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Risk Consulting Manager, Marine, AXA XL

While the COVID-19 pandemic initially had a short-term shock effect on supply chains, what has also emerged is the more long-lasting implications for the way supply chains are managed around the world.

As the holiday season approaches, Pascal Matthey, Risk Consulting Line of Business Manager Marine at XL Risk Consulting, the risk consulting division of AXA XL, discusses some of the lessons learned so far and steps companies can take to improve the resilience of their supply chain networks.

The second wave of COVID-19 looms large as we head towards the winter holiday season. And while there is considerable uncertainty about how we will be coming together to celebrate this year, many businesses are readying themselves for an increase in consumer demand for certain goods.  

Business across the world are gearing up for the Black Friday/Cyber Monday long weekend –the four days after US Thanksgiving and the busiest shopping period of the year. Last year, the weekend surpassed records with online sales in the US topping $7.4 billion on Black Friday alone. 

And experts are predicting that this year will be busier still, as consumers who are now even more accustomed to buying online seek bargains. 

This will likely mean ports seeing an uptick in traffic shipping goods and components. The executive director of the Port of Los Angeles, the US’ busiest seaport and a major gateway between the US and China, said that in October imports were up 17% compared with last year, for example. 

As ports gear up for this very active period, they also have to grapple with the paramount need to protect colleagues’ health and ensure social distancing measures are observed. 

Supply chain knock-on
The need to maintain physical distancing, and the often-reduced staffing levels at many air, land, and sea ports and terminals, means that it might take longer to move containers and their cargo and set them off on the next stage of their journey. 

We observed during the first wave of the virus that some ports experienced bottlenecks and many had to increase warehousing and storage space to cope with the volume of goods coming in and remaining in situ for longer than usual.  

This has a particular impact on soft or perishable goods, some of which may be rendered unsellable if they are kept in storage for too long. If these goods are held up at ports, clients should carry out additional checks on the conditions in which they are being stored. Factors such as the temperature and humidity of the storage facility, can be monitored remotely. Clients also should seek reassurance that pests are being controlled and that the way their goods are packed is satisfactory. 

A longer time spent in storage at ports affects the supply chain for non-perishable items too. And if there are delays to the delivery of components of goods this can affect a client’s ability to have their product ready in time to meet their customers’ demand. 

Maintaining the chain
We have been working with clients to understand their potential exposure to bottlenecks and weaknesses in their supply chain and to find ways to mitigate these risks. 

The COVID-19 pandemic has given a particular focus to the need for companies to understand the different tiers of their supply chains and who and where their suppliers are. 

We urge our clients to ensure they have a good overview of their supply chain and how resilient it is. They need to ask themselves “what goods do I need, where do they come from, and who ships it?”

As a general rule, the longer an item is in transit, the greater the number of risks. This has been highlighted by the COVID-19 pandemic.  And over-reliance on a particular supplier or suppliers from one geographic region can cause problems if they are forced to halt or drastically cut their production because of a pandemic or other systemic risk. 

This has prompted many clients to explore changes to their supply chain networks. 

The British Ports Authority, for example, recently noted that some companies are moving away from “sole-country sourcing” supply chains to an approach that uses some “near-shoring.” This involves using manufacturing locations that are geographically closer to home; for example, some European companies have looked to shift a portion of their manufacturing away from Asia to Eastern Europe where productions costs may be higher but lead times shorter. 

In order to maintain their supply chain in these extraordinary times, many clients have been exploring using new carriers to keep their goods moving. It’s important that clients apply the same degree of rigour in assessing the operational security and safety standards of new logistics providers as they would in “normal” circumstances before the pandemic hit.

Advancements in technology also are playing an important role in enabling companies to keep a handle on their supply chains. Increased use of tracking technology, such as sensors, allows clients to receive information about the whereabouts of goods more swiftly. It also enables them to intervene earlier in the event of delays or bottlenecks. Added to that, technology can reduce the need for human involvement in supply chains – a particular benefit during these uncertain times when people are required to maintain physical distance where possible to prevent the spread of COVID-19.

International insurers and risk engineering teams are working to help clients understand the opportunities presented by these technological advances and to manage and transfer any risks. 

The COVID-19 pandemic has had a huge impact on supply chains the world over and has affected the way many businesses will operate forever. Nobody can know for sure how consumers will behave as the holiday season approaches, but companies need to ready themselves for volatility in demand and be able to respond quickly. 

As we head into another uncertain few months for us all, we will continue to work with clients to understand their supply chains, to assess, monitor and mitigate risks – whether that be remotely or via physical, on-site surveys.

Risk engineering is a continual process and learning the lessons from this pandemic and its effects is ongoing. As risks shift and evolve, we will continue to talk with clients to understand the implications to their supply chains and to try to help keep goods moving. 

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