Companies working to address supply chain problems that began during the covid-19 pandemic face continuing challenges as problems have been exacerbated by recent events, including slowdowns in West Coast ports related to labor negotiations, the shutdown of the Shanghai pandemic and the war between Russia and Ukraine.
Last week, Boeing Co. said that the production and deliveries of its 737 MAX aircraft suffered from a lack of cabling; infant formula is in short supply across the United States due to pandemic-related supply chain problems and a recent recall; and the automotive industry continues to be hampered by a semiconductor shortage.
Strategies to mitigate supply chain disruptions can help but can change the risk profile of a company̵7;s operations, creating additional exposures, experts say.
Some shipping companies want to address delays by expanding their capacity so that they can offer trucks, warehouses and railroad cars in addition to shipping, says John Frazee, CEO of U.S. Naval Practice at Marsh LLC, which is based in Los Angeles. .
This approach can help them better control their supply chain by not relying on a third party, said Mr. Frazee. “The downside is that it’s a big cost, and only larger companies can afford to do it,” he said.
Shipping companies are also investigating alternative routes or ports. “On paper, it sounds like a problem solved, but if you do not own the ship, you do not tell the ship where to go,” and finding ports that can unload and transport cargo without delay is still a challenge, Frazee said.
Using different routes to move products can also give rise to insurance problems. “Are they covered by the risk transfer programs that companies have?” in Mr. Frazee. Accumulation risks and cross-border deliveries are further concerns, he said.
Strategies such as having extra inventory or acquiring alternative suppliers create resilience in a company’s operations and are good risk management, says David Shillingford, Salisbury, Connecticut-based strategy manager at Everstream Analytics, a risk analysis company for the supply chain.
However, they can have unintended consequences and increase the risks. “The counter-argument is that you increase your surface area and there are more things that go wrong,” Shillingford said.
Companies should look for the right balance, he said. “It’s about collecting data and doing analytics to find out where you need to be redundant and where it’s not so important,” he said.
The war between Russia and Ukraine has exacerbated ongoing supply chain problems and risks, says Rahul Khanna, London-based global head of marine risk consulting at Allianz Global Corporate & Specialty SE, a unit within Allianz.
“Russia and Ukraine are both key suppliers of grain, so a lot of grain exports come from these countries which are now disrupted,” Khanna said. Ships operating in the Black Sea, a major trading region, have been severely disrupted, he said.
Crews can also get stuck on ships, which creates logistics problems if they can not return home or if others can not reconnect to ships, Khanna said. More than 10% of the world’s 1.9 million seafarers come from Russia and 4% from Ukraine, the AGCS said in a report released last week.
Inflation exacerbates the risks in the supply chain. “The cost of shipping a container from China to the United States a few years ago was $ 2,000 to $ 4,000 and is now $ 10,000 to $ 15,000 per container, pushing up the cost of everything,” Khanna said.
Higher shipping prices and a lack of container vessel capacity attract some operators to use non-container vessels to transport containers, which raises questions about stability, fire-fighting ability and safe cargo, AGCS said in its Safety and Shipping Review 2022 report.
Local events, such as the war between Russia and Ukraine and the recent slowdown in the ports of Shanghai, are causing a global impact that in practice “switches trade flows”, says Suki Basi, CEO of London-based Russell Group, a data and analytics company.
For example, efforts are being made by some countries to secure alternative gas supplies from Africa and South America in response to the conflict between Russia and Ukraine. “New relationships are constantly evolving,” says Basi.
The recent shutdown of Shanghai COVID-19 has caused serious delays in the port, giving a $ 28 billion hit to global trade, where the clothing and textiles industry has the largest exposure, according to an analysis by Russell Group.
All further shocks in the supply chain will continue to push up prices and slow down the economic recovery in Western economies, but real-time data can help insurers, reinsurers, companies and decision makers understand and manage their risks, Russell Group said in its analysis.