Global supply chains are increasingly strained by an array of forces including geopolitical tensions, economic uncertainty, shifting government policies, severe weather events, labour shortages, and rising consumer expectations. These factors are forcing supply chain teams to remain highly adaptable.
Adding to these pressures, tariffs and retaliatory government actions have become a central theme in corporate discussions. Tariffs are designed as economic instruments, yet they frequently result in higher costs, squeezed margins, weaker demand, and production delays. As a result, they are often viewed as a primary driver of disruption, claims Moody’s.
However, tariffs alone rarely dismantle supply chains. Instead, it is usually the financial fragility of suppliers—exacerbated by tariffs—that causes breakdowns. While tariffs remain unpredictable, resilient supply chains can be built by focusing on the financial strength of suppliers and ensuring they are prepared to survive shocks from tariffs, inflation, or other external events.
Assessing the financial health of suppliers is a critical element of supplier selection. Larger or well-capitalised suppliers may be able to absorb tariff burdens of 10% or even 15%. For instance, many Japanese manufacturers face 15% tariffs, while most UK imports to the US are subject to a 10% surcharge. Smaller or financially vulnerable suppliers, however, may struggle with even a 10% levy and collapse under a 20% burden. Such strain may lead to reduced investment, deprioritised customers, delays, quality declines, or in severe cases, closure.
The challenge is compounded by the fact that many companies only assess financial risk during the onboarding stage, after which attention shifts to performance metrics such as delivery times, quality, and compliance. While these indicators remain vital, they do not reveal underlying fragility. Suppliers under stress seldom disclose difficulties directly; early warning signs often emerge in payment behaviour, production slowdowns, or staff reductions. Without continuous monitoring, supply chain leaders risk being blindsided.
Financial fragility, more than tariffs themselves, often drives disruption. That is why Moody’s argues that continuous supplier monitoring is essential. A robust process should prioritise key suppliers, track financial risk indicators, and establish early warning signals. Such measures enable organisations to detect vulnerabilities before they cascade into operations and to make informed decisions about supplier continuity.
Moody’s applies its expertise in financial risk analysis to support companies navigating these challenges. By combining comprehensive data, advanced analytics, and AI-driven methodologies, the company equips businesses with deeper insights into supplier performance and resilience. Its approach helps organisations mitigate risks, reinforce supplier relationships, and strengthen resilience in a volatile global trade environment.
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