RapidRatings Blog

Global Supply Chain Risk Reaching New Heights

Posted by RapidRatings on September 05, 2019
 
shutterstock_747103051When news headlines aren’t dominated by Brexit or trade wars, they’re filled with inklings of a looming recession – questions of whether an inverted yield curve is the ultimate indicator that a recession is right around the corner, or whether consumer confidence is high enough to steer clear of a recession. However, as our CEO noted on a recent visit to BNN Bloomberg’s The Open with Ambar Kanwar, the greater focus should be on the masked problems of companies that make up global supply chains and the staggering amounts of risk they face.

 

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.

Missed the live BNN interview? Watch the full recap


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.


Want a deeper dive on industry trends?

Check out our Annual Default Review


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.

  

Topics: Supplier Risk Management, Risk Assessment