Risks related to international transport and logistics have continued to rise in the current economic recession, adding pressure on exporters and importers to set up formal risk management procedures, according to a new research report by Drewry Supply Chain Advisors.

In a serious recession, the probability of company failures among transport and logistics vendors is heightened, as is the threat of cargo theft, while moving products from offshore locations to final markets continues to create specific business risks, according to the report, “Risk Management in International Transport and Logistics - Key Issues and Best Practices for Senior Management and Logistics Service Buyers”, just published.
Drewry believes that the risk of systemic failure of international shipping companies and the consequence of goods seized by creditors while in transit, in particular, should be heeded.
“There is a plethora of strategic and operational risks related to transport and logistics and in the current economic recession those risks are even more pronounced,” said Dr Andrew Traill, policy director of the European Shippers’ Council, who co-authored the Drewry report.

Typical risks
Typical transport and logistics risks include a lack of inventory, carrier delays and non-performance, transport and logistics cost volatility, transport congestion and new environmental legislation affecting logistics.
Other typical risks are mergers and acquisitions among service providers, cargo theft, liability for loss or delays, bankruptcy of transport provider and fines for non-compliance, sometimes running into millions of dollars.
While logistics service buyers and managers in charge of organising transport and distribution have a functional responsibility to manage risks within their department and their area of specialisation, companies also face higher-level risks (corporate governance, compliance with regulations) where responsibility for risks is mandated at senior board level. Yet, in many companies, there are formal procedures to manage some of these risks, but many other risks are not part of any formal risk management policy.
“Drewry argues that international sourcing has introduced in global business more and higher risks related to transport and logistics, and that these risks are often more complex and more significant than in the past but are still misunderstood,” said Philip Damas, director of Drewry Supply Chain Advisors.
“This report advocates a systematic methodology to identifying and assessing the many, varied and growing number of risks that could affect the supply chain and potentially bring a business to its knees”, Dr Traill said.
In the report, Drewry identifies the risk categories and detailed risks in transport and logistics, provides tools on how to assess risks, and offers proven methods and guidance on how to respond to the different types of risks. The report includes findings from a survey of international shippers about how they rate different risks, ranging from business process risks to terrorism and climate change risks, and some of the discussions of a round-table on risk management organised in 2008.
The report attempts to provide guidance on corporate strategic risk issues influenced by transport and logistics, as well as advice on best practices, key performance indicators, contract terms and due diligence tools to help mitigate risks.