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25 Nov 2010INSURANCE: Supply Chain Disruptions Are Insurable
Recent Gauteng Business News
Businesses that supply highly perishable goods such as flowers, fresh fish and meat, and ripe fruit and vegetables to offshore or local businesses via sea, air or land freight are extremely vulnerable to supply chain disruptions.
Whether caused by extreme weather, restricted routes, products or commodities in limited or intermittent supply, regulatory authority interventions, political embargo or supplier insolvency, supply chain disruption is not catered for by existing business interruption cover.
While supply chain cover has been available in the European market for some time it is new to South Africa where logistics managers have traditionally always had a plan B, or even C, in the event that a shipment is unable to reach a destination.
As such “the concept of buying supply chain cover is greeted with some suspicion amongst traditional South African logistics managers who see their role as developing contingencies to manage this kind of disruption, not buying cover for it” says Tracy de Kock, Manager – New business, Alexander Forbes Risk Services.
Recent supply chain disruptions such as Iceland’s volcanic ash cloud and the Transnet wage strike, however, have taught South African businesses operating in the perishable goods industry just how devastating supply chain disruption can be – and that often a plan B or C is not possible, or still incurs a cost.
For example, when Iceland’s volcanic ash cloud prevented air delivery of South African perishable goods to most of Europe, every South African exporter was attempting to deliver to Spain or Portugal - and then freight produce by road and rail to the rest of Europe. In short, everyone had the same plan B. As such “costs, bottlenecks and delays skyrocketed in spite of contingency plans” says de Kock.
Similarly, with the Transnet wage strike the entire port of Durban was affected for most of May. So “even if exporters had a plan B, like South America instead of Europe, this did not help as nothing was moving out of the port” says de Kock.
The failure of contingencies aside, supply chain disruption cover also indemnifies producers and exporters for any reputational damage that their business may suffer as a result of supply chain disruption.
For example, if an exporter did in fact manage to re-route a cargo of fish to South America during Europe’s volcanic ash cloud, supply chain disruption cover would make good any damage that the original receiving businesses in Europe might have suffered, in unused advertising, packaging or promotional spend on fish that never arrived. “This puts policy holders in a position to salvage their reputations with disappointed suppliers – mending and maintaining business relationships that otherwise may have soured as a result of the disruption” explains de Kock.
In short, trade disruption insurance covers the financial consequences of disruption, even when there is no physical loss or damage to the policy holder’s assets.
No matter how efficient, proactive or well structured a company’s logistics department can be “no business should be running the risk of having to rely on contingency plans which, even if they do work, will not compensate the original receiver for their loss” concludes de Kock.
Business News Sector Tags: Insurance|
