los Angeles and Long Beach, New York and New Jersey, Chicago, Detroit, Memphis, Atlanta and Miami, continued to experience high rates of cargo theft incidents.

In addition to ongoing global risks like the political tensions that characterized trade in 2018, companies could also face added costs and uncertainty due to raw material shortages, recalls and stricter environmental regulations.

Rising demand for raw materials combined with a fragile supply caused by political instability and supplier shutdowns could also result in raw material shortages, according to DHL. The low supply of adiponitrile (ADN), a precursor chemical to products such as nylon, for one, could impact the textile sector. ADN is only manufactured at five plants in the world, with Invista being a major supplier, and shortages have been driven by operational problems and maintenance shutdowns, according to the report.

Also affecting the sector are disruptions in the global recycling industry, and other countries in South East Asia could follow China’s lead in closing their doors to scrap imports, which has included plastics used to make recycled polyester.

Companies dependent on U.S.-Mexico and EU-U.K. lanes are likely to see increased costs and border crossing wait times.

“Modern supply chains are vulnerable. Transportation delays, theft, natural disasters, inclement weather, cyber-attacks and unexpected quality issues can disrupt cargo flows, creating short term costs and delivery challenges,” Shehrina Kamal, Resilience360’s director of risk intelligence, said. “Resilience360 strives to understand these risks and gain a common understanding of how they impact supply chains across countries, regions, industries and organizations in measurable ways.”

 

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