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tradeservices www.bifa.org Risk: how to cope with the unexpected <strong>Freight</strong> 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, <strong>cover</strong>ing 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
www.bifa.org tradeservices USCG Supply-chain risk The vulnerability of the supply chain to unexpected disruption was highlighted in April when volcanic ash caused severe disruption to flights over Europe. Certain industries, such as pharmaceuticals and perishables, that are particularly reliant on airfreight suffered severe disruption, and in some cases financial losses. On the oceans, in August when the 2,100 teu MSC Chitra and bulk cargo ship Khalija 3 collided, several hundred containers were lost overboard, closing the ports of Mumbai and Nhava Sheva for nearly two weeks and causing significant disruption to both import and export traffic. On the human side, labour disputes in the UK and other EU countries have disrupted supply chains. Industrial action with the potential to interrupt the supply chain is causing companies to review where they manufacture and distribute goods. Recent volatility in exchange rates has exacerbated the situation, making it difficult to assess the most cost-effective source of raw materials and place for manufacture. Other risks To conclude, we would like to discuss other forms of risk within the supply chain. Consumers in developed economies are now more likely to include some form of evaluation of the product’s, or manufacturer’s, ethical or environmental impact before purchasing them. The last risk to evaluate is obsolescence. The Taichung lost 14 containers overboard and had 21 damaged after encountering heavy weather in the Pacific last year Nowadays, it is not uncommon for there to be one version of a product on the shelves for sale, and an upgraded version to be either in transit or being manufactured. Consumer awareness has increased and it is known that existing stock is discounted prior to the latest version being released for sale. Whilst importers and exporters have become more aware of potential problems, it is often the people on the ground, including freight forwarders, who find practical solutions to them. There have always been risks in the supply chain. They may change over time, although some such as piracy have recently made an unwelcome return. It is important that all parties appreciate and co-operate to overcome such difficulties. ■ November 2010 9
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