Before the pandemic, many shippers did not have a risk management plan or, if they did, rarely reviewed and updated it. As a result, when the pandemic hit, many shippers found themselves having to react to unexpected issues quickly and often expensively. Even then, only 60% of respondents adopted new supply-chain risk management practices according to a survey from consulting firm McKinsey.
This is true for even the most mission-critical products. Shortages of such items as semiconductor chips, plastics, paper and raw materials was one of the top supply chain disruptions in 2021, according to Resilinc, a supply chain risk monitoring and mapping solution provider.
In addition, international transportation has been problematic for shippers that import goods into the U.S. Typically, shippers will shift from ocean to air if speed is essential. However, air cargo capacity remains below pre-pandemic availability, and rates are high as air charters can cost upwards of $2 million or more per flight for shippers willing to pay the price.
Likewise, ocean freight rates have remained high, at one point skyrocketing past $40,000 per TEU on some trade lanes, as consumers buy faster than retailers can replenish inventory.
Pandemic Still Influencing Delays
COVID is playing a significant role in these issues, and is an example of the kind of unforeseen problem that risk management is meant to address.
For example, Resilinc sent out 11,642 alerts about potential supply chain disruptions to its customers in 2021, an 88% increase over 2020. And this is just one snapshot of the scale of the challenge.
“Shippers are now realizing the importance of risk management plans and are using these plans to focus on costs, capacity, visibility and service. Investments in visibility tools will likely gain strength this year for shippers to manage escalating supply chain costs,” according to John Haber, President of Parcel, Transportation Insight.
Haber further noted that “diversifying manufacturing and supplier locations is becoming increasingly important. Relying on manufacturing in only one location, such as China, is risky. As such, some manufacturing will likely return to the U.S. as well as to countries in closer proximity to the U.S. such as Mexico and Canada.”
What Can You Do?
The Institute of Risk Management, a professional body that provides qualifications and training, research and thought leadership and sets professional standards for enterprise risk management, offers a few recommendations for even routine times:
- Improve your supply chain visibility upstream to your suppliers and downstream to your customers.
- Identify risks, and begin to assess them using quantitative methods.
- Build a digital twin model of your supply chain. Run “what-if” scenarios to witness how your supply chain will react to risk stimuli.
- Prepare response plans for your most significant potential risks.
These are excellent recommendations, but it is difficult for shippers to identify all potential risks to a supply chain. That’s why it’s best to have a flexible, resilient supply chain that is optimized to mitigate any risk. Investments in the right technology, having the right supply chain partners, and optimizing costs will help improve shippers’ risk management plans.