Global supply chain risks
Globalisation has led to a wide diversity of supply chain options offering greater speed and interconnectedness. However, these rely on effective IT technologies and data sharing, visibility and control. Without those factors, it is difficult to assess and manage downstream risks associated with suppliers, manufacturers, warehouses and transport routes. Liability insurers need to be confident supply chain exposures are understood and managed. If they are opaque, insureds should be encouraged to shift their supply chain practices to better balance the commercial benefits and risks. Logistic applications for big data, open data and digital technologies continue to evolve, as do other supply chain trends, such as the rise in micro freight. It will be critical that insurers continue to monitor these developments to understand changing risk profiles. Unscrupulous suppliers remain one of the biggest problems and can lead to risks associated with Modern Slavery obligations and product safety. Insureds need to manage how varying safety standards across jurisdictions can impact their end products. They also need visibility across the supply chain, including understanding insurances held by all parties, to protect potential recovery positions.
Insureds need to understand how their goods are being transported. The stranding of the Ever Given in the Suez Canal for six days in March 2021 highlighted the significance of transportation risks. According to tracking data from Lloyd’s List Intelligence, 372 vessels were stalled due to that incident. The issue didn’t end when the delayed ships arrived in port either, as many had nowhere to dock or unload. This led to lengthy delays and spoiling. Piracy also remains a very real risk associated with shipping. Suitable storage of goods also needs to be assured, including cold storage solutions and storage options for delicate or dangerous components. The expected increase in demand for cold chain solutions, fuelled by a rise in demand for quality groceries from around the world and multiple delivery channels, may put pressure on these options and lead to product spoilage, injury claims and product recalls. An associated risk is the appropriateness of liability terms in the warehousing arrangements. This was highlighted by ACCC’s recent concerns about GrainCorp’s grain warehousing agreement with small business grain growers. Under the agreement, GrainCorp had limited liability to growers to AUD100,000, even where the loss was caused by GrainCorp and the value of grain stored was considerably higher. GrainCorp has since agreed to amending 19 terms in the agreement.
Unscrupulous suppliers remain one of the biggest problems and can lead to risks associated with Modern Slavery obligations and product safety.
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