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tradeservices
www.bifa.org
Risk: how to cope
with the unexpected
Freight forwarders inevitably face the danger of the unconsidered event.
Here BIFA looks at some of the unexpected developments that catch
operators out, and makes some suggestions on how to be as prepared
as possible
The recent world economic
downturn has highlighted
weaknesses in the global supply
chain. These range from relatively
simple and speedily fixed problems
to those with the ability to force
companies out of business. The
three most frequently noted types of
risk can be summarised as:
● Economic risk
● Compliance risk
● Supply chain risk.
Economic risk
The recent global recession
adversely impacted on many companies;
the movement of goods was
largely an unacknowledged reality.
Goods were ordered and delivered
to their final destination as if by
magic. How the goods reached their
destination, and the complexity of
the many processes involved in
achieving this movement, was not
appreciated by many at board level.
But now directors and senior
managers increasingly realise that
they should be managing this important
function to a greater extent than
in the past.
It is now acknowledged that
there is a greater degree of risk in
the supply chain than was previously
thought. Dependent on the nature
of the risk, it may be possible for a
company either to control or mitigate
the impact by dual sourcing,
moving manufacturing closer to the
point of consumption, increasing
stock levels and, where appropriate,
An accident in Mobile Bay,
Alabama, involving a
containership and a crane
USCG
offering financial assistance or
purchasing key suppliers.
Compliance risk
Compliance is a word that is increasingly
used in relation to all elements
of the supply chain. New legislation
and regulations impacting on trade
have the ability to disrupt it. For
instance EU Regulation 669, covering
high risk foods and feedstuffs
from specific destinations, has
created considerable disruption due
to higher inspection levels, the
increased costs of undertaking the
relevant laboratory analysis, and
delays whilst these are undertaken.
Whilst this example relates to a
specific issue, we would like to highlight
an environmental issue with
the potential to increase sea freight
costs. The Baltic, the North Sea and
English Channel have been declared
Sulphur Emission Control Areas
(SECAs).
Ships operating in these waters
have, since 1 July 2010, had to
reduce sulphur content in their
marine fuel from the international
level of 4.5%, to 1%, with a further
reduction to 0.1% from 1 January
2015.
This reduction to 0.1% will
require a move away from residual to
distillate fuel, which could further
increase marine fuel costs by 40% to
70%, dependent on location. Due to
these changes, shortsea shipping
(including freight and passenger
vessels) will see a sharp increase in
its cost base from 2015. These
significant cost increases may force a
switch from maritime to road for
moving goods within Continental
Europe and, to a lesser extent, the
UK.
At BIFA we hear of numerous
instances where freight forwarders
become embroiled in disputes due
to legislative regulatory changes. To
give a recent example, BIFA was
contacted by a forwarder who had
exported certain chemicals to China.
When the goods were shipped it was
legal to import them into China, but
whilst the goods were in transit a
change in the law made it illegal to
do so.
This simple example clearly
demonstrates that all parties must be
aware of their legal obligations and
communicate with their partners to
prevent such problems occurring.
8 November 2010