At the start of 2024, we predicted that the three most influential challenges and opportunities this year would be:

1. Strategic sourcing realignment dilemmas (including nearshoring, friendshoring and reshoring);
2. Tariffs, sanctions, bans and other restrictions; and
3. GenAI
    

Strategic sourcing has indeed been a major theme this year, albeit with a shift in geography that saw Mexico become the largest exporter to the U.S. Interestingly, prominent in the mix of new Mexican manufacturing facilities targeting the American market were Chinese-owned businesses who have moved assembly from their home base across the Pacific Ocean. This trend is likely to accelerate as more Chinese products get in the cross hairs of U.S. tariffs.

At the same time, there is no end in sight for international restrictions on trade and business. Sanctions growth has followed a “hockey stick” graph since the start of Russia’s war in Ukraine.  According to Moody’s data, approximately 18,000 sanctioned entities and people were added to global watch lists in 2023 alone, while the number of entities sanctioned by extension due to ownership and control totalled 24,000 as of December 2023. And tariffs will increasingly be on the agenda of high-stakes trade negotiations between regions, particularly following the outcome of the US election that could lead to new tariffs, higher costs, potential shipment delays, and pressure for businesses to reconsider sourcing strategies. Given the increasing reliance of governments on supply chain restrictions for political, economic and business purposes, we expect this risk to continue among the top-three trends in 2025.

GenAI, our third 2024 prediction, continued to become an important tool for supply chains by assisting with data consistency and risk monitoring, including for our own efforts at Moody’s, and its rise is set to continue. The integration of digital transformation efforts with GenAI technologies enhances GenAI’s impact further, offering more sophisticated tools for predictive analytics, automation and decision-making processes. This synergy is pivotal for developing resilient and responsive supply chains that can anticipate and mitigate risks proactively.

We think the three most important areas in supply chain risk in 2025 will be:

1. Supply chain restrictions. Just like this year, restrictions will continue playing a large role, putting upward pressure on costs. The most recent examples are European tariffs on Chinese autos and the U.S. plan to prevent Chinese software and hardware from entering cars in America.
2. Reputational risk in supply chain. Reputational risk will likely be at its highest in recent memory. This is a result of polarization of public opinion, combined with ever-present social media. Doing business with a supplier whom a lot of your customers view negatively will be hard to navigate. Furthermore, legislation like the German Supply Chain Due Diligence Act, marking its second anniversary in January 2025, exemplifies a global trend of corporate transparency and due diligence laws addressing modern slavery, forced labor, human trafficking, and environmental damage. This will continue to sharpen the focus on supplier due diligence and pose reputational and financial risks to firms with flawed processes.
3. Value at Risk. Supply chain executives have long pushed for a way to quantitatively measure the impact of different issues and crises on the company’s performance.  It’s been a long-standing gap, but data availability, new technology (including GenAI) and advances in supplier risk assessments will make it easier to size up problems before they fully materialize. Value at Risk calculations can help organizations determine whether their risk mitigation strategies represent value for money when compared to the potential revenues losses in the event of a supply chain disruption.

As you are thinking of how these developments might affect your company, here at Moody’s we are working to help you address key questions:

1. We offer a foundation for tracking and reacting to supply chain restrictions.
2. Our AI capabilities can monitor your supply chain reputational risk.  We can help you define your risk tolerance and areas of largest concern.
3. We can help customers respond more precisely to the question that comes up for every significant supply chain problem: what’s the impact?
    

To discuss these or other current or emerging supply chain risks, go to https://www.moodys.com/web/en/us/supplier-risk.html