Days of cheap supply chains over as companies urged to reassess risk: TT Club

TT Club has warned that the days of cheaper supply chains are likely over as fundamental economic, societal and geopolitical changes beyond Covid-19 and the war in Ukraine have disrupted the global economy’s delicate equilibrium.

It added that the erosion of traditional supply chain buffer mechanisms demands a new assessment of the potential risks.

The global transport and logistics industry insurer said the challenges facing international trade and supply chains are painfully obvious, with higher energy and food prices, shortages of – and delays in delivering – manufactured goods, and dynamic changes in sourcing regions.

Dorota Jilli, a senior TT Club underwriter speaking at the Annual Conference of the European Sea Ports Organisation in Valencia, said bluntly that 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”.

And she believes this disruption is far broader and deeper than problems caused by Covid-19 and the invasion of Ukraine.

“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 mean that cheaper goods and transport services are features of a past global economy,” said Jilli.

TT Club said the twin impacts of Covid-19 and Ukraine war are “igniting” underlying economic and environmental trends that will continue to fuel “long-term changes in the pattern of global supply and demand”.

All of which requires a reappraisal of supply chain risk, according to the risk and insurance specialist.

“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,” said Jilli.

TT Club said the use of data and evolving technology is crucial to get on top of the new supply chain risk landscape.

Jilli listed some of the growing risks that operators face in the new supply chain environment.

She said abandoned cargo is more prevalent. Delays through port congestion and lockdown closures mean that the threat of consignee bankruptcy or goods being left wanted has risen, explained Jilli. She added that this is particularly concerning when dangerous goods are left in storage for excessive periods, which led to the tragic incidents in Beirut last year and, more recently, Chittagong.

Jilli said there is also growing threat of cargo theft.

“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 said.

“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,” she added.

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