Geopolitical shocks force supply chain rethink for UK businesses

Laura Ayre and Andrew Herring of Pinsent Masons were commenting as the UK government published a report that identifies supply chain risk as a critical challenge to the UK’s long-term economic prosperity.

The report highlights that supply chains must be “reliable, diverse and resilient” to reduce their vulnerability to global disruption and emphasises the ripple effect that recent geopolitical events – from Russia’s invasion of Ukraine to the conflict in the Middle East – have had on critical infrastructure, transport routes and maritime chokepoints worldwide. The paper says these events have necessitated a “rethink” in how government and business must approach supply chain resilience “to enable supply chain security in the future”.

The report identifies a three-pronged approach to help make the UK economy, which is highly integrated into global trade systems, more resilient to future supply chain risk and shocks. This involves firstly identifying where risk is, both early and proactively; then designing targeted and proportionate responses; and finally conducting repeated stress testing to ensure “strategies remain fit for purpose as technologies, global dynamics, and vulnerabilities evolve.”

For businesses navigating supply chains, the report warns that supply chain risk is both increasingly complex and highly concentrated. Even the most prepared businesses must be mindful that critical risks are often shared and require coordinated action at a regional, sectoral or even national level. Risks can also emerge at the firm level, across networks or as a result of external shocks and require “context-specific” responses, not “one-off fixes”.

Herring, a commercial dispute resolution expert at Pinsent Masons, said the report highlights the complexity of modern supply chains and that conventional contractual structures often don’t offer sufficient flexibility, leaving businesses exposed to supply chain risk. “Traditional contracts were built to allocate commercial risk between immediate contractual parties,” he said. “They assumed a linear supply chain with clear bilateral relationships and the protection of privity of contract. Today's risks are systemic, regulatory, and multi-tier, and the old model cannot always contain them.”

The report also warns that systemic risks are evolving much faster than current responses, requiring firms to respond more quickly and proactively. The paper adds that climate shocks and geopolitics are risk multipliers and climate adaptation will be “essential” for future supply chain resilience.

Herring, who recently moderated a panel discussion on these issues at the Association of Corporate Counsel (ACC) European conference in Copenhagen, added that supply chain risk had become a board level and fiduciary issue due to recent legislative changes in various jurisdictions, requiring businesses to modify significantly their approach to supply chain risk. “Directors face potential accountability for inadequate oversight of ESG risks and failure to implement appropriate due diligence frameworks, which, in turn, attracts increasing scrutiny from regulators and stakeholders including investors and insurers,” he said. “What was once considered an operational matter has become a core governance responsibility.”

Ayre, an expert in supply chain projects at Pinsent Masons, said: “Businesses that are already navigating these challenges most effectively have invested in end-to-end supply chain mapping and treat traceability as infrastructure rather than a reporting exercise.”

She also echoed the report’s findings that continuous monitoring and greater efforts by businesses to improve supply chain visibility would be critical to securing more robust, resilient supply chains in future. “Companies can no longer contract their way out of risk and they need a more sophisticated approach that, through supply chain design, visibility and control, is fit for our changing world.”