Tag Archives: Supply Chain Risk

West Coast Ports Dispute and Supply Chain Risk

A protracted labor dispute that continues to disrupt operations at U.S. West coast ports underscores the supply chain risk facing global businesses.

Disruptions have steadily worsened since October, culminating in a partial shutdown of all 29 West coast ports over the holiday weekend.

The Wall Street Journal  reports that operations to load and unload cargo vessels resumed Tuesday as Labor Secretary Tom Perez  met with both sides in the labor dispute  in an attempt  to  broker a settlement amid growing concerns over the  impact on the economy.

More than 40 percent of all cargo shipped into the U.S. comes through these ports, so the dispute has potential knock on effects for many businesses.

A number of companies have already taken steps to mitigate the supply chain threat, according to reports. For example, Japanese car manufacturer Honda Motor Co, among others, has been using air freighters to transport some  key parts from Asia to their U.S. factories — at significant extra expense.

On Sunday Honda also said it would have to slow production for a week at U.S.-based plants in Ohio, Indiana, and Ontario, Canada, as parts it ships from Asia have been held up by the dispute.

Toyota Motor Corp. has also reduced overtime at some U.S. manufacturing plants as a result of the dispute.

A brief published by Marsh last year noted that a West Coast port strike or shutdown could have broad consequences for global trade, business and economic conditions.

Organizations with effective risk management and insurance strategies in place will be best prepared to manage and respond to situations that hamper their flow of goods and finances, Marsh noted.

In 2002, a similar labor dispute ultimately led to the shutdown of ports along the West coast costing the U.S. economy around $1 billion each day, and creating a backlog that took six months to clear.

Many businesses purchase marine cargo insurance to protect against physical loss or damage to cargo during transit. This type of insurance generally will not respond in the event that a strike or other disruption at a port delays the arrival of insured cargo, unless there is actual physical damage to the cargo, according to Marsh.

However, some policyholders may have obtained endorsements to their insurance policies, or purchased additional coverage to protect themselves from the effects of port disruption.

Trade disruption insurance (TDI), supply chain insurance, and specialty business interruption insurance may also provide coverage for the financial consequences of a port disruption, Marsh wrote.

A study by FM Global of more than 600 financial executives found that supply chain risk, more than any other, was regarded as having the greatest potential to disrupt their top revenue driver. FM Global’s Resilience Index can help executives evaluate and manage supply chain risk.

FM Global: New Tool Helps Execs Manage Supply Chain Risk

Why are some countries more resistant to supply chain disruption or better able to bounce back?

According to Margareta Wahlström, United Nations Special Representative of the Secretary-General (SRSG) for Disaster Risk Reduction, this is a puzzle that world leaders are perpetually trying to solve.

Hence the inherent value in a new online interactive tool from FM Global that ranks countries by supply chain resilience.

The 2014 FM Global Resilience Index ranks the business resilience of 130 countries around the world.

Nine key drivers of supply chain risk are grouped into three categories: economic, risk quality and supply chain factors. These combine to form the composite index. Scores are bound on a scale of 0 to 100, with 0 representing the lowest resilience and 100 the highest resilience.

Jonathan Hall, executive vice president, FM Global, explains:

Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation. As supply chains become more global, complex and interdependent, it is essential for decision makers to have concrete facts and intelligence about where their facilities and their suppliers’ facilities are located.”

So which countries rank at the top of the index?

According to FM Global, Norway (score: 100), Switzerland (score: 98.9) and Canada (score: 93.2) are the top three countries most resilient to supply chain disruption.

At the other end of the scale, the index finds Kyrgyzstan (score: 6), Venezuela (score: 2.5) and the Dominican Republic (score: 0) as the countries least resilient to supply chain disruption.

Where did the United States fall?

Because of its geographic spread and disparate exposures to natural hazards, the U.S. is divided into three separate regions. All three rank in the top 25.

You might also be interested to know that China (also divided into three separate regions) ranks in the top 75. China’s weakest region includes Shanghai and ranks particularly low as a result of poor risk quality due to acute natural hazards.

Another key takeaway is the biggest riser: Bosnia and Herzegovina. The country climbed 19 places from last year, due to improvements in its political risk and in the quality of local suppliers.

And one of the top fallers in the 2014 Index is Bangladesh, with FM Global citing declining quality of both natural hazard risk management and fire risk management.

FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings. The index allows you to browse country rankings and scores from 2011 to 2014.

Diaper Dilemma

As mom to a toddler and an eight-month old, the news that global production of disposable diapers could be affected following an explosion and fire at a chemical plant in Japan over the weekend, more than caught my attention.

Nippon Shokubai Co’s plant in Hyogo Prefecture produced acrylic acid, a key ingredient in a resin called SAP that is used in disposable diapers.

According to an NBCnews.com blog post, the plant produces about 20 percent of the world’s SAP and 10 percent of global output of acrylic acid.

NBC cites the Nikkei business daily saying that operations at the plant are likely to be halted for a long time and other manufacturers of SAP resins are operating in full production mode, leaving little room for back-up production.

Over at Chubb’s business blog Industry Exposure, Barry Tarnef, an assistant vice president and a senior loss control specialist for Chubb, observes that the incident serves as another reminder that supply chains are fragile.

Industrial accidents, natural disasters, labor issues (such as strikes and shortages), production problems and political upheaval, and trade disputes are just some of the main causes of supply chain disruption, according to the Insurance Information Institute (I.I.I.).

The I.I.I. notes that it can take two years or more for a company to recover from a supply chain failure and that the purchase of supply chain insurance can help protect businesses. However, insurance is only part of the solution.

As Loretta Worters, vice-president with the I.I.I. says:

Sound loss prevention engineering can best help protect the supply chain from property loss, so that insurance becomes a last resort rather than a first line of defense.†

Check out this I.I.I. presentation on how to protect your global supply chain.