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Supply chain vulnerabilities likely to rise

Cyber, ‘hacker’, pirate and terrorist attacks are expected to rise across the global supply chain over the next 20 years and firms should plan now to protect their assets, says a new PwC report.

Volume 4 of the ‘Transport & Logistics’ 2030 series: Securing the Supply Chain’, warns that cyber attacks are now so sophisticated that any business, or even country, could be at risk. The report, undertaken jointly with the Supply Chain Management Institute (SMI) at EBS Business School in Germany, surveyed 80 executives across business, science and government. Participants were asked to assess the probability of a variety of hypotheses on a scale of 0-100 percent.

On average those surveyed said there was a 56 percent probability of a rise in attacks in some form. It is not just cyber attacks that firms need to prepare for, the report says, they also need to be prepared to handle natural or man-made disasters. Overall, those surveyed said they were even more concerned with hacker attacks affecting their supply chains than they were actual physical attacks. Recent research also shows that the German internet, for example, is attacked every two seconds.

Klaus-Dieter Ruske, partner and Global Transportation and Logistics Industry Leader at PwC, said: “The supply relationships between producers, suppliers and consumers have become more complex and more accident-sensitive in the last few years. Today 90 percent of the worldwide trading volume is concentrating on about 39 gateway regions. If only a single one of these hubs fails, the economic consequences could be enormous after just a short period of time, and affect most economies around the globe.

“As a consequence of the increasing threat, the transportation and logistics companies' expenditures on security will broadly rise. Thus, capital investment on security, also on security of IT systems, will be one of the most important cost drivers of the logistics industry.”

Businesses are urged to devise and execute contingency plans now as the economic impact of such attacks could be devastating, the report says.
Assaults on certain, highly-frequented ‘chokepoints’, a geographic bottleneck with only one narrow transport link across a valley or bridge, are predicted to be potential targets. Some examples of chokepoints in global shipping include the Strait of Homuz, the Suez Canal and the Panama Canal.

Egypt, for example, already loses more than $640mn each year because shipping companies are avoiding the passage through the piracy-threatened Gulf of Aden and the Suez Canal. In spite of the rising risk there will not be any renunciation of highly diversified international division of work, according to the report.

Survey respondents said there was a 70 percent probability of logistics companies having to perform obligatory security checks on their whole supply chain, and they said there was a 60 percent probability that modern technology would offer businesses better protection.
Freight screening as well as ‘risk’ profiling of employees, and using trusted shipping operators, will also help businesses stay ahead of the hackers, the report adds.

Klaus-Dieter Ruske added: “Enterprises will have to analyse and counteract every possible scenario of danger to protect their supply chains. It is not just about prevention, but also about developing alternatives for the case of emergency. Thus every enterprise should be prepared to quickly compensate any drop out of a supplier.”

For a copy of the study visit www.pwc.com/tl2030

•Date: 22nd June 2011 • Region: World •Type: Article • Topic: Operational risk

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