Supply Chain Security Study Guide

3.1. Economic impact

The impact of terrorism is felt not only in the country of attack but also in countries linked to it through trade. A significant attack on the United States, for example, that closed United States seaports and airports for any length of time, would have a major impact on a key trading partner such as China.

The impact is not only short term. A study by the Australian Department of Foreign Affairs, Combating Terrorism in the Transport Sector – Economic Costs and Benefits, found that:

The study found that one of the major impacts is the operating cost burden on governments and businesses as they put security measures in place. Businesses must also hold larger inventories in case of disruption and pay higher insurance premiums. Over time, these costs can reduce productivity.

The economic impact on countries that cannot meet new supply chain security standards may be even more significant. Many developing countries already face difficult trade conditions, including challenging terrain, limited infrastructure and long distances from trading partners. Transport costs make up a larger share of the value of their exports than is the case for richer countries (World Bank 2003). Adding the necessary security measures may be financially difficult for suppliers and governments in these countries. The result may be that their trading partners turn instead to suppliers in countries that can meet the standards.