Supply chain risks can often feel remote and barely visible to even the most trained eye. However, in today’s environment, risks affecting supply chains feature daily on our television screens. The European migrant crisis and conflicts in the Middle East mean that the risks are getting closer – and are feeling more acute than ever.

According to the CIPS Risk Index, global supply chain risk remained stubbornly high in Q3 2015, at 79.1. This is only slightly down from the record high of 82.4 recorded two years ago and considerably higher than the pre-financial crisis level of just 40.4 in Q4 2003.

This sustained rise in risk is mainly due to the deepening and interconnected nature of geopolitical developments which are threatening to redraw the supply chain map. Three main events in Q3 – the cross-border presence of IS throughout the Middle East, the re-introduction of border controls within Europe’s Schengen zone and the easing of US sanctions on Iran and Cuba – are starting to shift the global flow of products and services into new, unknown territory.

Return of internal European borders hinders trade

Some 20 years after its introduction, the borderless vision for Europe’s Schengen Area took a backward step in Q3 as national governments acted to control the movement of refugees fleeing to the continent from Syria, Iraq and North Africa. Hungary fenced off its border with Serbia and Croatia, while neighbouring Slovenia started work on a fence with Croatia on 11 November. These changes are having a direct impact on supply chains, with border crossings taking as long as 90 minutes in the countries involved, while livestock transportation from Serbia to Croatia was halted entirely for several days in October. Perhaps the greatest impact of the migrant crisis and border closures has been on Austria and Germany, both of which rely on the affected countries for heavy automotive industries. German companies have reported that they are experiencing a 10 percent cost increase from their logistics partners.

Jan-Mar 2016 Issue

Chartered Institute of Procurement & Supply