Navigating Risk in Logistics Supply Chains: Strategies for Mitigation, Acceptance, Transfer & Insurance

Logistics Supply Chain Risk Exposure

Logistics supply chains are exposed to several risks. Four are worth highlighting.

Geopolitical risks

Notably, geopolitical risks, such as rising political instability, trade wars and changing regulations, are creating significant disruptions. For instance, Brexit introduced new customs procedures, impacting supply chain fluidity between the UK and EU. More recently, the return of Donald Trump to the US presidency threatens to intensify disruptions to global technology supply chains, including in the form of new tariff barriers and new restrictions on specific suppliers. (Read our article on geopolitical risks here).

Environmental risks

Environmental risks, including natural disasters such as floods, hurricanes and earthquakes, are also causing substantial delays and damage. Reports detail how the Los Angeles wildfires are causing disruption to US production and distribution networks due to closures of key transportation routes, with no certainty on how long the interferences will last. Climate change exacerbates these risks, making supply chain resilience a critical focus.

Cybersecurity risks

Cybersecurity threats have risen with the digitisation of supply chains, making them increasingly vulnerable to attacks. A breach in a logistics provider’s system can lead to operational disruption, data theft and financial losses. Disruptions caused due to human or technical error can be equally costly for business, causing similar damage. The widespread IT disruption caused by the CrowdStrike outage in mid-2024, about which we wrote here, is only one of the most recent such examples. 

Macroeconomic risks

Economic fluctuations, such as growth downturns, currency fluctuations and inflation, also impact supply chain costs and demand for goods, necessitating agile financial planning. Additionally, dependence on third-party suppliers and partners introduces risks of insolvency, non-compliance, and performance failures, affecting the entire supply chain. Adhering to international trade laws, environmental regulations, and labour laws is also essential to avoid legal penalties and reputational damage.

Risk Mitigation

To mitigate these risks, organisations require robust risk assessment and monitoring to identify and assess potential threats in real time.

• Tools such as risk heat maps and key risk indicators (KRIs) provide valuable insight. Diversifying suppliers across geographies reduces the impact of regional disruptions and fosters supply chain resilience.
• Leveraging advanced technologies such as the Internet of Things (IoT), blockchain, and artificial intelligence (AI) systems provides supply chain visibility, predictive analytics, and automated responses to risks.
• Building strong partnerships with suppliers and logistics providers through clear contracts, communication channels, and joint risk management practices ensures alignment and mutual risk mitigation.
• Adopting sustainable practices, such as transitioning to renewable energy sources and reducing carbon footprints, helps in managing climate-related risks.

Alternative Risk Strategies

Not all risks can be eliminated; some must be accepted as part of doing business. Companies should evaluate which risks are tolerable and ensure they have contingency plans in place. This includes setting aside financial reserves and developing business continuity plans to quickly adapt to disruptions.

Risk transfer and insurance are also critical strategies. Through well-drafted contracts, organisations can transfer certain risks to suppliers, logistics providers, or other third-parties by specifying liability clauses, performance guarantees, and penalty provisions. 

Insurance also plays a role in transferring financial risk. Types of insurance relevant to logistics supply chains include:

• cargo insurance, which covers loss or damage to goods during transit;
• business interruption insurance, which compensates for loss of income due to operational halts;
• cyber insurance, which protects against financial losses from cyberattacks; and
• liability insurance, which covers legal liabilities arising from third-party claims. 

Collaborating with insurance providers to tailor policies that address specific supply chain risks ensures comprehensive coverage.

Applicable Legislation

Adherence to legislation is non-negotiable for mitigating legal and regulatory risks. Non-compliance can result in significant fines and reputational damage.

Key UK and international regulations include the following:

• The Modern Slavery Act 2015, which mandates organisations to ensure their supply chains are free from forced labour and human trafficking.
• NIS2 continues this theme, obligating any organisation with business in Europe to ensure their entire critical supply chains are mapped to identify and mitigate risks.  (Read our detailed article on NIS2 here).
• The General Data Protection Regulation (GDPR) governs the handling of personal data, requiring logistics providers to ensure data protection compliance to avoid hefty fines and safeguard customer trust. (Read our detailed article on data protection here). 
• The International Maritime Dangerous Goods (IMDG) Code is essential for companies transporting hazardous materials, ensuring safe and secure handling and shipping.
• The UK Bribery Act 2010 holds companies accountable for acts of bribery within their supply chains, necessitating robust anti-corruption measures.

Managing Risk Exposures

Managing risk exposures in logistics supply chains is a multifaceted challenge requiring a proactive, strategic approach. By understanding the various risks and implementing robust mitigation, acceptance, transfer, and insurance strategies, organisations can safeguard their operations, maintain compliance, and achieve long-term resilience.