Global supply chain risk climbs to record highs thanks to EU uncertainty

The second quarter of 2016 saw global supply chain risk climb 80.8 points, according to the CIPS Risk Index.

This is amongst the highest levels recorded since records began in 1995, and continues a worsening trend in global risk which has been on a downward trajectory since the last quarter of 2014. The UK’s vote to leave the EU at the end of June had a reverberating effect on supply chains throughout the continent, as well as across the rest of the world.

The CIPS Risk index, which is produced for the Chartered Institute of Procurement & Supply (CIPS) by Dun & Bradstreet economists, has downgraded the UK’s risk rating from DB2a to DB2c as a result of the leave vote. The immediate fall in sterling also lead to soaring costs for businesses that relied on importing, prompting many to reconsider their sourcing strategies.

The early drop in consumer spending and business investments following the referendum decision has lead to a dip in consumer and business confidence, raising concerns about a wider economic slowdown.

While the UK still has access to the EU’s single market for at least another two years, the outlook after two years is less clear. If the UK and the EU are unable to come to an agreement in regards to market access, the effects on supply chains could be significant.

Bodhi Ganguli, Lead Economist, Dun & Bradstreet said:

“The global operating environment remains high risk, reflecting the slowdown in emerging markets and the failure of developed economies to embark on a robust recovery.

“Political and economic uncertainties, such as the extent of the growth slowdown in China, emerging markets’ financial vulnerabilities, the impact of terrorism on cross-border movements, and the fallout from Brexit, continue to weigh on global business sentiment.”