Exposure to Danger

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There are no two ways about it, operating a supply chain is a risky business and the longer the chain, the greater the risks. In recent weeks we have become all too aware of the dangers of a large buying organisation, such as a retailer, going out of business or perhaps the plight of a stretched component supplier to the automotive sector. But what would happen if the unthinkable happened – the collapse of a key service provider?

Only in the last few days UK freight forwarder, Anglo Overseas Ltd, went into administration. So have supply chain directors given thought to the chaos that might ensue should their freight forwarder or logistics service provider fail?

In addition to the technical, operational and administrative issues involved in finding and transferring the flow of goods to a new partner, complications may well arise as to the ownership of existing stock. If a freight forwarder goes down it is likely to owe large amounts of money to shipping companies and airlines.

Talking recently with Craig Neame, a partner at international law firm, Holman Fenwick Willan, under such circumstances ‘Questions arise as to ownership of that stock, about the rights of the outsourced logistics service providers who manage the distribution centres and perform the carriage and handling contracts, as against the customer – and also, as against the vendors of the stock that is in transit or sitting in warehouses.’

Shipping lines and contract logistics providers typically include in their standard contracts a right to lien goods (a right to take possession of the goods). But says Neame, ‘if you are a well advised manufacturer, retailer or importer, you will have negotiated that out.’

As economic conditions continue to decline it may only be a matter of time before a mid-sized transport or logistics company goes under, which would cause considerable disruption. But, what would happen if a mid-sized shipping line collapsed? The impact on lean and extended supply chains could be devastating.

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