Global Logistics: Optimizing 3PL partnerships
November 01, 2012
3. Implement risk mitigation
Researchers at Eyefortransport (EFT), a London-based logistics and transportation think tank, report that 3PLs are seeing their best opportunities for growth in China and North America. According to their recent report Global 3PL & Logistics Outsourcing Strategy, the two regions also saw the biggest change in opinion since last year, with North America having seen the largest increase and China having seen the largest decrease.
According to Linda Conrad, director of strategic business risk management for Zurich Services, shippers doing business in China should be especially vigilant. “Productivity there can be disrupted despite an absence of physical damage,” says Conrad. “Companies need to think beyond their traditional contingent insurance coverage toward supply-chain disruption, which can come from any cause.”
Physical damage has not been the only cause of business disruption in recent years, according to Zurich’s database of unanticipated events. Business disruptions can come from many sources, such as information technology outages, port closures, labor actions, or regulatory changes.
“Knock-on effects mean it’s more important than ever to map out the value chain from end-to-end, including inter-dependencies. Companies need to ask and be aware of the triggers or drivers that would cause a risk to come to fruition,” Conrad says. “Then, they need to determine what they would do to mitigate the risk or severity.”
Most companies look at what they can do to respond to a crisis, which is reactive, she says. It’s more important to be proactive, by coming up with preventive measures and continuity plans.”
“When shippers and 3PLs are planning proactively for business resilience, it becomes a competitive advantage,” she says. “Because you’re back in the market more quickly than your competitors, they can benefit from a lower cost of recovery and even gain market share.”
Shippers can’t assume that a 3PL’s force majeure or typical insurance policies will cover supply disruption from things such as strikes, says Conrad. If the fault is with the supplier, it’s the supplier’s insurance that should compensate.
“However, the supplier might be under-insured or not insured at all, and you might end up paying for claims that should have been covered by your vendor unless your own insurance covers all risks of non-delivery,” adds Conrad.
The ultimate 3PL checklist contains a failsafe clause, analysts agree. When it comes to finding a 3PL shippers need to do due diligence on the insurance they require of their suppliers so there are no gaps that leave them exposed.
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