A key emerging risk for 2021 will continue to be the threat posed by connected trading risk exposure says Suki Basi, CEO, Russell Group.
With the recent port disruptions at major ports across the global economy, this is an issue that will likely accelerate next year. The effects of the COVID-19 pandemic on global shipping and supply chains started to become clear earlier this year, when the reducing availability of shipping containers was evident as early as February.
The recent dearth of containers has been intensifying, accompanied by other critical problems such as labour and equipment shortages and congestion in different ports, particularly in the US, the UK, and Europe.
Shipping and logistics experts all seem to agree that the container shortage will probably continue to affect major ports through to February 2021, which will almost certainly have a significant impact on international agricultural produce supply chains.
What these real-time disruptions highlight is just how potent these disruptions can be for the wider inter-connected economy. If trade cannot enter in and out of ports, this creates ripple effects across the world of trade, ranging from supply chain disruption for organisations, higher prices to consumers to potential economic repercussions as exporting countries struggle to access key markets.
Insurers, risk managers, port logistics and supply chain operators will be startled to read new data insight and analysis from Russell Group, which reveals hundreds of billions of financial trade exposure at the port of Los Angeles, for example. With an annual export flow of $6 billion and an import flow of $222 billion, Los Angeles is one of the world’s largest and vital ports.
COVID has forced many organisations to review their digital transformation plans and improve current risk management techniques as part of a two-step process. Firstly, it requires an awareness of how the inter-connectivity of business is driving connected trading risk exposure and how this understanding and awareness is key to sustainable and successful operations. Secondly, it requires the foresight for both corporates and (re)insurers alike to use this knowledge to transform their trading portfolios to ensure future economic viability.
Data will be at the heart of this strategy, but it is the associated analysis and actions taken by risk management professionals working with their partners in insurance and risk that will help businesses to plan for the worst while exploiting any opportunities that may arise along the way.