What do the Taiwan-China Tensions Mean for Supply Chains?

China views Taiwan as its breakaway province that “must” come back under Beijing’s control, and may force it to do so, President Xi Jinping has said.

It is increasingly showing this brute force with military exercises, particularly after US Speaker Nancy Pelosi’s recent visit to the island. This involved planes and ships infringing on Taiwan’s territory, says the BBC.

How it may impact supply chains

Half of the world’s fleet of container ships use the Taiwan Strait to carry goods:

• From China to Japan
• To Europe
• From the US to Oceania (including Australia) and Asian countries.

Therefore, any bottlenecks are felt throughout global supply chains. The Lowy Institute says even a limited military conflict between China and Taiwan could decouple wholesaling “within a week”. Container ships with cargo for Bunnings (for example) would stop. The lack of computer microchips would halt a swathe of manufacturing.

How can companies safeguard their operations?

Be sure to identify internal and external risks; those you can control and those you can’t. According to the International Standards Organisation, businesses typically face these types of risks:

• Operational threats
• Physical failure including malicious damage, terrorist/criminal action, incidental damage or a functional failure
• Disasters, weather or other natural environmental events
• Security threats
• Business continuity threats
• Third-party threats
• Geopolitical threats
• Reputational risks
• Financial risks (inflated costs, for example).

Analyse each of these risks to work out the causes and qualify the impacts. Rate the likelihood of the risks and define what risk your business would find acceptable. Next, aim to quantify the risks so you can determine how to manage them, if possible.

You can use these scales as a guide:

Probability: definite, very possible, possible, unlikely, very unlikely

Risk scoring: use a number scale, so it’s easy for all staff members to interpret

Risk impact: catastrophic, high, moderate, low, trivial

Next, consider each risk and how prepared your firm is in dealing with them. For more insights into risk management for your supply chain, check out this McKinsey guide.

Securing the right insurance

Insurance can add an extra layer of protection for your business operations.

For example, if a supply chain incident means your business is out of action and loses sales, then business interruption insurance may help. We can assist your business continuity plan.

Meanwhile, product liability insurance is useful to cover a specific component or product that’s impacted within your supply chain. That policy may cover you for the costs of investigating and defending your company if there’s a product-related claim. We can help with your insurance.