August 3, 2022
Supply Chain is a Risky Business: announcing a free Risk Management feature
Our Risk Management Freebie: a tool to integrate risk scores into your shipments
Life is full of risks, and without them, we wouldn’t get anywhere. Julius Caesar crossing the Rubicon. Joan of Arc to the Siege of Orléans. Neil Armstrong to the moon. They all achieved greatness through risk and uncertainty, changing the course of history through a chain of consequences. But even everyday tasks, like going to the grocery story, can come with risk. And while risk is an inevitable part of life, you should do your very best to avoid unnecessary risks. Mitigation and awareness are the banner guards in that battle.
The world of supply chain is no exception to risk exposure. Land, air, and ocean freight all have numerous factors that can impact their security:
- physical components like weather and terrain
- human elements like accidents and maleficence
- socio-economic factors like culture and taxes
- geo-political aspects like war and trade disputes
...how can anybody account for all these potential impactors? Let’s examine recent events before proposing solutions.
Everyone around the world felt the effects of supply chain disruptions last year even if you are not a retailer, shipper, consignee, or ocean liner. The COVID outbreak in China caused the government there to take strong lockdown measures in early 2020. Stranded factory workers waited in their hometowns, not knowing when they would be able to return to their jobs. Global trade felt this shock because manufacturing and distribution of goods, regularly moving across the globe, came to a screeching halt. When things normalized in China, other parts of the world took a turn for the worse, causing medical supplies to receive priority for importing from China. The headphones that you ordered on Amazon naturally took a delay, probably waiting at a dry port to be shipped.
While COVID showed risk worldwide, we also find risk at the regional and local levels. For example, China and Australia have enjoyed a free trade agreement (ChAFTA) since 2015, making Australia the main exporter of wine and beef as well as many other consumables to China. However, Australia recently made comments implying that China may have been responsible for the global pandemic. China has slapped import tariffs on major products from Australia in response, and a boycott of Australian (40% of all wine exports from Australia) could ensue. This means that the demand of wine will have to be supplied by other countries like South Africa and France bringing risk/opportunity for wine producers. These trade decisions trickle down into potential supply chain disruptions for those regions.
Free trade agreements such as ChAFTA and RCEP (Regional Comprehensive Economic Partnership) gives ASEAN (Association of Southeast Nations) members the privilege to trade goods from Australia, New Zealand, Japan and South Korea at low to zero tariffs. Thus, the container volumes on trade lanes that link Australia with other Asia-Pacific countries must remain stable so that import-export relationships between companies stay secure, shipping rates remain consistent, and product prices do not fluctuate. With an impending China-Australia trade war, container volumes may drop and shipping could rates increase, like we saw with the recent China-USA trade war. This would create Allocation and Rate risks to producers of products that are not even affected by the new tariffs, causing higher freight spend.
Businesses must develop Risk Management practices for their supply chain teams. But how can you and your business do that? Some easy and accessible ways are staying up-to-date on World News, assuring close relationships with global stakeholders, and using prevention tools that learn from past events. That can be a lot of information to aggregate.
At Logward, we want to empower your business to identify, understand, and mitigate supply chain risks. You should use your time and effort making strategic decisions – solving problems that drive sales force strategies, customer service, and innovation – and not gathering data.
That’s why we created our last freebie: Risk Management. We partner with Risk Methods to deliver a risk calculator that uses AI to automate and detect threats, simplifying all risk in the region to assign a Risk Score from 0-100 to countries, ports, and any specific locations. The calculation considers both fixed and variable factors. Fixed includes knowledge that does not change frequently, like risk of corruption or compliance. Variable comes from a constant web scraping to find news and events related to specific areas, so don't be surprised if you check in the morning and by the evening the risk level has change in the regions of your interest! Alerts are also given when events happen at a local level to trigger a spike in the score.
Our clients use this tool to gain a precise view of what is causing risks to their supply chain and integrate that into their shipments. They receive detailed scores based on the types of risks mentioned at the beginning of this text, grouped into:
- Image & Compliance
- Market & Cost
From here, they can visualize risk levels along their routes - highlighting the scores at points of origin, destination, and in between. This allows them to track delays and feed insights into their Business Intelligence platforms. It helps save on unexpected costs that could arise from trade lane disruptions and navigate around unexpected risks at different ports. Rerouting, holding back on a shipment, and finding alternative transport modes can be done with anticipation instead of reaction.
Logward is a Hamburg & Bangalore based logistics technology company.
We build software, move containers, and change mindsets.
If you have any questions or just want to say hi, reach out to firstname.lastname@example.org. Or you can book time with one of our logistics experts here.