Modern supply chains are more complex and global than ever before. But that also leaves them open to a wider variety of risks and disruptions. Here are ten risks to track for the coming year.
The modern economy relies on the smooth operation of complex and sophisticated supply chains. The ability to move materials, components, and finished products in a timely and efficient manner has delivered benefits for many: reducing the cost of manufactured products, improving access to advanced technologies or life-saving medicines, and opening new markets and new business opportunities for producers.
Yet modern supply chains are also vulnerable. Transportation delays, theft, natural disasters, inclement weather, cyberattacks, and unexpected quality issues can disrupt cargo flows, creating short-term costs and delivery challenges. And shifts in local, national, and international trade and regulatory policies can upset the fundamental economics of established supply chains. Below is a list of trends that you should keep an eye onduring the upcoming year, examining their implications for your supply chain network. (See Figure 1.)
1. TRADE WARS
Global trade tensions have led to the imposition of new import tariffs on a wide range of consumer products and industrial components. While the biggest fight has been between the United States and China, other countries and regions, notably the European Union (EU), have also been drawn into the fray. As the impact of the new arrangements begins to bite, companies are starting to adapt their supply chains in response.
In June 2018, U.S. motorcycle maker Harley Davidson announced that manufacturing of products destined for EU markets would be switched from U.S. factories to facilities in Brazil and Thailand. We expect this trend to accelerate in 2019, especially asthe U.S. and China introduce further tariffs and the United Kingdom and EU fail to agree on an orderly Brexit. German carmaker BMW has already announced that it is considering transferring production of its Mini brand from the U.K. to the Netherlands andplans to make SUVs for Chinese customers at plants inside the country. Honda also announced that it will be shutting down its flagship plant in Swindon, U.K., by 2021.
2. RAW MATERIAL SHORTAGES
While companies are increasingly pursuing local or regional manufacturing strategies for finished products, the production of many key raw materials remains highly globalized. As such, supply of some key materials is vulnerable to widespread disruption caused by demand spikes or production bottlenecks. At the end of 2018, plastics suppliers across Europe warned of impending critical shortages of certain polyamide materials, which are used in the production of engineered plastic components such as car parts. The issue is rooted in the low supply of adiponitrile (ADN), a precursor chemical. ADN is manufactured at only five plants in the world, and shortages have been driven by operational problems and maintenance shutdowns. Companies in the automotive, textile, electronics, and packaging industries may be forced to switch to other products, at least temporarily, although this may not always be possible.
An area of growing concern over the longer term is the materials used in lithium-ion batteries, which are used in a wide range of high-value products from mobile phones to electric cars. The German Mineral Resources Agency forecasts that demand for lithium will quadruple by 2035. And because two-thirds of the world's supply of cobalt, another essential component in lithium-ion batteries, is mined in Congo, some experts believe that instability in the region could drive a supply shortage in the near future. To secure their supply chains, Apple and some car manufacturers have already started to purchase cobalt directly on behalf of their battery suppliers.
3. RECALLS AND SAFETY SCARES
In highly regulated sectors such as pharmaceuticals and medical devices, attention to compliance and quality control is likely to rise, driven by wider public awareness of quality issues and stricter enforcement by regulators. Recalls of pharmaceutical products by the U.S. Food and Drug Administration almost doubled between 2017 and 2018. Quality in the sector is increasingly a global issue, ascompanies source more key materials, such as active pharmaceutical ingredients (APIs), from producers in developing economies. Various drugs used to treat high blood pressure were recalled in multiple countries last year following the discovery of potentially carcinogenic impurities. While the recalls affected products from several manufacturers, the cases were linked by the use of materials supplied by producers based in India or China. This added to concerns about weaknesses in manufacturing control and regulatory oversight in these regions. Conversely, China is now the world's second largest pharmaceutical market, and overseas companies hoping to serve the country's fast-growing middle class are coming to terms with the unique regulatory requirements of the China Food and Drug Administration (CFDA).
4. CLIMATE CHANGE
As it did in 2018, the changing climate is likely to have wide-ranging effects on global supply chains. Indeed, 2019 may be the warmest year on record, as the long-term increase in global temperatures is exacerbated by the "El-Niño" effect—a periodic warming of the surface waters in the Pacific Ocean that can affect global weather patterns. An El Niño formed during the first few months of 2019, and forecasters are predicting that it may last until the Northern Hemisphere summer.
A hotter atmosphere is linked to a range of problematic effects, including an increase in the frequency and severity of drought conditions, periods of intense rainfall, tropical storms, and damaging wildfires. The timing and severity of climate-related disruption can be as unpredictable as it is dramatic, however. Water shortages had a material impact on supply chains in Europe during 2018, with low water levels disrupting inland shipping. Over the long term, however, climate change can be expected to drive increased risks of flooding and extreme weather patterns.
5. TOUGHER ENVIRONMENTAL REGULATIONS
In moves intended to tackle climate change, local air quality, and other forms of environmental pollution, authorities around the world are introducing new regulations and stepping up enforcement efforts. Some of the most significant effects of these policies are expected in China, where strict rules have been introduced to reduce emissions from the burning of coal, including enforced production shutdowns and plant closures. Beijing has introduced a more flexible approach to its controls, allowing local authorities to adapt measures based on regional emission levels, but major industries—including steel, aluminum, and cement—all face increased scrutiny. In 2019, anti-pollution measures may be expanded to a broader range of industries across Asia. China is introducing a new soil pollution law targeting manufacturers. And in January 2019, Thai authorities halted rail construction work in Bangkok for a week due to smog.
The U.S. Environmental Protection Agency announced new rules governing nitrogen oxide emissions from trucks in 2019, as concerns over the health impact of these gases receive growing attention around the world. In Singapore, meanwhile, industries that produce more than 25,000 tonnes (55 million pounds) of greenhouse gas emissions per annum will be subject to a new carbon tax. The global recycling industry will continue its transition as other countries in SoutheastAsia follow China's lead in closing their doors to scrap imports. This rapid policy shift will force big waste-producing countries in Europe and elsewhere to ramp up development of domestic recycling capacity.
6. ECONOMIC UNCERTAINTY AND STRUCTURAL CHANGE
The global trade war, uncertainty over Brexit, and stricter environmental regulations could become driving factors in putting financial pressure on lower-tier industrial and automotive suppliers, bringing insolvencies to the forefront of supply chain risk management in 2019.
In Europe, customs delays due to Brexit could bankrupt 10 percent of U.K. businesses that have EU suppliers, according to a survey by the Chartered Institute of Procurement and Supply. And higher costs for raw materials caused by import tariffs, as well as the implementation of stricter vehicle emissions tests such as the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), have led to increased financial pressure on lower-tier component makers in the automotive industry. Coupled with a trend towards electric vehicles which require fewer components, many lower-tier suppliers may be forced to adapt their business models.
7. INDUSTRIAL UNREST
Industrial action is a perennial risk in transport operations. Strikes, overtime bans, or "work to rule" can affect any transport mode, almost anywhere in the world. For shippers, the impact of these events can range from the mildly irritating to the considerably disruptive. We expect the risk of strikes to increase in 2019, fueled by a combination of local labor relations disputes and a growing sense of dissatisfaction among workers with wider economic and social change. The impact of industrial action on cargo operations varies by transport mode: In the aviation sector, strikes tend to beshort in duration and well-publicized. Port strikes can last longer, but their effects are usually less acute than aviation strikes since they affect shipments of a less time-critical nature.
In the road transport sector, strikes are often organized with little advance notice, and disruption can lead to a widespread and long-lasting cascade of residual effects.
A significant number of ongoing industrial disputes already threaten to disrupt transport operations in various parts of the world during 2019. In India two general strikes, involving hundreds of millions of participants, have already taken place, with repeat action presenting a significant risk to transport and manufacturing operations. And in France, continued action by Yellow Vest protesters may cause delays at ports, borders, and on-the-road networks.
8. CONTAINER SHIP FIRES
The two large fires on Maersk-operated container vessels in 2018, followed by a number of container ship fires and accidents in the first week of 2019, highlighted again what may become more commonplace occurrences. The largest incident occurred on January 3 on the Hapag-Lloyd owned vessel Yantian Express while transiting the Atlantic Ocean from Sri Lanka to Halifax, Canada. There is a major container cargo fire at sea roughly every 60 days, according to insurance company Allianz Global Corporate & Specialty. Most of the fires start in containers storing dangerous goods, which are often improperly secured. While container line Maersk has begun to implement random inspections of inbound containers to the U.S., insufficient firefighting capabilities on most ships as well as a trend towards larger container ships indicate an ever-growing risk for maritime-dependent supply chains.
9. BATTLES AT THE BORDERS
Public discourse following the migration influx to Western Europe and ongoing high-profile migrant caravans traveling to the United States has increased many countries' focus on physical border security. As a migrant caravan approached the San Ysidro port of entry between Tijuana, Mexico, and San Diego, California, on November 25, 2018, confusion, chaos, and violence towards U.S. Customs & Border Patrol agents in the vicinity of the port of entry led authorities to close the border crossing to all vehicle and pedestrian traffic for a period of five hours. In the United Kingdom, the looming uncertainty of post-Brexit trade policies leaves open the question of what new tariff and customs regimes may look like and how those new regimes may affect and potentially reorient U.K.-affiliated supply chains. Companies face the immediate risk of increased costs and border-crossing wait times, especially in the period where customs agents are adapting to new processes. While border closures at ports of entry will remain extremely rare, Resilience360 anticipates an increase in the frequency of these high-impact events in 2019.
10. DRONES AND AVIATION SAFETY
Despite progress in the implementation of drone aviation regulations in many countries, the combined ease of drone accessibility and the lack of public awareness surrounding aviation regulations suggest that airport disruptions related to air traffic safety are likely to become more frequent in 2019, and thus present a greater risk of disruption to aviation logistics operations. In the U.K., close-proximity drone aviation safety incidents have increased by 1,850 percent since 2014. In December 2018 repeated drone sightings at London Gatwick Airport resulted in the cancellation or delay of over 1,000 flights. Although documented civilian drone aviation safety incidents remain concentrated in the Manchester-Milan urbanization corridor in Europe and across the United States, airports have also reported cases of near-misses with drones in Canada, China, France, New Zealand, and Poland. Some countries, such as Bangladesh, Egypt, Nigeria, Kenya, Israel, Russia, and Saudi Arabia have mitigated this risk through strict regulations or outright bans.
TIME TO RE-EVALUATE
The supply chain risk environment is dynamic and continually evolving. Risks are increasingly being called out in companies' publicly filed financial statements,and as supply chains become more strategic, disruptions are turning into board-level issues. Each year brings new challenges for companies, with different threats, unexpected events, and unpredictable consequences. The intelligence provided here will help you to re-evaluate your own risk environment. It aims to provide you with the insights you need to evolve your strategy, adapt your networks, and, ultimately, to protect your bottom line.
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The Raymond Corp. has expanded its energy storage solutions business with the opening of a manufacturing plant that will produce lithium-ion and thin plate pure lead (TPPL) batteries for its forklifts and other material handling equipment. Located in Binghamton, N.Y., Raymond’s Energy Solutions Manufacturing Center of Excellence adds to the more than 100-year-old company’s commitment to supporting the local economy and reinvigorating Upstate New York as an innovation hub, according to company officials and local government and business leaders who gathered for a ribbon cutting and grand opening this week.
“This region has a rich history of innovation,” Jennifer Lupo, Raymond’s vice president of energy solutions, supply chain, and leasing, said in welcoming attendees to the ribbon cutting ceremony Monday.
Lupo referred to the new factory as an “exciting milestone” in Raymond’s history and described it as the next step in the company’s energy storage solutions business, which began nearly 10 years ago with the development of a lithium-ion battery to power its “walkie” pallet jack. That work has expanded to include larger batteries and other technologies to support battery-electric equipment.
“We’re not just keeping up with the electrification movement,” Lupo said. “We’re leading it.”
Raymond, a business unit of Toyota Material Handling, has been building forklifts, pallet jacks, and other material handling equipment at its nearby Greene, New York, headquarters since 1922. The Binghamton factory supports local efforts to boost manufacturing and innovation in New York’s Southern Tier, which was recently designated as a regional technology and innovation hub by the Biden Administration.
Raymond is leasing the 124,000 square foot facility at 196 Corporate Drive, situated in an established industrial park. The manufacturer is currently utilizing just 10,000 square feet of the space to produce its 8250 lithium-ion battery, which can power Raymond’s class 1 and class 2 fork trucks, as well as a smaller TPPL battery for powering pallet jacks.
The Binghamton factory employs 15 people, but the company expects to scale up quickly in space and personnel, adding 12 to 25 employees next year and ramping up to 60 employees by 2027, according to Jim Priestly, battery manufacturing manager for energy solutions at Raymond.
The Binghamton facility also represents Raymond’s larger commitment to helping develop greener, more sustainable supply chains, according to company President and CEO Michael Field.
“We recognize energy’s critical role in shaping our future,” Field told attendees at the grand opening, adding that Raymond is seizing the opportunity to participate in the clean energy transition locally and beyond.
“This facility is just the beginning,” Field said.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).