Supply Chain Contingencies in Uncertain Times

Consultancy offers insight, advice on cross-border trade in the event of war

Fort Erie, ON — March 17, 2003 — With discussions at the United Nations Security Council reaching a climax, North American businesses are increasingly concerned about the possible effects of war or terrorist threats on border operations and on their international supply chain, and shippers need to be taking steps to prepare their supply chains for the worst, according to a report from a logistics consultancy.

In the report, PBB Global Logistics, a provider of third party logistics services and international trade consulting, offered analysis and advice to help shippers prepare contingency plans ranging from switching to a "just-in-case" inventory strategy to taking additional supply chain costs into consideration during planning.

"No one can say exactly what measures the U.S. and Canadian governments will take at the border if and when a war breaks out in Iraq," says Mike Scott, president and CEO at PBB Global Logistics. "While our expectation is that the borders will not close, we can't rule it out either. Regardless of what happens, shippers should be examining their supply chain, considering potential vulnerabilities and making contingency plans."

The consultancy offered the following advice for manufacturers with international supply chains:

  • Expect Delays at the Border
    Delays at land crossings, airports and seaports may be inevitable, especially at the outset of hostilities. Increased inspections and a temporary suspension of expedited release programs are possible. New 24-hour advance reporting regulations facing ocean freight may be subject to tougher enforcement, increasing the potential for delays at origin.

  • Reposition Inventory Strategically..."Just-in-Case"
    Manufacturers using just-in-time production methods should consider maintaining a safety stock of product, parts and raw materials at strategic locations, which can be drawn upon in the event of excessive delays at the border. Essentially, this represents a shift from strict just-in-time manufacturing to a "just-in-case" approach.

  • Get on Board with C-TPAT/PIP
    U.S. Customs' C-TPAT program (Customs-Trade Partnership against Terrorism) and Canada's counterpart, Partnership in Protection (PIP), are voluntary programs developed to help customs officials identify low-risk shippers from a supply chain security perspective. In addition to benefiting from faster release and reduced inspections during normal conditions, participants will likely be given priority when the border reopens after a possible shutdown, helping mitigate some of the costly delays that would otherwise apply.

  • Re-evaluate Contractual Commitments
    If possible, reconsider any performance or delivery guarantees to protect your company from penalties caused by extraordinary events out of your control. Likewise, take current events into account when entering into new contractual arrangements.

  • Account for Increased Logistics Costs
    Border delays increase operational costs for carriers in all modes, which are often passed along to shippers in the form of surcharges. Furthermore, assets detained or delayed at the border reduce the availability of freight space on the market, putting upward pressure on rates. Finally, increased insurance premiums represent another area for potential cost increases.

"Contingency planning can involve any or all of these considerations," says Scott. "The important thing is for businesses to be aware of the potential impact of war on their supply chain and cross border trade and prepare accordingly. By doing this, North American businesses can prevent many of the disruptions experienced after September 11, when everyone was caught by surprise by heightened border security."

PBB said its own contingency planning incorporates many of the aspects outlined above. In addition, the company plans to offer customers regular e-mail updates, local border information from its network of offices along the Canadian-U.S. border and a 24/7-customer hotline to handle inquiries.