5-minute read
If you visited a big-box retailer in early October, you might have noticed empty shelves where the toilet paper should be. Consumers were once again panic-buying, this time in response to what turned out to be a short-lived port workers' strike — a stark reminder of how fragile supply chains can be.
The greater risk of the strike wasn’t toilet paper shortages, but to businesses, especially those reliant on a steady stream of goods to keep operations running smoothly.
In today’s interconnected global economy, supply chain disruptions are more than just a temporary inconvenience — they can be a serious financial threat.
Whether it's a port strike, a pandemic, wars in the Middle East, or even hurricanes like Helene and Milton, businesses that depend on materials, products, or services from external suppliers are vulnerable to potentially devastating delays and interruptions.
Without adequate protection, these businesses face unexpected costs that can quickly snowball into revenue losses.
The Growing Importance of Supply Chain Risk Management
According to recent studies, a single prolonged disruption in a company’s supply chain can result in millions of dollars in lost revenue.
And while diversification and better planning are key strategies for minimizing these risks, they don’t always shield a business from financial losses.
That’s where insurance comes in.
Several types of coverage can help businesses manage the financial fallout from supply chain disruptions. Here are a few key examples:
1. Contingent Business Interruption (CBI). This type of coverage protects businesses from income loss due to disruptions at a supplier’s or customer’s location.
Unlike traditional business interruption insurance, which covers your business directly, CBI extends to external factors, such as a key supplier’s factory being shut down by a strike or natural disaster.
2. Supply Chain Insurance. This is a more specialized policy that goes beyond CBI.
Supply Chain Insurance can provide coverage for a range of disruptions, including non-physical events like labor disputes, pandemics, or even cyberattacks affecting third-party vendors.
This type of coverage ensures that businesses have protection even if the disruption doesn’t result in direct physical damage to their operations.
3. Trade Credit Insurance. While not directly tied to physical disruptions, trade credit insurance protects companies against the financial risk of non-payment by a customer.
When supply chain issues cause a client’s cash flow to dry up, this coverage helps protect your business from defaults and unpaid invoices.
Why Proactive Protection is Key
Global supply chains are inherently unpredictable. We’ve seen this firsthand with the COVID-19 pandemic and now the labor strikes affecting U.S. ports.
Each incident serves as a reminder that businesses, especially those with long supply chains or reliance on key suppliers, need to be proactive in managing risk.
By reviewing your commercial insurance policies and considering endorsements or add-ons that cover contingent business interruption or supply chain-specific risks, you can mitigate the financial impact of the next disruption.
Beyond just securing coverage, it’s also vital to regularly assess and update your supply chain risk management strategies, identifying any vulnerabilities that could jeopardize your operations.
Whether it's toilet paper, microchips, or raw materials, what happens in one part of the world can have rippling effects across industries.
Talk to your insurance advisor today about how you can bolster your supply chain risk management strategy and make sure your policy includes the necessary coverage for the challenges ahead.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.