The High Cost of Natural Disasters and How to Get Ahead of Them

By Geraint John

Wildfires, earthquakes, hurricanes, floods… just some of the catastrophic natural disasters that have devastated Libya and many other countries in recent weeks. The floods in Libya alone have killed over 11,000 people – with that number expected to rise. In addition to the tragic loss of life and destruction of people’s homes, these events also cost companies billions of dollars and can severely disrupt their supply chains.

Earlier this month, for example, Volkswagen was forced to suspend production at its Portuguese operations until November after a small sub-tier Slovenian supplier of engine parts had its sole valley-based factory wiped out by flooding. The shutdown is likely to cost VW tens of millions of euros in lost productivity.

The financial impact of natural disasters is rising almost as quickly as sea levels and global temperatures. Insurer Munich Re calculates that total economic losses have exceeded $200 billion worldwide in each of the past seven years (see chart below). Less than half of these losses were insured.

Figures for 2023 are on a pace to continue this upward trend, with damage estimated at $110 billion in the first half of the year – 12% higher than the average for the previous decade.

Global Losses From Natural Disasters

US$ billions, inflation adjusted

Chart showing global losses from natural disasters from 2013 - 2022 in billions of USD.

Supply chains bear much of this cost burden. Interos’ recent survey of 750 chief procurement officers (CPOs) found that the cost of extreme weather and natural catastrophes in their supply chains in 2022 was, on average, $45 million per organization.

Although supply shortages and commodity inflation led their list of risk concerns for the next 12 months, more than one-quarter ranked natural disasters in their top five. And just over one-fifth picked extreme weather/climate change.

While it is extremely difficult to predict, let alone prevent, catastrophic supply chain disruptions, CPOs and their teams need to be keenly aware of suppliers in potential disaster zones and closely monitor regional events as they unfold.

2023: A Catalogue of Devastation

Climate change is fueling more extreme weather patterns and more intense natural disasters, as global air, sea and land temperatures increase. A new Interos whitepaper on catastrophic risk notes that July 2023 was the hottest month on record, according to the World Meteorological Organization.

While the massive earthquake in Turkey and Syria in February, which claimed more than 50,000 lives, has been the most destructive and costly disaster in 2023 so far, there have also been many damaging climate-related events. They include:

  • The largest ever wildfires recorded in the European Union, in Greece in August, along with major fires last month in Canada and Maui, Hawaii.
  • Tropical storm Hillary in Southern California, also in August – the first time the U.S. National Hurricane Center has ever issued a tropical storm warning for the state.
  • Severe thunderstorms, tornadoes and hailstorms in the U.S., the most serious of which struck Texas in June, plus Hurricane Idalia in Florida on 30 August.
  • Unprecedented flooding in Hong Kong, due to record rainfall in September, and in New Zealand in late January and February, due in part to Cyclone Gabrielle – described as the worst storm to hit the country this century.

Key Supply Chain Hubs Susceptible to Natural Hazards

The supply chain impact of such events will, of course, vary depending on the physical presence of both upstream suppliers and downstream partners such as logistics providers. Interos’ whitepaper highlights the natural hazard risks associated with 10 major global supply chain hubs. These include earthquakes in Indonesia, Taiwan and the key U.S. port city of Los Angeles; drought and rising sea levels around the Panama Canal; and coastal flooding risks in Shanghai and at Europe’s largest port, Rotterdam.

Today, many organizations have limited visibility of how such events might impact their supply chains, and a lack of timely information about disruptions affecting critical suppliers. In Interos’ recent survey, just 4% of procurement leaders believed they would be aware of a supplier disrupted by extreme weather or a natural catastrophe at all tiers of their supply chains within a 48-hour period (see chart).

Almost half (44%) acknowledged that they needed to make “significant” or “major” improvements to their monitoring capabilities, since they would have either zero visibility during this time window or only be aware of events affecting their direct (tier-1) suppliers.

This is a serious constraint, since the research also found that disruptions in 2022 more commonly originated at indirect suppliers (those at tiers 2 and 3).

Visibility of Extreme Weather Events and Natural Catastrophes

Awareness of a supplier disruption within 48 hours of occurrence

Adapting Supply Chain Strategies to the ‘New Normal’

Overcoming these constraints means designing proactive assessments and continuous monitoring into supply chain and third-party risk management processes. Such measures include:

  • identifying which existing suppliers might be in areas more prone to natural hazards, and making adjustments to enable alternate locations and sources;
  • reviewing the geographic diversification of a supply chain to identify potential geographic concentration risks in disaster-prone areas;
  • integrating natural hazard risk as part of the evaluation process for new suppliers;
  • continuously monitoring natural hazard events to spot threats to operational business continuity faster and enable emergency response plans to be activated more rapidly.

To help organizations improve their visibility and awareness of natural disasters and weather-related events, Interos this month launched a new catastrophic risk model within its Resilience platform. Features of the new model include:

  • Comprehensive and timely hazard data: the most reliable meteorological real-time sources of information on hurricanes, earthquakes, floods, wildfires and other events.
  • Visualization of event impact zone: an intuitive world map that charts the path of tropical cyclones, impacted area of earthquakes and other natural hazard events as they relate to an organization’s global supply chain footprint.
  • Real-time catastrophic risk alerts: timely notifications of natural hazard events happening around the globe that could potentially impact suppliers at tiers 1, 2 and 3.
  • Dynamic supplier risk scores: historical location-based risk ratings for specific entities, plus a time-limited impact score that quantifies and applies a severity of risk only during a natural hazard’s duration and its aftermath.

With the upward trend in catastrophic events fast becoming the “new normal”, organizations need to adapt their supply chain strategies to take account of climate change impact.

Those that embrace this reality and deploy new digital capabilities to help them will be more resilient in the face of whatever Mother Nature decides to throw at them in the future.

Latest Salvo in the Chip Wars: Chinese Export Controls on Gallium and Germanium May Undermine Western Industries

By Trevor Howe, Senior Operational Resilience Consultant


China’s imposition of export controls earlier this month on two strategic raw materials could have significant implications for Western manufacturers of electric cars, smartphones and a host of other advanced technology products.


The restrictions require Chinese firms to attain special permits from the government to ship gallium  and germanium out of the country. Gallium compounds are commonly used in the manufacture of semiconductors, defense systems, medical devices and solar cells, while germanium is most often used in fiber optics.


Both the United States and the European Union (E.U.) are heavily reliant upon China as a source of these two critical commodities (see table below). So the Chinese government’s move could undermine global supply chains and increase the potential for disruption.


In the short term, these new export controls may add upward pressure to commodity prices in anticipation of constricted supplies to global markets. In the medium to long term, they could further accelerate moves in multiple countries to diversify the raw material supply chain away from China.


U.S. and E.U. Dependence on China for Gallium (Ga) and Germanium (Ge)


Net Reliance on Imports for Ga Import Reliance on China for Ga Net Reliance on Imports for Ge Import Reliance on China for Ge
U.S. 100% 53% >50% 54%
E.U. 98% 71% 42% 45%


Sources: The United States Geological Survey Mineral Commodities Survey (2023); The European Commission Study on the critical raw materials for the EU (2023)


An Escalating Technology Trade War


China’s action comes as it has been openly sparring with the U.S. in an escalating technology trade war. The export controls on gallium and germanium are widely seen as retaliation for the U.S. government’s restrictions on sales of advanced semiconductors and chip-making equipment to Chinese companies.


As well as its own export controls, the U.S. has been putting pressure on partners such as Japan, South Korea and the Netherlands to limit their sales. The Netherlands, for example, recently implemented controls on the export of advanced semiconductor manufacturing equipment to China from ASML. ASML is currently the only company in the world to produce extreme ultraviolet lithography machines used to produce leading-edge chips.


Given the reliance of American and European firms on Chinese supplies of gallium and germanium, experts are worried about the effect China’ new controls could have on aerospace & defense, energy, telecommunications and other industries affected. Moreover, there is the potential future threat to rare earth elements (REEs), the supply of which China also dominates. REEs are crucial for clean energy technologies, electric vehicles, consumer electronics, and national defense.


Gallium-Related Products Facing Export Controls


Gallium occurs in very small concentrations in ores of other metals. Most gallium is produced as a byproduct of processing bauxite, and the remainder is produced from zinc-processing residues. The metal is not currently recyclable and there is no substitute for its use in some products where increased semiconductor performance and efficiency are required.


Aside from gallium metal itself, China’s new controls will apply to several gallium-related products:


Material Usage Examples


Gallium arsenide (GaAs) Uses include as a doping material to manufacture compound semiconductor wafers used in integrated circuits (ICs) and optoelectronic devices, which include laser diodes, light-emitting diodes (LEDs), photodetectors, solar cells, and solid-state devices such as transistors. While several substitutes for GaAs do exist, no effective substitutes exist for GaAs in many defense-related applications where GaAs-based chips are used because of their unique properties.


Gallium nitride


Uses have been growing in importance because of its ability to offer significantly improved performance across a wide range of applications while reducing the energy and the physical space needed to deliver that performance when compared with conventional silicon technologies. For example, GaN is used in advanced radars such as the AN/TPQ-53 which has been provided to the US military.


Gallium phosphide (GaP) Uses include as a semiconductor and optical material for the manufacture of low and standard brightness red, orange, and green light-emitting diodes.


Gallium antimonide


Uses include as a compound semiconductor for infra-red (IR) photodetectors used in sensing and imaging applications. The application of GaSb detectors is extensive, encompassing military, industrial, medical, and environmental uses.


Gallium oxide


Uses take advantage of conduction and luminescence properties; this includes in semiconductors, gas sensing, catalysis, and nanostructures as blue and UV light emitters. Ga2O3 is also ued in spectroscopic analysis.


Gallium selenide


Uses include as a nonlinear optical material for frequency conversion of laser light and as a photoconductor.


Indium gallium arsenide (InGaAs) Uses include within photodetectors and short-wave infrared imaging (SWIR) devices, solar cells, high-speed electronics, and medical imaging.



Germanium-Related Products Facing Export Controls


The major use of germanium worldwide is for fiber-optic systems, whereby germanium is added to the pure silica glass core of fiber-optic cables to increase their refractive index, minimizing signal loss over long distances.


The available resources of germanium are associated with certain zinc and lead-zinc-copper sulfide ores. On a global scale, as little as 3% of the germanium contained in zinc concentrates is recovered. Significant amounts of germanium are contained in ash and flue dust generated in the combustion of certain coals for power generation.


Germanium is more available than gallium, with around 30% of global supply produced from recycled materials. However, there is a notable lack of information surrounding the mineral. According to the 2023 Mineral Commodity Summaries published by the U.S. Geological Survey, no data was available pertaining to world refinery production and reserves of germanium.


In addition to germanium metal, ingots, and substrates, China’s new controls will also apply to several germanium products:


Material Usage Examples


Germanium dioxide (GeO2) Uses include in phosphors, transistors, diodes, infrared-transmitting glass, and electroplating.


Germanium tetrachloride (GeCl4) A colorless liquid, its uses include as an intermediate in the production of purified germanium dioxide and germanium metal. GeCl4 is transparent to infrared light and therefore useful in optical materials. It is also widely used as a semiconductor and as an alloying agent.


Zinc germanium phosphide (ZnGeP2) Uses include in high power, high frequency applications and in laser diodes, especially as a component for the laser source of infrared countermeasure systems in military aircraft which protect aircraft from heat-seeking missiles.




Substitutes for germanium do exist (e.g., silicon in certain electronic applications and antimony/titanium are substitutes for use as polymerization catalysts), providing a degree of resilience to undercut supplies to global markets.


Government and Company Actions to Manage Strategic Risks


Given the geopolitical context for China’s controls on gallium and germanium exports, and the concentration of global supply, there will inevitably have to be problem solving at the government level to address any shortages. Countries can bolster their resilience by maintaining strategic stockpiles, identifying alternate suppliers, investing in domestic extraction or production, or promoting the expansion of the industry via incentives for the private sector.


South Korea serves as a prime example; officials there reported that the short-term effects on operations in their country would be limited due in part to stockpiling and alternative supplies. The Korea Mine Rehabilitation and Mineral Resources Corporation has approximately 40 days’ stockpile of gallium that domestic manufacturers could use.


Meanwhile, the E.U. is engaging with countries in South America to secure further access the region’s abundant raw materials. If the E.U. can successfully expand its partnership with the Southern Common market (MERCOSUR), it would help achieve its strategic goal of securing a diversified, affordable, and sustainable supply of critical raw materials.


At the same time, the E.U. intends to bolster domestic production through recently proposed legislation such as the Critical Raw Materials Act.


While governments must step in to secure their countries’ respective supply chains, companies can ill afford to sit idly by and not take proactive steps to secure their direct supply chain. Although relatively few companies would be in a position to invest in REE or critical commodity extraction or production, they can still benefit from identifying where these materials are sourced from within their ecosystem.

This type of visibility deep into the supply chain can help uncover concentrated reliance on a supplier or region, and the information leveraged to pursue de-risking methods such as supply base diversification to bolster resilience against certain risks.


With its artificial intelligence-based software, Interos is well positioned to support supply chain risk management programs for companies around the world trying to address this issue, as well as future disruptions that may arise.

Forced Labor Regulations Materially Impact U.S. and European Supply Chains

By Geraint John

Forced labor is becoming an ever more impactful source of supply chain risk as new regulations on both sides of the Atlantic begin to bite.

In the United States, the Uyghur Forced Labor Prevention Act (UFLPA) has seen more than 4,600 imported shipments worth over $1.6 billion intercepted by U.S. customs officials in its first full year of operation. This week, U.S. customs added new Chinese companies to the list of those restricted from selling their products in America.

The law seeks to stop products associated with forced labor in China’s Xinjiang region from entering the U.S. Recently, a growing list of companies have been accused of flouting the legislation. They include the parent company of printer manufacturer Lexmark International, power tool maker Milwaukee Tool and Nike Canada.

In Europe, automotive firms BMW, Volkswagen and Mercedes-Benz have also been accused of using forced labor in their Chinese supply chains. If true, they would be in contravention of Germany’s new Supply Chain Due Diligence Act (SCDDA). The SCDDA came into force in January.

This specific complaint, brought by a Berlin-based non-profit, has yet to be proven. However, it is a stark warning to larger companies that they need to up their game when it comes to managing forced labor risk in their extended supply chains.

Regulations Address a Growing Global Problem

Forced labor is defined by the International Labour Organization (ILO) as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.”

According to a recent report, as many as 50 million workers worldwide may be enduring forced labor or “modern slavery” conditions. The report estimates this number has grown by 25% over the past five years. The report argues that this increase is due to global trade conducted by G20 developed nations.

A new Interos survey of 750 procurement leaders in North America and Europe underlines the significance of new supply chain regulations that seek to tackle this issue. It found that:

  • 80% of those in the U.S. and 71% in Canada see the UFLPA as having a significant or moderate impact on their organizations. Energy and A&D sectors were the most affected.
  • 61% overall think the SCDDA will have a significant or moderate impact. This rises to 77% in the energy and financial services sectors.

The UFLPA has a direct operational impact. Violations lead to the physical detention of shipments at entry ports, as well as cost and reputational implications. The SCDDA, meanwhile, gives the German government powers to levy fines of up to 2% of a company’s annual turnover. They may also be banned from competing for public contracts for up to three years.

Revealed: The Highest Risk UFLPA Goods

Of the 4,651 shipments detained by U.S. Customs and Border Protection (CBP) under the UFLPA to the end of June, 872 (19%) were denied entry, 1,849 (40%) were released and almost 2,000 were awaiting a decision.

But Interos’ analysis of CBP’s data reveals that shipments of specific products from certain countries are much more likely to be rejected than others. In particular:

  • Almost half (46%) of all shipments detained (worth $1.37 billion – 84% of the total value) were electronic products. However, just 3% of CBP decisions resulted in these being refused entry. The vast majority are shipped from Malaysia.
  • In contrast, customs rejected almost two-thirds of industrial raw materials and more than 62% of pharmaceutical and chemical products. Well over half of apparel, footwear and textiles met the same fate (see chart).
  • Vietnam has the highest proportion of shipments denied entry (49%), with 89% of raw materials and 69% of apparel, footwear and textiles rejected. This demonstrates that attempts to skirt the UFLPA by shipping from outside China don’t always work.
  • China itself is the second riskiest originating country for U.S. imports, with 40% of CBP decisions denying its shipments entry. Compare to an 11% rejection rate for Thailand and just 2% for Malaysia.
  • China’s highest risk category is apparel, footwear and textiles (64% rejected). This was followed by pharmaceutical and chemical products (62%) and raw materials (44%). At the other end of the scale, just 14% of agricultural products and 8% of consumer products were denied entry by CBP officers.

Products at Greatest Risk From UFLPA

Percentage of CBP decisions where shipments are denied entry, June 2022 – June 2023

Source: U.S. Customs and Border Protection

Polysilicon – a key raw material in the production of solar panels – is one high-risk product targeted by the UFLPA. More than 40% of the world’s supply of polysilicon comes from Xinjiang. Following previous action against Chinese imports, Vietnam is now the biggest exporter of solar panels to the U.S. Vietnam accounts for one-third of solar panel shipments in 2021.

Actions That Companies Need to Take

Companies can take similar actions to manage forced labor risk and comply with both the UFLPA and SCDDA. At a foundational level, they include establishing a robust risk management and due diligence system capable of identifying and remediating illegal practices.

Interos’ recent survey found that nearly two-thirds of procurement leaders believe they have made significant or moderate progress on forced labor with their suppliers over the past three years (see chart).

Forcing the Issue on Forced Labor

Progress made with suppliers in the past three years

n=750 procurement leaders

Source: Interos Resilience Survey 2023

However, as with other ESG issues, one of the main challenges around forced labor is a lack of sub-tier supply chain visibility. This ranked as executives’ joint top barrier to progress alongside a lack of reliable data for setting and tracking goals.

To support their regulatory compliance efforts on forced labor, procurement leaders need to:

  • Use supply chain mapping and risk-scoring tools to pinpoint high-risk relationships with both direct and indirect suppliers in geographies prone to forced labor.
  • Ensure that existing direct and sub-tier suppliers are not on, or being added to, any restrictions lists, including those specific to the UFLPA.
  • Harness detailed risk intelligence to help identify and mitigate forced labor risks before selecting or onboarding new suppliers in China or other at-risk countries.
  • Keep a close eye on high-risk raw materials and products shipped by Chinese or other firms based in Vietnam, Malaysia, Thailand, Mexico and other countries on the U.S. CBP watchlist.

Supply chain regulations impose a heavy burden on companies. They require time, money and resources to ensure compliance. 79% of CPOs we surveyed agree with that view.

But the same proportion also believes that regulation forces their organizations to do a better job of managing supply chain risk. 70% say it even enhances their competitive advantage in the market.

So the message on forced labor, as with other types of supply chain risk, is that it pays to invest. Organizations can derive value from both complying with emerging regulations, but also proactively developing greater operational resilience.

Russian Mutiny Highlights Risks Firms Face in Global Mineral Supply Chains

By Klaudia Kokoszka & Mackenzie Clark

Coverage of the Wagner Group’s recent attempted mutiny in Russia naturally focused on the threat it posed to President Vladimir Putin’s power. Less well known is the role played by Yevgeny Prigozhin’s mercenary organization in the global supply chain for gold.

Wagner has long been suspected of operating in parts of Sub-Saharan Africa. In that region, they have exploited vulnerabilities in the gold supply chain to enrich themselves and fund their operations. Recent attention on the group has spurred a U.S. Africa Gold Advisory targeting a major source of their funding.

Using the Interos platform we identified over 600,000 companies that rely on conflict minerals. This broad exposure highlights the degree to which the global economy depends on a raw materials trade that directly benefits paramilitary and terrorist groups. These associations also pose significant regulatory and reputational concerns for companies that rely on these supply chains.

A History of Exploitation

On June 27, the U.S. Departments of State, the Treasury, Commerce, Homeland Security, Labor, and the United States Agency for International Development (USAID) warned firms to be on high alert to potential exposure to illicit gold within their supply chains.

This advisory followed a U.S. Treasury Office of Foreign Assets Control (OFAC) decision earlier in the year to sanction companies engaging with the Wagner Group in the illicit gold trade. The group uses this trade to fund its expansion. The proceeds also, like the Russian government, pay for Wagner’s military activities in Ukraine.

Wagner has also been connected to numerous human rights violations in the plunder of natural resources from conflict-affected nations. The group has long been known to have a presence across Sub-Saharan Africa. They are often found in the Central African Republic (CAR). The CAR is designated as a “country of concern” under the conflict minerals provision (Section 1502) of the Dodd Frank Act.

Since 2010, the Act has established an SEC (Securities and Exchange Commission) disclosure requirement for companies that manufacture products using so-called “conflict minerals”. The conflict minerals list consists of  tin, tungsten, tantalum, and gold, and often referred to as “3TG”. These minerals originate from the Democratic Republic of the Congo and surrounding countries. These include Angola, Burundi, the CAR, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia.

These countries are at higher risk of exploitation by armed groups such as Wagner and Islamic State. These illicit entities finance their activities by taking advantage of vulnerabilities in the mining, processing, and distribution of conflict minerals. In the process, they are able to significantly enrich themselves.

Interos Supply Chain Data Analysis

We took a look at Interos’ global relationship platform data in conjunction with the National Resource Governance Institute’s Resource Contracts database. With this data, we mapped the extended supply chains of companies that hold 3TG mining contracts with countries of concern in Sub-Saharan Africa.

We identified over 600,000 companies that rely on conflict minerals either directly or indirectly, in the extended supply chain of the firms that hold these contracts. This includes 56 direct relationships to mining companies. It also includes 25,000 indirect buyer-supplier relationships in the second tier, and over five million relationships in the third tier.

These relationship networks quickly expand as you move away from the source of these minerals, which are generally several tiers deep within global supply chains.

Who Uses Conflict Minerals?

While the mining and processing of 3TG is based largely in the global south, the consumption of value-added goods containing these minerals, such as semiconductors, chips, wires, and batteries, is highly concentrated among Western Economies.

Map showing counties where conflict minerals are mined.

Of those firms that have direct relationships with the mining companies, more than three quarters are located in developing and growing economies. Over half are based in India.

Downstream consumers of conflict minerals are defined as those likely purchasing a post-processed and value-added product. More than three quarters of these are based in North America and Europe.

Map showing counties where conflict minerals are consumed.

The United States is the single largest 3TG purchaser, representing nearly 45% of all downstream consumers. The second largest is the United Kingdom, representing over 9% of downstream consumers.

Based on these findings, the United States holds an extremely sensitive position in the supply chains of 3TG, and disruptions to and regulatory risks associated with these commodities will strongly impact U.S. firms.

A broad range of industries rely on conflict minerals, either directly or indirectly. Some of the most exposed industries, based on prevalence among downstream consumers, include software and communications (8%), construction (4%), vehicle manufacturing (3%), information services (3%), medical products (3%), household electronics (3%) and aerospace engineering (1%).

These industries alone make up over 40% of the companies vulnerable to a disruption in the conflict mineral supply chain. They include some of the largest global producers of technology, software, transportation, and heavy machinery. The adverse impact to these types of companies derives from their reliance on raw minerals in the parts and components of the finished goods they purchase and produce.

Though many of these firms are not directly purchasing from the companies responsible for mining conflict minerals, illicit behavior in their extended supply chain could still adversely impact their reputation, regulatory compliance, and ultimately their ability to predictably produce the finished goods they sell.

How Can Organizations Get Proactive About Conflict Minerals?

Recent events have highlighted the importance of increased due diligence for firms that rely on gold and other raw minerals sourced from conflict-affected regions. Companies looking to safeguard their extended supply chains should consider integrating the following recommendations into their procurement processes:

  • Increase and improve supply chain due diligence efforts related to the mining of conflict minerals, especially related to upstream business relationships and raw mineral suppliers.
  • Understand potential reputational risks to your firm associated with purchasing 3TG products from conflict-affected countries. This includes human rights violations, forced labor and environmental degradation among other concerns.
  • Understand potential compliance risks associated with purchasing 3TG products from conflict-affected countries. Pay attention to sanctions violations, money laundering and smuggling, among other concerns.

Regulation and Supply Chain Furor Over Minerals to Increase

Last month’s attempted mutiny highlighted the tangled interdependencies of geopolitics, raw materials, and supply chains. The U.S. Africa Gold Advisory is the latest policy action in a growing tide of regulations and concerns over conflict minerals. This swell of regulatory activity is likely to continue, and a similar increase is expected regarding critical minerals (which include aluminum, lithium, and nickel). These concerns have been compounded by recent actions by China in restricting the exports of metals critical to semiconductor production.

G7 Confronts China’s Designs on Semiconductor Supply Chain

G7 leaders meeting in Hiroshima, Japan this past weekend were hardly short of major global issues to discuss. From Russia’s unprovoked war in Ukraine and the proliferation of nuclear weapons to the steady march of climate change — the potential scope of the agenda was vast. So it was significant that the leaders devoted part of the summit’s agenda and communiqué to the risks facing critical supply chains and the need for greater resilience.

Nowhere is this more concerning for the world economy than in the case of Taiwan. We are at a time of heightened tensions between the United States and China. An all-powerful President Xi Jinping is intent on reuniting the two rival Chinese republics. Consequently, the concentration of semiconductor manufacturing in Taiwan is the biggest geopolitical risk facing supply chains today.

Taiwan-based companies control more than 90% of the world’s production of advanced microchips. These chips are used in everything from high-end smartphones to cutting-edge military hardware. One company, Taiwan Semiconductor Manufacturing Co. (TSMC), dominates this niche and owns more than half of global chip-making market share.

A Chinese invasion or blockade of its neighbor across the Taiwan Strait would have a devastating impact on the global economy one far greater in scale and longevity than the havoc wrought on food and energy supplies by Vladimir Putin’s aggression last year. So it is right that G7 leaders focused on the issue.

Taiwan’s Supply Chain: Powered by Semiconductor Exports

Taiwan exported $479.4 billion of products in 2022. The U.S. was the second biggest importer after China, with 15.7% ($74.9 billion) of the total. Japan was fourth with 7% behind Hong Kong, while the other five G7 countries Canada, Germany, France, Italy and the U.K. made up a combined 4.3% ($20.9 billion).

Many different products are shipped to these and other nations in Asia-Pacific and beyond (see chart). But it is electronic components, and especially “integrated circuits/microassemblies” in other words, semiconductors that dominate the list. The latter accounted for $183.5 billion, or 38% of Taiwan’s total exports by value last year. Despite a falloff in demand for chips in recent months, this figure was up 17.7% on 2021, which in turn was up 22.4% on 2020.

Taiwan Exports by Commodity, Q1 2023. Electronic components are the largest category.

Dependence on Taiwanese supply chains among G7 countries is, as you might expect, extensive. An analysis of Interos’ global database of business relationships shows that:

  • U.S. companies have almost 70,000 direct (tier-1) relationships with Taiwanese suppliers. Companies in other G7 member countries have almost 10,000 between them.
  • When indirect multi-tier relationships are included, G7 member companies have more than 315,000 tier-2 and 750,000 tier-3 connections to Taiwanese firms.
  • Although tier-1 relationships with the two major Taiwanese semiconductor manufacturers, TSMC and United Microelectronics Corp. (UMC), are relatively small in number (led by the U.S. with around 220), as tier-2 and tier-3 suppliers these two companies are present in hundreds of thousands of supply chains in G7 countries.


The Likelihood and Impact of China Invading Taiwan

Two key questions that arise from discussions around the China-Taiwan situation are:

  1. How likely is it that China will seek to take Taiwan by force, and when might this happen?
  2. What impact would Chinese action against Taiwan have on the global economy and supply chains?

Opinions among commentators and analysts on the first question vary widely. Some see an invasion occurring as soon as later in 2023, to sometime in the 2030s, to never. China’s official policy is one of peaceful reunification. However, U.S. intelligence reports suggest that President Xi has ordered the People’s Liberation Army to develop capabilities to seize the island by military force by 2027.

A geopolitical risk assessment of conflict between China and Taiwan by Interos concluded that the likelihood of an invasion in the next 2-5 years was “roughly even odds (45-55%).” The assessment also noted that “the majority consensus [among government policy makers and think-tank experts] appears to be that there will be an armed conflict over the island.”

On the second question, Interos’ analysis identified that a partial blockade or full invasion could disrupt ocean and air cargo shipments from Taiwan. Our analysis also raised the possibility that Taiwan could be completely cut off from international trade.

Potential Supply Chain Scenarios for Semiconductor Disruption

A tabletop exercise conducted last year among U.S. government and business leaders by the RAND Corporation centered specifically on the likely impact to advanced semiconductor supply chains. Participants were asked to consider two potential scenarios in which China imposed a “coercive quarantine on Taiwan”:

  1. Uncontested, China acquires a significant portion of global semiconductor capacity. This leaves the U.S. and other countries with a choice of continuing to buy from Taiwanese suppliers or imposing sanctions on China.
  2. China faces resistance in its attempts to take control of Taiwan’s fabs. This leads to a rapid loss of access to the country’s semiconductors, and triggers U.S. and other government action to ration limited supplies.

Unpalatable outcomes from these two scenarios included a fundamental change in the balance of global power in China’s favor, and an extended economic depression for most of the world. Unsurprisingly, given the impact on multiple industries (see graphic), business participants were keen on ensuring continuity of supply even if this meant relying on semiconductor firms such as TSMC under Chinese control.

How Loss of TSMC Would Impact Different Industries.

Military action against China, whether by Taiwan or the U.S. and its allies, was not considered in this simulation. But a recent assessment by The Economist laid bare the imbalance in military capabilities between China and Taiwan. The analysis also articulated the dire consequences of military conflict over the island state. This included “incalculable damage to the world economy” as a result of disruption to semiconductor supply chains.

The threat of war looms large over the Indo-Pacific region. Hence efforts in recent weeks by Japan and other G7 countries, including the U.S., to take some of the heat out of relations with China. In their communiqué, the G7 leaders emphasized that actions designed to boost economic and supply chain resilience were about “de-risking, not de-coupling” from China.

Some Major Players Begin Diversifying Chip Capacity Away From Taiwan

In practice, de-risking means diversification. Since their 2022 meeting in Germany, the response of G7 countries to semiconductor concentration risk has been to tempt advanced chip-making capacity away from Taiwan through vast public subsidies. The U.S. has led the way with its CHIPS and Science Act, but Japan, the European Union, and the U.K. have all followed suit, albeit with fewer billions of dollars to throw at the problem.

Over the next five years these industrial policies should result in new fabs, supply chains, and skilled workforces being developed in multiple geographies. However, Taiwan is set on keeping much of its domestic semiconductor “shield” intact, both in terms of manufacturing and R&D. Aside from contributing 15% of Taiwan’s GDP, the industry serves as vital leverage for Taiwan in its efforts to maintain independence from China.

Confidence in this strategy in waning in some quarters.  \Warren Buffett’s Berkshire Hathaway recently announced that it had sold the remainder of its $4.1 billion stake in TSMC. This is in spite of the fact that the shares were purchased as recently as November last year — and that TSMC is regarded as one of the world’s best-managed companies.

“I don’t like its location,” Buffett told analysts. “I feel better about the capital that we’ve got deployed in Japan than in Taiwan.”

Action CPOs Should Take to Prepare for Potential Disruption

To reduce the exposure of their organizations to semiconductor concentration risk, chief procurement officers should do the following:

  • Assess your dependence on Taiwan by understanding the relationships you have with Taiwanese suppliers. Include both the direct, tier-1 relationships and those at tiers 2, 3 and beyond. Chip makers such as TSMC and UMC are often present at this sub-tier level.
  • Evaluate the extent to which key semiconductors, electronic components, and other items you depend on from Taiwan-linked supply chains are single- or sole-sourced. Identify where you have viable alternative options already in place.
  • Develop a strategy aimed at diversifying your supply base to other geographies. Consider sourcing from new suppliers and/or by working with existing partners to utilize alternate and emerging capacity.
  • Conduct scenario plans and risk simulations – like the one run by British telecommunications group BT last year. These can gauge the impact that disruption to Taiwanese semiconductor supply chains might have on your business.
  • Continuously monitor your Taiwan-dependent supply chains for geopolitical, operational, financial, and cyber risk events.

Until new semiconductor capacity comes online in the U.S., Japan, Germany, South Korea, and elsewhere, companies will continue to over-rely on Taiwan-based suppliers. However, it is important to be prepared for, and to support the creation of, a more diversified global supply chain for microchips – as it is with other critical products and raw materials that are heavily concentrated in particular geographic locations.

Why Supply Chains Need to Play a Bigger Role in Regulating Climate Change

By Geraint John

As the annual Earth Day takes place again on April 22nd, the world faces an all-too-familiar message: we are not doing enough to confront the impact of climate change and human-inflicted damage to our fragile environment.

Global supply chains, as the engine room of trade and economic growth, are a major source of carbon dioxide emissions, deforestation, water and natural resource wastage, and pollution  – which explains why national governments are busy introducing laws to regulate companies’ activities more tightly.

In the European Union, for instance, legislation currently in progress includes:

  • A carbon border tax on greenhouse gas emissions associated with imported products to begin operating from October 2023.
  • A ban on imported products linked to deforestation from 2024.
  • A Corporate Sustainability Reporting Directive that will require around 50,000 companies to disclose environmental impact data and set improvement targets.

In the United States, current proposals include:

  • New Securities and Exchange Commission (SEC) reporting rules. These include disclosure requirements for CO2 emissions in listed companies’ supply chains (so-called Scope 3 emissions).
  • Tough new Environmental Protection Agency (EPA) limits on tailpipe emissions from fossil-fuel-powered cars and other vehicles.

This surge in regulatory activity will, over time, certainly force many firms to improve their environmental practices. But those leading their procurement and supply chain organizations need to go beyond compliance with these laws if change is to be effective on the scale required.

Coming to Terms with the Impact of Supply Chains on the Environment Is No Small Feat

To mark Earth Day 2023, Interos conducted an analysis of its ESG risk-scoring data, ranking the best and worst countries based on their performance against a dozen environmental attributes — which will be published soon (check back here for a link).

The key finding from this analysis is that even the “best performing” countries – and the companies headquartered there – have their work cut out to meet net-zero emissions, limit temperature rises to 1.5°C, and hit other key environmental targets.

Research by the Carbon Disclosure Project (CDP) reveals that supply chains are not yet contributing at anything like the scale required to effect meaningful change. Data it collected from thousands of firms in 2022 shows that:

  • Only 41% reported any Scope 3 (supply chain) emissions, compared with 72% for Scope 1 or 2 (internal operations). This is despite the fact that Scope 3 emissions are typically more than 11 times greater.
  • Just 36% of reporting firms were able to calculate Scope 3 emissions for purchased goods and services.
  • Relatively few companies currently provide detailed reporting on water consumption or deforestation in their own operations, let alone in their supply chains.

Where Companies Calculate Scope 3 Emissions.

The CDP welcomes the regulations mentioned earlier, which will force many more companies to measure and report their broader supply chain environmental impact. But it argues that “the necessary cascade of action down the supply chain is just not happening”.

Compelling direct (tier-1) suppliers to provide data and make improvements isn’t sufficient. Active engagement, incentivization, and collaboration with a targeted group of direct and indirect (tier-2+) suppliers are necessary to drive change.

Just 39% of companies engage their suppliers on climate-related issues, says the CDP, while 23% do the same for water. The figure is higher for deforestation (69%), but this is tempered by the fact that relatively few firms disclose data on this issue.

ESG and Procurement: From Compliance to Engagement and Continuous Monitoring

A separate report on sustainable procurement by the United Nations Environment Programme also notes the growing body of legislation, but cautions buyers against a “superficial compliance oriented approach”.

It urges them to look beyond the needs analysis, supplier selection, and onboarding stages of the procurement cycle, where most activity takes place today (see chart), and put more emphasis on post-contract supplier management.

The need for continuous monitoring and intervention along the supply chain, rather than just one-time certification, is as important in environmental performance as it is for other types of supplier risk, such as labor standards and cybersecurity.

Most Effective Stage of the Procurement Cycle to Introduce Sustainability Considerations.

How Procurement Leaders Can Make ESG Progress

Chief procurement officers (CPOs) face plenty of complex challenges as they work to improve environmental sustainability in their organizations. Collecting relevant data and measuring results is certainly not the smallest one.

But, aside from it being “the right thing to do”, there are real business benefits to be gained. These include creating lower-risk, more resilient supply chains. Organizations will also enjoy commercial advantages over rivals in terms of innovation, customer perception, and sales. They also have greater attractiveness to stakeholders such as investors and employees.

A new study by Bain and Ecovadis also found that companies “at the forefront of sustainable procurement,” which focus on their suppliers’ environmental practices, are more profitable – by an average of three percentage points over other firms.

Practical steps CPOs can take to make progress on this journey include:

  • Raising internal awareness of supply chain-based climate, water, deforestation, and other environmental issues. This includes both within their own teams and others they work with.
  • Designing incentives to ensure that buyers and category managers pay sufficient attention to sustainability considerations at different stages of the procurement cycle.
  • Writing climate, water, and other requirements into supplier contracts and including sustainability KPIs in scorecards and regular performance reviews.
  • Harnessing technology to identify the highest-risk supply chain dependencies. Also, collecting environmental data to conduct analysis and support decisions.
  • Engaging suppliers not only to disclose and share information about CO2 emissions, water usage, and other activities, but also to encourage and incentivize them to take action to improve their environmental footprint.

Actions such as these mark a big change from the “traditional” procurement focus of lowering costs and ensuring supply. But CPOs in leading companies are increasingly staking their reputations and careers on it.

For the sake of our planet, the efforts of these leaders and others need to become a source of celebration on future Earth Days.

Modeling Supply Chain Cyber Risk in a Disrupted World

By Andrea Little Limbago

On March 2, the Biden Administration announced a new National Cybersecurity Strategy. The need for a strategic change should not come as a surprise — Interos’ 2022 Resilience survey of 1,500 procurement and cybersecurity leaders revealed supply chain disruptions from cyber incidents alone cost enterprises $37M annually. Estimates of the global annual cost of cybercrime exceed ten trillion dollars.

Interos is closely monitoring the rising costs of cyber disruption and the continuously changing state of play, among other factors. We’ve refined and updated our cyber risk factor, one of the six factors within the Interos i-ScoreTM, in light of these and other trends shaping cybersecurity. The enhancements include a new cyber behavior model to detect potentially harmful cyber activity regardless of public disclosure, along with combining commercial cyber ratings, vulnerability information (CVEs), threat assessment (Mitre ATT&CK®), cyber events, regulatory compliance, and operating country regulations and risks into a single score.

You can read about those details in our press release. This blog will focus on those strategic factors driving these changes and the challenges in developing a solution that delivers cybersecurity insights to non-experts, all within the backdrop of the generational shift underway in the international system.

Trends Driving The Need for Change in Cyber Risk Modeling

To address the growth in scope and scale of cyberattacks (and their ripple effect across the supply chain) the Biden administration’s new National Cybersecurity Strategy is putting more responsibility on vendors and service providers. This is part of a larger trend prompting organizations to prioritize long-term collective investment in cyber resilience – and is reflective of Interos’ collective resilience approach to cyber.

Cyber leaders are also increasingly acknowledging the human element and assessing those risks through a socio-technical lens. This has led to both a focus on user interactions as well as the growth in new compliance frameworks and regulations. That’s why the enhanced Interos cyber risk factor accounts for compliance with CSF V1.1, NIST SP 800-53, PCI DSS V3.2.1, and other standards, as well as the global expansion of data privacy and cybersecurity regulations.

To that end, an organization’s geographic location plays a crucial role in both compliance and data risk levels. This variation stems from differing levels of data sovereignty which depend on the localized cyber and privacy environment. Risks surrounding the concentration of the physical infrastructure underpinning the internet also pose a significant challenge, as seen in the case of Russia’s cyberattack on ViaSat’s services in Ukraine or the disconnection of undersea cables which happened in Scotland and France.

The adoption of collective resilience (creating shared supply chain and operational strength) is accompanying our broader understanding of the range of cyber risks, which is why collaboration is prioritized in national and international cyber strategies. As Alejandro Mayorkas, the Secretary of Homeland Security, noted, “We have to drive the entire ecosystem to be more cyber vigilant.”

Developing Interos’ Enhanced Cyber Risk Model

Tackling Key Challenges in the Cybersecurity Landscape

Development of this new model address two core challenges:

  1. Aggregating Data into Intuitive Formats: The difficulty of integrating disparate data sets in a timely manner and presenting them in an intuitive, explorable format. We recognize that many cybersecurity tools are designed for information security professionals, making them inaccessible to others involved in risk management.
  2. Understanding Behavior: The importance of understanding both threat actors’ and defenders’ behaviors and integrating that knowledge to identify the most relevant risks.

Cyber has an interesting data problem in that there is a data deluge and a data desert at the same time – meaning there is so much data, but it’s not always the relevant data. The Interos model addresses the above challenges by focusing on integrating and presenting the range of these trends (over individual data points) to capture the core areas of vulnerabilities, threats, compliance, and adverse cyber events. Through this holistic approach we can provide a comprehensive view of cybersecurity risks across the entire supply chain ecosystem, from vendors and service providers to critical infrastructure and sensitive data.

We also utilized the extensive community work and expertise from federal organizations like NIST CVE and MITRE’s ATT&CK framework while accounting for both opportunistic and targeted threats by identifying industries/groups most susceptible to targeting, and vulnerabilities most likely to be exploited. Our approach also focused on quantifying data risks across locations by merging different data types to capture the diverse data sovereignty and global risk environments — a project we presented at Black Hat cybersecurity conference a few years ago.

Implications and Value: Uncovering Hidden Cyber Risks and Enabling Proactive Measures

The implications of this new model are vast. It highlights areas of risk that often are not brought together, allowing users to take action to decrease cyber risk. This may include reaching out to critical suppliers that may be at risk and coordinating a plan to elevate their defensive posture, or identifying those key parts of their supply chain located in areas where the data may be more at risk due to an adverse regulatory environment.

The Interos model surfaces a range of cyber risks, while contextualizing those risks within a broader supply chain risk framework. For instance, users can identify who might be at high cyber risk as well as high financial risk, since these suppliers may not have the resources to grow their defensive posture or could be extremely vulnerable to insolvency if attacked given the cost of breaches.

Personal Observations: Expanding Access to Cyber Risk and Addressing Global Challenges

Two particular aspects of this project are especially important to me, in terms of their ability to address broader systemic challenges across the industry that have significant implications for the future:

  • Addressing the cyber industry’s gatekeeper problem, which restricts risk assessment access to those with information security technical expertise. Interos’ updated model marks a significant stride towards broadening access to cyber risk assessment outside of an enterprise’s Security Operations Center.
  • Further integrating supply chain risk and cyber risk, particularly in the context of a re-globalized world economy, technological bifurcation, and the geopolitical fracturing of the internet. This integration is essential for fostering cyber vigilance and tackling the challenges presented by emerging technologies and global competition.

A modernized approach to cyber risk will be an essential tool for organizations exploring how to adapt to a changing global order whose shifts are being felt across supply chains, geopolitics, and technology development. Interos’ enhanced model for evaluating cybersecurity risk across supply chains signifies a significant step towards that goal.

By expanding access to meaningful cybersecurity information, through a multi-factor, supply chain-wide approach, we can enable organizations to proactively manage and mitigate risks on a far greater scale than ever before, bringing non-cyber experts into the decision room, and fostering resilience and success in this ever-evolving global landscape.

The World in Flux: Preparing for Unthinkable Risks

By Andrea Little Limbago 

Globalization is undergoing a significant transformation. Along geopolitical fault lines, global economies are decoupling, while simultaneously like-minded countries are seeking greater integration. This reglobalization of the international system is defining the new normal, introducing a range of opportunities as well as risks.  

The shockingly swift collapse of Silicon Valley Bank (SVB), China’s announcement seeking greater technological self-sufficiency, California’s record-breaking snowfall and floods, and the U.S., U.K., and Australia trilateral pact announcement, all occurring around the same time, are indicative of this new normal.  

As the International Monetary Fund’s Managing Director noted, organizations need to “think of the unthinkable” to better build toward resilience in light of disruptions. This requires a mindset shift regarding systemic risk – moving from a siloed view of “known” risks (e.g., the shutdown of a single supplier with poor credit) to a multi-faceted approach that accounts for hyper-dependencies in a world routinely shocked by unforeseen risks (e.g., the 48-hour collapse of an industry-leading and deeply connected bank). Organizations that successfully build on and expand their risk mindset to encapsulate the multitude of economic, political, climatological, and technological transformations underway will be at a competitive advantage going forward; those that fail to do so will be ill-equipped to navigate these “unthinkable” risks. 

Multi-faceted Risk and Supply Chain Catastrophe in a Reglobalized World (aka The New Normal)

Traditional risk frameworks crafted over the last few decades are inadequate to address today’s risk landscape consisting of hyperconnected digital economies and multi-layered business ecosystems. That does not mean they aren’t useful — they’re simply not flexible enough to keep pace with modern change.  

The first quarter of 2023 alone has witnessed a series of shocks that were once unthinkable. Ransomware infiltrated a major supplier in the semiconductor industry and propagated across technology and defense communities, causing a $200M hit to its revenue, as well as a $250M hit to a customer. The Middle East may be on the verge of a major transformation following an unprecedented, China-brokered deal to reestablish diplomatic relations between longtime bitter foes Saudi Arabia and Iran. The deal reflects a shift in the balance of power and China’s growing influence in the region. And now SVB – dubbed the tech industry’s banker – experienced the second largest bank failure in U.S. history, with ripple effects from China to Europe. 

 These “unthinkable” events reflect a new status-quo for all manner of risks. For cyber risk, an expanded mindset that includes, but also looks beyond, vulnerabilities is essential. Threats, regulations, and anomalous behavior must also be part of a coordinated cyber risk mindset. On the geopolitical front, organizations must account for changing fault lines which continue to foster new alliances and new divisions. And for financial risk, solvency is foundational, but as the events with SVB illustrate, continuously monitoring solvency alone is not enough. A more nuanced view of financial risk is required to achieve operational resilience against financial volatility in the new normal.  

 For example, in addition to solvency, volatility of equity returns often represent a timelier examination of the business risk of a company. Equity markets are more sensitive to new information and can react more quickly than solvency metrics based on accounting measures reflect. SVB is particularly instructive. For the five years from 2018-2022, SVB Financial’s market fluctuations largely behaved within an expected range. However, in the 47 trading days between January 3, 2023 and March 9, 2023, SVB experienced volatility outside of the expected range it exhibited the previous five years.  

By monitoring stock price volatility outside of historical expectations, organizations can gain a more complete picture of business risk. 

Risk Ecosystems in the New Normal

Despite the splintering of many historic trade ties along geopolitical fault lines, the new normal will remain defined by interdependence. The pandemic demonstrated how shocks can propagate across industries and countries, as did Russia’s invasion of Ukraine. In addition, over the last year, global democracies collaborated at unprecedented (for modern times) levels, inspiring a sanctions regime against Russia that continues to grow. Russia’s invasion also stimulated enormous shocks that rippled across interdependent supply chains, from key metals to wheat and grains to natural gas. Organizations that believed themselves immune from the ripple effects were soon exiting Russia, some of which have since seen their stock prices impacted due to direct exposure to the conflict.  

In a similar manner, the contagion impact of the SVB collapse continues to garner scrutiny. For instance, customers of HR software startup Rippling experienced payroll delays because it relied on SVB to process the transactions. Thousands of corporate payrolls have been impacted even if they weren’t direct SVB customers. In the new normal, “invisible” software supply chains like this are taking on a greater importance as an expanded view of critical business relationships comes to include everyone from buyer to supplier, investor, or borrower. 

These kinds of connections and dependencies affect every industry. Interos’ analysis revealed the top seven industries with business relationships to SVB include: software, biotechnology, healthcare equipment and supplies, communications equipment, pharmaceuticals, semiconductors and semiconductor equipment, and IT services. This diversity shows how far-reaching the effects of such a collapse may be.  

Moreover, the contagion concerns are not limited to the U.S. Many Chinese companies are scrambling in light of the collapse. Based on Interos data, roughly 11,000 companies have direct ties to Chinese companies with business relationships with SVB. European banks also experienced a decline in stock prices as contagion fears spread, with Credit Suisse shares falling to a record low on Wednesday. 

Operational Resilience in the Face of Potential Supply Chain Catastrophe

A range of forces has ushered in a once-in-a-generation global supply chain transformation –the pandemic, escalating geopolitical tensions, climate change, economic anxiety, and emerging technologies. Global trade is expected to reach a record $32 trillion, while at the same time the pace of global trade growth has slowed and allyshoring is reshaping trade patterns. During a time of heightened transformation, what was unthinkable in previous eras must be imagined — and mitigated against today and tomorrow. 

A siloed or outdated approach to risk is not enough to achieving operational resilience amid sweeping global changes, Organizations must continuously monitor a range of new and emerging risks and gain visibility across their extended supply chain. With an expanded view of risk, organizations can also proactively identify potential vulnerabilities in their supply chain and more easily conduct the due diligence required to inform key decisions – such as alternative suppliers, diversification, and reshoring strategies.  

Shifting mindsets toward the unthinkable is unfortunately a core component of operational resilience in this new normal. Working together to build collective resilience – through innovations in technology, processes, and collaboration – will be the best defense against the risks you can’t imagine today. 

Interos supports organizations seeking to minimize these risks through advanced risk intelligence, supply chain scoring, and relationship discovery technologies that automate assessment, detection, and incident response. This gives procurement and other supply chain leaders a powerful way to quickly produce a list of at-risk suppliers for due diligence and continuous monitoring. 

For more information, contact Interos Customer Success: [email protected] 

Escalating Restrictions & Sanctions Threaten to Fragment Global Trade and Supply Chains

By Geraint John

Restrictions on global free trade and supply chain relationships are flying around like Chinese “spy” balloons over North America were just a few weeks ago.

Last month, China slapped sanctions on U.S. defense giants Lockheed Martin and Raytheon, ostensibly because of their arms sales to Taiwan. But the move was widely interpreted as retaliation for the U.S. government’s decision a few days earlier to blacklist six Chinese companies it accuses of being involved in China’s surveillance-balloon program.

So far this month, the American military has shot down one high-altitude Chinese balloon and three unidentified objects over U.S. and Canadian airspace. China denies U.S. government claims that the balloon was spying on sensitive installations. Their government claims it was used purely for weather monitoring.

Regardless of whose version is true, these tit-for-tit sanctions are part of an escalating technology war between the U.S. and its allies and China that threatens to blow apart the international trading system as we know it.

Global Trade Restrictions Have Increased Sharply

As with geopolitical tensions, trade restrictions on goods, services and foreign investment have increased sharply in recent years. From 2018, when the Trump administration imposed tariffs of up to 25% on many Chinese imports, to December 2022, the number of worldwide restrictions more than doubled to around 2,500, according to data from the International Monetary Fund and Global Trade Alert.

A new Interos white paper reveals that Russia displaced China as the most targeted country for restrictions last year, following its invasion of Ukraine. More than 1,100 restrictions were imposed on Russian entities in 2022 – almost six times more than China.

Russia is also well ahead of Iran and China in terms of the total number of restrictions imposed by other nations since 1981 (see chart).

Chart Showing the top recipients of Global sanctions and restrictions. Russia leads significantly, with Iran and China in a close heat for second place. Syria is fourth and North Korea is fifth.

On the opposite side, the U.S. dwarfs other countries in the number of restrictions it issues (around 8,000 during the past 40 years). And it has dozens of restricted entity lists across different government departments and industry sectors.

Prominent examples include:

  • The Department of Commerce’s Entity List, which sets out export licensing requirements for hundreds of foreign-owned businesses.
  • Sections 889 and 5949 of the National Defense Authorization Act banning the use of certain Chinese products and services for military purposes.
  • The Department of Homeland Security’s UFLPA Entity List for the Uyghur Forced Labor Prevention Act, which bars imports of tainted products from the Xinjiang region of China.

Keeping up to date with the ever-expanding list of prohibited firms and ensuring your organization doesn’t fall foul of new trade rules has become a more complex task. Which is why restrictions risk is one of the six risk factors captured and updated continually in Interos’ Resilience platform.

Implications for Global Supply Chains in Light of Trade Sanctions Against China

Standing back from the detail of these multiple lists and regulations, it’s important to consider the broader implications of the spiraling number of restrictions on international supply chains.

During the past couple of years, the U.S. has implemented progressively tighter and more far-reaching rules around the sourcing of Chinese components and sales of American semiconductors and chip-making equipment to Huawei and other Chinese tech firms.

This is having a dramatic impact on the ability of these companies to scale up production and manufacture products.

Last month, China’s semiconductor industry body issued a strongly worded statement condemning action by the U.S., Japan, and the Netherlands to deny its members vital equipment.

Such measures would “destroy the global semiconductor ecosystem”, it claimed.

Trade Restrictions on China Signal Broader Supply Chain Trend

While complaining loudly and portraying itself as the defender of free trade and globalization – as it did at the World Economic Forum’s meeting of political and business leaders in Davos in January — China is also flexing its trade-restriction muscles.

It has, for example, threatened to stop the export of solar panel manufacturing equipment to the U.S. China dominates the supply chain for this crucial clean-energy technology and could — in a mirror image of its own semiconductor woes — impede American efforts to beef up its domestic solar industry.

Although trade between China and the U.S. grew strongly last year, economists and other critics argue that protectionism, “decoupling,” and politically led moves towards “friend-shoring” (or “ally-shoring”) could have negative consequences for the global economy and supply chains in the years ahead.

These include higher prices, lower efficiency, less innovation, wasted public money through ineffective subsidies and industrial policies, and diminished levels of resilience.

As FT columnist Martin Wolf cautioned in a piece on the “new interventionism” last month: “Fragmentation is very easy to start. But it will be hard to control and even harder to reverse.”

Get more information on trade restrictions, sanctions, regulatory changes and their impact on the global supply chain by reading our latest white paper – the Red Tape Revolution. 

Nigeria Crisis Raises Supply Chain Disruption Risk for Western Companies

By Nicolas de Zamaróczy

Hundreds of thousands of American and European companies that rely on imported products from Nigeria’s supply chain face a heightened risk of disruption as a result of the protracted political and economic crisis gripping the country.

A presidential election held on February 25th proved contentious, with widespread irregularities in voting and significant violence. The national election commission declared on March 1st ruling party candidate Bola Tinubu as the winner with 36.6% of the votes cast. However, opposition parties have thus far refused to accept the results and called for a redo, pointing to the fact that many polling places opened late on election day. Meanwhile, the country has been reeling for months from a botched currency reform which has completely paralyzed Nigeria’s cash-dependent informal economy.

Supply Chain Management in Nigeria: Western Oil and Agricultural Firms at Risk

Many foreign companies are at risk of having their imports from Nigeria disrupted. Nigeria’s main export is petroleum, with crude oil, petroleum gas, and refined oil collectively accounting for around 86% of exports by value. However, the country’s cash cow has suffered greatly in recent years with production down to nearly half of its level in 2020.

Nigeria LNG—a natural gas joint venture between the Nigerian state and energy majors Shell, Total, and Eni—has been unable to fulfill export orders for its European customers in recent months. Nigeria’s main other exports are agricultural goods (most notably, cacao beans) and small maritime craft, both of which are at significant risk from the economic turmoil in the country.

Global relationship data in the Interos platform indicates that:

  • Roughly 700 American and 400 European companies have at least one Tier 1 (T1) supplier based in Nigeria.
  • More than 127,244 American companies have an affected Nigerian company indirectly in their supply chains at Tier 2 (T2), with almost 300,000 at Tier 3 (T3).
  • More than 236,000 E.U. and British companies have an affected Nigerian supplier at T2, with over 510,000 at T3.

As has been the case during the last three election cycles (see chart below), Nigeria’s exports to the US had been dropping in the leadup to the election, with the volatile on-the-ground situation complicating normal operations and logistics. (The one-time surge in Nigerian exports to the US in early 2022 was due to re-routing petroleum from other destinations following the breakout of the war in Ukraine.) The lack of clarity in the presidential election suggests that low exports will continue for the foreseeable future.

Nigeria's Exports to the United States (2007-2023)

Interos analysis of Panjiva data. Vertical red lines indicate prior election periods.

Nigeria’s Supply Chain Election-Related Disruptions Likely to Persist into Mid-March

Nigeria voted in a tight three-way presidential election on February 25th amidst an atmosphere of intimidation and election-related violence.

ACLED, an NGO which tracks political violence, has counted at least 193 incidents of election-related violent activity since January 1st, 2022 (see map). Human rights observers have issued warnings that Nigeria has not implemented any structural reforms since 2019, when several hundred people died during the last presidential election. These warnings have taken on new urgency following the assassination of a prominent Senate candidate on February 22nd.

Locations of Election-Related Violence in Nigeria (Jan. 2022 through Feb. 2023)

A map highlighting violent events in Nigeria.

Source: ACLED’s Nigeria Election Violence Tracker. Latest data available is February 17. The size of the circle indicates the number of violent events at that location, the color of the circle indicates the specific form of violence, e.g. orange = “violence against civilians” (Image Copyright: © Mapbox© OpenStreetMap and Improve this map).

Given that state elections will not conclude until March 11th, high levels of violence and uncertainty are likely to persist through mid-March, with a consequent impact on economic activity.

“Cash Crisis” Complicates Supply Chain Management in Nigeria

As if the political chaos were not enough, Nigeria is also suffering from the aftermath of a poorly implemented currency reform. When the Nigerian central bank announced the reform in October 2022, the hope was to combat corruption by redesigning the currency bills most used by criminal organizations. But an overly aggressive window for citizens to redeem their old banknotes combined with an extremely short supply of the new banknotes has left the entire Nigerian economy effectively without cash for several months. This has pummeled the Nigerian informal sector, which according to the IMF accounts for over 50% of GDP and over 80% of employment.

Nigerian Exports Likely to Stay Low in the Short Term

American and European firms with Nigerian suppliers in their extended supply chains should stay wary. Interos recommends taking the following actions to promote supply chain resilience:

  • Communicate frequently with key Nigerian suppliers (or suppliers you know to be reliant on Nigeria) to determine the production impacts of the election and cash crisis.
  • Identify which tier-2 and tier-3 Nigerian suppliers are critical to your direct suppliers.
  • Ascertain whether suppliers in Nigeria are prepared for the extended elections period and the likely disruptions it will entail.

Organizations looking to understand where the next big supply chain shock is coming from — and which suppliers they need to engage with to mitigate the impact — should consider investing in supply chain visibility and operational resilience solutions. In times of turmoil, knowing who you are connected to, and how those parties will be impacted by unfolding events, can make the difference between continuity of operations and disaster.