Supply Chain Tips For Risk Managers in 2023
Events of the past three years severely impacted supply chain, such as the COVID-19 pandemic, wars, and natural catastrophes.
Risk managers play an essential role in protecting companies and maintaining supply chain visibility in the face of disruption. Ahead of National Supply Chain Day on April 29, let’s heed the supply chain risk management lessons from 2022 and address what might be on the horizon.
Natural Catastrophes and Climate
In addition to being the second-most destructive hurricane in U.S. history, Hurricane Ian was noted as one of Florida’s costliest storms, causing between $50 to $65 billion in insured damages in 2022. The Sunshine State is strategically tied to the national economy and supply chain, as it is a hub for agriculture, manufacturing, and heavy machinery production industries.
According to the University of Florida’s Institute of Food and Agricultural Sciences, Ian impacted the state’s agricultural lands, which produced nearly $8 billion of product annually and caused $1.03 billion in production losses for agricultural producers.
Furthermore, the state hosts facilities serving the healthcare industry and nearly 7,000 producers of pharmaceuticals, medical devices, diagnostic devices, and other products.
It is clear that businesses need to have business continuity plans in place to help their facilities (and their organization) withstand weather catastrophes and provide employees with safety and preparedness plans.
LineSlip Tip: Ahead of a severe hurricane or weather risk, be sure to remind employees of the company’s emergency action plan (EAP). Mandated by the federal Occupational Safety and Health Act (OSH Act), an EAP should address employment protections for workers in areas where mandatory evacuations are issued ahead of catastrophic weather.
If you don’t have an EAP, consult OSHA or a state agency to create one, and be sure to communicate it to employees. Variations of your EAP may be necessary to protect on-site and remote workers in various states.
Wars and Geopolitical Risks
Russia’s invasion of Ukraine started a conflict that affected global, regional, and local supply chains, exacerbating existing challenges caused by the pandemic.
As widely reported, EU nations ended imports of Russian oil brought in by sea, and a ban on refined oil products began on February 5, 2023. Yet its gas pipelines remain vital to the EU, putting both sides in a quagmire. Russia still controls these commodities – or their distribution – and possesses leverage over consumers who might not have other options for their oil and certain foods.
LineSlip Tip: Ship owners and logistics companies should consider additional war insurance policies if their supply chains or routes cannot circumvent a hostile zone. Seizures and physical damage may not be insurable, but coverage for non-war-related damage or machinery breakdown may still be available.
If you have historically traded with nations impacted by war and geopolitical conflict, source commodities elsewhere. Russia has traditionally been a leading exporter of fertilizer, but MIT believes that Morocco, for example, has been identified as an alternative source.
LineSlip Tip: Reexamine your networks and form new strategic partnerships in compromised areas. “The war has prompted companies to learn how to better coordinate shipments and allocate scarce resources in the region,” the MIT Center for Transportation & Logistics noted in 2022. “Some enterprises have redesigned regional manufacturing networks in response to the war. Lessons like these could help companies gird against future conflicts.”
Cargo Theft
There are no two ways about it: Cargo shipments are exposed.
According to CargoNet Verisk’s cargo theft prevention and recovery network, nearly $223 million in cargo was stolen in the U.S. and Canada in 2022. This marked an increase of 20% from 2021.
One could look to Georgia – which saw a 34% boost in theft – to help explain this rise in theft. The state shut down its cargo theft investigation task force in 2020, thus exposing the Port of Savannah to criminal activity.
Risk managers should research the ports on their supply chain to address cargo theft risk. Check state home pages for announcements. If bad public policy is poised to make an impact, consider finding a new supplier or a reroute.
Further, fictitious pickups are on the rise, where fake credentials are used to retrieve shipments ahead of legitimate carriers. Malicious actors also use misdirection to have the cargo sent to other destinations. Strengthen fraud prevention efforts by informing your on-the-ground personnel to confirm carrier and driver names and addresses and verify the payment method.
LineSlip Tip: If much of your operations depend on shipping, be sure your marine cargo insurance will contain an express insuring agreement for loss or damage to insured goods caused by the receipt of fraudulent bills of lading.
We Help Risk Managers Engage With Their Supply Chain Data
Risk managers who learn from recent supply chain trends and leverage emerging technology can implement processes that improve organizational productivity.
LineSlip can help make data more accessible and easier to communicate with executives. Risk professionals may want to turn to technology tools that streamline policy information and calculate an organization’s Total Cost of Risk (TCOR) to help clean up its data, making it readily available to share with executives.
