Mitigating Logistic Risks from Service Providers

Written by Rozzana Aziz, DLSM

by Rozzana Aziz, DLSM

Mitigating Logistic Risks from Service Providers

Written by Rozzana Aziz, DLSM

by Rozzana Aziz, DLSM

by Rozzana Aziz, DLSM

Risk comes in many forms, and the risks faced depend on the nature and complexity of the business. The risks can arise from natural disasters and terrorist activities to finance and technological failures that may disrupt the global supply chain. The key is to identify and quantify the specific risks associated with the different types of business and mitigate those identified risks accordingly.

Attributes of Logistic Risks

Logistic risks refer to the risks that are exposed to the logistics operation that hinders a smooth performance for the overall supply chain. Logistic risks can be considered in any form from every global supply chain perspective.It is referred to uncertain probabilities or threat of damages, injuries, liabilities, loss, or any other negative occurrence that is caused by external or internal vulnerabilities. However, risks may be avoided through pre-emptive action.

Damages from Logistic Risks

Logistics damages can be identified as negligence in the handling of goods, such as improper packaging of produces and storage to poor labelling of goods.

Injuries from Logistic Risks

Unkempt warehouse, lack of proper tools and procedures can result in poor work process, injuries to employees, and even prove to be fire hazard. Without proper maintenance of the warehouse, there is also high risks in equipment failure which may result in injuries or damage to the goods.

Cargo Losses from Logistic Risks

Unforeseen occurrences such as pirate activities, fire accidents and harsh weather might cause shippers to lose millions of dollars in damage or lost cargo. It is vital for the planning and executing of the cargo load distribution on the ship, so as to avoid this kind of misfortunes.

Logistic Liabilities

Logistic liabilities, such as criminal activities involvement during the movement of goods are seen as part of logistics risks.With multiple contracts in the mix, it is easy for shippers and carriers to be left in the grey area in terms of taking ownership of particular incidents that may result in injuries or property damages. From shippers to carriers, agents to consignees, everyone has to be clear on their responsibilities throughout the entire proceedings, which should lower the risks significantly.

Service Providers and their Classification

A company or intermediaries that provides management over the flow of goods, that are being contracted on behalf of a shipper that transports raw materials and finished goods via truck, rail, ocean or airplane from point A to B. The main advantage of working together with the service providers is that, it allows the company to gain the opportunity to work with a variety of companies that can even be from different industries.

Service providers can be categorized as follows: Carriers, Intermodals, Technology or Software,Associations,Advisory/Management Company.There are supply chain technology firms which offer supply chain software’s such as WMS, TMS and ERP. An outsourced logistics provider that specializes in integrated operations of warehousing and transportation services such as the 3rd party logistics (3PL) or 4th Party Logistics. (4PL).

Carriers that provide the differential preferences of mode movements to the companies ranging from truckload freight shipping, truckload, intermodal. Advisory or management consulting companies that offer various range of advises and consultancies like the Big 4, Niche/ Boutique Firms.

Logistic Risks Assessment Methodology

1. Risk Identification and Automated Risks Monitoring

Identify the risks that the business is exposed to in its operation. Gather as much of these risks factors as possible. Software technology can now automate the entire risk management process and the technology is neither expensive nor difficult to implement. All risks can be mitigated and managed as quickly and efficiently as possible as stakeholder will be automatically notified.

2. Increase Stakeholders in Risk Discovery

Business needs to create a way for everyone to collaborate and provide information about risks. Getting everyone involved ensures that as many risks as possible are identified and also gives them a sense of ownership in the process.

3. Risk Prioritization

Component in risk management framework is to prioritize and rank risks. Risks are distributed into different level of risks depending on its severity. Categorizing risks accordingly to the level of threat imposed to the future of the business. A risk matrix can be used to define the level of risk by considering the category of probability or likelihood against the category of consequence severity.

4. Risks Visibility

GRC system aids in compiling different compliance, risk, and governance related functions within one system.

Risk Management for Service Providers

1. Identification of Risks

The identification of risks is through thorough analysis, assessment, control, and avoidance, minimization, or via elimination of unacceptable risks. Understand the appointed service providers, assess the capabilities and performance of service providers, and understand the business requirements substantially when choosing the right service providers.

2. Risk Avoidance

Risk avoidance is the discontinuation of hazards, activities, and exposures that can negatively affect a particular risk.

3. Risks Mitigation

Risk mitigation is by taking preventive action to reduce adverse effects. Characterizing the root causes of identified risks. Measure the quantity of the identified risk in the earlier phases of the risk management process. Evaluate risk interactions and common causes.

4. Risk Transference

Transferring of risks refer to the involvement of handing risks off to a willing third party. Risk transference is beneficial for a company if a transferred risk is not a core competency of the business.

5. Risks Acceptance
Risk acceptance is the action of receipting the identified risk which has low impacts and probabilities.

Mitigation of Risks

1. Loss or damage risk
Goods are being repetitively loaded and unloaded before reaching final destination, changes of loss and damage increases. Risk mitigation includes selecting the freight forwarders based on their experience, reputation and their relationships with other contractors involved. It also includes ensuring that freight forwarders arrange cargo insurance.

2. Customs Clearance Risk
Non-compliance with customs legislation will lead to delay of shipment, cargo confiscation, and company will be blacklisted. Risk mitigation includes ensuring their network and connections work in the destination country your goods will be shipped to. This includes making assessment on the freight forwarder’s capabilities on custom clearance knowledge, as well as ensuring that freight forwarders have credentials and certification on specialized trainings on custom processes.

3. Financial Risks
All goods that are being bought and sold are exposed and prone to financials risks.Risk mitigation includes ensuring that freight forwarders have risk management processes in place for the protection of their customers and themselves, as well as insurance.


References

Amy Salter. (2018). “Liabilities in Transportation Logistics Management”. Retrieved from https://www.geneseeins.com/liabilities-in-transportation-logistics-management, accessed 20/09/2019.

Business Dictionary. (2019). “Risk Definition”. Retrieved from http://www.businessdictionary.com/definition/risk.html, accessed 20/09/2019.

Chris Duden. (2018). “Five Steps of the Digital Risk Management Process”. Retrieved from https://www.360factors.com/blog/five-steps-of-risk-management-process, accessed 20/09/2019.

CNNWir.(2019). “Cargo ship owned by JPMorgan Chase seized by US with 20 tons of cocaine”. Retrieved from https://abc7chicago.com/$13b-cocaine-seized-by-us-on-cargo-ship-owned-by-jpmorgan-chase-/5387622, accessed 20/09/2019.

David Chew Kian Peng, DLSM. (2018). ’’Four Key Areas from Mitigating Warehouse Risks’’ Retrieved from SIPMM: https://sipmm.edu.sg/four-key-areas-mitigating-warehouse-risks, accessed 21/09/2019.

Elsa Zhang Chunhao, DPSM. (2019). “Mitigating the risks of global sourcing”. Retrieved from SIPMM: https://sipmm.edu.sg/mitigating-risks-global-sourcing, accessed 21/09/2019.

John Spacey (2015). “4 Examples of Risk Avoidance”. Retrieved from https://simplicable.com/new/risk-avoidance, accessed on 20/09/2019.

Rodney Apple. (2019). “Supply Chain Career Paths – A Myriad of Choices”. Retrieved from https://www.scmtalent.com/supply-chain-career-paths, accessed on 20/09/2019

SGS Logistics Risk Management. (2019) . “Logistics Risk Management”. Retrieved from https://www.sgs.sg/en/logistics/risk-management, accessed 20/09/2019.

Stein Haugen & Marvin Rausand. (2019). “Risk Assessment”. Retrieved from: https://www.ntnu.edu/documents/624876/1277591044/chapt04-rac.pdf/3eb85fbd-eadf-4f55-a9b7-d39bcad42d8a, accessed 20/09/2019.

About the Author: Rozzana Aziz has substantive years of experience in logistics and warehousing, specifically in global trade compliances. She holds the SIPMM Executive Certificate in International Trade Management and is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Rozzana completed the Diploma in Logistics and Supply Management (DLSM) on September 2019 at SIPMM Institute.

Top