Published on March 17, 2020 by Jim Yarbrough
Domestic unrest percolating around the world, the force of climate change, and expansion into new markets will all converge in 2020 and create an environment where ensuring supply chain security will be challenging.
At BSI, we’re always monitoring global supply chains and speaking with professionals from around the world to keep a pulse on the pace and concerns of business. In our discussions, and via our Supply Chain Risk Exposure Evaluation Network (SCREEN) intelligence and analysis tool, we found that evaluating new suppliers and locations, as well as cargo theft, are still the top concerns for supply chain professionals in 2020. This year, however, they also identified the issues of trade compliance, human rights violations, and environmental risks as well as natural disasters, man-made disruptions, and terrorism as chief supply chain disruptors.
In our latest Supply Chain Risk Insights 2020 report, we examined these trends and using our SCREEN technology and identified the most pressing challenges to the global supply chain in the year ahead:
- Coronavirus and Tackling a Global Outbreak
- Climate Change and its Impact on Business Continuity
- Shifting Supply Chains in Asia
- Human Trafficking and the Exploitation of Migrants
- Political Protests and Global Ideological Shifts
- Worldwide Risk of Terrorism and Tensions in the Middle East
Coronavirus – Tackling a Global Outbreak
The coronavirus disease (COVID-19) outbreak has highlighted the current fragility of global supply chains wherein the failure of one link in the chain has the potential to cause extensive disruptions throughout. As companies adjust to the impact on their supply chains by the downtime and slowed restart of Chinese manufacturing, the spread of COVID-19 globally will lead to complex and varied responses by individual governments to contain the virus, creating further disruptions and requiring businesses to adopt adaptive business continuity measures. The outbreak highlights the need for comprehensive business continuity planning that considers all types of potential natural disasters, including disease outbreaks. Lessons learned from the COVID-19 outbreak on how to better mitigate disease spread and absorb delays to manufacturing and global shipping will shape how businesses and supply chains are able to respond to other possible outbreaks in the future.
Impact of Climate Change
Last year, several record-setting weather events severely impacted supply chains, and as a result, companies in 2020 can expect further shortages of agricultural products, destruction and impairment of infrastructure, and vulnerability to theft and looting in areas hit by severe weather. Natural disasters may also result in security liabilities for facilities and transporters in affected areas. Resiliency from this devastation will be further taxed over time and will result in medium- and long-term reassessments of the viability of some countries as supply chain partners, as well as reduced ability of governments to effectively respond.
As climate change continues to reshape global weather patterns in 2020, corporations should be mindful of risks resulting from altered transportation routes and reduced containment by law enforcement, especially in developing areas.
Shifting Supply Chains in Asia
As the United States and China continued an ongoing trade dispute last year, other countries such as Cambodia, Myanmar, Bangladesh, India, Vietnam and other Asian neighbors have reacted by working to create a more attractive business environment for foreign investors and partners. Now, as companies restructure their supply chains in Asia and pursue other opportunities, they must consider the many corporate social responsibility risks still rife in China and throughout the region, including the presence of child labor, forced labor and poor working conditions.
A core observation we’ve made for 2020 is the expectation of widespread political protests continuing to grow and evolve; taking on other longstanding issues in Asia and elsewhere, potentially disrupting business continuity, but also driving corporate social responsibility change.
Beyond that, natural disasters and invasive species and diseases ravaged the continent in 2019, causing widespread destruction of infrastructure and agriculture amid record heatwaves, floods and torrential storms. As companies evaluate supply chains located in Asia, it is imperative for them to understand not only the risk posed by natural disasters, but also to gauge the ability of the region’s countries to recover from such disasters.
With this in mind, there’s longer-term potential for increased investment in Africa, as the region continues to show potential as a possible cheaper alternative to Asia for manufacturing.
Human Trafficking and the Exploitation of Migrants
BSI continues to record incidents of migrants attempting to journey through Europe into the United Kingdom, many times facilitated by traffickers using supply chain infrastructure. Similarly, migrants continue to travel through South and Central America, seeking refuge in the United States.
In 2019, Mexican authorities took a stronger stance on cracking down on migrant flows, but as cartel violence increases throughout the country, transporters can expect not only more attempts by migrants to stow away in supply chain modalities that are perceived as safe, but also continued security challenges and traffic disruptions along the U.S.-Mexico border. Migration hotspots in both Europe and the Americas experienced a persistently high risk of stowaways in cargo, and those locations accounted for the bulk of this type of incident documented by BSI last year.
At the same time, extreme rates of cargo theft, and a high volume of illegal drug smuggling continue to pose security risks to supply chains in several areas. And the presence of unauthorized migrants in large quantities across Europe means a significant labor-rights violation risk to supply chains there, one that’s often discounted as a concern in Europe in favor of the traditionally more visible hotspots in regions such as Asia. Furthermore, mass migration has led to delays of cargo traffic in parts of Europe and along the U.S.-Mexico border.
Political Protests and Global Ideological Shifts
Last year, shifts in political ideology were felt throughout the world, resulting not only in large protest movements on nearly every continent, but also severe impact on the environment and labor from privatization and deregulation. Increased political shifts will likely jeopardize regional alliances and threaten existing trade relations.
Last year, Hong Kong and a number of other countries experienced a phenomenon in which a minor grievance against the government became a catalyst for broader, and often violent, expansive protest movements. While not an exhaustive list, similar political protest movements occurred in Puerto Rico, Indonesia, Haiti, Chile, Bolivia, Ecuador, Iran, Iraq, Lebanon, and Colombia throughout 2019.
In 2020, the consequences of these political changes will continue to reverberate, as companies reconsider once-stable locations from a business continuity and freight disruption perspective. They also need to be more mindful of corporate social responsibility vulnerabilities arising from laissez-faire policies.
Global Risk of Terrorism and Tensions in the Middle East
And finally, as political protests continue to grow and intensify in 2020, incidents of terrorism are likely to occur as fringe political movements look for new methods to get their message across. This uncertainty and potential for destruction from terrorism can upend established supply chain routes and force the need for new sources of materials and components. While organized terrorism largely faded in 2019, resurgent tensions in the Middle East between Iran and the United States, Turkey and Syria, and in Yemen still cast a pallor of danger on any supply chains operating in the region, notably logistics operations through the Gulf of Oman and the Strait of Hormuz.
Regardless of how these unsettling trends affect your business or supply chain, it’s clear they are not going away. Emerging challenges and variations of old threats will require more than tried-and-tested solutions — they demand innovative thinking to ensure continuity and resiliency in the year ahead.