Between departure ports, entry ports, and many different modes of transportation, numerous factors can threaten the integrity of a shipment and its smooth transit through the supply chain. Appropriately managing risk to create acceptable exposure can be a difficult task and, in light of day-to-day operations, it is one that often slides to the bottom of the priority list. Yet if global shippers hope to stay competitive, knowing how to see and mitigate risk should be a core concern.
Types of risks
When most shippers consider risk, catastrophic events frequently come to mind. These could be severe weather, civil unrest, structural failures, collisions, theft, or any other danger to the physical cargo itself. While these incidents are relatively rare and often unforeseeable, businesses can stay ahead of potential problems by insuring their goods for the proper amount and building alternate pipelines, such as safety stock, into their supply chains.
This often begins with knowing the true value of cargo, in terms of not only raw currency but also its place within the larger supply chain. Seeing connections from start to finish promotes proactive thinking and can help companies identify procedural gaps where unexpected issues could cause the most harm.
Whether importing or exporting, shipments can be interrupted at many points along the way for inspection, compliance checks, Customs declarations, or other verifications. If not properly anticipated, these sorts of administrative tasks can introduce drastic delays, hold up other shipments, or even result in seized cargo. The impacts can ripple across your global logistics plan.
To reduce the likelihood of these scenarios, invest time at the outset to understand the regulatory environment in which shipments are moving. Better preparation can minimize impeded shipments. This begins with research into how specific countries permit you to move certain goods, including any unique limitations, distinctive requirements, or special trade agreements. Checking for trade sanctions, import or export restrictions, and extra processes related to sensitive cargo (such as oversize or dangerous goods) can also greatly reduce lost time and revenue. Also, be sure to research what sorts of inspections and documentation officials will require (and when), have the proper forms prepared (and ready), and make officials’ access to cargo as easy as possible.
Businesses should also consider administrative risk when moving goods globally. It is vital to have a current and comprehensive knowledge of International Commercial Terms (Incoterms), the conditions that govern buyer and seller obligations when transporting goods.
By understanding how Incoterms inform contractual requirements, companies will have a better sense of how and when risk and responsibility are transferred during a shipment’s journey. This can reduce situations where a business believes liability for losses resides with the shipper. If, in fact, the liability still resides with the business, any number of problems could result in unexpected and severe expenses.
Internal silos can also constitute a frequently overlooked source of risk. Within an organization, there can be disconnects between different global shipping priorities. When one department focuses on speed and efficiency while another concentrates on rules and regulations, costly mistakes and delays further down the supply chain are more likely. By investing energy to align departments under a common direction, companies can stop generating risk.
Critical steps to reduce risk
Fortunately, the path toward better risk management practices is often direct. A crucial starting point is creating and maintaining comprehensive compliance manuals for importing and exporting.
An industry best practice, these manuals should clearly outline shipping and compliance processes to delineate who is responsible for each aspect of a transportation transaction and who does what. Establish subject matter experts in key areas of risk to transactions, and then document the processes they implement to promote compliance. Proper risk management begins with improved compliance, and improved compliance directly translates to lower risk across the supply chain.
Compliance documentation is valuable in the event of an audit and is essential in seeing business practices end to end, leading to better procedures as well as better contingency planning. From this, it is much easier to identify, assess, and prevent events that have the potential to disrupt.
Risk management offers a clear competitive advantage to businesses that prioritize it. Companies that do not see value in compliance and risk mitigation may be able to get away with that approach initially, but when challenging circumstances arise, they may find themselves in dire situations indeed.