Logistics Risks That Freight Forwarders Face
Logistics providers face different challenges and operational and strategic risks due to factors such as instability, terrorism, conflicts, and economic downturns. Freight forwarders face logistics and transportation risks associated with increasing globalization, and it is important to develop and implement strategies to safeguard transports.
Main Logistics Risks
The main logistics risks that companies face include mergers and acquisitions, lack of safety and security procedures, theft and hijacking, and non-performance and carrier delays. Logistics providers also face risks associated with bankruptcy of transport providers, liability for delays and loss, and new safety and security legislation. In general, operational risk refers to the threat or probability of loss, liability, injury and damage that can be avoided to a different extent if appropriate safety procedures are developed and implemented. The main areas to focus on include chain of responsibility, market share and profits, human resources, optimization and automation, interface efficiency, and knowledge and skills.
Contractual and legal risks mainly relate to the failure to meet contractual obligations and disputes over terms and conditions and contractual obligations. Terms and conditions often include provisions on indemnification, claims procedures, relationships of parties, confidentiality, notices, severability, etc. Different interpretations of clauses may result in civil lawsuits and disputes over contractual obligations and their fulfillment.
European logistics companies also face financial risks such as unexpected cost overruns, shortage of financing, and budget overruns. The probability of supplier’s bankruptcy and changes and fluctuations of exchange rates are also examples of risks that logistics providers face.
Environmental risks mainly relate to the negative impact of different modes of transportation on soil, air, and water quality. The main sources of pollution are road transport exhausts and non-exhausts, rail transport, and international shipping and aviation. In fact, international shipping is one of the major sectors in terms of total gas emissions. Factors that contribute to environmental pollution include discharges of sewage and discharges of other waste.
Logistics services providers combining intermodal transportation services also face socio-political risks while moving goods across borders, especially in unstable regions and countries with inequitable social conditions. Companies that operate in stable countries face low socio-political risks, including countries such as Switzerland, Norway, Denmark, Norway, and Finland. Examples of unstable countries included in the Fragile States Index are Ukraine and Russia. Socio-political risk is mainly measured by accounting for political, economic, and cross-cutting and social indicators. Political indicators include rule of law and human rights, availability of public services, and state legitimacy. Economic indicators include factors such as brain drain and human flight, uneven economic development, and decline. Finally, examples of cross-cutting and social indicators are external intervention in the country’s affairs, internally displaced persons and refugees, and demographic pressures.
Other factors that are considered logistics risks include dangerous goods regulatory risks, fuel and energy price increases and fluctuations, and supply chain reliability and compression. Avoiding logistics risks helps improve cost-effectiveness, quality, and customer satisfaction.