Supply chain risk profiles altered by pandemic and global shocks

The challenges in international trade and the supply chains that service it are creating shifts that will continue to fuel long-term changes in the pattern of global supply and demand.

Higher prices for energy and food, shortages of and delays in delivering manufactured goods, dynamic changes in markets and sourcing regions – these are other continuing effects of the pandemic, along with associated lockdowns and the war in Ukraine, are proving catalysts to shifts in economic and environmental trends that affect global commerce.

According to Dorota Jilli, a senior underwriter at insurer TT Club, erosion of traditional buffer mechanisms to ensure continual supply of goods demands a new assessment of potential risks.

“We are suffering from a disappearing ability to absorb short-term shocks to the supply chain because of fundamental societal and geopolitical changes to the global equilibrium,” Jilli said while speaking at the annual conference of the European Sea Ports Organization (ESPO) in Valencia this month.

“Yes, Covid and the war are disruptive and are driving up prices but the longer-term trends of production cost increases in Asia and stricter demands of ESG [environmental, social and governance] mean that cheaper goods and transport services are features of a past global economy.”

New risks

In her presentation, Jilli explained in detail some of the risks that operators face in this changed environment. Abandoned cargo is more prevalent with delays through port congestion, and lockdown closures meaning the incidence of consignee bankruptcy or goods being unwanted due to loss of markets is higher. This is particularly concerning when dangerous good are left in storage for excessive periods as the tragic incidents in Beirut last year and in Chittagong more recently attest, Jilli said.

“Trends in cargo theft are also in flux with more essential goods such as food and beverages being targeted and luxury goods and electronics not so much as in the past,” she noted.

“Cargo at rest, either at ports or inland staging areas, some of which have been hurriedly pressed into service as overflow facilities, is increasingly subject to theft. With shippers looking for ‘workarounds’ to reduce costs or avoid congestion, thieves have been quick to adapt their methodologies and the use of online means of deception and insider recruitment are now both more common.”

TT Club sees the correct use of data to analyze these trends as being of crucial importance and is utilizing its own claims experience along with theft reporting agency information to alert the industry to evolving dangers.

It also suggests that developing technologies to build predictable and resilient sourcing is key to reducing risk over the longer term.

“It is important to ensure that adequate risk assessments are undertaken across the full breadth of your operation in order to understand thoroughly the various risks and, where appropriate develop mitigating actions and controls, together with effective continuity plans to protect your business,” Jilli concluded.