Top Risk Factors in the Supply Chain 2015

Top Risk Factors in the Supply Chain 2015

In 2015, the British Standards Institution (BSI) documented several serious incidents that threatened supply chains worldwide. These events included theft of cargo valued at $22.6 billion; an increase in terrorist activities, leading to significant losses for shipping companies; an influx of refugees in Europe negatively impacting supply chain stability across the continent; economic downturns in Argentina, Brazil, and China; and politically driven unrest in Africa and Central America. Extreme weather phenomena,
including disruptions caused by the El Niño phenomenon, also affected continuity in various regions. Additionally, poor enforcement of labor laws, such as child labor or forced labor, plagued several industries in countries like Argentina and India.

Nearly $23 billion was lost globally in 2015 due to cargo theft. In South Africa, there was a sharp rise in truck hijackings, accounting for around 30% of incidents in the past year. Organized gangs targeted luxury goods shipments and did not hesitate to resort to violence. Cargo thefts have also become increasingly common in China, particularly along the busy G45 highway. Sophisticated thefts were observed in India throughout 2015, where criminal groups employed new techniques to steal goods without breaking customs seals, avoiding detection. This alone poses a significant risk for companies participating in international security programs.

In Europe, the terrorist group ISIS has caused significant disruptions within the supply chain. Border controls in France following the November attacks in Paris are estimated to have cost the Belgian shipping sector over $3.5 million. Smuggling rings associated with terrorists, especially between Spain and the Middle East, have engaged in illegal shipments of stolen electronics, drugs, weapons, and other contraband. In other regions, such as Jordan, the transportation industry suffered losses of over $754 million in revenue since the conflict began in the Middle East in 2011.

In addition to theft, persistent threats like extreme weather and political and social unrest led to substantial losses for individual businesses and national economies last year. The top five natural disasters in 2015 alone caused a total of over $33
billion in damages. In 2016, BSI identified new health crises, such as the Zika virus, which could pose a significant threat to the global supply chain through job layoffs and protests like what we experienced during the Ebola epidemic.

Labor disputes and factory strikes have also caused significant economic damage worldwide. Factory strikes in China increased by 58.3% from the previous year. These strikes often revolved around wage payment disputes, as factory owners struggled to pay wages due to a general economic slowdown. Non-payment of salaries was cited as the primary cause in 75% of strikes, resulting in losses of over $27 million in the footwear sector alone. Labor unrest is likely to continue in China in 2016, regardless of economic improvements.

In 2015, many cases of child labor and forced labor came to light, emphasizing the need for transparency in corporate supply chains to reduce the risk of human rights violations. Nearly 80% of Argentina’s textile industry exhibited irregular conditions,
where forced child labor and poor working conditions were common. BSI also documented an increase in child labor risk in India, a direct result of potential loopholes in new labor reforms approved in 2015. In response to these and other emerging concerns, European countries and the USA enacted new laws and regulations last year to ensure that supply chains also have social responsibility.

Jim Yarbrough, Global Intelligence Program Manager at BSI, commented: "Companies face ongoing challenges in their supply chains, from human rights issues to actions like violent theft and natural disasters. Such complexity creates extreme levels of risk for organizations, directly impacting their bottom line. These threats are often hidden within supply chains and, if ignored, can severely damage a company’s hard-earned reputation."

The major threats to the global supply chain in 2016 are as follows:

1. Global costs of cargo theft are estimated to increase by an additional $1 billion in 2016. o Growing concerns in China, Germany, India, Mexico, South Africa, and the USA.

2. Ongoing tensions in the South China Sea are expected to lead to further protests and disruptions.

3. The ongoing conflict in Syria will continue to impact the supply chain.
o Refugee flows will continue to cause disruptions at ports.
o Border controls in the EU/Schengen area are predicted to have far-reaching consequences.

4. ISIS is projected to be a significant threat to supply chain disruptions.

5. Labor unrest in China is expected to persist as the Chinese economy continues to decline, leading to more jobs being relocated to neighboring countries.

6. Weather catastrophes, such as the La Niña phenomenon.

7. Global health crises, such as Zika and Ebola.

The report is based on data from the BSI Supply Chain Risk Exposure Evaluation Network (SCREEN), which provides continuous evaluation of 22 proprietary risk factors across 204 countries. BSI’s 2015 SCREEN data and analysis reveal a clear picture of the shifting global threat landscape and how it varies from country to country, continent, and industry sector.

Source; British Standards Institution (BSI)