From shipwrecks to truck-trailer thefts, cargo disasters are not uncommon in the shipping world. That's why you need to mitigate these risks.
When the container ship MOL Comfort cracked, buckled and split in two off the coast of Yemen in summer 2013, most of the 4,382 containers on board were lost to fire or sinking. One German company with cargo on board lost about $150,000. Just two weeks earlier, it had opted to forgo an annual cargo insurance policy that would have cost a fraction of the company's goods lost, says Dave Zamsky, vice president of marketing at UPS Capital®.
"The longer goods remain in the supply chain, the more risk." – Dave Zamsky, vice president of marketing, UPS Capital®
"You might say, 'That would never happen to me,' but it does happen," Zamsky says. From 2010 to 2013, the number of cargo containers lost at sea increased nearly 300 percent, with an average of nearly 52 containers lost per week, according to World Shipping Council data for 2014. Further, global cargo losses run more than $50 billion annually, according to the National Cargo Security Council.
When vulnerability rises
Supply chains are becoming increasingly more complex as companies source and sell goods globally. "The longer goods remain in the supply chain, the more risk is introduced – risk of theft, damage, natural disasters and other challenges," Zamsky reports.
"Truck, ocean and air cargo are the most vulnerable to loss and account for 84 percent of incidents," he says. Of those losses, 43 percent apply to cargo moving by truck, when the three most likely causes of loss are theft, rough handling and environmental conditions. Reported cargo thefts in 2014 averaged 2.2 daily, with an average value of $232,924, according to FreightWatch International.
Assessing the risks
"Supply chains are the lifeblood of a business," Zamsky says. "But more often than not, companies don't take steps to identify or mitigate supply chain risk." He points to a recent study by Risk & Insurance® magazine that indicates only 25 percent of a typical company's supply chain is risk-assessed in any way.
"Overcoming a large loss can be challenging," Zamsky says. He shares this example: If a truck with $232,000 in goods is hijacked, and the company has a profit margin of 6 percent, it would need to sell $3.9 million in new goods to offset that loss.
"You need to work with supply chain risk and business continuity professionals to help identify, prioritize and mitigate risks like these," he says. One option often overlooked is cargo insurance. Companies should look to partner with an insurance and supply chain expert to help identify potential gaps and risks and put together a policy that mitigates the risks of global commerce. "Our global supply chain expertise puts UPS Capital in a better position to protect against risk than insurance companies and banks," Zamsky says.
Learn more about UPS Capital®.
Download a recent whitepaper that discusses supply chain risks and mitigation options: "Bad Things Can Happen to Good Cargo"