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Paul Lucas [00:00:08] Hello everyone and welcome to the latest edition of Insurance Business TV brought to you in association with Falvey Insurance Group. And this edition we're going to be joined by Eric Newman, Senior Vice President of claims loss prevention and recoveries at Falvey, where he will discuss current supply chain risks in the wake of the pandemic, which of course, caused unprecedented disruption. He will speak to the use of data analytics and technology for predictive risk modeling and the importance of partnering with underwriters, brokers and clients on effective risk management and loss prevention strategies. So let's delve into all things supply chain, shall we, Eric, welcome to Insurance Business TV.  

Eric Newman [00:00:50] Paul thanks for having me, it's a pleasure to be here.  

Paul Lucas [00:00:52] Just to start by setting the scene for us, if you don't mind, talk to us about how big an impact the pandemic had on the supply chain and what issues it caused.  

Eric Newman [00:01:02] While the impact of the pandemic on the supply chain was significant. However, before the pandemic hit, you know, issues were being seen within the global supply chain that were attributed to a number of things, not the least of which were trade issues between us in China and other parts of the world. But what the pandemic did was exposed to the sheer fragility of the global supply chain. You know, people have related, you know, the timing to the pandemic with the perfect storm scenario, which is extremely accurate. Prior to the pandemic companies by and large managed their supply chains based on a just in time principle, which was really concentrated on being lean and efficient. And this meant maintaining very, very low inventory levels, and maximizing efficiency efficiencies to yield higher profits and, and what the pandemic when everything shut down. What that did was that caused manufacturing distribution facilities to shut down worldwide. And then something peculiar happened with everything shut down. Whether it was a generally expected to be kind of a hit on consumer demand, it almost went the other way, the introduction of everyone being in their confined into their homes, homes, and they really put the stress on the E-commerce market. And it really put the strain on the on the on the global supply chain, because companies then had to, had to gear up and kind of respond to that demand, which really put further strain on the supply chain and really resulted in huge surge. And in consumer spending. The other interesting thing is when the when the pandemic happened, vessels basically cut down and minimize their capacity took advantage of maybe getting vessels in to have repairs and preventative maintenance. And they were behind the curve when the when the this surge in the E-commerce required, you know, the capacity to be at unprecedented levels. And that's where we saw a lot of the vessel traffic really being getting these empty containers over to China, right? Predominantly, to fortify that those demands and get goods coming from Asia back to the to the west. And therefore, we saw a lot of but we saw a lot of demand and shipping and with minimized capacity. That resulted in minimized the number of a restricted number of sea containers because the majority of the vessels that were going to China to load goods were sailing with MPC containers. And so what in turn, all those MPC containers were filled up as companies ramped up their manufacturing, and that led to the disruption in the bottlenecks in the backlog at the ports that we saw specifically in Long Beach in LA. And the other thing that also happened, it was an interesting thing, and I don't know how much attention has been paid to this, I know that we certainly in our space, noticed that we saw a lot of these vessels, these ultra large container vessels that can carry upwards of 14,[000 containers and more coming from China to the US for losing several containers during rough seas and the North Pacific. One of the things that we attribute that to and in done some research on this as these ultra large container vessels were never really or had not really sailed at full capacity or near full capacity. And now with the surge in demand in the in the requirements for these vessels to be loaded at near capacity. They were basically undergoing sea trials and sea conditions that maybe they had not been trialed before. And I think that has a lot to do with the incidents that we saw. I think in 2020, we lost more than 3[000 containers. But the industry lost more than 3[000 containers at sea. So it really was a perfect storm of all of these factors happening. And really, at the end of the day, it really did expose the industry to the true fragility of the supply chain in which they're now taking measures to correct  

Paul Lucas [00:04:56] Yeah, and so it was an incredible period of course, but if you don't mind just fast forward a little bit far as we've largely come out of the pandemic, now, are there any residual risks remaining for the supply chain? 

Eric Newman [00:05:07] Certainly residual risks I mean supply chain disruption is still present is still we're still seeing steam seeing bottlenecks and, and restrictions, the global supply chain is stabilized by and large, many companies are still struggling to reopen and re staff their operations. There continues to be worker shortages we're all of us are familiar with. And there continues to be delays and backlogs albeit not as not as much as we saw in the height of the pandemic. But we're still seeing, we're still seeing these backlogs and disruptions in the in the in supply chain properties now as a result of understanding how exposed their supply chains were. And switching from this just in time inventory management system to adjust in case manage inventory management system, which means building up inventory levels, and adding supply partners and diversifying your sourcing networks, which has placed an added, you know, the risk to companies that are looking to do all of these things and continue to build up inventories, it's increasing values of goods that are being shipped. So insurance companies are seeing higher, higher values, this is the inflation that's going that's happening is also contributing to the value of the increased values of goods being shipped. So it's almost in response to the pandemic, we're seeing a lot of supply chain activity Well, while companies pivot to try to protect themselves from being exposed, again, should another event like the pandemic happened. But it also has increased risk within the supply chain. 

Paul Lucas [00:06:38] Several risks that have emerged as well that are perhaps not wholly related to the pandemic, we're talking about things like cyber risk, of course, all these geopolitical tensions that we're seeing right now at a changing manufacturing footprint as well. Any issues that you think brokers should be particularly focused on at the moment with their clients? 

Eric Newman [00:06:57] All of those risks that you mentioned are we're seeing and they it is critically important for companies to focus on these risks as they look to build more resiliency and agility into their supply chain. Another factor that that's happening that we're seeing that you didn't mention was the changing weather patterns and climate change. And that has increased the natural risk hazard that we've seen storms happening and bad weather events happening in parts of the world that that hadn't seen that it had no historical trends in that nature. But you mentioned cyber risk. And that's, that's a major concern to the global supply chain. And it makes sense that that risk increases because as companies expand their footprint, their manufacturing and distribution footprint, they're working with more and more service providers, which is which requires them to rely on those service providers, infrastructure and systems as they share in critical information in which to transact business. This puts them at greater risk of cyber attacks, and puts more emphasis on the companies to vet out these companies to make sure that not only are their cyber protection systems appropriate and adequate for the assess risk, but the partners that they're working with globally, or have also the same type of protection and resiliency in there to limit their overall risk as they expand their operations. I was reading, you know, in preparing for the for the interview, I was reading at Deloitte study that that's stated back in a survey taken back in 2019, where 40% of manufacturers that were surveyed, had been affected by a cyber attack. And I'm quite sure that if we were to revisit more recent studies than three years ago, we find out that that number is more than likely increased. So it is a big, it's a big concern. And insurance companies and brokers obviously are aware of this. And it's been a challenge to make sure that the appropriate solutions are out there from a financial protection or from insurances and those sorts of things. geopolitical tensions you mentioned, that's a major concern, obviously, the war in Russia and Ukraine continues to add at risk and cause further disruption to the supply chain. And it also the other thing that's happening is some of those disruptions and I mentioned kind of the change and manufacturing that companies are looking to do to become more robust and resilient is the whole idea of moving manufacturing facilities out of China where predominantly most of the manufacturing is done and moving them to other alternative locations such as Southeast Asia, Mexico and India. And in doing so that's placing added risk and added strain on their supply chain operations as they are looking to build up and get situated in those other alternative facilities. So it just it's adding more products to the supply chain which also as we've talked about increases overall risk.  

Paul Lucas [00:09:41] Now it wasn't a surprise for me to see you devote so much time in that answer to cyber risk because that's the negative side if you want of technology, but I know technology can also be used for good as well. Are there any particular advancements in that space with tech or day data that can perhaps help mitigate some of these risks for insurance? 

Eric Newman [00:09:43] Sure is I mean, companies really are companies that have relied on more manual systems and antiquated software are really looking at digital digitization as a way to enhance their overall operational workflow. In those that's taking advantage of such things as AI, the Internet of Things and using tracking technologies and sensors to monitor their shipments, and really kind of taking advantage of forecasting, modeling software platforms that allow companies to have more visibility and transparency into their supply chain, which helps them through predictive analytics capabilities allows them to, to identify potentially, were bottlenecks might happen so that they can then pivot and maybe enact some contingency plans that that are now a new focus on companies as they look to do whatever they can to take advantage of these new technological advances to minimize the risk should another event occur, which, you know, they will in different degrees. So I think we're seeing a lot of the AI technology that we've all read about and heard about is one major solution and step forward in the industry, that's allowing some of this predictive analytics to help them manage their respective supply chains. 

Paul Lucas [00:11:17] And just away from the tech advancements, or low in any of the tips for risk mitigation in the supply chain that you can offer us? 

Eric Newman [00:11:26] One of the things that we're seeing from our vantage point is that we've talked about the increased inflation, talking about the increased cost of living around the world as a result of that inflation. The additional cargo that's being put into the supply chains, as companies re-manage and re-set up their re-establish their manufacturing operations, has put a lot of, as I've mentioned, goods in transit, and specifically, specific shortages and metal raw materials that are used in so many the products that we depend upon today from the electronics industry, to the automotive, biotech industries, those are all being targeted by professional criminal organizations. And there's a reason that they're doing that not only because of the value they bring, but the overall global shortage in some of these, these metal shipments are allowing them to be incentivized because they are able to move these products quite easily given the worldwide shortage and moving the products through illegitimate means that that's not just to say the precious metals in those type of shipments, it's the goods that have always been highly targeted in, in our industry, such as pharmaceuticals, in high tech and food and beverage and those types of products, which are always high on the on the theft target list, we're seeing steadily increasing rates of cargo theft from both warehouses in static store situations to in transit, truck theft and those sorts of things. Just because solely, you know, one of the biggest things is really the inflationary conditions of the global economy and, again, the added the amount of volume that being entered into the supply chain. And this requires the companies really take a look at that, in addition to everything else, they have to look at given everything going on the supply chain, but they really have to pay particular attention as to who they're doing business with. And what companies what transportation and logistics service providers are they using? And are these companies the ones that have the services, the capabilities and the  qualifications to address this, this risk exposure, this is one risk exposure that I'm that I'm bringing attention to, to make sure that they understand that the risk and that the service levels that they're requiring of the service providers is adequate to thwart the risk of these types of thefts. 

Paul Lucas [00:13:39] A fantastic tip, if you don't mind, I'm just gonna shoot for one more, Eric. So I'm sure there's plenty of brokers who are watching this today. And perhaps they're thinking to themselves or Eric's given me a lot of great information, but what should my priorities be? What sort of action should I take? Do you have any, any guidance for them in that regard any actions that they should take with the client as a as a top priority? 

Eric Newman [00:14:02] I believe it's imperative that brokers are acutely aware of the current global supply chain environment and certainly the trends that their clients are seeing and the trends that the industry at large is faced with and what steps are being taken to build resilient and agile supply chains to mitigate risk. I think it's really important for brokers to understand their clients operations and be able to provide them with insurance solution options that are tailored and appropriate for those their clients specific operations. And that means partnering with underwriters, that that provide similar services that are tailored and specific to those types of risks. In doing so, those type of underwriters have the capacity to provide value added services that clients will need and it will be very helpful in that and those are risk management, consultation services. Those are loss prevention and and risk mitigation strategies that are based on proven industry best practices. And it's also looking at general carrier vendor relationships and establishing, as I mentioned, the fourth the fifth issue, making sure that they are working with their underwriters in their brokers to make sure the partners that they're working with not only just with their with their technological capabilities and their cyber protection, but their overall service capabilities to make sure that they are proper for the type of goods that are being shipped. And underwriters and brokers alike can be an invaluable asset to companies as they looked at how to tackle all of these, all of these new exposures in these risks that they're looking to pivot to, to make sure that they're resilient and agile going into 2024 and beyond. 

Paul Lucas [00:15:48] Fantastic tips. Eric, really appreciate your time. If anybody wants to reach out to you or to Falvey Insurance Group on the back of this conversation. How can they get in touch? 

Eric Newman [00:15:58] Yeah, thanks, Paul. Its [email protected] 

Paul Lucas [00:16:05] We want to keep our supply chain of a great interviewees coming just like Eric of course. So make sure you join us next time right here on Insurance Business TV.