When a company utilizes the services of contractors or relocates operations overseas, it exposes its business to a number of vulnerabilities to its supply chain. Sourcing, or outsourcing, in parts of the world that have the potential for natural disaster and political unrest, could further expose the future profitability of the company.

In addition, if the supply chain depends on a few key suppliers on one end, and/or a few key customers on the other, the company’s revenue stream is even more at risk in the event of any disruption to trade as a failure to supply goods or services may result in a potential loss of revenue, contractual penalties, and extra expenses.

Responding to Supply Chain Risk

Not all trade disruptions involve physical damage to your property. Property, business interruption, contingent business interruption, and marine cargo policies, are designed to protect companies against loss due to physical damage, not against loss of revenue or profit. Trade disruption insurance, however, provides coverage that is triggered by an actual insured event, and typically does not require any physical damage to have resulted. Trade disruption insurance protects a company’s revenue stream. It focuses not on the value of the goods themselves, but on the potential loss of profit caused by disruption in the supply chain.

The policy can provide cover for a wide range of physical and political risk events. Such events include:

• Trade embargoes or sanctions
• Insolvency of named supplier or customer
• Confiscation of goods or manufacturing facilities
• Strikes, riots, civil commotion, malicious damage, terrorism, or war
• Third-party blockades or border closures
• Deprivation (i.e., inability to export goods as a result of government order)
• Cancellation or revocation of import/export license
• Emergency closure or blockage of waterways, harbours, airports, roads, or railway lines
• Fire, flood, storm, earthquake, volcanic eruption

The decision to trade proximity for economy in your supply chain comes with risk.With competition so tight to race to market with new goods and to cut costs with just-in-time inventory and outsourcing, can your company afford trade disruption?