Aon’s Trade Credit division has published its annual analysis of the world’s trade credit and political risk hotspots as illustrated in a new “2005 Political and Economic Risk Map.” The world’s second largest broker also warned that U.S. firms potentially face $300 billion in exposure to supply chain disruptions around the world.
Each year Aon’s trade credit and political risk experts analyze the economic, currency and political risks of doing business in more than 200 territories worldwide. “If a country downgrades, there can be serious economic consequences,” according to Aon Trade Credit U.S. Managing Director, Bryan Squibb. “Banks must deal with defaulting clients and a lack of hard currency. U.S. exporters into these regions must deal with Sarbanes-Oxley requirements. Buyers of imported goods must deal with the potentially grave risk to their assets.”
The analysts consider the impact of a number of events – the 9/11 terrorist attacks; dock strikes in California; the SARS epidemic; the civil war in the Ivory Coast; protests and demonstrations in Nigeria’s oil producing region in the Niger Delta. “Each of these dire events highlights the cost of supply chain disruption,” Aon said. “The impact of these occurrences — and the ongoing threat of political, social and economic instability around the world — is among the facts examined by Aon Trade Credit in its yearly evaluation of the world’s political risk exposures.”
Aon has enhanced its analysis this year with the development of “a new Supply Chain Risk Index measuring a company’s vulnerability to key threats to their global supply chains. According to the new Index, of the more than half a trillion dollars worth of goods and services the U.S. imported from 50 countries in 2004, close to $312 billion is at risk because of political and economic instability. This estimate is likely to grow in 2005 as firms continue to integrate and consolidate their supply chains.”
Dr. Michel Leonard, Aon Trade Credit’s chief economist, stated: “Even in a post-Sarbanes-Oxley world, risk managers and board members can underestimate the financial threat posed to a firm’s balance sheet, assets, and revenues by supply chain disruption. For example, as South Korea accounts for nearly half of the world’s production of computer chips, severe tensions on the Korean peninsula could throw the high-tech industry into turmoil with repercussions on trade throughout the region, including trade disruptions between the U.S. and China.”
Aon’s Index also ranks the top 50 countries at risk for supply chain disruptions. “The list includes Nigeria (High), China (Medium High), India, (Medium), and South Korea (Medium). Some of the countries with lower risk include Mexico (Medium Low), Brazil (Medium Low), and Taiwan (Medium Low),” the bulletin continued. It also pointed out that while the U.S. “received a ‘Low’ risk ranking, the ongoing threat of terrorism and its potential impact on trade flows or a repeat of labor strikes at California’s ports indicate ongoing concerns which should not be overlooked.”
To further quantify a firm’s vulnerability to supply chain disruptions, Aon Trade Credit’s National Director of Political Risk, John Minor, noted that risk managers can take advantage of Aon’s Supply Chain Vulnerability Audit. “The Audit provides risk managers, CFOs, and board members a systematic and financial review of a firm’s supply chain vulnerability, reflecting the ultimate impact of supply chain disruptions to a firm’s bottom line.”
For further information and to obtain a copy of the political risk mat go to the company’s Web site at: http://link.aon.com/uspoliticalrisk.
Was this article valuable?
Here are more articles you may enjoy.