Turning Risk into Resilience in the Industrials and Manufacturing Industry

These risks are deeply interconnected; one often amplifies the effects of another. Understanding how they play out in
practice — and interact — is essential to building a more complete picture of the sector’s evolving risk landscape.
The following examples illustrate how several of the top-ranked risks are unfolding across the industry.

Economic Slowdown: Margin Pressure from All Angles

Economic slowdown is the top-ranked risk for the sector in 2025, climbing two places since our last survey.
Persistent inflation, elevated interest rates and softening consumer demand are squeezing margins across the sector.
Automotive manufacturers are seeing record-high vehicle prices deter buyers, while European chemical producers are
grappling with surging energy costs, prompting some to reconsider their regional footprint.

These pressures cascade through the value chain. Raw-material costs are rising, steel and commodity prices remain
volatile, and transportation expenses — from fuel to logistics — continue to climb. For heavy industry and advanced
manufacturing, where operations are capital-intensive and margins are already thin, profitability is under threat.
Share prices, earnings per share and stakeholder confidence are increasingly vulnerable.

To navigate this environment effectively, organizations should reframe risk management as a strategic enabler — not
just a defensive measure. By using data-driven insights to model exposures and evaluate trade-offs, firms can make
more-informed capital allocation decisions and uncover hidden efficiencies.

Organizations can leverage risk financing tools such as captives and alternative risk transfer (ART) programs to not
only stabilize costs but also support broader business objectives. In this way, risk can become a lever for value
creation — helping organizations optimize performance, protect margins and position themselves for long-term growth.

Supply Chain and Geopolitical Volatility: A Fragile Global Framework

Supply chain disruption and geopolitical volatility are increasingly intertwined, creating a complex and evolving
risk landscape for industrials and manufacturing organizations. Trade tensions, sanctions, climate events and
shifting regulatory regimes are exposing vulnerabilities across global networks. In an industry where supply chains
are highly specialized and often cross borders, even minor disruptions can have outsize impacts.

Tariffs and protectionist policies are prompting manufacturers to reconsider their sourcing strategies. While
reshoring offers potential relief, the reality is far more nuanced. Rebuilding facilities, securing permits and
recruiting skilled labor — especially in advanced manufacturing and chemicals — can take years. Environmental
regulations, ISO standards and fragmented compliance frameworks add further complexity, particularly for
organizations operating across multiple jurisdictions.

At the same time, climate-related events and political unrest are testing the resilience of existing supply chains.
Floods, wildfires and extreme weather are disrupting transportation routes and production schedules. In heavy
industry, where raw-material inputs are often sourced from politically unstable regions, the risk of interruption is
compounded by commodity price volatility and scarcity.

The post-pandemic shift toward resilience has accelerated investment in supply chain visibility and control, with
organizations deploying mapping tools, digital twins and predictive analytics to better understand their exposure
and build agility into their networks. Some are going further, pursuing vertical integration or acquiring key
suppliers to secure access and reduce dependency. These moves reflect a broader trend toward strategic control,
especially for critical components and materials.

But to manage this dual threat, organizations must adopt a holistic approach. Scenario planning and political risk
insurance can help navigate uncertainty, while regional diversification and joint ventures offer flexibility in
volatile markets. Building redundancy into supply chains — through multisourcing, nearshoring and supplier
diversification — is essential. Strategic M&A can enhance resilience, but it must be underpinned by rigorous due
diligence and integration planning.