Dun & Bradstreet index finds Brexit and slow economic growth weighing on supply chains, and that doesn’t even include the Trump effect
A global supply chain volatility index compiled by Dun & Bradstreet reached its highest level in 24 years at the end of 2016, driven mostly by protectionist sentiments in Europe and the slow growth of economies around the world.
The index, which Dun & Bradstreet produces for the U.K.-based Chartered Institute of Procurement & Supply, examines risk factors for all countries on an export-level-weighted basis.
“A combination of economic nationalism, rebounding commodity prices and the growth of a burgeoning Chinese middle class is making long international supply chains a more risky prospect while there has been an average of 22 new trade restrictive measures a month in the World Trade Organisation’s latest report,” D&B said.
The upward trend in supply chain risk is clearest in Western Europe, D&B said, in the aftermath of the U.K. voting to leave the European Union in June 2016.
“The increasing likelihood of a ‘hard’ Brexit, and the U.K.’s departure from the single market, will add further disruption to supply chains throughout Europe,” the firm said. “In addition to the U.K.’s vote to leave the EU, there has been a wider revival of interest in trade restrictive measures across Europe. Elections across Europe in 2017 are expected to see gains for populist parties with France’s National Front, Italy’s Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany all placing Euroscepticism and restrictive trade measures at the center of their policies.”
What’s more, D&B said the high supply chain risk reading on the index at the end of 2016 doesn’t even take into account the impact of Donald Trump’s election in November.
“North America’s contribution to global risk remained static over 2016 as the North American economy continued on a trajectory of growth and U.S. consumer spending remained strong,” the firm said. “This risk score is likely to increase in 2017 if the U.S. builds trade barriers with Mexico and China who are significant players in the global manufacturing supply chain network.
As multilateral trade agreements such as the Trans-Pacific Partnership are dismantled, global supply chains face unparalleled uncertainty and stress.
“At a global level, Donald Trump’s election success in November confirmed a wider shift towards protectionism in global trade policy. The adoption of protectionist trade policies, closing of borders and pursuit of bilateral trade deals over multilateral ones, all signal that the gap is widening between an interdependent global economy and the sole pursuit of national interests. As multilateral trade agreements such as the Trans-Pacific Partnership are dismantled, global supply chains face unparalleled uncertainty and stress.
Asia, meanwhile, continues to carry the largest portion of risk in the index because of dependence on the region for sourcing and its inherent political and infrastructure characteristics.
“The emergence of a larger middle class in China has gradually reduced the competitiveness of Chinese exports in 2016 with wages increasing by 10 percent,” the firm said. “As a result, suppliers have begun moving their supply chains into nearby Indonesia or even beginning the process of reshoring back into their domestic markets. Going forward, the rising tide of global protectionism poses a considerable threat to supply chains relying on Chinese exports with the yuan falling to an eight-year low against the U.S. dollar.”
D&B also cited rising oil prices as a dynamic heightening risk.
“Amidst exchange and commodity volatility, currency hedging will remain vital, while contingency plans must be put in place to protect supply chains from foreseeable trade barriers,” said John Glen, CIPS economist and director of the Center for Customized Executive Development at The Cranfield School of Management. “Reshoring supply chains will be an increasingly attractive prospect in the months to come. But, these are uncertain times for supply chain managers and there is no quick fix for the months ahead.”
Launched in April 2014, the CIPS Risk Index is a composite indicator of pressures acting upon supply chains globally. The index analyzes socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world, weighting each score according to that country’s contribution to global exports.