Supply Chain Complexity Creates "Black Holes of Risk," Says BSI Exec

4/22/2015
Rapid economic growth in emerging economies, labor disruptions, political instability and a disease outbreak in West Africa led to a rise in business losses in 2014 according to the latest Global Supply Chain Intelligence report from BSI Supply Chain Solutions. Globally more than $23 billion was lost to cargo theft in 2014 from a variety of supply chain threats, while the four most economically damaging natural disasters caused a collective $32.8 billion of damage. Within Europe, trade interruption due to an array of strikes throughout Europe caused $1.5 billion of direct losses to business.

The report is based on data from BSI's Supply Chain Risk Exposure Evaluation Network (SCREEN), which provides continuous evaluation across 20 proprietary risk factors and 203 countries. The 2014 data reveals a clear picture of the changing global threat landscape and how this varies by country, continent and industry sector.

A third (36 percent) of the fastest-growing exporters are based in countries rated as high or severe risk for human rights or environmental violations. Two fifths (40 percent) of Asia's current top 20 exporters are rated as high or severe risk for environmental violations according to the report which notes that the business costs of violations are rising. 2014 saw a Chinese court impose the country's heaviest environmental fine to date, with six firms penalised $26 million for dumping of acid waste into waterways.

"Companies are facing an increasingly wide range of challenges to their supply chain, from human rights issues to natural disasters," said Shereen Abuzobaa, commercial director, BSI Supply Chain Solutions. "Such complexity creates black holes of risk for organizations, both directly affecting the bottom line but perhaps more seriously, hidden supply chain risk, damaging a company's hard-earned reputation."

The report warns companies, particularly those in the apparel trade, to scrutinize their global supply chains closely. Countries such as Haiti are noted by the report as having 29 percent of all children between the ages of five and 14 working in slave-like conditions. This compares to 5.8 per cent in the Dominican Republic and 8.4 per cent in Jamaica. In recognition of this growing threat of human rights and environmental violations, governments in Western Europe attempted to push supply chains towards greater compliance with social and ethical norms, increasing the regulatory burden on organizations.

Port congestion and strikes continued to severely affect business continuity across Asia Pacific, the West Coast of the United States and Germany throughout 2014. Limited container storage space resulted in cargo discharge times of up to a week, increasing operational costs for companies shipping through Hong Kong by nearly $1 million per month. General strikes across Belgium caused $1 billion of direct losses to business, while airline strikes in France and Germany cost $300 million and $198 million respectively.

BSI's research shows that in 2014 cargo shipments were heavily impacted by a rapid growth in supply chain terrorism. Terrorist organizations such as ISIS imposed systematic controls across Syrian and Iraqi territory, imposing costs of as much as $3 million in revenue per day through extortion and supply chain control schemes. Europe, the Middle East and Africa, saw cargo disruption rates stay stable, in stark contrast to the Americas where they saw an increase in disruptions driven by increased illegal drug introduction, spikes in cargo thefts, terrorist plots and other incidents. The Asia-Pacific region saw a rise in disruption, both from a growing methamphetamine trade, and the long term challenges of counterfeit production and piracy.

While the report highlights cargo theft as a growing risk, it is still outweighed by the economic impact of natural disasters. The top four natural disasters in 2014 caused a collective $32.8 billion of damage to businesses, with flooding across Pakistan and India making up a third of this figure. Three quarters (75 percent) of the top exporters across the Asia-Pacific region are rated high or severe for natural disaster risk.
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