04
MARINE | Contingency planning In association with AIG
From the grounding of the Ever Given in the Suez Canal to the continued congestion at major ports in China, the last two years have shown multiple instances of supply chain disruption around the world.
A stitch in time… Jack Gould, Inland Marine, Transportation & Logistics Practice Leader at AIG in the US, argues that the experience of the last couple of years means that we must all take contingency planning more seriously as we await the arrival of the next ‘black swan’ If we have learnt anything from the past two years, it is that major disruptions to supply chains can and do happen. Now is the time to leverage those lessons and build in the right contingencies for the next shock that comes our way. From the grounding of the Ever Given in the Suez Canal to the continued congestion at major ports in China, the last two years have shown multiple instances of supply chain disruption around the world. The complex and interconnected nature of global trade means that an event in one part of the world can ripple through supply chains in ways that may not have been anticipated. We have seen such disruptions time and time again, most recently when a global shortage of semiconductors – in part driven by the restrictions of the past two years - hit automotive production. It has caused companies worldwide to question their supply chain risk management and the inherent vulnerabilities of practices such as just in time (JIT).
NON-PHYSICAL DISRUPTIONS
The last two years have also revealed that sources of disruption are not always physical in nature, as has often been the case historically. The Marine Insurer | June 2022
There is currently a macroeconomic strain on logistics capacity because of the shift to greater consumption of physical goods within some sectors and among some consumers fuelled by robust household balance sheets. We see that supply chain disruption can also be caused by labour shortages, price fluctuation due to supply and demand, cyber-attacks, and contingent business interruption (CBI), among other things. We are in an increasingly risky and unpredictable world, where the source of shocks cannot always be anticipated.
STRIKING THE RIGHT BALANCE
A balance must be struck between the price efficiencies of lean manufacturing and the need to ensure robust contingencies are in place, including some stockpiling of goods. Business continuity and long-term stability and profitability depend on ensuring that this balance is right. Recent events have shown some of the pitfalls of excessive reliance on suppliers in concentrated geographies. Many popular global manufacturing hubs are exposed to natural catastrophes, can be prone to political instability or are simply more likely to be impacted by disruptions to transportation and logistics. They may also be more difficult to monitor and audit on a regular basis.
