March 1, 2023 by Falvey Insurance Group
Common Threats to the Supply Chain
The past few years have felt like a lesson in supply chain fragility. We’ve seen how everything from minor inconveniences to significant disruptions can send the supply chain spiraling, causing product shortages, port congestion, imbalances in supply and demand, price hikes, and more.
Because supply chain interruptions can have such a domino effect, many turn to insurance coverage to manage those risks. While having insurance can’t prevent all the interruptions or damages caused by supply chain chaos, it can help mitigate the impact it has on your business.
Below, we’ve pinpointed just a few of the many supply chain threats to be mindful of when assessing your insurance risks.
No matter if it’s caused by a heavy storm or human error, a shipping incident can instantly rattle the supply chain, leading to shipping delays, expired cargo, and damaged or lost goods.
Perhaps the most notable (and catastrophic) shipping incident recently occurred in 2021 when the Ever Given cargo ship got lodged into the Suez Canal, one of the world’s busiest trade routes. For six days, the canal was blocked, preventing hundreds of cargo ships from passing through. Some cargo ships rerouted around Africa, while others sat with temperature-sensitive cargo like pharmaceuticals on board. This one shipping incident impacted the entire global trade network and cost the economy an estimated $400 million per hour.
Labor shortages are one surefire way to strain the supply chain as they interrupt the flow of trade, delay production, cause backlogs, increase prices, and disrupt supply and demand.
Of course, the COVID-19 pandemic highlighted this as lockdowns, quarantines, and restrictions shut down factories, warehouses, cargo terminals, and ports, putting a pause on manufacturing and deliveries during the very height of the demand surge.
Very rarely does war or political unrest stay within the borders of one region. Often, these conflicts have major implications that span the whole world and negatively impact the supply chain.
For instance, Russia’s invasion of Ukraine has shown just how much damage political instability can inflict on the supply chain. Since the onset of the war, trade routes have closed, factories have shut down, and importers can no longer access vital resources, such as grain, leading to food shortages, political unrest, and price surges around the world. What’s more, the sanctions placed on Russia have included port bans and trade restrictions, further straining the supply chain.
Labor strikes are infamous for causing supply chain mayhem. In 2022, there was a major uptick in global labor unrest, with strikes ranging from U.K. port workers to South Korean truck drivers. As these incidents illustrated, strikes can pause production, divert and reroute transportation, and create congestion—not to mention result in major financial losses. In fact, the Association of American Railroads reported a rail strike could cost $2 billion a day.
The threat of cyber attacks is another significant risk to the supply chain. Computer viruses and malware can infiltrate operating systems and networks, bringing everything from assembly lines to cargo ships to a grinding halt. These disruptions can completely ground operations as businesses scramble to secure their infrastructures and prevent further damage. And depending on the attack, it could also lead to lost or damaged goods.
While many of these supply chain disruptors may be out of your control, having the right insurance policy can help protect you from the associated financial risks and losses. Some coverages to consider are:
Conduct your own risk assessment and find the ideal insurance solution for your business operations today.