07 Nov 2023 -

S&P: Supply chain disruptions driven by conflict impact electronics industry

conflict supply chain

The ripple effect of production, supply, and shipping disruptions on businesses’ financial health has been pronounced, especially in recent times. Such disruptions have led to heightened costs for products, impacting consumer prices and eroding company profit margins. This challenge has been particularly felt since the outbreak of the pandemic. As a result, some companies across sectors like retail and aerospace have succumbed to bankruptcy, with supply chain hurdles being a prime factor.

Standand & Poor’s latest report brings a mix of optimism and caution. On the one hand, order backlogs are currently at their nadir since the pandemic’s onset, and there has been a noticeable reduction in manufacturing activities. This suggests that supply chains have regained stability after the recent tumultuous period. However, S&P offers a sobering outlook, anticipating persistent risks. The report points out, “In the medium to longer term, we still expect disruption events… due to geopolitical conflicts, economic pressures, climate incidents, cyber threats, and possible industrial strikes.”

A case in point is the potential jeopardy to some of Israel’s principal exports, like telecom equipment and aerospace goods. These could be vulnerable given the persistent conflict with the militant group, Hamas.

In the context of the electronics industry, supply chain hitches can have severe repercussions. S&P’s ratings are influenced by these disruptions, especially when they critically impair a firm’s financial position. A breakdown reveals that 30% of S&P’s 200 negative ratings linked to supply chain issues pertained to consumer goods. This was followed by machinery and equipment at 15% and retail at 10%.

While the report delves deep into various supply chain models and associated risks, a salient takeaway for the electronics sector is the significance of evaluating factors such as supplier locations. Equally crucial is to be prepared for unforeseen challenges like extreme climate events, cyber threats, and economic downturns that can hamper supply or transport.

The analysts summarised their viewpoint, stating that despite efforts by companies and governments to assess and navigate supply chain risks, some disruptions might lack quick fixes. Their message is clear: in a world of uncertainty, vigilance and adaptability are paramount for industries like electronics.

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