Logistics outsourcing, global supply chains and cost-cutting measures are exposing companies to higher levels of supply chain and business interruption risk, say insurers and risk managers.
To address such risks, experts say shippers should seek as much transparency as possible and pay closer attention to their cargo arrangements than outsourcing has left them in the habit of paying.
“They tend in many cases to give it to third party logistics providers and say, ‘let me know when it shows up,” said Captain Andrew Kinsey, senior marine risk consultant at Allianz. “They don’t understand who’s carrying it, how many times it’s being moved, transshipped, put into feeder vessels or on barges, etc.”
Wm. Morrison Supermarkets MRW.LN +0.27% PLC in the U.K. addresses this through using one main shipping company and embedding a person from that company in its offices. said Martyn Jones, group corporate services director at the company. “We have absolute transparency around where containers are once they leave the factory, all the way through to portside, onto a vessel and then across the water,” he said.
The cost of not understanding the chain of custody on cargo can potentially amount to as much as 10 times the direct value of lost merchandise, once business interruption and other costs are factored in, said Linda Conrad, director of strategic business risk, Zurich Global, Corporate in North America. She noted that marine insurance usually doesn’t cover the cost of shipment delays, and companies are more vulnerable in the context of just-in-time inventory management, especially when the procurement and risk management functions don’t coordinate. “If you are running just in time, what happens just in case?” she asked.
Companies’ own cost-cutting efforts aren’t the only source of exposure. Shipping lines, hard-hit by the recession, have been taking steps to achieve greater efficiencies through economies of scale and fuel conservation, but these measures can also expose cargo to higher risks.