The rise of radical Islam in the Middle East and the reintroduction of border controls in Europe is disrupting supply chains and raising costs for business, according to a global trade body.
Unstable commodity prices, a more assertive Russia and the cross-border presence of Isis have all heightened risk, according to the Chartered Institute of Procurement and Supply, which has 115,000 members in 150 different countries.
It found that the closure of internal borders as a result of the surge in refugees fleeing wars in the Middle East could be adding billions in costs to Europe’s supply chains.
Financial volatility also rose in August, eclipsing improved statistics from some advanced economies and increasing supply chain risks, Cips said.
Its quarterly risk index, backdated to 1995, found the likelihood that a supply chain would be disrupted had almost doubled from 40.4 in 2003 to 79.1 today.
John Glen, Cips economist and senior economics lecturer at Cranfield School of Management, said that although supply chain risks have often felt remote, “the European migrant crisis and conflicts in the Middle East mean that the risks are getting closer and feeling more acute”.
Hungary has fenced off its border with Serbia and Croatia, while Slovenia started building a fence with Croatia earlier this month. Border crossings are taking as long as 90 minutes between those countries while the transport of livestock was halted entirely for several days in October.
Austria and Germany are particularly affected, with German companies seeing a 10 per cent increase in delivery prices, Cips said.
In the Middle East, the risk to supply chains rose sharply as the spread of Isis made the safe passage of goods across borders increasingly difficult. Tunisia, Bahrain and Kuwait all had their risk ratings increased following terrorist attacks while supply chain managers in countries such as Turkey are increasingly resorting to slower and more expensive sea freight services.
But Cips warned this was “a short-term solution which threatens to have an impact on costs further up the chain or the quality of goods being produced at the bottom of it”.
The growth of longer and more complex supply chains also meant any regional disruptions could still cripple supply chains hundreds of miles away, Cips said.
On the positive side, the easing of US sanctions on Iran and Cuba has opened up new routes for the flow of goods worldwide. Iran would be quickly integrated into Middle Eastern supply chains, Cips said, though would require contingency planning as the US can reintroduce sanctions with just 65 days’ notice.
Supply chain risk has been a source of concern since the financial crisis, especially as pressure to keep costs low means that multinational manufacturers often operate complex networks of component supplies on a just-in-time basis.
The Cips quarterly risk survey uses 40 economists to assess risk across 132 countries.
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