Unprecedented shipping disruptions raise risk to global trade, UNCTAD warns (UNCTAD)
Impact on Global Trade of Disruption of Shipping Routes in the Red Sea, Black Sea and Panama Canal (UNCTAD)
Geopolitical tensions, automation, and changing labor costs are driving a re-evaluation of global supply chain strategies. The availability of key capabilities remains crucial in decision-making (WEF)
Climate change predictions: Anticipating and adapting to a warming world (IBM)
SEC scales back some emissions disclosure rules that curb climate change. For most businesses, Scope 3 emissions represent more than 70% of their carbon footprint. (Fast Company)
What an SEC rule change says about the climate fight (Axios)
Colombia vows to put nature at the heart of global environmental negotiations (The Guardian)
How Klarna put an internal price on carbon – Klarna, a Stockholm-based global payments platform, has implemented an internal carbon pricing system, setting aside $2.35 million in 2023 for its climate action strategy (Greenbiz)
BlackRock Warns Shareholders That ESG Scrutiny Could Harm Its Reputation and Business (Wall Street Journal)
Green tech: How a Hong Kong start-up’s use of recycled plastic is drowning out noise in the construction industry (SCMP)
Walking progress backward: The ESG dilemma for corporate America (NY Times)
In today’s supply chain landscape, the imperative of effective risk management has never been more pronounced. The repercussions of a single disruption, such as the current tensions in the Red Sea, Black Sea, and Panama Canal, or the bottleneck in the Suez Canal a few years ago, can reverberate across industries, resulting in unprecedented financial losses.
Supply chains have evolved into complex networks in today’s globalized and interconnected world. Raw materials, components, and finished products traverse multiple transportation nodes before reaching end customers and ultimately entering recycling or waste streams. Many industries confront stringent regulatory mandates concerning supply chain practices, with non-compliance risking hefty fines, legal entanglements, reputational harm, and exclusion from markets. Consequently, industries worldwide reliant on supply chains and transportation and logistics infrastructure recognize supply chain risk management as indispensable in navigating the complexities of today’s interconnected world.
Within this context, risk management emerges as a crucial strategy aimed at identifying, assessing, and mitigating risks spanning the entirety of a supply chain, empowering businesses to enhance resilience in the face of disruption and uncertainty.
However, it’s essential to recognize that risks seldom exist in isolation. Analytical methodologies such as VUCA, PESTLE, and others underscore the significance of understanding the interconnectedness and causality of risks. A disruption in one segment often sets off a chain reaction of challenges throughout the organization. Through thorough risk assessment, organizations can pinpoint these interdependencies and address root causes rather than merely addressing surface-level symptoms.
Given the intricate nature of modern supply chains and their pivotal role in revenue generation and innovation, organizations must prioritize enhancing resilience, agility, sustainability, and cybersecurity through comprehensive supply chain risk management.
Moreover, sustainability risks, encompassing environmental and social considerations such as forced labor, modern-day slavery, and carbon footprint management, have gained traction through stringent legislation and enforcement measures globally. Effective risk management entails aligning operations with sustainability objectives to reactively manage risks and proactively contribute to the broader goals of purpose-driven organizations.
Given the reliance of supply chains on digital technologies for data and information exchange, cybersecurity emerges as a paramount concern. The global nature of transportation and logistics supply chains renders them particularly vulnerable to disruptions from various factors, including geopolitical tensions and extreme weather events.
The following are the key supply chain risks and drivers of most concern to the transportation and logistics industry:
Sustainability, Decarbonization, and Environmental, Social, and Governance (ESG)
Decarbonization and ESG considerations are pivotal forces molding the transportation and logistics sector. The urgent need to combat climate change has spurred heightened regulations and societal expectations regarding greenhouse gas emissions reduction. Consequently, the industry is witnessing a transition toward cleaner and more sustainable practices, evidenced by the adoption of electric vehicles, alternative fuels, and streamlined logistics operations.
Technology
Technology-related risks are critical concerns shaping the operational landscape of transportation and logistics. Swift technological advancements, including automation, artificial intelligence, and the Internet of Things (IoT), offer vast opportunities for efficiency, connectivity, and innovation. However, they also entail inherent risks. Reliance on intricate systems and digital infrastructure renders the industry susceptible to cyber threats such as data breaches, ransomware attacks, and disruptions in the supply chain. Moreover, integrating autonomous vehicles and drones introduces fresh liability and safety considerations.
Business Model/Physical Assets
The transportation and logistics realm grapples with diverse business model risks that profoundly influence sustainability and profitability. Disruptions stemming from emerging technologies like autonomous vehicles or the emergence of on-demand delivery services present both opportunities and challenges for established players. Traditional entities in transportation and logistics face the risk of lagging behind or becoming obsolete if they fail to adapt to evolving market dynamics and embrace innovative business models. Additionally, the industry contends with competitive pressures, market consolidation, and shifts in consumer preferences.
Companies are investing in proprietary warehouses, cargo containers, and even cargo vessels to respond to shortages in storage and transportation capacities.
Labor
Labor-related risks significantly shape the dynamics of the transportation and logistics sector. Challenges associated with the workforce, including labor shortages, wage pressures, and regulatory compliance issues, can impede operational efficiency and inflate costs. The industry heavily relies on a diverse workforce comprising truck drivers, warehouse personnel, and logistics professionals. Factors like driver shortages, high turnover rates, and a dearth of skilled workers can disrupt supply chains, cause delays, and impact service levels. Adhering to labor laws and regulations, encompassing working hours, safety standards, and employee classification, is imperative for mitigating legal and reputational risks.
Global Trade, Geopolitics, and Geoeconomics’ Risks
Geopolitical factors wield a profound influence on the transportation and logistics industry. Ongoing trade tensions, political instability, and regional conflicts are sources of supply chain disruptions, escalating transportation costs and introducing operational uncertainties. Variables such as changes in trade policies, foreign direct investment (FDI), sanctions, terrorism, and natural disasters pose challenges to the movement of goods across borders. Furthermore, geopolitical events trigger regulatory adjustments, border closures, and delays in customs procedures, further complicating the logistics landscape.
Regulatory
Regulatory risks significantly impact the transportation and logistics sector, shaping its operations, compliance requirements, and overall risk landscape. Operating within a complex regulatory framework, the industry must adhere to regulations spanning safety, environmental standards, labor practices, trade compliance, and customs regulations. Alterations in regulations, including introducing new legislation, trade agreements, or shifts in government policies, introduce uncertainties and compliance hurdles. Non-compliance with regulatory standards can result in legal liabilities, financial penalties, and reputational harm.
Sustainability:
Transportation and logistics firms anticipate sustainability, decarbonization, and ESG to drive industry evolution, with proactive goal-setting underway. Achieving sustainable transportation necessitates rapid technological advancements, regulatory frameworks, and substantial financial investments.
Leading companies are implementing their net-zero carbon strategies and supporting customers in reaching their sustainability goals.
Risks: Designing for sustainability, Power and infrastructure limitations, Regulatory hurdles, Adoption of new technologies, Sustainable fuel availability, Meeting net-zero targets, Exploring new routes and shorter options.
Business Model:
The industry is transitioning towards a digital-first approach, emphasizing enhanced vertical collaboration, horizontal collaboration, and, in some cases, academia-industry collaboration.
Diverse companies are competing, and newcomers are consolidating parts of the value chain, reshaping supply chains and creating new aggregation points. Emphasizing purpose-driven growth will become increasingly vital as a performance metric.
Risks: Increased M&A activity, Enhanced tracking technologies, Skills scarcity and future job demands, Emphasis on digitalization, Implications of reshoring, Competition dynamics and emerging partnerships.
Technology:
The adoption of robotics, automation, and digital transformation will continue throughout the transportation and logistics sector.
Technological innovations are shaping business models, consumer preferences, and corporate structures.
Enhanced coordination of digital technology across multimodal transport can lead to efficiency gains and resilient supply chains.
E-commerce growth is prompting investments in supply chain visibility technologies for risk mitigation.
Risks: Intelligent transportation systems, digitized supply chain management, adoption rates of AI, balancing data utilization and privacy, robotics and automation, and expansion of XaaS delivery models.
Global Trade and Consumer Demand:
The surge in online commerce drives demand for faster and more efficient delivery services, reshaping global trade patterns.
Economic uncertainties are slowing crucial infrastructure investment, impacting industry growth potential.
Nearshoring initiatives are expected to reconfigure global supply chains, benefiting emerging markets.
Transportation firms have opportunities to replicate B2C outcomes in B2B commerce, with consumers demanding greater visibility and willing to pay for expedited deliveries.
Risks: Diversification and multisourcing strategies, Regulatory changes, Supply chain resilience efforts, Consumer-driven personalization, Streamlining customs processes, Embracing circular economy practices, Navigating new trade relationships and competitive landscapes, Managing US-China tensions, Meeting ESG expectations from consumers and stakeholders.
Beatriz Canamary is a consultant in Sustainable and Resilient Business, Doctor and Professor in Business, Civil Engineer, specialized in Mergers and Acquisitions from the Harvard Business School, and mom of triplets. Today she is dedicated to the effective application of the UN Sustainable Development Goals in Multinationals.
She is an ESG enthusiast and makes it possible to carry out sustainable projects, such as energy transition and net-zero carbon emissions. She has +15 years of expertise in large infrastructure projects.
Member of the World Economic Forum, Academy of International Business and Academy of Economics and Finance.
