When Container Ships Become Fish Food

For further proof that companies need to factor in the total cost of sourcing globally -- including the added cost of carrying additional inventory and developing alternative suppliers -- look no further than this this CNN Report. According to the dispatch, "Aircraft from the Coast Guard and the Alaska Air National Guard raced toward an Asian cargo ship taking on water south of the Aleutian Islands on Monday in an attempt to rescue its 22 crew members ... The 654-foot Cougar Ace, which was carrying nearly 5,000 cars from Japan to Canada, had rolled practically onto its side." Cleary, the preservation of containers plays second fiddle to saving lives in situations like this where crew members were taking "refuge on the high side of the tilted vessel ... wearing survival suits" to stay alive.

While shipping insurance is relative cheap -- and something you should always opt for -- the payout for lost or damaged cargo is negligible relative to the cost of shutting down a production line or getting products to market late. And it turns out that it's not just manufacturers who are at risk. The other day, my wife was talking to a neighbor of ours who owns a global produce import and trading business and he was lamenting how the Big Box retailers like Wal-Mart are now charging back suppliers for the their lost profit on the sale of items that arrive late or damaged. Clearly, if a company is sourcing globally -- from low cost countries or not -- there is always a risk factor in play when containers are on the water. Ports can get backed up (or shut down because of terrorist threats). Boats can sink. Cargo can be impounded or delayed upon entry. The risks are many, but one thing is for sure: delayed or damaged cargo will ultimate hurt a company's top line unless the procurement and operations team is prepared with a risk mitigation plan should something go wrong.

Jason Busch

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