Learning Block 8: Risk Management and Security in Transportation

Risk

A hazard or danger with the possibility of incurring loss or misfortune.

Commercial Lender Insurance Requirement

Lenders often require buyers to maintain full insurance coverage on financed equipment to protect against loss.

Shipping Insurance

Buyers typically purchase insurance when equipment is shipped internationally to avoid financial loss during transit.

Risk Association

Risk is commonly associated with negative outcomes, such as disease or financial loss, rather than positive ones.

Impact of Supply Chain Disruptions

Supply chain disruptions can lead to stock price declines of nearly 9%, reduced operating performance for years, and increased inventory.

Sources of Risk in a Supply Chain

Various risks in the supply chain include product loss, product damage, contamination, and delivery glitches, all of which can disrupt the movement and safety of goods.

Product Loss

Occurs when goods are lost along the supply chain, often due to piracy, hijacking, pilferage, or jettisoning, resulting in financial loss and risk to personnel.

Pilferage

Theft of goods by trusted personnel such as freight handlers or operators, contributing to product loss.

Shipment Jettisoning

Occurs when a ship master discards cargo to protect the safety of the vessel or crew, usually without recovery of the cargo.

Product Damage

Results from mishandling, power failures, or incorrect equipment loading; damage may reduce product value or render goods unsellable.

Cold-Chain Product Risk

Specialized freight like refrigerated goods are vulnerable to damage from power failures or temperature instability during storage and transit.

Incorrect Equipment Loading

Happens when goods are packed improperly, such as heavy items on light ones or too much space between items, increasing risk of damage.

Contamination

Occurs when goods, especially food and medical items, are exposed to harmful substances or tampered with, often due to improper co-mingling of freight types.

Incidental Exposure

Unintended contamination resulting from different freight types being transported together without proper separation.

Delivery Glitches

Delays or stoppages in shipment due to labor shortages, strikes, or uncontrollable events like severe weather.

Capacity Shortages

Happen when there are not enough workers to manage deliveries, often during peak times like holidays, leading to delivery delays.

Labor Disruptions

Events like strikes or disputes that interfere with the smooth flow of goods in the supply chain, contributing to delivery glitches.

Risk Management

The process of identifying, evaluating, and addressing potential risks to protect business assets and ensure operational continuity.

Risk Avoidance

A strategy where companies completely avoid risky activities or regions to eliminate potential threats, such as rerouting to avoid piracy zones.

Risk Reduction

A strategy to minimize the impact of risks through methods like hedging (using multiple suppliers) and postponement (delaying product finalization).

Hedging

A risk reduction strategy where businesses work with multiple carriers or vendors to spread risk and avoid overreliance on any single partner.

Postponement

A strategy of delaying final product decisions until late in the delivery process to reduce inventory and logistics risks, as used by Dell.

Risk Transfer

A technique where businesses shift risk to another party, usually an insurance company, which manages risk using the Law of Large Numbers.

Law of Large Numbers

The principle used by insurance companies to predict loss and set premiums by pooling risk across many clients to make outcomes more predictable.

Advance Manifest Regulations

Regulations requiring ocean carriers to submit a cargo declaration before entering U.S. waters to allow Customs to deny unloading in advance if needed.

Maritime Transportation Security Act

A 2004 regulation requiring high-risk ocean vessels and certain port terminals to maintain and update security plans or risk being denied entry to U.S. shores.

Container Security Initiative

A program that inspects U.S.-bound shipping containers at foreign ports using non-intrusive technology to reduce terrorism risk without delaying cargo loading.

Customs-Trade Partnership Against Terrorism (C-TPAT)

A voluntary program where certified companies gain reduced customs inspections and faster processing by demonstrating strong supply chain security.

Free and Secure Trade (FAST)

A voluntary program for Canada- or Mexico-origin shipments that requires C-TPAT certification and allows faster border processing for approved carriers and drivers.