supply chain threats, risks, and trends | global intelligence report

Supply Chain Risk Exposure Evaluation Network


Supplier Compliance Manager

2014 SCREEN Global Intelligence ReportSupply Chain Threats, Risks, and Trends

Table of Contents

1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 .1 Increasing Threat of Illegal Drug Introduction in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 .2 Methamphetamine Trade in Malaysia and the Threat to Air Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 .3 China’s Emerging Environmental Legislation and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2 .4 Waning Manufacturing in China and the Threat to Human Rights in Developing Countries . . . . . . . . 6

2 .5 Environmental Protection Under a Pro-Business Administration in India . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 .6 Asian Ports Experience Serious Congestion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 .7 A Persistent Threat of Sea Piracy in Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2 .8 Counterfeiting in South and East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

3 Europe, the Middle East, and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 .1 Increasing Threat of Cargo Theft in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 .2 Increased Hijackings in South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 .3 ISIS and Terrorist Exploitation of the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3 .4 The Migrant Crisis at the Port of Calais . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3 .5 Moving Beyond Compliance for Conflict Minerals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3 .6 Ebola’s Impact on the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3 .7 The Changing Nature of Labor Unrest in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3 .8 The War in Ukraine Causes Limited Supply Chain Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

4 The Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

4 .1 Supply Chain Corruption Facilitating Illegal Drug Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

4 .2 The Apparel Industry in Central America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4 .3 Congestion at U .S . and Canadian West Coast Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4 .4 Normalistas in Mexico and Their Impact Upon the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

4 .5 Drought, Poor Water Management, and the Impacts on Business in Brazil . . . . . . . . . . . . . . . . . . . . . . . 20

4 .6 Increasing Actions to Combat Cargo Theft in South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

5 Looking Ahead to Supply Chain Challenges in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

5 .1 Emerging Markets, Emerging Supply Chain Threats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

5 .2 A New Face for Old Challenges in the Established Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5 .3 Looking Beyond Headlines to Forecast Supply Chain Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

1BSI Supply Chain Solutions 2014 SCREEN Global Intelligence Report

1 Executive Summary

Businesses faced a bewildering array of supply chain threats in 2014, from a disease outbreak that threatened

the export of key commodities from West Africa to an array of strikes and other labor actions that disrupted

supply chains throughout Europe and North America. There were a few key drivers for these supply chain threats.

The first is rapid economic growth in emerging economies. This often left governments struggling to adjust their

regulatory standards in a quickly changing environment, leaving companies exposed to accusations of human

rights abuses or environmental issues in their supply chains. A similar dynamic existed in South America, where

government struggled to develop policies to address cargo theft. Developing economies were unable to adapt

their transportation infrastructure to jumps in cargo throughput, leading to delays at important ports throughout

Asia. New challenges with labor unions, which have become more activist as their membership dwindles in the

United States and Europe, lead to disruptions throughout 2014. Lastly, weak governments and political instability

aided the emergence of ISIS in Iraq and helped the Ebola outbreak become a pandemic that threatened supply

chain throughout West Africa.

Supply chains across the Asia-Pacific region saw a number of challenges emerge during 2014, including new

threats from the methamphetamine trade, counterfeit production, piracy, and changes to existing environmental

legislation in major emerging markets. In addition to direct risks to cargo integrity, port congestion across the

region severely impacted business continuity in a number of countries, including Hong Kong, India, the Philippines,

and Vietnam. New challenges emerged in China and India, where policy shifts are likely to have significant impacts

on environmental protections going forward.

Europe, the Middle East, and Africa saw cargo disruption rates stay stable, with the exception of Germany

and South Africa, while significant new threats emerged to the supply chain in the Middle East and Africa

Governments in Western Europe also attempted to push supply chains towards greater compliance with social

and ethical norms. ISIS control and influence over supply chains in the Middle East helped them earn $3 million

in revenue per day, though recent fighting has diminished these sources of funding. The Ebola outbreak in West

Africa caused significant disruption to businesses in West Africa and forced companies to adopt costly measures

to preserve their supply chains. In Europe, labor unrest frequently disrupted supply chains in key countries such as

France, Germany, and Belgium, and 2014 saw the migrant crisis at Calais grow into a problem affecting shippers at

ports along the entire breadth of the English Channel.

In 2014, the Americas region experienced a variety of incidents, including an uptick in corruption-related illegal

drug smuggling incidents in several countries, major interruptions to business operations from natural disasters

and social unrest, and poor working conditions that impacted supply chains. Both North and South America

continued to see seizures of illegal drugs from truck and sea cargo shipments. However, BSI noted an increase

in the number of illegal drug seizures from cargo in Brazil, Argentina, and the Dominican Republic that involved

corrupt officials and organized criminal groups seeking to expand their operations. BSI noted serious threats to

human rights in the apparel industry in Central America and the Caribbean, where countries like Haiti have

approximately 29 percent of all children between the ages of five and 14 working in slave-like conditions. The

Americas region also experienced congestion at ports on the west coast of the United States and student protests

in Mexico, both of which affected business continuity and resulted in major interruptions to trade and business

operations. In Brazil, a severe drought, exacerbated by poor water management, began to force companies to

resort to costly alternative measures to sustain water supplies in 2014, an issue that has continued into 2015.

This report addresses the high-level challenges each region faced. A more complete view of supply chain risk

can be found in the BSI SCREEN tool, which features risk ratings and analysis for 203 countries.




32 BSI Supply Chain Solutions 2014 SCREEN Global Intelligence Report BSI Supply Chain Solutions 2014 SCREEN Global Intelligence Report

2014 SCREEN Global Intelligence Report Supply Chain Threats, Risks, and Trends

Droughts in Sao Paulo forced

companies to delay or halt

production

Drug smuggling incidents involving corrupt

officials increased in Argentina, Brazil, and the

Dominican republic

ISIS generated $3 million per day from oil smuggling and extorting businesses

Only 23 percent of companies filing conflict minerals disclusures reported that their supply chains were conflict free

South Africa experienced a 10 percent increase in cargo truck hijackings

59.7 percent of the underground water in China is of poor quality due to pollution

85 percent of methamphetamine shipments bound for Malaysia were found in air cargo

29 percent of children in Haiti are forced to work

Airline strikes in France

$300 million

Train strikes in Germany

$375 million

Airline strikes in Germany$198 million

Belgium general strikes$1 billion

Direct Losses to Businesses to Man Made Disruption Four Largest Strikes in Europe – 2014

2014 BSI THREAT RATING TRENDS

GERMANY

INDIA

CHINA

Most common types of commodities in Unmanifested Cargo Introduction (UMC) incidents in South-Southeast Asia

Consumer goods

28.2%Agriculture, Food,

and Beverage

20.5%

Industrial material and machinery

15.4%

Apparel

6.4%

PUERTO RICO

Cargo Theft

CANADA

UMC-Drugs

COLOMBIA

Cargo Theft

Counterfiets

CHILE

Cargo Theft

ARGENTINA

Anti-Western Terrorism

DOMINICAN REPUBLIC

UMC-Drugs

Cargo Theft

UMC-Drugs

Environment

Cargo Theft

Weapons

HAITI

Child Labor

Protestors in Guerrero, Mexico have hijacked an average of one truck per

day since September

Natural Disasters Four Costliest Natural Disasters – 2014

Drought in Brazil

$4.88 billion

Flooding in Pakistan and India

$11.9 billion

Tropical Cyclone Hudhud$9.35 billion

Winter Weather in Japan$6.7 billion

Cargo thefts in Germany increased and became more sophisticated

Two days of strikes in Belgium delayed 49,315 twenty-foot equivalent units (TEUs) of cargo at the port of Antwerp

PHILIPPINES

MALAYSIA

CHINA

INDONESIA

VIETNAM

SOUTH KOREA

AUSTRALIA

JAPAN

LAOSMYANMAR

Singapore

THAILAND

Ho Chi Minh City

Manila

Incheon

Kaohsiung Shenzhen Hong Kong

NORTH KOREA

PAPUA NEW GUINEA

TAIWAN

Jakarta

Kuala Lumpur

Tokyo

CAMBODIA

Sydney

NIGERIA

CAMEROON

TOGO

BENIN

GHANA

Methamphetamine and PrecursorDrug Smuggling Trade Routes in Asia

Methamphetamine Smuggling Trade Routes

Precursor Chemical Smuggling Trade Routes

4 BSI Supply Chain Solutions 2014 SCREEN Global Intelligence Report

2 Asia-Pacific

Supply chains across the Asia-Pacific region saw a number of challenges emerge during 2014, including new

threats from the methamphetamine trade, changes to existing environmental legislation in major emerging

markets, and congestion at ports across the region caused by labor actions, natural disasters, and poor

management. In addition to direct risks to cargo integrity, port congestion across the region severely impacted

business continuity in a number of countries, including Hong Kong, India, the Philippines, and Vietnam. BSI also

noted how new challenges in China and India, where policy shifts are likely to have significant impacts on

environmental protections going forward.

2 .1 Increasing Threat of Illegal Drug Introduction in ChinaA rapidly growing consumer market both domestically and abroad has fuelled growing production and exportation

of amphetamine-type stimulants in China. BSI statistics from 2013 and 2014 indicate that roughly 44 percent

of regional methamphetamine and precursor seizures in Asia originated in China. Similarly, non-governmental

drug monitoring organizations report that approximately 45 percent, or 16 tonnes, of global methamphetamine

seizures occurred in China.

Criminal groups in China use all modalities, from trucking and sea shipments to air cargo, to smuggle illegal drugs

to other countries in the region. Criminal groups in China smuggle precursor chemicals in sea shipments, typically

from ports in Guangdong. Myanmar officials report that from 2013 to 2014, customs agents at the Muse-Jiegao

border crossing seized a total of 11 tonnes of precursor chemicals smuggled in cargo trucks from China. Further,

the report estimates that 500 trucks cross into Myanmar from China along the Muse-Jiegao route every day,

leaving numerous opportunities from criminals to exploit the trucking modality. However, criminal groups in

China are increasingly exploiting air cargo and express parcels to smuggle smaller consignments of finished

amphetamines. According to BSI statistics, in 2013 methamphetamine and precursors were smuggled in the air

modality 43 percent of the time. However, by 2014 that number increased to 54 percent while the share

smuggled in sea shipments sank from 30 percent to 25 percent. Methamphetamine smugglers in China are

known to use major airports in Guangdong and Hong Kong, often targeting shipments of consumer goods or

using front companies. In September, for instance, Australian security officials raided a chemical supply front

company smuggling precursor chemicals from China in air cargo consignments.

2 .2 Methamphetamine Trade in Malaysia and the Threat to Air Cargo2014 represented another growth year for the illicit methamphetamine market, with new global players emerging

in Southeast Asia that pose direct threats to air cargo in the region. In particular, BSI noted the emergence of

Nigerian drug trafficking organizations (DTOs) as major stakeholders in Malaysia’s methamphetamine market.

BSI data collected during 2014 show that 85 percent of cargo

shipments involving methamphetamine destined for

Malaysia exploited the air cargo modality. Further, 41

percent of incidents involving methamphetamine

smuggling via air cargo originated in Nigeria. Many of

these shipments were transshipped through other

territories, such as Hong Kong and other areas of China,

prior to arriving in Malaysia, likely to avoid suspicion by

the authorities. Additionally, the vast majority of shipments containing methamphetamine were air cargo

consignments of small appliances or other consumer goods with cavities in which drugs may be concealed.

BSI data collected during 2014 show that

85 percent of cargo shipments involving

methamphetamine destined for Malaysia

exploited the air cargo modality .

PHILIPPINES

MALAYSIA

CHINA

INDONESIA

VIETNAM

SOUTH KOREA

AUSTRALIA

JAPAN

LAOSMYANMAR

Singapore

THAILAND

Ho Chi Minh City

Manila

Incheon

Kaohsiung Shenzhen Hong Kong

NORTH KOREA

PAPUA NEW GUINEA

TAIWAN

Jakarta

Kuala Lumpur

Tokyo

CAMBODIA

Sydney

NIGERIA

CAMEROON

TOGO

BENIN

GHANA

Methamphetamine and PrecursorDrug Smuggling Trade Routes in Asia

Methamphetamine Smuggling Trade Routes

Precursor Chemical Smuggling Trade Routes




Supplier Compliance ManagerMethamphetamine and Precursor Drug Smuggling Trade Routes in Asia


2 .3 China’s Emerging Environmental Legislation and EnforcementChina, long one of the world’s worst polluters, took steps in 2014 to address environmental pollution following the

publication of reports detailing the scale and severity of land and water pollution in the country. According to one

report, approximately 16 percent of arable farmland, or 3.3 million hectares, contains toxic levels of metallic and

carcinogenic elements. Villages in the most contaminated areas, specifically the eastern provinces of Anhui, Hebei,

Henan, Jiangsu, and Shandong, record higher-than-average rates of cancer and disease. Shortly after publication

of the land pollution report, China’s land and resource ministry reported that 59.7 percent of underground water in

the country was of poor quality. Additionally, of the 203 cities included in water site tests, only three percent could

be designated as clean.

In an apparent response to the reports, Chinese lawmakers passed amendments to the environmental protection

law for the first time in over two decades in April 2014. The legislation grants more power to environmental

inspectors and calls for greater penalties for violators of the law, which went into effect on January 1, 2015. In a

possible show of this environmental legislation, in December a Chinese court in the province of Jiangsu ordered

six companies to pay a fine of $26 million for dumping 22,678.6 tonnes of acid waste into the Rutai and Gumagan

waterways. The penalty is the largest environmental fine ever imposed by a Chinese court.

The Supreme People’s Court of China released a statement at the start of the year encouraging the prosecution of

polluters throughout China by giving special status to public interest groups and reducing court fees. The country’s

apparent drive to punish businesses harming the environment suggests that the country is making a legitimate

effort to reduce environmental damage. With the imposition of China’s most recent measures, court cases are

likely to surge in 2015 as the nearly 700 government-registered environmental groups look to prosecute polluters.

2 .4 Waning Manufacturing in China and the Threat to Human Rights in Developing Countries

After years of manufacturing dominance, wages in China have begun to rise amid growing worker discord over

wages, labor hours, and working conditions, causing some manufacturers to turn to neighboring countries such as

Vietnam and Myanmar. However, China is still the world’s number one exporter, and the ability of Chinese manu-

facturers to produce goods at low costs has sometimes come at the expense of laborers, with reports surfacing

serious abuses including the use of child labor, excessive working hours, unpaid wages and benefits, and poor

ventilation in factories. Despite the Chinese government’s commitment to addressing human rights issues, reports

continue to surface of poor working conditions, lack of government oversight, and official corruption. For instance,

in August 2014, a factory explosion at an automotive parts factory

in Kunshan, Jiangsu killed 75 workers and injured about 180.

However, an inspection at the plant the week before the

explosion did not reveal any non-conformity.

Vietnam’s industrial sector grew approximately 7.5

percent in 2014 and its size is expected to continue to

increase as more production shifts to the region. Despite

the shift, Vietnam’s government lacks the resources to carry out

inspections and the willingness to enforce corrective action measures on employers and factory sites. For example,

a four-year industrial survey of garment factories in Vietnam, concluded in December 2014, found that 50 percent

of factories were not incompliance with fire safety regulations. Very little progress had been made in the area of

fire safety since 2012, indicating a lack of prioritization on the part of regulators. Sweatshop-type conditions are

frequently recorded at factories in the country, as workers often work over 100 hours extra per month, sometimes

Vietnam’s industrial sector grew

approximately 7 .5 percent in 2014 and is

expected to continue to increase as more

production shifts to the region .


without compensation. Many of Vietnam’s regional labor inspectorates have a limited number of inspectors and

rampant corruption in all levels of the country’s government further decreases the likelihood that inspections will

produce better working conditions in the country.

Investment in Myanmar’s apparel and footwear and telecommunication industry is growing, reaching at least $5

billion in investment in 2014. The country exhibits many of the same labor rights shortcomings as both China

and Vietnam. Currently, the rule of law in Myanmar is extremely weak and corruption is a major issue among the

nation’s labor inspectorate. As the government pushes for economic development, laws in place to provide for

worker’s health and safety are likely to be overlooked to avoid increased production costs.

2 .5 Environmental Protection Under a Pro-Business Administration in IndiaWith the election of Narendra Modi in May 2014, India’s voting population gave a clear mandate to Prime Minister

Modi and the pro-development platform that was a central pillar of his campaign. In the first months of Mr. Modi’s

time in office, his administration announced a number of initiatives designed to reduce regulations perceived to

be a burden on industry. While business leaders are hailing the proposed changes, environmental watchdogs are

concerned that some aspects of Mr. Modi’s new initiatives

will lead to further environmental degradation and

a weakened regulatory framework. Additionally, the

proposed changes to India’s environmental laws may

contribute to increased disjointedness among federal,

state, and local laws, thereby increasing the risk posed

to the environment in India.

Among the earliest changes to come from the newly-elected

Modi government was a revision of the pollution index published by the country’s main environmental protection

agency, the Ministry of Environment and Forests. Ministry officials announced that some industries that were

previously barred from establishing new operations due to pollution will now be permitted to expand their

businesses. While few details about the nature of the changes to the index have been publicly revealed, the

reformulated index is expected to fit into the larger pro-business policies of the Modi Administration. If the new

index does prove more permissive to industrial expansion, the risk to the environment, particularly water and air

pollution, is very likely to increase.

In late November 2014, a committee charged with reworking the country’s environmental laws recommended

reducing the number of governmental inspections required for new industrial projects in an effort to reduce

bureaucratic red tape. According to the committee’s recommendation, the government will rely on business

owners to voluntarily disclose the amount of pollution that their company’s operations will produce. Further,

businesses, not government inspectors, would be required to monitor and report upon compliance with

environmental regulations under the committee’s recommendations. While these proposed changes attempt

to reduce unnecessary government interference, they also create a monitoring system fraught with conflicts

of interest and will likely have a negative impact in overall regulation of environmental harm in India.

2 .6 Asian Ports Experience Serious CongestionThroughout 2014, BSI recorded congestion at major ports in China, Hong Kong, India, the Philippines, Singapore,

Taiwan, and Vietnam. Shipping delays and container capacity shortages at several port facilities can largely be

attributed to growing consumer demand and antiquated port infrastructure. At Kwai Chung terminal in Hong

In the first months of Mr . Modi’s time in office,

his administration announced a number of

initiatives designed to reduce regulations

perceived to be a burden on industry .


NEPALBHUTAN

PHILIPPINES

MALAYSIA

CHINA

INDONESIA

VIETNAM

SOUTH KOREA

BANGLADESH

INDIA

JAPAN

LAOSMYANMAR

Singapore32,240,000 TEUs

THAILAND

Ho Chi Minh City 5,542,049 TEUs

Manila3,770,000 TEUs

Chennai1,470,000 TEUs

Jawaharlal Nehru 4,550,000 TEUs

Busan17,686,099 TEUs

Kaohsiung9,937,719 TEUs

Shenzhen23,278,000 TEUs

Hong Kong22,352,000 TEUs

NORTH KOREA

PAPUA NEW GUINEA

TAIWAN




Asian Ports Experiencing Significant Congestion and Delays in 2014

Kong, the increasing size of container ships and a lack of container storage capacity at the port have substantially

reduced the port’s ability to quickly process cargo. The limited container storage space has resulted in cargo

discharge times of up to a week, increasing operational costs for companies shipping through Hong Kong by

nearly $1 million per month. Further, port officials indicated that current port facilities are insufficient to handle

ships over 10,000 twenty-foot equivalent units, which subsequently take up to a day longer to load and offload.

Shippers have complained that congestion at Kwai Chung forced the diversion of cargo to the Port of Shenzhen,

China, resulting in congestion and shipping delays. While the port in Hong Kong is expected to be deepened by

mid-2015 in order to handle larger ships, offloading capacity is likely to remain the same, creating delays both at

Hong Kong and the neighboring port of Shenzhen, China.

The Port of Manila in the Philippines and Vietnam’s largest port facility, Cat Lai, also had significant container terminal

backlogs due to government regulations and increased consumption globally. For instance, the implementation of

a truck ban ordinance in Manila, Philippines resulted in numerous truck strikes and serious container congestion at

the port. During the ban, Manila International Container Terminal was said to be operating at 110 percent capacity

with clearance times of up to a month. Additionally, overflow of 37,000 containers from Manila caused congestion

at container yards in Taiwan, Hong Kong, Singapore, and South Korea. Shippers reportedly lost $122 million due to

the port congestion, with many industries, specifically apparel, food and beverage, and electronics, citing significant

Distribution of 2014 Piracy Incidents in Southeast Asia

Major Sea Ports

Dispersion of Piracy Threat

CHINA TAIWAN

VIETNAM

PHILIPPINES

INDONESIA

CAMBODIA

THAILAND

LAOSMYANMAR

MALAYSIA


Distribution of 2014 Piracy Incidents in Southeast Asia




losses. In Vietnam, transport authorities implemented measures in January 2014 requiring officials to oversee the

loading of containers, causing cargo clearance delays by up to two days.

Ports in India saw severe weather systems, labor actions, and the dramatic increase in imports of certain

commodities cause port congestion in 2014. In the second half of 2014, several major cyclone systems forced the

closure of port facilities on the country’s eastern coast. While some of these ports were able to reopen soon after the

cyclones’ passing, others suffered significant damage, causing further delays to cargo vessels. Other factors, including

labor actions and an increase in commodity imports, also led to congestion at port facilities. While the issues specific

to these incidents helped resolve congestion problems in the short term, the underlying causes of these types of

events do not appear to have been permanently addressed, underscoring the potential for similar disruptions in 2015.

2 .7 A Persistent Threat of Sea Piracy in Southeast AsiaThe waters of Southeast Asia saw an increase in the number of sea piracy attacks, despite an overall drop in

the number of pirate incidents globally in 2014. The waters surrounding Malaysia and Indonesia are particularly

vulnerable to pirate attacks, and the International Maritime Bureau recorded 15 attacks on vessels in Southeast

Asian waters in 2014. Pirates operating in the region typically target vessels carrying petroleum products, as these


products generally command a high price on the black market and face significant traceability issues. Unlike

pirates operating off the Horn of Africa, pirates in Southeast Asia are typically less concerned with ransoming off

crewmembers and more concerned with reselling stolen cargoes of marine fuel on the black market. Despite the

significant impact of piracy on maritime security, the international community has yet to organize a coordinated

response to combat sea piracy in the region. Territorial and political disputes stand in the way of such an effort,

making any future coordination among regional stakeholders a limited possibility. Additionally, it remains to

be seen what impact low oil prices will have upon piracy rates in the region; however, pirate organizations may

conclude that their operations still provide a net profit despite the glut in global oil supplies.

2 .8 Counterfeiting in South and East AsiaChina remained the largest producer of imitation goods in the world in 2014, accounting for 68.6 percent of

global counterfeit seizures BSI recorded last year. The provinces of Guangdong and Zhejiang are known to produce

the widest range and largest amounts of counterfeit goods. China is expected to continue to remain the world’s

largest counterfeit producer in 2015, with emerging manufacturing bases in Chongqing and Guangxi possibly

acting as new areas of counterfeit production. However, as the manufacturing of products like apparel, consumer

goods, and electronic parts continues to shift from China to emerging industrial bases such as Vietnam, Western

countries may see an influx of fake goods produced in these nations in 2015.

Although China remains the global leader in counterfeit

goods production and exportation, other parts of

Asia, including India and Indonesia, are playing

increasingly larger roles in the production of

counterfeit goods. The pharmaceutical industry

continues to face significant threats from

counterfeiters in South and Southeast Asia.

For example, pharmaceutical counterfeiters in Indonesia

have improved their imitation products to such an extent that lab work is sometimes required to distinguish

between real and fake medications. Further, while China remains the principle source country for fake luxury

items, increased consumer demand in India could see a dispersal of counterfeit manufacturing facilities closer to

consumer markets in India.

Pharmaceutical counterfeiters in Indonesia have

improved their imitation products to such an extent

that lab work is sometimes required to distinguish

between real and fake medications .

3 Europe, the Middle East, and Africa

Europe, the Middle East, and Africa saw cargo disruption rates stay stable, with the exception of Germany and

South Africa, while significant new threats emerged to the supply chain in the Middle East and Africa. Additionally,

governments in more developed countries attempted to push supply chains towards greater compliance with

social and ethical norms. ISIS control and influence over supply chains in the Middle East helped them earn $3

million in revenue per day, though recent actions have diminished these sources of funding. The Ebola outbreak

in West Africa caused significant disruption to businesses in West Africa and forced companies to adopt costly

measures to preserve their supply chains. In Europe, labor unrest frequently disrupted supply chains in key

countries such as France, Germany, and Belgium, and 2014 saw the migrant crisis at Calais grow into a problem

affecting shippers at ports along the entire breadth of the English Channel.

3 .1 Increasing Threat of Cargo Theft in GermanyBSI noted an increase in cargo thefts in Germany and also saw a shift towards more sophisticated cargo theft

operations in the country. The median value of cargo thefts in the country increased from $39,882 in 2013 to

$49,457 in 2014. More importantly, BSI recorded incidents that demonstrated increasing sophistication of cargo

theft operations. Cargo thieves in these incidents targeted specific high-value goods such as high-specification

aluminum, pharmaceuticals, or machinery. Thieves often targeted warehouses during holidays or other major

events to take advantage of decreased levels of security. In one particularly notable example, BSI recorded the

theft of $2.91 million of beer from a warehouse shortly after the German national soccer team won the 2014

World Cup. Especially worrying were pharmaceutical thefts in Germany, including a major warehouse invasion in

Neuss where thieves stole pharmaceuticals made by 40 different manufacturers.

In addition to the increased value of goods being stolen, BSI noted a change in the geographic areas where cargo

theft takes place in Germany. The percentage of thefts that took place in the traditional cargo theft hotspots of

North Rhine-Westphalia, Hesse, and Lower Saxony decreased from 58.4 percent in 2013 to 42.9 percent in 2014.

Conversely, BSI recorded a greater number of thefts in Western Bavaria, especially near Wurzburg, in Thuringia,

and in Saxony-Anhalt. One law enforcement official stated that 107 pilferage thefts occurred along the A2 and A14

highways in a single district of Saxony-Anhalt this year. The change of the geographic area where cargo thefts take

place suggests that thieves in Germany are becoming

more adaptive and are moving to new areas in orga-

nized groups to avoid pressure from law enforcement.

3 .2 Increased Hijackings in South AfricaIn 2014, the number of hijacking incidents in South

Africa continued to increase. Through October 2014,

South Africa suffered more than 1,100 incidents of

cargo truck hijackings, compared to only 991 incidents

in all of 2013. Though official year-end statistics have

yet to be released, this number was expected to rise

significantly with the increased truck traffic typically

present during the holiday season.

The majority of hijackings continued to take place in

the central province of Gauteng, the nation’s primary

population and commercial hub. 2014 was notable for

the especially high rate at which police and security


22

2

2

2

2

3

1

1

1

1

1

Durban2.53 million TEUs

Cape Town790,000 TEUs

Ngqura510,000 TEUs

O.R. Tambo International309,000 Tonnes

Cape Town International44,000 Tonnes

Limpopo

Gauteng

Mpumalanga

KwaZulu-NatalFree State

North West

Northern Cape

Western Cape

Eastern Cape

SOUTH AFRICA CARGOHIJACKING EXPOSURE

Provincial level of risk posed by hijackings

SEVERE

HIGH

ELEVATED

Major Sea Ports

Major Air Ports

Major Highways

Threat of Hijackings in South Africa by Province




official were implicated in hijacking and other instances of cargo theft in South Africa. Investigations beginning

in June revealed the presence of several “blue-light” hijacking gangs operating mainly in Gauteng that were

composed of street-level police and directed by senior officers; BSI recorded at least four incidents in which these

gangs hijacked cargo trucks in the past six months, including two involving the use of GPS jamming devices.

3 .3 ISIS and Terrorist Exploitation of the Supply ChainThe Islamic State of Iraq and Syria (ISIS) group utilized widespread exploitation of the local and international

supply chains to further its terrorist operations in the Levant region of the Middle East last year. After rapidly

advancing across a large swath of Syrian and Iraqi territory in early 2014, ISIS sought to systematically control

many supply chain operations in the areas it had seized using a blend of traditional terrorist and more criminal,

‘mafia-style’ extortion tactics. ISIS was estimated to be generating as much as $3 million in revenue per day in the

fall of 2014, much of it through its extortion and supply chain control schemes.

In one of the starkest examples of ISIS’s supply chain exploitation efforts, the group began to impose a tax on

all cargo trucks it allowed to cross into Iraq from Jordan through a border crossing it controlled in mid-2014,

generating as much as $12,000 per day in illicit revenue. The terrorist group also kidnapped 32 Turkish cargo

truck drivers in June, releasing the drivers 23 days later likely after a ransom was paid. Control and extortion of

local production sites also played a major part in ISIS’s attempts to exploit territory under its control, with the

group generating as much as $2 million per day in oil smuggling revenue and up to $8 million per month from

illegally taxing local businesses at their peaks in late 2014. Although sustained coalition airstrikes against ISIS have

reportedly constrained its finances to some degree, the broad scope of the group’s illicit revenue activities up to

that point suggests that it is still generating at least several hundred thousand dollars, if not more, per week

Georgia

COSTA RICA

Countries WithSupply ChainTerrorism Incidents

Countries With Supply Chain Terrorism Incidents 2004-2014





Amsterdam

CologneBrussels

Le Havre

Paris

London

FRANCE

NETHERLANDS

BELGIUM

GERMANY

UNITED KINGDOM The Hague

BrugesAntwerp

Rouen

Liverpool

Bristol

Southampton

LUXEMBOURG

Saint-Malo

Calais

Dunkirk

Caen

Cherbourg

Roscoff

OstendZeebrugge

E40E40

Norwich

Amiens

E40Major Cross-Channel Port E40 Highway

Stowaway Incident Major City

The threat of human smuggling in cargo

SEVERE

HIGH

ELEVATED

GUARDED

LOW

HUMAN SMUGGLINGEXPOSURE

3 .4 The Migrant Crisis at the Port of CalaisWhile the challenge of illegal migration via stowing away in freight posed problems for shippers at the port of

Calais in France, the spillover effects of the migrant crisis at the facility could be felt throughout northwest Europe

in ports as far away as Amsterdam in the Netherlands. Conflicts in Iraq and Syria have caused the number of

migrants attempting to enter the United Kingdom to swell by approximately 61 percent in 2014. This increased

migratory pressure led to serious trade interruptions at the port of Calais, particularly in September, when

migrants stormed the port’s ferry terminal and the mayor of Calais threatened to close the port. Towards the end

of the year, BSI noted some changes to security measures at the port, and the United Kingdom committed $19.4

million to help secure the facility.

Increasing security at Calais, however, may simply shift the problem to other ports located along the English

Channel. BSI has already noted increasing numbers of migrants entering cargo trucks near other ports in France,

Belgium, and the Netherlands. For instance, the increasing frequency of stowaway discoveries forced authorities in

Belgium to close rest areas along the E40 highway in April 2014. In the Netherlands, trucking companies reported

discovering 201 stowaways in the Hook of Holland area of Rotterdam port, with smaller numbers reported in the

Europort area of Rotterdam and the Ijmuiden area of Amsterdam port. Towards the end of 2014, BSI recorded an

increasing number of stowaway introductions in eastern areas of the Netherlands as well.

The presence of stowaways in cargo can lead to serious losses for shippers due to fines from national authorities,

contamination causing the loss of loads, and physical damage to cargo trucks. One carrier in the Netherlands

reported six incidents of stowaway introduction in a two-week period in 2014, leading to losses of $168,500.

Stowaways jeopardized food shipments into the United Kingdom as well, as officials there reported that their

discovery in cargo trucks led to the destruction of a large number of loads in the weeks before Christmas.





Stowaway Incidents and Major Ports in Northwest Europe


3 .5 Moving Beyond Compliance for Conflict MineralsJune 2014 saw the first deadline for conflict minerals disclosures as mandated by Section 1502 of the Dodd-Frank Act,

marking the first actual filing under the United States’ 2010 conflict minerals legislation. Approximately 1,300 large

companies from a variety of industries, including the aerospace, automotive, electronics, industrial, and retail sectors,

submitted their first disclosure reports, indicating whether any of their products contained minerals sourced from the

11 Central African nations covered by the Act. Of the companies that filed disclosures by the June deadline, only about

23 percent determined that all of their applicable products could be described as ‘conflict free’ – most of the remaining

1,000 entities filed their status as ‘conflict undeterminable’, necessitating further due diligence action.

COSTA RICA

To China

MEXICOMineral: Iron Ore

Industries: Construction

Issue: Armed group control of mineral trade

Groups: Mexican drug cartels

Human Rights Concern: Rights violations by

cartels, including extrajudicial killings and

human trafficking; poor health and safety

concerns in iron ore mines

COLOMBIAMineral: Tungsten

Industries: Automotive and Aerospace;

Construction; Electronics


Groups: Revolutionary Armed Forces of

Colombia (FARC)

Human Rights Concern: Illegal charging of

indigenous miners; poor health and safety

conditions in often illegal mines

VENEZUELAMineral: Columbite-Tantalite (Coltan)

Industries: Electronics

Issue: Armed group control of illicit mineral

smuggling routes

Groups: Armed Venezuelan/Colombian

smuggling networks

Human Rights Concern: Extortion of miners;

poor health and safety conditions in

unregulated mines

DRC + SURROUNDING COUNTRIESMinerals: Tantalum, Tungsten, Tin, Gold

Industries: Electronics; Food and Beverage;

Automotive and Aerospace; Apparel; Construction

Issue: Armed groups exploiting extraction and

trade of minerals in Central Africa

Groups: M23, other rebel groups including those

receiving support from regional governments

Human Rights Concern: Extortion of miners; forced

mining of indigenous peoples; poor health and

safety conditions in mines

Top Global Exporters - Gold

1. Australia

2. Romania

3. Russia

4. Turkey

5. Dodd-Frank countries

204,973

150,678

117,346

62,356

38,711

Country 2013 Exports (Tonnes)

Top Global Exporters - Tin, Tantalum, and Tungsten

1. South Africa

2. Australia

3. Indonesia

4. Ukraine


400,645

82,289

49,395

35,641

9,578


*BSI’s Conflict Minerals Country and Trade Map does not represent an attempt to record every country where conflict minerals risk exists. Futhermore, this map should not be interpreted as showing relative levels of risk in the highlighted nations but rather points out notable countries of concern.

Dodd-Frank countries

Other major exporters of conflict minerals

Section 1502 Country Exports - 3Ts + Gold

1. China

2. Southeast Asia (Malaysia,

Thailand, Vietnam)

3. Europe (Austria,

Spain, Italy)

32,837 (68%)

14,970 (31%)

483 (1%)

Destination 2013 Exports (Tonnes)

Conflict Minerals: Major Countries of Concern and Trade Flows





The filing of the first reports marked a major step in the implementation of the world’s first conflict minerals

legislation. However, in addition to simply complying with the regulation, several major companies demonstrated

in 2014 their intent to incorporate more holistic social responsibility practices into their sourcing, supply chain,

and general business operations. These efforts included successful attempts to develop entirely ‘conflict-free’

supply chains for specific products as well as extending due diligence efforts to minerals or other materials

sourced from countries outside those covered by the Dodd-Frank Act.

In one notable example, the European Union has proposed the adoption of conflict minerals regulations that

would not only apply to the African countries listed in Dodd-Frank but also nations in South America, highlighting

the global scale of the threat posed by conflict minerals to brand and product integrity. Looking even beyond

conflict minerals, the EU council also issued a directive in October mandating as many as 6,000 European

corporations disclose information about their policies and procedures to address environmental, human rights,

working conditions, and corruption risks in their companies by 2017. The passage of the EU legislation underscores

the wider adoption of responsible sourcing efforts around the world, as well as the broadening scope of these

initiatives.

3 .6 Ebola’s Impact on the Supply ChainBeyond the headline-grabbing fear of an Ebola outbreak emanating from West Africa, the breakout of the disease

caused a number of disruptions to supply chains in both the affected countries and in nations attempting to

prevent the virus’s spread to their borders. Fears surrounding the spread of Ebola also caused countries outside

of West Africa to implement measures aimed at ensuring that their populations and port facilities remained

protected from the spread of the virus. These measures ranged from airport screenings to denial of entry for cargo

vessels arriving from affected countries until the virus’s incubation period was completed.

Nations directly affected by the Ebola outbreak saw their healthcare

systems overwhelmed by the severity of the health crisis, forcing

companies to bear the burden of funding and carrying out mea-

sures designed to contain the virus and preserve their supply

chains. In one notable instance, a major tire and rubberized

products company operating in Liberia helped limit the spread

of the virus among its thousands of workers and their tens of

thousands of dependents, at considerable cost to the company.

At time of writing, many of the countries that once enforced land border closures with affected nations have

reopened these borders as the epidemic comes increasingly under the control of health officials. Additionally, the

countries that saw minor outbreaks, including Mali, Nigeria, Senegal, and the United States, have all been declared

free of Ebola, underscoring the relative success of containing the spread of the virus beyond the three hardest-hit

countries.

While the implementation of quarantines had positive effects on containing the disease, this and similar measures

frequently have negative effects on economic activity. The final economic impact of the Ebola outbreak is yet to be

determined; however, current projections estimate that Guinea, Sierra Leone, and Liberia suffered between

$1.6 and $2 billion in economic losses due to the epidemic.

COSTA RICA

To China

MEXICOMineral: Iron Ore

Industries: Construction


Groups: Mexican drug cartels

Human Rights Concern: Rights violations by

cartels, including extrajudicial killings and

human trafficking; poor health and safety

concerns in iron ore mines

COLOMBIAMineral: Tungsten

Industries: Automotive and Aerospace;

Construction; Electronics


Groups: Revolutionary Armed Forces of

Colombia (FARC)

Human Rights Concern: Illegal charging of

indigenous miners; poor health and safety

conditions in often illegal mines

VENEZUELAMineral: Columbite-Tantalite (Coltan)

Industries: Electronics

Issue: Armed group control of illicit mineral

smuggling routes

Groups: Armed Venezuelan/Colombian

smuggling networks

Human Rights Concern: Extortion of miners;

poor health and safety conditions in

unregulated mines

DRC + SURROUNDING COUNTRIESMinerals: Tantalum, Tungsten, Tin, Gold

Industries: Electronics; Food and Beverage;

Automotive and Aerospace; Apparel; Construction

Issue: Armed groups exploiting extraction and

trade of minerals in Central Africa

Groups: M23, other rebel groups including those

receiving support from regional governments

Human Rights Concern: Extortion of miners; forced

mining of indigenous peoples; poor health and

safety conditions in mines

Top Global Exporters - Gold

1. Australia

2. Romania

3. Russia

4. Turkey


204,973

150,678

117,346

62,356

38,711


Top Global Exporters - Tin, Tantalum, and Tungsten

1. South Africa

2. Australia

3. Indonesia

4. Ukraine


400,645

82,289

49,395

35,641

9,578


*BSI’s Conflict Minerals Country and Trade Map does not represent an attempt to record every country where conflict minerals risk exists. Futhermore, this map should not be interpreted as showing relative levels of risk in the highlighted nations but rather points out notable countries of concern.

Dodd-Frank countries

Other major exporters of conflict minerals

Section 1502 Country Exports - 3Ts + Gold

1. China

2. Southeast Asia (Malaysia,

Thailand, Vietnam)

3. Europe (Austria,

Spain, Italy)

32,837 (68%)

14,970 (31%)

483 (1%)

Destination 2013 Exports (Tonnes)

Current projections estimate that

Guinea, Sierra Leone, and Liberia

suffered between $1 .6 and $2 billion in

economic losses due to the epidemic .


3 .7 The Changing Nature of Labor Unrest in EuropeLabor strikes and protests continued to cause major disruptions to business and trade in Europe despite major

declines in union membership in nearly every country on the continent. The combination of smaller, more activist

union bases combined with a willingness on the part of employers to wait out strikes rather than give in to the

demands of unions led to significant losses due to strikes in 2014. BSI estimates that the four largest strikes in

Europe generated at least $1.873 billion in direct losses for businesses. This estimate does not include delays that

continue after strikes end or indirect effects of strikes, such as higher shipping fees when less-than-optimal routes

are used due to strikes or port outages.

The most significant labor actions in Europe last year occurred in Belgium, France, Germany, and Italy. In Germany,

a country that is not known for experiencing frequent labor unrest, strikes by train drivers and airline pilots caused

serious disruption to air cargo transportation and rail freight. Most goods carried by rail in Germany are “primary”

goods such as coal and steel (50 percent of the steel in Germany is carried by rail) needed for the production of

other products, which increases the knock-on effects of rail strikes. The rail strikes also disrupted the chemical

industry, as German law requires that some chemicals be carried by rail. Belgium is one of the few countries in

Europe where nationwide general strikes had a major impact on trade, as protestors were successful in closing

major ports such as Antwerp, Zeebrugge, and Ghent. Strikes in Belgium in November and December 2014 led to

the delay or disruption of an estimated 49,315 TEUs of freight at the port of Antwerp in just two days.

3 .8 The War in Ukraine Causes Limited Supply Chain DisruptionThe conflict between pro-Russian separatists and the central government of Ukraine renewed fears of a

confrontation between Russia and the West, though the conflict’s impact on the supply chain was relatively l

imited. Western businesses were able to continue operating in Russia so long as they did not do business with

sanctioned individuals or companies, which were mostly confined to the banking, energy, and defense sectors.

Russian sanctions on food imports from Europe cost the European Union an estimated $23.79 billion in 2014,

according to one estimate. The conflict itself caused disruption to the coal mining industry and other industries

in eastern Ukraine who saw their businesses seized by rebels and then shelled by the government. Fighting has

been almost entirely restricted to Donetsk and Luhansk regions in eastern Ukraine and there has been little

disruption to businesses operating in the western half of the country.


4 The Americas

In 2014, the Americas region experienced a variety of incidents, including an uptick in corruption-related illegal drug

smuggling incidents in several countries, major interruptions to business operations from natural disasters and social

unrest, and poor working conditions that impacted supply chains. Both North and South America continued to see seizures

of illegal drugs from truck and sea cargo shipments. However, BSI noted an increase in the number of illegal seizures

from cargo in Brazil, Argentina, and the Dominican Republic that involved corrupt officials and organized criminal groups

seeking to expand their operations. BSI noted serious threats to human rights in the apparel industry in Central America

and the Caribbean, where countries like Haiti have approximately 29 percent of all children between the ages of five and 14

working in slave-like conditions. The Americas region also experienced congestion at ports on the west coast of the United

States and student protests in Mexico, both of which affected business continuity and resulted in major interruptions to

trade and business operations. In Brazil, a severe drought, exacerbated by poor water management, began to force compa-

nies to resort to costly alternative measures to sustain water supplies in 2014, an issue that has continued into 2015.

4 .1 Supply Chain Corruption Facilitating Illegal Drug IntroductionThroughout 2014, BSI noted an uptick in the number of illegal drug seizures in Brazil, Argentina, and the Dominican

Republic that were aided by corrupt officials and organized criminal groups seeking to expand their operations.

For instance, police in Brazil dismantled a cocaine trafficking ring that included members of the First Capital Command

(PCC) and introduced cocaine into sea shipping containers at the Port of Santos with the help of a corrupt official at the

facility. The PCC, which began as a prison gang in Sao Paulo, has expanded operations in Paraguay and Bolivia in recent

years, facilitating the trafficking of illegal drugs to Brazil for distribution. The illegal drugs trafficked from the Port of Santos

by the PCC is, however, the first known instance in which gang smuggled contraband abroad and is an indication of the

group’s rising power and increasing threat to Brazilian exports.

BSI noted a rise in illegal drug activity in Argentina in 2013, and this trend largely continued to hold true in 2014. In

October, authorities were forced to raid Terminal Four at the Port of Buenos Aires due to a rise in cocaine trafficking

attempts involving the “blind-hook” method, including one incident in which the tactic was used to introduce cocaine into a

container that was seized by police at the Port of Durban, South Africa. The blind-hook, a tactic in which smugglers remove

the seal on a shipping container, place the drugs inside, and then attach a fake seal on the container, typically occurs

without the owner of the shipment’s knowledge and with the assistance of corrupt officials. According to early police

reports, corrupt officials at the terminal intentionally transported sea container shipments to areas of the facility that

were not covered by security cameras, enabling illegal drugs to be introduced and transported abroad. These incidents,

combined with escalating violence associated with the illegal drug trade, suggest that the increase in illegal drug activity

in Argentina will continue throughout 2015.

Late in the year, investigators in the Dominican Republic arrested several ranking members of the Dirección Nacional de

Antinarcóticos (DICAN), a federal police organization tasked with countering the trade of narcotics in the country, including

the head of the agency, after allegations emerged that he and 21 other officers actively engaged in illegal drug trafficking.

The corrupt officers include three colonels, several lieutenant colonels, three prosecutors, and several low-ranking agents.

The officials would steal and resell seized cocaine to the trafficking organization that initially shipped the drugs.

This is not the first scandal that has affected the nation’s counter-narcotics police agencies. However, the chief of the

agency is one of the highest-ranking members of a Dominican police force to face charges of corruption. Despite the

relatively large number of security officials arrested in this sweep, it is highly unlikely that the Dominican Republic’s

counter-narcotics agencies have been fully cleared of corrupt officers. For instance, one self-proclaimed trafficker in the

nation stated that she paid bribes to officers at multiple points when smuggling drugs into the country. While the

testimony of this individual has not been verified, it certainly supports the allegations made against the DICAN officers.


4 .2 The Apparel Industry in Central America and the CaribbeanMany Central American and Caribbean nations, notably the Dominican Republic, El Salvador, Guatemala, and Haiti,

are reliant upon the export of apparel and textile products. However, these industries are marred by the presence

of child and forced labor and poor working conditions. These practices are largely present because of poor

governmental enforcement of legal regulations, a lack of qualified inspectors, or both.

In El Salvador, for example, BSI has specifically noted poor working conditions for women in the apparel industry.

Laborers face verbal abuse, threats of violence, and sexual harassment while at work. These practices continued in

2014 despite the continued efforts to implement a 2012 labor law promoting occupational safety. Despite having

a workforce that is half the size of the Dominican Republic’s, El Salvador saw nearly twice the number of industrial

accidents in 2012. The Ministry of Labor, charged with effectively implementing the law and overseeing work

environments, is unable to enforce the regulations due to an insufficient number of labor inspectors. The

government is often content to let companies repeatedly pay fines, suggesting that the penalties are not large

enough to deter poor business practices.

The Haitian government has been largely unable to enforce many workplace regulations since the 2010

earthquake that devastated the nation, as a huge portion of the budget is now devoted entirely to reconstruction

efforts. Apparel manufacturing businesses frequently use child labor and forced labor with little to no threat of

government intervention, largely due to the incomplete nature of labor regulations. Notably, laws do not exist

that specify what occupations are too dangerous for children or a minimum working age for the domestic sector.

Across the nation, a staggering 29 percent of children ages five to 14 are work in forced labor positions, compared

to 5.8 percent in the Dominican Republic and 8.4 percent in Jamaica. The Ministry of Social Affairs and Labor

lacks the political will, the funds, and the staffing necessary to enforce what regulations exist in the nation.

4 .3 Congestion at U .S . and Canadian West Coast PortsThroughout 2014, congestion at ports on the U.S. West Coast proved to be a major hindrance to business

operations. As a particularly bad winter had severely affected rail operations servicing these ports, congestion was

recorded at Los Angeles and Long Beach as early as February. With the expiration of the International Longshore

and Warehouse Union contract in July looming, many companies chose to expedite cargo shipments through the

West Coast before any potential interruption. This increased cargo throughput began to strain capacity at several

points, most notably Los Angeles and Long Beach.

As the negotiations continued, labor slowdowns at ports along the coast, the mismanagement of cargo truck

chassis at several facilities, and a slew of other minor issues caused congestion to reach catastrophic levels.

With the ports operating at near-total capacity, cargo transiting through most West Coast ports, specifically

Los Angeles, Long Beach, Oakland, Seattle, and Tacoma, are now facing major delays. Ports in southern California

are particularly hard-hit, with cargo at Los Angeles and Long Beach delayed by two weeks on average. Some

shipments have been delayed even longer, out to nearly five weeks.

While the impact to Canadian ports as a result of congestion in the United States has been less severe, some

delays have been noted. Early on in the negotiation period, the ports of Prince Rupert and Vancouver began

receiving a significant amount of diverted cargo from the United States. The quantity of this cargo caused minor

delays at Vancouver and prompted most rail businesses servicing the port to assess surcharges on U.S.-borne

cargo or turn away such shipments entirely. While delays at these two ports have not persisted, the facilities are

still handling an increased amount of cargo due to uncertainty surrounding the U.S. West Coast.

Oakland

Los Angeles7.87 Million TEUsLong Beach6.73 Million TEUs

2.35 Million TEUs

Seattle1.59 Million TEUs

Tacoma1.72 Million TEUs

Vancouver2.83 Million TEUs

Manzanillo2.12 Million TEUs

2

2

Prince Rupert536,439 TEUs

Portland151,564 TEUs

San Diego100,754 TEUs

Lazaro Cardenas739,192 TEUs

Congestion atNorth AmericanPacific Ports

SUPPLY CHAIN DISRUPTION RISK

Level of risk posed by cargo theft, unmanifested cargo introduction, counterfeit production, and sea piracy

SEVERE

HIGH

ELEVATED

GUARDED

LOW

2012-2013

2012-2013 2013-Present

4.2% 7.8%

2012-2013 2013-Present

4.0% 4.7%

2012-2013 2013-Present

18.4% 12.2%

2012-2013 2013-Present

5.0% 14.0%

2012-2013 2013-Present

15.4% 8.3%

5.2%

2012-2013 2013-Present

6.3% 12.5%

2012-2013 2013-Present

.09% 4.8%

2012-2013 2013-Present

11.9% 1.7%

2012-2013 2013-Present

13.5% 10.0%

2012-2013 2013-Present

2.1% 1.6%

AnnualVolume Change

Los Angeles

Long Beach

Vancouver

Oakland

Manzanillo

Tacoma

Seattle

Prince Rupert

Portland

Lazaro Cardenas

San Diego

LaborDisputes

CapacityIssues





Lomas deZamora

Lanus

Quilmes

Moron

La Matanza

Merlo

Moreno

Berazategui

FlorencioVarela

AlmiranteBrownEsteban

Echeverria

Buenos Aires City

Tres de Febrero

Avellaneda

General San

Martin

Vicente Lopez

San Isidro

Tigre

San Fernando

Escobar

Pilar

Ezeiza

San Miguel

Jose C. Paz

MalvinasArgentinas

Ituzaingo

Hurlingham

NorthernRegion

WesternRegion

SouthernRegion

Potential Shiftin Cargo Theft

CARGO THEFT

Level of risk posed by cargo theft

SEVERE

HIGH

ELEVATED

GUARDED

LOW

EXPOSURE

*The overall threat of cargo theft in Argentina is Severe. These regional ratings are in respectto the other regions of Greater Buenos Aires only and are not comparing these regions to other countries

Greater Buenos Aires Municipalities

BuenosAiresProvince


4 .4 Normalistas in Mexico and Their Impact Upon the Supply ChainAfter 43 students from a teacher’s school in Ayotzinapa, located in Guerrero State, Mexico were kidnapped and

allegedly murdered in September by municipal police officers and members of a small cartel in the nearby city of

Iguala, protest activity led by groups of students erupted throughout Mexico. While these demonstrations caused

significant disruptions to trade on some major highways, the student protesters, or normalistas, also engaged in

direct attacks upon the supply chain. Groups of students hijacked cargo trucks in order to block major highways,

and typically leave cargo shipments consisting of goods other than food and beverage items intact. More

frequently, the protesters will hijack food and beverage delivery trucks and steal their cargo.

BSI noted an increasing trend of violent hijackings beginning in early December, in a departure from the peaceful

incidents typically observed in September and October. Whereas many incidents in September and October

involved students simply asking truck drivers to leave their vehicles, there have been more reports of drivers

resisting the students, and being forcibly pulled from their vehicles and beaten. This may be due to the increased

involvement of students and teachers’ unions, which have a long history of targeting the supply chain during

demonstrations. These unions often commandeer cargo vehicles to block traffic and disrupt daily life, thereby

drawing attention to their cause. These types of attacks are likely to continue into 2015, especially as the

government investigation into the disappearance of the 43 students faces growing criticism.

4 .5 Drought, Poor Water Management, and the Impacts on Business in BrazilIn 2014, Sao Paulo, Brazil began to experience one of the worst droughts since 1961, a disaster that,

combined with poor water management, continues to deeply impact business operations in the country’s most

economically-important. Sao Paulo’s economy represents approximately 33 percent of Brazil’s total GDP, the

state’s industry accounts for 36 percent of the country’s entire industrial output, and its agricultural sector

constitutes about 12.17 percent of Brazil’s entire agricultural sector. The severe water shortage is now forcing

businesses in the region to implement costly contingency plans for securing water. According to a survey conduct-

ed by the Department of Research and Economic Studies of the Federation of São Paulo State Industries (FIESP)

in May 2014, approximately 62.2 percent of the 413 responding companies indicated that production would be

reduced, but not necessarily halted, due to an interruption of their water supply. Businesses in almost every sector,

including manufacturing and agriculture, are adopting costly measures that include closing factories, reducing

or temporarily halting production, using tanker trucks to sustain water supplies, and purifying the more polluted

river and reserve waters. As Brazil heavily relies on hydropower for electricity, it is also likely that businesses in the

region will face increased costs for power.

According to a survey conducted by the Department of Research and Economic Studies

of the Federation of São Paulo State Industries (FIESP) in May 2014, approximately 62 .2

percent of the 413 responding companies indicated that production would be reduced,

but not necessarily halted, due to an interruption of their water supply .

Lomas deZamora

Lanus

Quilmes

Moron

La Matanza

Merlo

Moreno

Berazategui

FlorencioVarela

AlmiranteBrownEsteban

Echeverria

Buenos Aires City

Tres de Febrero

Avellaneda

General San

Martin

Vicente Lopez

San Isidro

Tigre

San Fernando

Escobar

Pilar

Ezeiza

San Miguel

Jose C. Paz

MalvinasArgentinas

Ituzaingo

Hurlingham

NorthernRegion

WesternRegion

SouthernRegion

Potential Shiftin Cargo Theft

CARGO THEFT

Level of risk posed by cargo theft

SEVERE

HIGH

ELEVATED

GUARDED

LOW

EXPOSURE

*The overall threat of cargo theft in Argentina is Severe. These regional ratings are in respectto the other regions of Greater Buenos Aires only and are not comparing these regions to other countries

Greater Buenos Aires Municipalities

BuenosAiresProvince


Potential Shift in Cargo TheftGreater Buenos Aires Municipalities

*The overall threat of cargo theft in Argentina is Severe . These regional ratings are in respect to the other regions of Greater Buenos Aires only and are not comparing these regions to other countries




4 .6 Increasing Actions to Combat Cargo Theft in South AmericaMany countries in South America began to devote an increasing amount of resources and implemented policies

aimed at reducing the consistently high rates of theft in 2014. Cargo theft continued to plague South American

countries in 2014, with Brazil again suffering from the highest rate of theft in the world. This was particularly

evident in the country’s electronics sector, where sophisticated cargo theft gangs in and around the region of

Campinas, Sao Paulo used assault-like tactics and heavy weaponry to steal multimillion dollar loads of goods from

cargo trucks, factories, and distribution centers.

However, BSI also noted that several countries in South America, including Brazil, Argentina, Chile, and Colombia,

instituted new policies directly aimed at combatting cargo theft. Several state governments in Brazil, including

Sao Paulo (where more than half of all cargo theft in the country occurs), enacted legislation that increased the

penalties for receiving stolen cargo. Authorities in Buenos Aires Province, Argentina, where about 79 percent of all

cargo theft in the country takes place, created a new prosecutor group tasked with conducting further research

on cargo theft gangs operating in the western region of Greater Buenos Aires, The group will analyze past theft

incident data and create strategies to reduce theft and dismantle gangs. The government of Chile, along with

trucking associations in the country, created working groups in 2014 to reduce the number of cargo theft and

arson attacks affecting the industry. In Colombia, increased police patrols, checkpoints, and penalties led to a

14-year-low in the number of cargo theft incidents reported in 2014.

These actions have the potential to reduce cargo theft in South America. Specialized prosecutor groups are

currently active in the northern region of Greater Buenos Aires and were largely successful in reducing the rate

of theft in the area, providing firm evidence to suggest that the new group in the west will also be successful.

While less active in nature, the legislative framework put in place in Brazil and Chile allows states and regions in

those countries to develop additional anti-theft measures. Other Brazilian state governments, for example, are

enacting similar laws targeting the receivers of stolen cargo. However, factors, such as the rule of law and level

of corruption in each country, will ultimately determine the success of these new measures. While the rate of

cargo theft in countries like Brazil and Argentina is not expected to dramatically decrease due to these measures,

consistent and additional efforts over the next few years may succeed in slowly reducing theft in South America.


5 Looking Ahead to Supply Chain Challenges in 2015

5 .1 Emerging Markets, Emerging Supply Chain ThreatsExtremely rapid economic growth in countries such as China, India, Indonesia, and Vietnam has also created

challenges for business and supply chains as government institutions, laws, and infrastructure struggle to keep pace

with the breakneck speed of growth. This trend manifests itself in different ways across the spectrum of business

continuity, corporate social responsibility, and security risks. Major increases in cargo throughput resulting from

economic growth have put serious strain on transportation infrastructure in countries such as the Philippines and

Vietnam, leading to delays at ports and on roads. Similarly, industrialization in Brazil has created water management

challenges that now threaten production at factories in the country. In the corporate social responsibility arena,

production is rapidly shifting to countries with poor regulatory infrastructure, such as Myanmar and Vietnam, leaving

companies more exposed to accusations of worker abuse and mistreatment.

These trends are likely to accelerate in 2015, as the economies of China, India, Indonesia, Myanmar and Vietnam are

all projected to grow at rates above five percent this year. In some cases, such as in India, it is relatively simple to

project when supply chain disruptions will occur, since they typically coincide with the cyclone season that stretches

from April to December. In other cases, looking to simple metrics can help forecast how long disruptions will

continue. In Sao Paulo, Brazil, for example, rainfall in January was only half of the historical average, indicating that

water management problems will continue to disrupt production in the country. When evaluating the risk of human

rights violations or environmental issues with suppliers, it is not enough to simply look to past incidents as a guide

to the future, especially when dealing with emerging economies. In these cases, BSI’s indicators of enforcement,

regulatory quality, and corruption are the best metrics to use when judging risk.

Similarly, poor rule of law can leave companies at the mercy of organized crime and corrupt officials. While the

problem that organized crime and drug trafficking poses to supply chain in Mexico is well-documented, emerging

threats in countries such as the Dominican Republic and China will threaten businesses in 2015. Despite efforts

by Chinese security officials to curb amphetamine and precursor smuggling, consumption of methamphetamine

has risen sharply in many of the region’s most populous nations, and production will rise to meet this demand. The

Philippines suffers from the highest usage rates of methamphetamine of any nations in East or Southeast Asia, while

Indonesia, Japan, and Vietnam are continuing to see year-over-year increases in methamphetamine usage. In the

Dominican Republic, members of two major criminal networks, a Colombian drug cartel and the Italian ‘Ndrangheta

mafia, were arrested in the country in 2014. These and other criminal organizations are certainly expanding their

influence in the Dominican Republic. Dominican authorities will continue to struggle with corruption among customs

and police forces as traffickers attempt to move more cocaine through the Caribbean nation.

Although sourcing from Africa has increased significantly in recent years and foreign companies have made strides

toward improving their corporate social responsibility practices, responsible sourcing initiatives continue to be

seriously threatened by rampant corruption and weak regulatory enforcement in the region. The recent boom in the

African palm oil industry highlights this problem. While numerous countries across the continent have very recently

begun significant production of this oil (Nigeria became the world’s fourth-largest palm oil producer last year), graft

and weak oversight in this sector have enabled both human rights and environmental abuses to proliferate.

BSI’s new threat ratings for regulatory oversight further underscore this trend, as the average threat rating for

emerging African palm oil producers is High, compared to an average of only Elevated for the top 10 traditional

manufacturers of the oil, primarily located in Southeast Asia and Central America. These issues extend to a range of

other emerging sectors in Africa, especially the region’s rapidly expanding metals/minerals and cotton industries.


5 .2 A New Face for Old Challenges in the Established EconomiesLabor unrest has long caused supply chain disruptions in both Europe and North America, though BSI saw the

nature of labor unrest shift towards greater disruption in 2014. This pattern will likely continue into 2015, as

employers are increasingly willing to wait out strikes knowing that public support does not favor the unions.

Already in 2015, BSI has seen strikes by metalworkers in Germany and Turkey and truck drivers in France, causing

widespread disruption in the logistics, automotive, and aerospace industries. As membership in labor unions

continues to dwindle in most developed countries, the remaining members are more likely to be more radical and

willing to use strikes, protests, and other forms of labor action to interrupt commerce and trade.

In the United States, prolonged negotiations between port operators and dockworkers caused record-breaking

congestion and delays at ports along the West Coast. This congestion spilled over into 2015, and delays are likely

to continue for the foreseeable future. A tiered solution requiring input from all sectors of the shipping community

will likely be required before the situation can be resolved. Meanwhile, the negotiations set a dangerous precedent

for 2018, when labor contracts for both East Coast and West Coast dockworkers will expire. Should dockworker

unions view the slow-down tactic as successful in securing additional concessions from the port operators, then

equally disruptive actions affecting both the East and West Coasts could threaten all U.S. shipping in 2018.

5 .3 Looking Beyond Headlines to Forecast Supply Chain ImpactsMajor events such as the Ebola outbreak and the rise of ISIS in Iraq and Syria had important second-order

impacts on the supply chain. BSI indicators for political stability and terrorism can help companies understand

what they can expect in the Middle East and Africa and help them prepare for events that by nature can have

difficult-to-predict outcomes. Major headline-grabbing events and their accompanying impacts on supply chains

may seem surprising in hindsight, but their causes can often be found in longstanding problems in historically

unstable regions.

Though governments and international NGOs have started to successfully tackle the Ebola epidemic in West

Africa, BSI indicators suggest that weak governments in the region will struggle to cope with new challenges in

2015, whatever their source. For instance, corruption in the Nigerian military and poor rule of law in the country

has hampered the fight against Boko Haram, a terrorist group that regularly targets the supply chain. Similarly,

the speed of ISIS’ advance in Iraq took many by surprise, as did the amount of money the organization was able

to make by exploiting the supply chain. However, BSI indicators of political stability and terrorism in Iraq both

suggested that terrorist groups would be able to thrive in the country’s highly tenuous political environment.

Sometimes, even good news for the supply chain can have downsides. In 2014, the inaugural “21st-century Silk

Road” freight train shipment from Chengdu, China to Spain launched, raising hopes that the new trade route will

provide a faster and cheaper alternative to sea-borne cargo in 2015. The three-week shipping route will take

approximately half the time of traditional maritime trade, but the China to Europe trade route traverses several

high risk countries for illegal drug introduction or cargo theft, increasing the risk of disruption compared to

maritime shipments. Two of the rail lines three transfer points are located in Kazakhstan and Russia, where

BSI has seen theft and illegal drug introduction targeting rail shipments. Trains along the route also have to be

changed every 804 kilometers, which equates to approximately 16 stops along the 13,000 kilometer railway,

providing thieves with additional opportunities for theft. However, it remains to be seen whether this “New Silk

Road” will emerge as a serious alternative to maritime shipping between Asia and Europe.

BSI Supply Chain SolutionsBSI Supply Chain Solutions is the leading global provider of supply chain intelligence, auditing services, audit compliance and risk management software solutions, and advisory services. Our mission is to help corporations, governments and associations identify, manage and mitigate global supply chain risks and maintain world class governance risk and compliance programs. Our holistic supply chain risk management suite is designed to predict and visualize risk, and develop robust risk mitigation and compliance management programs to protect your supply chain, brand and reputation. Our intelligence-infused supply chain solutions and global network empower our clients to understand global supply chain risk with unequaled precision.

BSI America Professional Services Inc.4250 Drinkwater Boulevard, Ste 210Scottsdale, AZ 85251Tel: +1 480 421 5099

BSI Professional Services Inc. EMEA Kitemark Court, Davy AvenueKnowlhillMilton Keynes, United KingdomMK5 8PPTel: +44 0845 080 9000

BSI Professional Services Inc. APAC23rd Floor, Cambridge House, Taikoo Place,979 King’s Road, Island East, Hong KongTel: +852 3149 3300

Copyright © 2015 The British Standards Institution. All Rights Reserved.

For more information, please visit bsi-supplychainsolutions.com or contact us:

Supply Chain Risk Exposure Evaluation Network (SCREEN), allows organizations to actively identify and monitor supply chain security, social responsibility, and business continuity threats and trends at a country level. SCREEN’s robust modules provide insight into geographic risk for over 20 proprietary risk indicators in more than 200 countries.

Supplier Compliance Manager (SCM), is an automated self-assessment and audit analysis solution that quantifies and tracks supplier risk and compliance through various assessment methods to ensure your supply chain, brand and reputation are protected. SCM provides corporations with complete insight into their global operations, and streamlines their risk and compliance management efforts by utilizing a single, comprehensive solution.

BSI Supply Chain Verification Auditing Services, VerifEye, enables organizations to gain complete visibility into their suppliers’ practices and procedures worldwide. Our audits are customizable, allowing each client to structure the audit and audit report as they like. Our audits provide your organization cost-effective assurance that your suppliers are not exposing your brand to potential security, social responsibility or business continuity risks.

BSI’s Advisory Services are driven by experienced supply chain professionals that leverage proven risk-based methods to provide timely insights into potential problems within a supply chain to ensure an organization can effectively identify, manage and mitigate risk. BSI’s advisors will assist you in developing or enhancing a risk management program, preparing and applying for a government program certification and analyzing your supply chain on a country or lane-to-lane basis to gain a better understanding of potential global risks.

BSI’s Training Programs help build awareness and develop a deeper understanding of supply chain security, corporate social responsibility and business continuity risks and how to manage them. Our customizable training programs will provide your operations with the information they need to proactively identify, and mitigate global threats. Training can be provided through an e-learning course or presented on-site by one of BSI’s experts.

supply chain threats, risks, and trends | global intelligence report

Business

supply chain challenges

supply chain impacts

supply chain corruption

emerging supply chain

supply chains

bsi supply chain solutions

south america

south africa