- The Chartered Institute for Procurement & Supply's (CIPS) Risk Index, which measures the impact of economic and political developments on global supply chain risk reached its highest level since 2013 last quarter.
- The U.K.'s vote to leave the EU caused the institute to downgrade the entire region due to the potential re-negotiation of various institutionalized trade policies.
- North America remains a low-risk region although anti-trade rhetoric by both presidential candidates has sparked concern about the country's future policies. Meanwhile, Brazil, China, India and South Africa remain at medium levels of risk.
The U.K.'s vote to leave the EU last quarter provided a reminder how political forces can at any time transform the supply chain.
Brexit would force the country to negotiate diplomatic terms, from tariffs to capital and labor flow, with the union. It should be noted that the two parties would still have a two year grace period before any legal changes take place; yet the prospect of wide-ranging economic shifts have increased the level of uncertainty among business managing global supply chains.
So while other previously at-risk regions decreased their risk level in the last quarter, according to the CIPS, global uncertainty remains high given increasing protectionist rhetoric raging across the Western world.
In the U.S., presidential candidates Hillary Clinton and Donald Trump have denounced a trade agreement with a dozen other countries, and the latter has even threatened to re-negotiate the decades-old North American Free Trade Agreement to the potential administration's liking. Meanwhile, in France and the EU as a whole, the Brexit vote emboldened protectionist leaders to consider similar national referendums.
While it is impossible to forecast the supply chain impact of political rhetoric, such speculation can play a prominent role in exchange rates — particularly following key votes or decisions. The U.K.'s pound sterling, for example, reportedly dropped 11% compared to a basket of currencies since the Brexit vote. Such costs increase import costs for U.K. based businesses, and key political events in other countries could have similar currency effects. CIPS' quarterly report can help assess these global risks.