Introduction: Supply chain strategies are rapidly evolving to provide customers with faster delivery of their products with minimum additional costs that need to be incurred by Logistics suppliers for the purpose of maximizing supply chain value. This is important as there is an impending need for efficient delivery of products which are time bound and critical for important operations such as chemicals, food and beverage products and medicinal supplies. One major factor that has not been addressed well enough which is a major reason for increasing costs of goods is the damage to cargo. While most see the cost of damaged cargo as the total retail value of the cargo, this is a very binary way of looking at the situation.
Market Scenario: Industrial research has calculated that cargo losses have topped USD 55 Billion as of 2015 based on Logistics and Shipping Industry analysis, with theft for that year leading to a loss of USD 22 Billion. The threat of theft has been prominent mainly in poverty entrenched economies, South Africa has seen a 30% increase in the amount of truck jacking for the year 2015. Global cargo theft is expected to increase by USD 1 Billion. The damage that occurred from natural disasters from the preceding 5 years lead to another USD 33 Billion loss in damages and unsalable goods led to a loss of approximately USD 5 Billion for the grocery industry in the year 2014. The impending argument shows that ineffective care of the goods has led to major losses for the logistics industry. Aside from these natural threats, an increased threat to cargo safety has been the impending influence exerted by terrorist activities which have led to losses in the billions. Aside from terrorism, theft and nature, another major participant in losses for logistics and manufacturers has been the warfare situation in third world economies causing a loss of about USD 700 Million to Jordanian trucking in 2011 alone, unfair wage practices leading to a 58% increase in strikes in China for the year 2015 causing another loss of USD 27 Million to the footwear industry in China.
Implication: The damage caused due to cargo is one of the most important reasons manufacturers raise their prices and logistics costs increase. The loss of goods is not just calculated as the retail value of the goods; the major issue with that method of calculation is that the opportunity cost of the goods is not taken into account. Lost goods for the manufacturer play a major role in the bottom line of the company and the damage is calculated based on the extent of margin the company operates on. For example, a company working on a 10% profit margin losing USD 1,000 worth of goods would have to have an increase in sales by USD 10,000 to offset the loss of the goods and while this is the immediate impact to the manufacturer, the lost goods represent lost sales for the manufacturer and lost revenue for every stakeholder in the manufacturers value chain, aside from damaging the brand value of each stake holder in the value chain as well. The long term effect leads to losses of customers and therefore, sales for the members of the value chain. This need to recover revenue leads to higher prices for goods causing inflation thereby worsening the economy.
Carrier Liability: While a majority of manufacturers believe the system of carrier liability works as the insurance for their goods that are transported, this system has a major flaw. For a customer using a carrier to transport goods they would have to prove negligence on behalf of the carrier, which is often hard to do. Secondarily, there are statutes which exist to cap the extent of liability, thereby protecting carriers in case of serious damage occurrence. Generally, an ocean carrier is only responsible for up to USD 500 per container. International air carriers generally have a minimal limit (e.g. USD 0.50 per pound). Trucking company carrier liability is also at very low rates per pound, sometimes as low as USD 5 per pound, but often up to USD 25 per pound, as specified in the bill of lading and their tariff rules
Conclusion: The rapid increase in the prices of goods that cause consumers to either abandon the product or face financial burden is a cause of multiple factors but one of the primary causal factors is the requirement to compensate for lost cargo. This is a problem that is plaguing every industry in the logistics sector and requires immediate attention.
Key Factors Considered in the Report:
Logistics and Shipping Market Research Reports
Logistics and Shipping Industry Analysis
Market Research Reports for Logistics
Logistic Market Research Report
Logistics and Transportation Market Research Reports Consulting
Logistics Business Review
Logistics and Shipping Industry Research and Market Reports
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Ankur Gupta, Head Marketing & Communications