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2019 Update: Trade wars and economic downturns among top supply chain risks

Trade war possibilities between the U.S. and China, skirmishes regarding border control between the U.S. and Mexico, the Brexit situation, a volatile oil market and China on the precipice of an economic downturn – international commerce is contending with many risks this year. FreightWaves spoke with Shehrina Kamal, the director of risk intelligence at Resilience360, a supply chain risk management firm, to discuss the primary risks that global supply chains need to be wary of going forward.

This March, Resilience360 released its annual risk report that summarized a list of threats that deserve attention within the industry, with threats like climate change and hazardous materials container fires also finding a mention.

“We look at risks from a holistic supply chain risk management point-of-view. It is important to note that supply chains are made up of different parts. Thus, risks like environmental regulations and cargo safety resonate more with logistics folks, while risks like rising demand and raw materials shortage resonate with suppliers and sourcing professionals,” said Kamal.

However, implications of certain risks like trade wars and economic meltdowns will have a profound impact on supply chains at-large, regardless of the vertical a business functions in. “We see a lot of trade tensions and geopolitical issues that are driving people to rethink the way their supply chain networks are set up. This is something that is going to continue for the next few years,” said Kamal.

For the U.S., its border issues with Mexico have been apparent. In May, President Trump threatened to impose tariffs on all Mexican imports if Mexico did not enforce its borders and slow illegal immigration into America. Both countries agreed last week on a deal where Mexico promised to restrict immigration in return for no tariffs.

“We’ve seen a lot of border delays between the U.S. and Mexico. Everyone agrees that any sort of [border] closure will have catastrophic consequences on numerous industries – including the auto sector,” said Kamal. “However, we think that some of these things are quite unlikely, given the huge focus on industries and making sure the economy keeps running. The Brexit situation is also a concern, but it is anybody’s guess as to how it will turn out. But if it’s a hard Brexit, then it will be extremely difficult for industries on both sides of the [English] Channel.”

Kamal highlighted the need to look at the Chinese economy and its possible downturn could trigger a restructuring of global manufacturing networks. Numerous companies are  sourcing materials from countries other than China (and others are considering it), and several technology companies have also decided to move production of their products to other countries due to weakening demand and cost pressure.

“As a result, we think that the Chinese economic downturn will play a factor in business decisions, as to where they want to operate and what they want their manufacturing locations to look like. However, it remains to be seen how this will pan out over the course of this year,” said Kamal.

This apart, Kamal felt that little-discussed factors like supplier solvencies would play a role in trade fortunes, as small producers continue to go bankrupt due to economic uncertainties and regulatory changes that have come about with international trade. Environmental reforms like the upcoming International Maritime Organization’s cap on sulfur emissions will have a sizeable impact on transport costs.

Governments and international bodies are advocating for sustainable modes of transportation, which is evident with the promotion of electric vehicles and the reception of shared mobility options across urban spaces. International commerce, in essence, will have to look at moving ahead while accounting for technology disruption and adjusting to logistical boundaries.

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Vishnu Rajamanickam, Staff Writer

Vishnu writes editorial commentary on cutting-edge technology within the freight industry, profiles startups, and brings in perspective from industry frontrunners and thought leaders in the freight space. In his spare time, he writes neo-noir poetry, blogs about travel & living, and loves to debate about international politics. He hopes to settle down in a village and grow his own food at some point in time. But for now, he is happy to live with his wife in the middle of a German metropolitan.

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