From Ship to Shore: How To Stay Ahead of Today's Supply Chain Risks

Clients are experiencing delays to cargo both in transit and awaiting shipment as vessel owners alter trade routes to avoid high-risk areas, particularly in light of recent tensions. In doing so, they're invoking the right to deviate or deploying force majeure clauses, which increase freight charges and contingencies.

At the same time, clients are building buffers to protect themselves. Each of these decisions changes where risk sits. So instead of risk being concentrated at one point, it's spread across multiple stages.

Brian Stout: Once cargo reaches land, our clients are facing unexpected problems. Criminal groups are stealing cargo without even forcing their way into a container or breaking open a lock. They impersonate legitimate carriers by forging credentials and presenting near-authentic paperwork that passes basic gate checks.

When that happens, the loss isn't recorded immediately, and it can take time to determine what happened.

Paul Cho: From the claims side, that delay is significant. We're often dealing with situations where the original event appears relatively minor at first, but by the time it becomes a claim, the impact is much greater.

Engaging with claims specialists at the earliest indication of a loss can mitigate losses as they can leverage data, even from hard-to-obtain sources, to identify strategies to address potential issues before they escalate.

Q2: As companies rethink how cargo moves, what changes are you seeing?

Anthony Smith: One thing that comes up frequently is that clients are redesigning their routes. Many are shortening journeys or using alternative trade corridors. We're having conversations about exploring alternatives that would have felt unusual a few years ago. In particular, inland corridors are being tested as an alternative to traditional marine routes.

The route we've seen trending in recent years is the "New Silk Road" (or Belt and Road Initiative), aligned with the Euro Asian Transport Links (EATL), a network of nine rail and road routes connecting China, Russia, and Poland. This corridor is particularly active in moving cargo from China to the EU border in roughly two weeks.

Beyond routes, we've also seen that many are building buffer inventories as a resilience measure against disruptions.

Brian Stout: We've seen a noticeable shift in the US toward using rail for parts of the inland journey, as rail networks run across the country. They offer scale and take pressure off roads at a time when issues like driver shortages and congestion are persistent.

Many of the problems we see involve short line railroads. Some of those lines have not carried heavy, high value loads consistently for years. In some cases, it's not immediately clear who is responsible for fixing what.

If you don't ask those questions up front, you can end up with losses. Confirm maintenance records and understand who bears liability for infrastructure failure on a given stretch of track. Once cargo is already moving through stressed infrastructure, negotiating terms, and managing risk becomes difficult and far more expensive.

Assessing cyber risk exposure across IT and operational technology (OT) environments including cargo data, signaling infrastructure, and train control systems is important as cyber threats are increasing throughout the rail industry.

Q3: What are some of the issues involving marine infrastructure amid broader supply chain shifts?

Anthony Smith: The shift from "Just in Time" to "Just in Case" supply chain models has transformed the way traditional marine infrastructure is utilized. The shift is encouraging clients to use ports and terminals as high capacity storage and logistics hubs rather than high speed transit points.

We've seen first-hand the change in claim patterns for cargo remaining at its first place of rest for prolonged periods. We've also seen the development of large "near port" storage facilities built in close proximity to ports, where operators need more space to develop storage and handling capabilities for their clients, again altering the overall risk profile.

The marine insurance market has provided capacity for stock-throughput programs for many years; these products already address static risk in connection with global transits involving distribution hubs and warehousing.

To maintain optimal protection, we advise clients to review their stock-throughput arrangements as transit risk can be exchanged for a longer-term static risk when supply chains are shocked or disrupted. It ensures that new storage locations and updated transit-to-static ratios are accurately reflected, preventing potential coverage gaps.

Brian Stout: Clients are usually holding more inventory to cushion the impact of supply bottlenecks and new tariffs. Gallagher research found that, against a backdrop of trade uncertainty, stockpiling is a strategy that nine out of ten respondents are turning to, yet four in ten are not prepared for the risks associated with it.

Storing goods in warehouses increases the chances of theft and the risk of goods becoming outdated before they enter the market. These conditions have to be thought through together to avoid such risks escalating further.

Q4: How is the cyber threat evolving across ocean operations?

Anthony Smith: The cyber threats to the marine insurance market mainly fall into two distinct categories: shore-based exposures and shipboard navigation. The biggest concern is around ransomware and extortion attacks targeting Terminal Operating Systems.

What makes it challenging is that terminals operate across multiple geographies and rely heavily on third party software and vendors. That creates vulnerabilities that aren't always visible unless someone is specifically looking for them.

Experienced navigators still rely on traditional methods alongside modern systems. We've seen increasing concern around counterfeit or spoofed GPS signals, which can interfere with navigation systems. In the most serious cases, this can lead to groundings or cause ships to deviate from their intended routes. There's also the risk that vessels could be unintentionally guided into unsafe or hostile waters.

The trend toward AIS-independent navigation solutions reflects a broader push for redundancy and cybersecurity in maritime operations.

Q5: What are the emerging risks and opportunities that leaders should be planning for?

Anthony Smith: Tracking and monitoring technologies within the ocean and inland marine markets are providing clients with a transparent way to reduce their risk exposures and mitigate losses. With continued investment in technologies, it's becoming easier to recognize risks and plan for them upfront rather than reacting.

The implementation of advanced technologies is valuable for clients who face theft risks within their supply chains and for those transporting temperature sensitive cargo. Active movement monitoring has enabled the identification of bad actors within the transit chain, allowing clients to remove those parties from handling their cargo. For temperature-sensitive goods, clients have been alerted to variations that could lead to damage and have been able to take real-time action to intercept cargo in transit and address these issues before a loss becomes inevitable.

What I see as the opportunity is in how deliberately companies are proactively implementing technologies. The ones that are doing well are using technology to improve visibility of their operations, so they've more control when conditions shift.

The value of tracking and monitoring technology depends entirely on how it's integrated into decision-making. Deploying sensors or GPS monitoring becomes a risk-reduction measure when there's a clear protocol for who receives alerts, what thresholds trigger intervention, and how quickly the supply chain can respond.

Paul Cho: Technology is rapidly changing how risk manifests in transportation. Telematics, automation, and advanced forms of self driving technology are changing how incidents are recorded and reviewed.

We're using analytics to examine patterns and identify similarities across incidents. We mine data to identify those connections and look at how incidents relate to one another. Increasingly, we're moving that work to the very front of the process, at first notice of loss.
A lot of the work we're doing with clients now is making sure these technologies help in the decision-making processes and bring better visibility.

Conclusion

As supply chains continue to be put under pressure, it's important to understand the risks involved and the steps to take to mitigate them.

Gallagher Basset and W K Webster actively monitor the developments in the supply chain industry in real time and provide proactive solutions to clients to mitigate negative impacts and take advantage of positive market situations.