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Risks to global supply chain 'returning to record highs' as commodity prices fall


Risks to global suppliers are "back on course to return to record highs" as the effects of a sustained drop in commodity prices begin to be felt by suppliers and producers at the very base of supply chains, according to new research.

Global supply chain risk has been falling since industry body the Chartered Institute of Procurement and Supply (CIPS) first published its quarterly 'risk index', but is now back at 78.7, according to CIPS. The figure has been improving since the previous record high of 82.4 in the third quarter of 2013, partly because of growing financial stability for vital manufacturers based in the advanced economies of Western Europe and North America, according to the report.

CIPS economist John Glen, a senior economics lecturer at the Cranfield School of Management, said that risk was increasingly shifting away from the advanced economies, which were benefitting from lower input costs, towards developing countries.

"Businesses are faced with the prospect of political turmoil in Europe and economic slowdown in China, but with no safe havens left for supply chains, businesses simply do not know where to turn," he said.

"With no simple solution, supply chain managers must be the eyes and ears of their business wherever their supply chains lead. Only by developing personal relationships and acquiring an intimate understanding of their suppliers will supply chain managers navigate through this uncertain period," he said.

Risk levels in Latin America and sub-Saharan Africa were now at record levels, according to the figures. Brazilian, Chilean and Argentinian suppliers were suffering from lower soy bean and copper prices, while Brazil had been struggling to maintain consistent power supplies to businesses during a recent drought. Falling oil and gas prices had badly affected the Nigerian, Angolan and Ghanaian economies, with transport investment throughout the sub-Saharan region likely to fall as a result, according to the report.

Although Middle Eastern economies tended to be more diverse than those sub-Saharan Africa, falling oil and gas prices and the resulting economic slump had helped to fuel political unrest in the likes of Bahrain, according to the report; which also found that Chinese manufacturers and heavy industrial firms were at risk of defaulting on state-backed loans in Asia Pacific. However, the report also found that the Ebola outbreak in Eastern Africa had not had a pronounced effect on African supply chains, as only a handful of mines in Sierra Leone had been disrupted by quarantines and travel restrictions.

A report by the World Economic Forum (WEF) in January 2015 concluded that the risks posed by international conflict and environmental crises to businesses and governments far outweighed those posed by a future economic crash. The report ranked inter-state conflict with regional consequences as the most likely global risk; and water crises and infectious diseases as the most serious risks in terms of impact.

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