Identifying & Handling Logistics & Transportation Risks - Research Paper

Introduction

The main role in risk management is first identifying the sort of risk in logistics and transportation (Choi et al., 2016). Knowing the risk helps the business to become more vigilant and able to act accordingly in case the occurrence happens. Many kinds of risks face logistics companies, and they must be identified to manage the issues appropriately. Various risks are handled differently.

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Provides Ways of Handling the Risk

After identifying the risk, the people tasked with risk management usually comes with ways of addressing the problem. For example, when there is theft in the course of transportation, it is decided where such occurrences can be reported. Every risk should have a way in which it should be addressed. It is the same way that every disease is treated differently after it is diagnosed.

Minimization of Risk

Some risks can be minimized through risk management, while others are beyond control. Some of the risks which are beyond control include terrorism and some natural disasters like flooding and earthquakes. The risks which can be minimized include carrier delays and also non-performance. These issues can be adequately addressed through a risk management plan. Thefts and hijacking of goods also can be reduced once the security procedures are followed to the letter. In case there is no proper risk management plan, the risk management department must draft one.

Creates Awareness About the Risk

Risk management enables the logistics company to be conversant with the type of risk and the harm it can do in case it is not addressed seriously. It allows one to focus on the risk treatment just in case of an eventuality. The employees who are involved are informed and instructed to follow the set guidelines. Where a risk occurs when the staff was not observing the set regulations, then the employee should be liable.

Reduces Impact and Loss

One main advantage of risk management is reducing losses of logistics companies. Something which is well planned cannot have a significant impact even when it occurs. The necessary measures are taken after the identification of risky areas. For example, the company may insure goods that are in the warehouse against fire or theft. Therefore, risk management is crucial in increasing the profitability of logistics companies.

Limitations of Logistics Risk Management

Complex Calculations

In a big firm like a logistics company, it is difficult to quantify the risk. Coming up with an elaborate risk plan involves knowing the value of the goods. One has to consider both fixed and current assets. Knowing the value of fixed assets involves calculating even depreciations since it is not at the same cost as when it was bought. It is not easy either in current assets. The value of goods changes after tax is included. Also, converting the currency of different countries that keep on changing is involving.

Unpredictable Occurrences

It is difficult predicting the losses which will arise due to terrorist activities and natural disasters. In case such an occurrence happens, and it was not considered in managing risks, then the whole process lacks meaning. There are some periods in which the hijacking of ships increases while other times there is none.

Government Regulations

Government regulations are unpredictable. Sometimes various governments can put travel restrictions in their countries due to an epidemic. It is the current situation due to coronavirus, and many companies are experiencing losses. No one could have predicted such an occurrence in their risk management plan.

Depending on External Entities

Logistics companies most of the time depends on other companies to operate. A company might sometimes carry out the whole risk management efficiently, but another entity that it depends on fails on its part (Fuchs & Wohinz, 2009). Some delays might happen due to regulations issued by the government. For example, it may be a requirement to inspect the container again at the port or scrutinize the documents better.

Economy Forces

The economy keeps on changing according to the prevailing conditions. A company is not in a position to control what happens in the foreign exchange market. Therefore, the risk management department may make the right decisions, but they are affected by economic conditions.

Future Trends of Logistics Risk Management

Risk Executives

In the future, it is expected that there will be staff who will be specialized to deal with risk management in this field of logistics. The team will have good knowledge in risk management as well as experience in logistics. Dealing with risk management alone will enable them to explore the field to deal with all the complicated situations. The staff will use analytical capabilities to produce insights that are not being done today. The analysis will include trends and complex correlation analysis. The executives will use the latest technology to be able to detect any change before it can affect logistics. Market and operational risks will have a lower effect than they are currently affecting the business. The staff will be responsible for advising the management accordingly to avoid losses.

Monitoring and Tracking

Monitoring of goods up to the time that they reach the customer will increase. The logistics company will give updates to the client about the progress of his products in a more frequent manner. The customer will be able to know the tentative date in which he expects the products. The client having more details when tracking his goods will enable him to make the necessary arrangements before the good reaches. Where the customer cannot access internet services, regular updates about the products will be sent to the customer phone as a message automatically. In case the goods take a different route, the logistics company and also the client can report in time.

Security Design

The security design of containers and other equipment which are used in transmitting goods will have to be improved. This is one place where many clients lose their assets, and also logistics companies are not left out in the losses. Integrating technology will ensure that no unauthorized person can open the seals. For example, there can be a password to access the goods. Anyone without the password cannot open the container. The security of the whole box also will have to be improved.

Collective Risk Management

It is difficult dealing with logistics security issues alone. In future Logistics, companies will come together to deal with the menace, which has made most of these companies suffer for a long time. With such arrangements, it will be easier to have response teams that will be responsible for reporting to police when terrorists hijack cargo in time. They will be responsible for ensuring that the goods are handled well in the port, and no item misses. The team will deal with small cases which happen after the good are shipped. Having a common voice will ensure that the tribulations by the logistics companies are acted upon by the government.

Strict Following of Security Procedures

In the future, it is expected there will be more stringent measures by the government as well a the logistics companies. The liability will shift from the management alone to also the junior staff those who are implementing decisions. Sometimes goods are lost because of security breaches. For example, when a driver who is not allowed to carry an unauthorized person breaks this regulation, and some goods are lost, he will be liable. More action will also be undertaken for such staff. Employees also will be required to report within the shortest time possible in case there is a theft, failure to which they will be considered responsible.

Data Security

The information which is given through the internet is not always safe. It is prone to hacking. When the customer data reaches an intended party, the customer may end up losing the goods on transit or even others. In the future, the technology is expected to improve such that hackers will not be able to access the customer's information. When the data is securer customers will trust the logistics companies, and hence the profit will increase

Effective Warehouse Management

When there is a sound system that is controlling the inventory, the loss of goods in the warehouses is reduced significantly. Where there is no proper record, the employees and other people take advantage to steal since no one will realize (Kutanoglu & Lohiya, 2008). In the future, the systems are expected to improve such that there will be no goods which will be lost. It will also be able to maintain economic order quantity. Storing a lot of goods that are not moving is risky to the business, as it can lead to low cash flows. The systems will have better analytical capabilities, such that products that expire can be known with a click of a button.

Improved Means of Transport

Goods transported by sea and road have a higher risk of being stolen than those imported by air. Bad roads and unroadworthy vehicles increase the chances of theft even further. In the future, it is expected that the infrastructure will be better so that the goods can reach the customer destination within the shortest time possible.

References

Choi, T. M., Chiu, C. H., & Chan, H. K. (2016). Risk management of logistics systems. https://www.sciencedirect.com/science/article/pii/S1366554516000429

Fuchs, H., & Wohinz, J. W. (2009). Risk management in logistics systems. Advances in Production Engineering & Management, 4(4), 233-242. http://apem-journal.org/Archives/2009/APEM4-4_233-242.pdf

Kutanoglu, E., & Lohiya, D. (2008). Integrated inventory and transportation mode selection: A service parts logistics system. Transportation Research Part E: Logistics and Transportation Review, 44(5), 665-683. https://www.sciencedirect.com/science/article/pii/S1366554507000294