Recession or not – what does the global supply chain risk climate look like?
For the better part of the last decade, corporate leverage has been climbing, particularly in the highest risk segments of RapidRatings’ coverage. At the same time, companies have enjoyed easy access to cheap capital, regardless of the strength of their financial health, allowing weaker companies the opportunity to refinance and stay afloat despite underlying operational deficiencies. As the credit climate begin to shift and market volatility increases – whether the cause is a looming recession, Brexit, trade wars or all of the above – these companies’ masked problems will start to unveil themselves.
As it stands, we’re already beginning to see a global financial health decline. Over the past year, 28 out of 30 of the largest countries by market cap in our coverage have experienced an average financial health decline of their corporations, with the exceptions being China and Russia.
Industries Supply Chain Risk Managers Should Keep an Eye On
While the global supply chain is experiencing a decline, some industries will have a harder time dealing with this next wave of risks, depending on their level of exposure to risk sources and financial health standings.
- U.S. – China Trade Wars – Based on our client’s supply chains, we’re seeing the heaviest Chinese exposure and subsequent potential for Tariff risk mitigation in household products, technology, chemicals, retail, and machinery.
- Industry Financial Health Decline – Our recent studies show that retail defaults are on the rise despite healthy consumer spending and, for the past 5 years, energy has continuously seen the most defaults of any industry.
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As market volatility increases, with a recession or not, companies are riskier than they’ve been in a long time. A shift in funding environment with less access to capital, or at higher funding costs, will topple many companies and cause significant supply chain disruptions that haven’t existed in the last 8+ years. The bottom line is that supply chains are under unprecedented levels of threat, and the need for risk management of global supply chains is only going to increase. The key to not only navigating turmoil ahead but also building supply chain resilience for the long-run is understanding and partnering with companies that have the financial strength to weather any storm.