Viewpoint: Supply chain fixes needed

Business interruption remains a key concern for organizations globally. While shortages of critical medical and other supplies during the pandemic and post-pandemic period have subsided, several major risk reports published last month flagged supply chain threats. 

Business interruption, including supply chain disruption, ranks second overall among global business risks for the year, trailing only cyber incidents, according to Allianz’s Risk Barometer. Thirty-one percent of respondents to Allianz’s annual survey ranked business interruption as a significant peril, and it held its No. 2 position for the third consecutive year. In 2021, it was the top-ranked global peril. 

Despite the risk management actions taken by businesses to manage supply chain threats, business interruption remains a key concern in a rapidly changing world, Allianz said. Business interruption is closely linked to many of the highest-ranked risks this year such as cyber, natural catastrophes and fire.

Recent events support the insurer’s analysis. Attacks on vessels in the Red Sea increased after the start of the year, driving up shipping costs and causing delays and disruption in industries ranging from automotive to retail. The attacks followed an extreme weather event — drought in the Panama Canal — that had already delayed shipments and increased transportation costs.

Meanwhile, the fallout continues from the Federal Aviation Administration’s temporary grounding of Boeing 737 Max 9 aircraft after a cabin panel blew out on a flight operated by Alaska Airlines. The incident has drawn attention to supply chain challenges facing the wider aviation industry. At least one major carrier, United Airlines, was reported to be making contingency plans and looking to secure alternative aircraft from Airbus.

The World Economic Forum’s Global Risks Report also focuses on supply chain concerns, with climate and extreme weather events, technological advances including generative artificial intelligence, and geopolitical tensions all raising the potential for disruption. Disrupted supply chains for critical goods and services and disrupted supply chains for food are among the top 10 risks most likely to present a material crisis on a global scale in 2024, the WEF said.

Earlier, Everstream Analytics forecast extreme weather events as the top logistics disruptor for supply chains this year. Worsening flooding, hurricanes, wildfires and winter storms increasingly cost companies in cancellations and delays, Everstream said. Businesses can minimize the impact of extreme weather by closely monitoring routes and shipments en route for approaching disruption, and leveraging predictive analytics in the planning phase, it said. 

Since the pandemic, companies have shored up their supply chain resiliency, with many expanding their network of suppliers, improving business continuity and finding innovative ways to work around bottlenecks. If the opening weeks of the year are any indicator, business interruption and supply chain disruptions are likely to remain a top concern for businesses and their insurers for the foreseeable future.

Risk managers would be wise to identify the weak links in their supply chains, focus on developing contingency plans and review their insurance coverage, including contingent business interruption and other related coverages, to see how it might respond in different scenarios.