Supply Chain Risks, supply chain management, supply chain process

The supply chain is a network of companies, from manufacturers to retailers, that convert raw materials into products and distribute/deliver them to end customers. It is the most critical process that enables the global operation of the product industry. The process involves manufacturers, warehouses, transportation companies and retailers. 

Every product business uses supply chain management to make the process time and cost-effective while still producing a high-quality product. However, due to the complex process, numerous companies, and unpredictable issues, there are various supply chain risks.

Supply chain risks are any issues that cause disturbance or damage to the process and companies involved. These risks can impact any of the companies involved in the specific process.

Therefore, businesses involved in the supply chain should invest in supply chain risk management to help reduce the impact. One of the best ways to deal with unpredictable supply chain risks is through a range of insurance.

Hence, the article will highlight the essential insurance needed to battle supply chain risks.

Main Insurance to Deal with Supply Chain Risks

Trade Credit Insurance

The supply chain risks that are on the rise are the economic and political risks. These risks are causing a surge in disturbance and uncertainty in the process.

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Due to political risks such as wars and changes in international trade laws, many companies are changing their suppliers, losing business and lacking raw materials. Economic risks such as recession are forcing various companies into bankruptcy, resulting in an inability to pay their debts.

In these situations, these risks can cause a supplier not being paid on time or at all. The risks can cause financial disturbance and affect the future of the unpaid company.

Trade credit insurance is the best policy to cover the financial disturbance due to these risks. The insurance will cover a portion of the non-payment or delayed payment due to commercial (bankruptcy or insolvency) or political issues. The insurance is essential for suppliers who operate with clients on a trade credit basis.

It can help a company in the supply chain move on and focus on other clients without a substantial financial burden.

Cargo Insurance

The movement of products (cargo) is a huge part of the supply chain. The movement of products is done either by sea, air or road, hence by a flight, cargo ship or truck. While transporting products, there is always a risk of cargo damage, loss or theft.

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Sea freight makes up most of the world’s trade, with over 90% of all goods transported by ships. Unfortunately, there has also been a rise in containership fires in 2023, which have led to damage to cargo and a severe impact on the supply chain.

Fires, accidents or container loss could happen to any transport due to bad weather (environmental risks), freak accidents or poor handling. The cargo sender and buyer will be the companies that will have to bear the financial loss due to the cargo accidents.

Cargo insurance is crucial to cover the supply chain risks. The insurance will cover the cost of damage or loss of cargo and the general average payment if the general average is declared. Both buyer and sender may need to purchase the insurance depending on the agreed incoterm.

Cyber Insurance

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In the supply chain process, a lot of digital data is involved, including emails, invoices, credit card details, and network login information. This increases the risk of cyber threats.

When a supplier is attacked, hackers can gain access to all of the clients’ information and use it to perpetrate further attacks along the supply chain. These types of attacks are known as supply chain attacks.

The criminals commonly target companies with poor cybersecurity, such as suppliers or manufacturers. They could take advantage of the trust between companies by creating fake emails and invoices with malicious links to gain access to other companies. In fact, the average number of supply chain attacks increased by 26% from 2022 to 2023 and is on the rise.

Why would employees not click on a link from a supplier they have been communicating with for years?

A business may have the best cybersecurity and could still be hit by a supply chain attack. Cyber insurance is essential to every company in the supply chain. The insurance will cover cyber experts’ advice, threat removal, data recovery, third-party communication, ransom costs and financial loss. Cyber insurance can help every supply chain business recover and focus on creating a better cybersecurity measure.

Freight Forwarder Insurance

Transporting goods around the world can be complicated, but it can be helpful to trust experts to organise the main transportation. These experts are freight forwarders – intermediaries who coordinate and manage transport, logistics, and essential paperwork.

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They are a crucial part of the supply chain process. However, being a freight forwarder comes with a long list of forwarder liability risks. They are liable for any damage or loss, even if another party does the transportation. Companies can also sue the freight forwarder business due to negligence and management errors regarding the cargo or documentation that leads to financial damage.

Every freight forwarder must protect their liability and business with freight forwarder insurance. The insurance will cover financial losses due to mistakes or negligence that occur while providing their professional services.

Countless things could go wrong with paperwork, and the journey and forwarders must be ready for the worst with insurance.

Property All-Risk Insurance

A massive part of the supply chain is the storage of goods. The storage locations are known as warehouses, which help sellers and buyers store raw materials, parts and whole products. The company (seller or buyer) is liable for its safety and condition when the goods are stored in the warehouse.

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A supply chain risk is warehouse damage. There are always risks when managing a warehouse, such as damage, loss, or theft of goods and property. The damage or loss could occur due to fires, floods, bad weather, handling errors or criminal activities.

These damages could happen at any company warehouse; for instance, recently, there was a suspicious fire at the Amazon warehouse, damaging countless products. Regardless of the reason, the damage and loss can result in significant financial loss.

Property all-risk insurance is the perfect policy for warehouse businesses. The insurance will cover the cost of the warehouse property and the damaged or lost goods. However, the company must have an up-to-date warehouse inventory to gain the best coverage.

Benefits Of Having Insurance to Cover Supply Chain Risks

Dealing with risks can result in hefty bills and liability damage. The mentioned insurance policies may not prevent these risks but will help the policyholder deal with them without spending thousands to millions.

The main benefit of proper supply chain insurance is the financial coverage for the various risks. Multiple insurances can help ensure that, no matter the risk, the company has a high chance of being covered. However, the specific insurances depend on the type of company and its duty in the supply chain.

Another benefit of having suitable insurance is the peace of mind when dealing with clients and transporting goods. Companies do not have to stress and worry about the impact of possible supply chain risks as long as they are professional and no criminal activities are involved. 

Supply chain risks could occur at any point in the complex route and to any company involved; therefore, it is better to be protected before they occur.

 

 

To Learn More about supply chain insurance and cover various supply chain risks, contact Red Asia Insurance.