EX-IM BANK--SUPPLY CHAIN RISKS

Top 7 Supply Chain Risks That Could Affect Your Exports

April 12, 2016

Suhail Karim Beg, Business Development Specialist, Small Business Group

Supply Chain Risk Concerns Aren’t Just for Large Corporates

The global supply chain is a marvel of logistics reflecting the interconnected nature of commerce. Today’s small business exporter can leverage advanced communications technologies to efficiently expand its market reach on the back of this global supply chain. However, while expanding opportunities allowing importers and exporters to do business with distant counter parties, it also opens up new operational risks requiring active management.

The Top 7 Supply Chain Risks for 2016

The latest report by the Chartered Institute of Procurement & Supply (CIPS) Risk Index, found global supply chain risks increased in the fourth quarter of 2015, resuming a decline in global supply chain resilience. Meanwhile, Materials Handling and Logistics (MH&L) reports that the biggest threat in 2015 was cargo theft with nearly $23 billion in losses from a variety of non-commercial sources. According to MH&L the biggest threats to the global supply chain in 2016 are;

1. Cargo theft, topping the list again, and estimated to grow to $24 billion;
2. South China Sea tensions leading to further protests and disruptions of critical supply routes;
3. Syria’s conflict raises geopolitical threats as Russia flexes its muscle, the immigrant influx creates port/border disruptions, and European Union (EU)/ Schengen border controls are raised in response;
4. ISIS remains a credible threat to Middle East and North Africa (MENA) and EU supply chains;
5. China’s slowing economy creates growing labor unrest and protests;
6. Weather disruptions, such as hurricanes and the “La Nina” phenomenon persist; and
7. Global health crises, such as Zika and Ebola, linger.

The True Costs of Transacting on Open Account

Your reputation as a supplier depends upon the resilience of the supply chain you use to get your products to market. The U.S. Census Bureau reports that U.S. exports to the European Union surged 10.2 percent in February from January of this year. At the same time, the immigrant crisis, acts of terrorism, and continuing political turmoil in the Eurozone are increasing the risk of business operations on the continent.

 

Political risks increase the uncertainty of payment and the requirement of a liquidity buffer for working capital. This puts added pressure on small business to accelerate receivables collection while buyers will be seeking to extend their payables cycle.  Alternately, your buyers could shift to sourcing vendors closer to home or require more favorable credit terms to offset risks of the purchase.

 

Risks are a daily fact of life but supply chain disruptions require small manufacturers to closely assess and manage risks that can present a challenge if formal processes are not in place and detract from the day-to-day function of running a business. 

 

Learning More

EXIM Export Trade Credit Insurance products can cover your exports against political and force majeure risks and take the burden of risk management off your shoulders. To learn more, please contact a trade finance specialist by clicking on the link below.