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Dominant Supply Chain Risks - Crime, Climate and Convergence

November 24, 2021

An annual Supply Chain Risk Insights Report lands at a time when supply chains are dominating discussion both in boardrooms and households.

The report identifies the trends and associated risks impacting global supply chains over the coming year and highlights five key themes to enable organizations to achieve resilience:

-      Supplier transparency as a key decider of business success
-      A shifting Environmental, Social and Governance (ESG) regulatory environment
-      A holistic understanding of 'pain points'
-      Adapting to 'convergences' of business challenges
-      Identifying opportunities in emerging trends

Crime, climate and a convergence of threats emerge as dominant risks to the global supply chain. The report, which is powered by analysis of the global data in BSI's proprietary web-based intelligence system, Connect Screen, provides valuable insight into the significance of these threats while offering analysis and practical guidance to organizations on best practices to mitigate and counter risks. 

Susan Taylor Martin, Chief Executive, said: "The past few years have put a spotlight on global supply chains and reinforced their crucial role in our day-to-day life. Because of this unprecedented moment, the supply chain is about to have a make-or-break year and needs to be right at the top of the C-suite agenda. It's clear that the importance of supply chains will only increase as we head into 2022, and the steps organizations take now will ultimately determine their success or failure."

Harold Pradal, Chief Commercial Officer, said: "Supply chain threats will remain one of the most serious issues global businesses will face in 2022. Widespread product shortages and scarcely qualified operators, including lorry-drivers, are only the tip of the iceberg when it comes to the ongoing global supply chain crisis. With manufacturers and freight companies already spending much effort to address these issues, organizations along the supply chain increasingly fall vulnerable to a convergence of additional threats. Those include more frequent and damaging natural disasters and more opportunistic criminal cartels. Unless these threats are addressed holistically and quickly by supply chain leaders, consumers are likely to see current challenges continue and worsen over time." 

Jim Yarbrough, BSI's Global Intelligence Program Manager, added, "As we continue to manage a multitude of challenges, including COVID, climate change and natural disasters, we have seen the convergence of impacts on organizations and the global community, illustrating the broad-brush consequences of disruptions and threats to our supply chains and the importance of not underestimating their complexities.

To protect the integrity of this vital part of our global way of life, business leaders must stay ahead of the latest trends that threaten to disrupt it. We've published a supply chain risk report every year since 2013, but there has never been a more vital time for business leaders and decision-makers to take note."

The threats highlighted in the report include:

-     Crime: The importance of verifying, then trusting

The pandemic showed companies of all sizes from around the world the importance of adaptability, and criminal organizations were no exception. Over the past year, BSI has observed a significant number of criminal organizations trying to infiltrate the logistics supply chain, masquerading as legitimate companies working in warehousing, transportation and distribution. BSI has also noted the issue of fake carriers in an increasing number of countries.

Similarly, drug cartels around the world are becoming more creative. BSI saw the numbers and quantities of cocaine seizures in Europe increase steadily in 2020 and 2021, and they are expected to continue to rise in 2022. This is similarly occurring with methamphetamine and fentanyl seizures in the United States. Methamphetamine seizures increased by 27 percent from 2019 to 2020 and are steadily increasing in 2021, likely to carry into 2022.

With the global increase in shipping prices coupled with congestion and delays surrounding ground transportation, some companies shifted to air routes to ship consumer products, so cartels targeted vulnerabilities in these new chains. In the US, parallel to the shift toward air freight was an increase in smugglers introducing illegal drugs into air cargo shipments; up from 20 percent in February to 33.3 percent in June. It seems Mexican drug cartels are using long-established networks to transport the goods from Mexico into the United States via the supply chain, utilizing truck, sea and air modalities along the US-Mexico border.

BSI says these issues underscore the need for organizations to ensure they undertake proper due diligence when onboarding their suppliers. Critically, an end-to-end risk assessment of a company's supply chain will mitigate the risks inherent to partnering with separate companies from around the world.

-     Climate: Green-proofing the supply chain

From all corners of the globe, companies are seeking to both protect their supply chains from the effects of climate change and ensure they play their role in a greener future. Maintaining ESG compliance in evolving regulatory environments should now involve considering the impact on the entire supply chain. For example, BSI noted that this year, at least 18 companies-spanning several industries were identified as sourcing products from companies contributing to deforestation in the Amazon. This type of association has the potential to bring significant reputational damage to an organization and could ultimately result in a drop in revenue.

Additionally, while 2021 has seen a trend of higher-than-average shipping delays rebound, disruptions to the global supply chain like Hurricane Ida in August in the US and Typhoon Chanthu in September in China have cumulatively caused various delays of shipment volume arriving infrequently at Californian facilities. This has put renewed stress on the ports of Los Angeles and Long Beach, which account for about one-third of all US imports. With climate change likely to increase the frequency of natural disasters, it is against this volatile backdrop that organizations need to reassess and look beyond traditional supply chain partners, methods and technologies.1

-     Convergence: Problems piling up

An overarching threat to supply chains is the risk that individual considerations such as business continuity, sustainability, Corporate Social Responsibility (CSR) and security are not addressed comprehensively, and that organizations fail to acknowledge that they are interrelated. Business continuity threats can lead to security threats and vice versa.

The global shortage of semiconductors exemplifies this convergence. Taiwan holds roughly 90 percent of the world's manufacturing capacity to produce semiconductor chips, an overreliance that contributed to the global shortage of this component. In addition, factors such as droughts and COVID outbreaks in Taiwan between April and July impacted operational capacity, compounding the global shortage. This shortage also created security concerns; for example, a group of criminals attacked a truck driver's assistant as he was transporting a high-value cargo of semiconductor chips in Hong Kong in June, stealing $650,000 worth of goods.

Another high-profile convergence between cyber security and physical security in this case made international headlines in April this year. In the US, hackers gained entry into the Colonial Pipeline through a virtual private network account, which was intended for employees to remotely access the company's computer network. The hack took down one of the largest fuel pipelines in the country and led to gas shortages across the East Coast all because of a single compromised password.2

Convergence can be addressed by companies doubling down on collaboration, ensuring that all parts of an organization and their partners understand the integrated threats to a supply chain and that teams work together to address them.

It's essential that organizations have clear insight into the global supply chain landscape and how its ever-evolving dynamics will impact the future.

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