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Trade Issues, Cybersecurity, Weather – Top Supply Chain Risks

April 1, 2019
Other risks include additional costs and uncertainty due to raw material shortages, recalls and safety scares or tougher environmental regulations.

The world’s top three risks were uncertainties concerning trade flows, cybersecurity incidents, and climate change paired with extreme weather conditions, according to the DHL Resilience360 report which was released on March 25. The report examined last year’s major supply chain challenges and identifies trends that will shape the risk landscape in 2019.

“Modern supply chains are vulnerable,” adds Shehrina Kamal, Director Risk Intelligence, Resilience360. “Transportation delays, theft, natural disasters, inclement weather, cyber-attacks and unexpected quality issues can disrupt cargo flows, creating short term costs and delivery challenges.”

Uncertainty in trade increased due to disputes between the U.S. and other countries, in particular, China, including new unilateral import tariffs. The still-open question of the UK’s withdrawal from the EU is also contributing to uncertainty, as companies fear border congestions and delays at ports in the event of a disorderly departure.

In the realm of cybersecurity, 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.

Lastly, climate change presented a myriad of severe weather-related disruptions in 2018, which was the 4th warmest year on record. Wildfires, droughts, low water levels and melting ice had the most significant impacts on supply chains.

Challenges Across Europe

In Europe, Resilience360 recorded the most incidents in Germany and the United Kingdom. Two-thirds of high-impact events were caused by cargo theft, industrial fires and explosions, and train accidents.

However, the distribution of incidents across Europe was more even than in other regions. Air and ground transportation incidents represented the majority of incidents with 44.7%. Such events are especially relevant for supply chains, as seen by the disruption of railway traffic on key rail corridors for more than two weeks that resulted from two train accidents.

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

Weather events also posed problems for supply chains. A month-long drought in summer and autumn resulted in record-low levels of water on the Rhine River. The water levels inhibited shipping traffic, and chemical and steel makers in Germany, France and the Netherlands were compelled to declare force majeure on deliveries.

Natural disasters affected countries across Europe as well. In October, Greece was struck by an earthquake near Zakynthos Island, while Italy, Spain, France, and the United Kingdom experienced heavy floods.

Anticipating supply chain risks in 2019 The report also highlights an array of threats that may become particularly salient for businesses in 2019 and beyond. In addition to ongoing global risks like the international tensions that characterized trade in 2018, companies may also face additional costs and uncertainty due to raw material shortages, recalls and safety scares or tougher environmental regulations.

First, rising demand for raw materials, coupled with a fragile supply caused by political instability and supplier shutdowns, may result in raw material shortages for crucial materials such as lithium, cobalt, and adiponitrile.

Second, recalls and safety scares may increase, as wider public awareness of quality issues and stricter enforcement by regulators in highly regulated sectors such as pharmaceuticals and medical devices subject products to higher scrutiny.

Lastly, anti-pollution measures may be expanded in 2019 to a broader range of industries across Asia. The US Environmental Protection Agency is also expected to announce new requirements. As a result, tougher environmental regulations will increase costs for businesses in a number of industries. All of these developments have the potential to put suppliers under threat and force significant changes throughout supply chains.

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