Why Insuring Your Supply Chain is Essential to Protect Your Business

When Panama registered cargo ship, MSC Zoe met with the gale force winds of Storm Zeetje in northern Germany last week, 270 containers of its cargo fell off the ship and their contents are still being recovered on Dutch and German beaches. From motorbikes and flat-screened televisions to plastic ponies, the effects of the disaster to local beaches are still being assesses and clean-up crews are still trying to coordinate efforts and clean up the damage and debris – the volume of which has not been seen.

And the damage to the environment is not the only unexpected result of the storm – the businesses whose stock and products were onboard will no doubt be at a loss.

As climate change translates to more unpredictable weather, companies need to protect their supply chains now more than ever. While previously cargo companies would have measures to deal with oil spills and other large-scale disasters, this level of loss of cargo – and the resulting devastation are unprecedented.

As more and more companies rely on global supply chains, using lean manufacturing and keeping less reserve stock, they need to be wary that storms like Zeetje or even factory fire or floods caused by extreme weather are no longer the rare anomalies they once were. And disasters like these can rob business owners – and their extended workforce - of their livelihoods if organisation are left unprotected. Even a small or local business is doubtless relying on global suppliers and manufacturers in their supply chain and a similar incident can result in huge problems if they don’t have enough parts or product to fulfil their existing orders. Even short delays in part production or product deliveries can have a severe impact on earnings.

Jonathan Samuelson, partner at insurance claims consultancy Harris Balcombe warns that businesses owners need to be diligent when it comes to purchasing insurance. To avoid severe loss of earnings resulting from undelivered shipments in events like this, businesses need to ensure they are not skimping on their insurance policies. They need to be covered for risks such as cargo loss and other disasters that are relevant to their whole business operations, including their global supply chains.

He comments: “If businesses only insure their own premises in the UK, they are only covered to reinstate that property, the contents and any loss of profits in the event of a disaster. Any reliance on external suppliers should therefore warrant a supplier extension to any general insurance policy - companies need to recognise and manage this dependency or their profits could end up washed up on beaches along with their products.

It is critical that businesses insure the relationship with their direct suppliers, but also their supplier’s suppliers, and so on. It’s about managing the entire supply chain at a granular level.“

Jonathan concludes with tips business owners need to consider when looking for the right insurance for their organisation and its supply chain:

  • Be aware of all the potential risks and understand how to put the right insurance in place to cover these.
  • To be adequately protected across a global supply chain, you need to have a suppliers extension. ‘Bolt-on’ insurance cover could have limitations - both in terms of the level of cover and the jurisdiction area, but also the time period it covers.
  • A good insurance broker should deal with all of these elements. Take time to understand the broker’s role and work with them to select the right policies for the whole of the business.

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