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How Supply Chain Issues Can Affect Your Trucking Business’s Liability
The $700 billion trucking industry in the United States is essential to the economy and the supply chain. However, disruptions in the supply chain can both impact your trucking business’s operations and liability. Shutdowns as a result of the COVID-19 pandemic have led to various supply chain issues and highlighted resiliency gaps and risks for several organizations.
As a trucking business owner, you should understand the causes behind these widespread supply chain issues, how delays in the supply chain can leave your business liable, and how you can manage risk and reduce liability.
Where Did the Global Supply Chain Crisis Come From?
The main issues behind supply chain holdups include:
- Production delays: Logistical capacity and commodities are limited, so manufacturers are struggling to fill shelves and get products to businesses quickly. Rather than supplying excessive inventory, manufacturers are first assessing risk when developing their supply chain. Production delays can significantly impact both businesses and consumers.
- Shipping issues: Issues with shipping have been widespread and dramatically affected the supply chain. Shipping containers transport appliances, gadgets, and food, and lockdowns have led to disruptions and border closures that led to severe shipping delays. As shipping capacity was reduced and trade shifted, shipping containers were also left in improper locations. Between issues with timely unloading and crowded ports, containers now spend more time in transit.
- Logistics disruptions: Due to shutdowns of major airports and ports, the flow of goods is restricted, leading to logistics disruptions that impact both consumers and businesses. Products can pile up in storage and affect ships traveling to ports, which can lead to limits on how much businesses can import to refill their inventory. Higher freight costs trickle down to businesses and consumers, and businesses may want to establish new inventory storage capabilities and enhance returned goods and last-mile deliveries.
- Dependence on few third parties: Many companies rely on a single supplier, supply chain partner or customer. Depending too much on just one or a few third parties has led to major supply chain issues. As a result, businesses are now shifting to developing other trading partnerships and seeking more suppliers, customers, markets, logistics, and transport. By working with other providers that offer new capabilities, companies can foster greater resilience and agility in the supply chain.
- Labor shortages: Businesses have been contesting with labor shortages across industries. In the trucking industry, this has meant a truck driver shortage that affects trucking businesses and the supply chain. Workers becoming sick or needing to take time off work to care for sick family members has led to staffing shortages and economic slowdown. Additionally, as older generations age out of the workforce and younger generations start to enter, organizations will need to reassess how they will recruit and retain younger workers.
Recent years have highlighted the limitations of our global supply chain. Understanding the causes is essential to keeping your business profitable and reducing liability.
How the Supply Chain Delays Can Leave You Liable
In some situations, those in the supply chain have been liable for product delays. Understanding legal precedence and these situations is essential for being aware of your own business’s potential for liability.
What Is Corporate Supply Chain Liability?
Under corporate supply chain liability, a business could be held liable for events in their supply chain that lead to damages as a result of the company violating a duty to prevent harm or not cause harm. A supply chain can involve multiple contractual and non-contractual relationships:
- Contractual relationships: Contractual relationships in the supply chain could include employees, business partners, and suppliers.
- Non-contractual relationships: Non-contractual relationships in the supply chain could include the company’s impact on the local community or environment.
Any of these relationships could lead to claims. For example, an employee could file a claim related to their wages or a supplier could file a claim related to payment for delivered goods.
Examples of Cases Against Businesses in the Supply Chain
Across industries, supply chain liability can be both varied and broad. Below are examples of cases that demonstrate the importance of knowing the legal bases of your business’s potential supply chain liability:
- Claims against Shell: Shell’s operations have led to claims in the Netherlands for environmental damage. This environmental damage was caused by oil that escaped pipelines and allegedly polluted the Niger Delta, leading to farmers losing their livelihoods. The Dutch court determined the company was responsible for the leaks, and Shell was ordered to pay Nigerian farmers compensation.
- Claims against Cape PLC: A mining company known as Cape PLC was sued by South Africans for negligent supervision and control of the company’s subsidiaries in South Africa. The alleged negligence led to workers being exposed to asbestos, which led to several diseases like lung cancer and asbestosis.
- Case surrounding Rana Plaza collapse: When a garment factory known as the Rana Plaza building collapsed, thousands of factory workers were injured or killed. A Canadian retailer was sued in a class-action lawsuit that claimed the retailer was liable for the circumstances that led to the collapse because much of the plant’s output was produced for this retailer. This case was dismissed, as the retailer was determined to be not in control of the risk.
- Case against rock wool manufacturer: A rock wool manufacturer in the Netherlands was sued over its product, which the company sold to another company for use in potting soil. The manufacturer let the potting soil distributor know about a change in the rock wool’s composition. Still, a significant number of the distributor’s plants died. The court ruled that the rock wool manufacturer should have done research to make sure its products were safe for their intended applications, and the notice about the change in composition was deemed insufficient.
How to Manage Risk and Reduce Liability
Supply chain risks can threaten the financial health of your company, along with the welfare of other businesses and people involved in the process. If your services are negatively impacted by risks coming to fruition, your reputation and customer satisfaction can suffer. When you successfully manage your supply chain risk, you can effectively protect your company’s revenue and reputation. Use the strategies below to manage risk and reduce liability.
1. Identify and Assess Risks
With a critical eye, evaluate your business to identify your organization’s current risks. Additionally, you may want to evaluate some scenarios of possible supply chain disruptions. Risks in the supply chain can occur for various reasons, including:
- Act of war
- Data breach
- Natural disaster
- Safety and health hazards
- Supplier bankruptcy
Many businesses eventually experience a supply chain disruption, and some of them go out of business as a result. This is why identifying and analyzing your current risks is so crucial for planning and risk mitigation.
2. Diversify Your Suppliers
Relying on a single source for products or materials can spell disaster for your business, especially if a disruption occurs in the supply chain. Though it can be desirable financially to source from a low-cost location, goods also need to be delivered on time. If they can’t be, your supply chain could become vulnerable.
To minimize your risk, diversify your suppliers across different regions when possible. This allows you to spread risks across multiple suppliers and reduce their overall impact, especially if you find suppliers in different locations to lower the impact of localized issues on your supply chain. By working with several suppliers, you can also choose suppliers with specialized expertise and the best quality services for the most affordable price.
3. Prioritize Risks by Impact and Likelihood
Though you may not be able to cover every possible scenario, you can prioritize risks by their likelihood of occurring. Once you organize your risks by likelihood, estimate what the impact on your brand and finances might be if this risk manifests. Then, you can create mitigation contingency plans that begin with the highest-impact and most likely risk scenarios.
4. Evaluate Each Supplier’s Risks
More risks than your own could affect your supply chain. Suppliers can also face risks that you should be aware of, including political conditions, location, regulations compliance, and economic conditions. Any risk that could impact a supplier’s ability to work with you should be one you’re aware of and evaluating.
5. Partner With Quality Suppliers
Your business’s reputation can be affected by the suppliers you choose to partner with. Make sure the suppliers you work with provide quality goods, interact professionally with other partners, and treat their employees well. To evaluate long-term supplier viability, perform financial due diligence.
6. Find Backup Suppliers
There may be times when a supplier is unable to meet your needs and perform their role in the supply chain. This could occur if a supplier is facing issues in their own supply chain or unprecedented demand. To avoid disruptions in your own supply chain, bring in backup suppliers as soon as possible. Ensure you establish these partnerships early to avoid supply chain delays or disruptions.
7. Do Risk Planning With Partners
Work with your suppliers, customers, and data management centers to make sure your business continuity and disaster recovery plans align with theirs. By involving your partners in your risk management planning, you can elevate their role in your risk mitigation efforts and reinforce the importance of your partnership.
Develop responses to risks and foreseeable events that could negatively affect your supply chain and outline control measures to limit risks in your production flow. Make your business processes flexible so you can adapt them if necessary to minimize disruptions in your supply chain. Keep in mind that you can’t plan for every possible situation, so apply your risk managing efforts to your highest-priority risks.
8. Share Information With Partners
You should be transparent with your partners by sharing information like your sales projections and including them in product design changes. By doing so, you can ensure suppliers have the correct product available when it’s needed. Notify your partners if sales forecasts drop, as they will appreciate the information and you’ll strengthen your working relationship.
9. Buy Cargo Insurance
Protecting your business with the right insurance is essential, and it’s just as crucial for the supply chain. Keep in mind that carrier liability isn’t insurance. Identify a cargo insurance provider that can provide you with protection for warehoused goods and in-transit shipments, along with protection against damage and loss in any location, regardless of the mode of transportation or carrier.
10. Regularly Review Risks
After you identify and prioritize your potential risk scenarios, be sure to review them periodically and pinpoint changes in the supply chain when they occur. Being prepared is one of the best ways to protect your business from a disruption in your supply chain.
You may also need to update your strategies regularly to keep them relevant and effective, so be sure to review your strategies annually or when you make changes to your production and supply chain processes. For example, if you make changes to your delivery process or partner with a new supplier, assess any new risks.
11. Make the Supply Chain Visible End-to-End
Every operational stage in your supply chain includes its own challenges and risks. If issues occur in one stage, it’s essential to identify them so they don’t go on to affect the rest of the chain or the final service or product. Supply chain visibility refers to knowing where your inventory is in the supply chain and whether there are problems that could impact the delivery timeline. As a result, supply chain visibility is crucial for dealing with issues as soon as they arise and mitigating risks.
You can choose to make this information available to only your company’s supply chain management or to your customers as well, allowing them to track shipment progress. You may also want to make your suppliers’ financial stability visible to lower supply chain risks.
12. Purchase Liability Insurance
Liability insurance can help you manage risks to your business. At XINSURANCE, our commercial trucking liability insurance solutions can cover:
- Auto fleets
- Tow trucks
- Dump trucks
- Delivery trucks
- Garbage trucks
- Long-haul trucks
- Short-haul trucks
This insurance includes both commercial auto liability and non-owned trailer liability to safeguard your business. We can also help you find commercial auto insurance and true umbrella insurance to meet all of your organization’s needs.
Protect Your Business With Commercial Trucking Liability Insurance Today
Protecting your trucking business from shipping issue liability is crucial. At XINSURANCE, we help handle risks that the standard marketplace does not cover. We offer liability insurance solutions for even the most difficult risks. If you have been declined, canceled, or non-renewed, we can help.
We partner you with solutions that cover exclusions and gaps to provide true peace of mind with customized insurance coverage. With liability insurance, you can protect your business in the event of a supply chain incident or other concerns. Contact us at XINSURANCE for more information about commercial trucking insurance and insurance costs.
Authored by Rick J. Lindsey, President, Chairman, and CEO of XINSURANCE
Rick J. Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Rick J. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick J. Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick J. Lindsey discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Rick J. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick J. Lindsey to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. XINSURANCE also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are XINSURANCE can help.