How SMBs Can Re-evaluate Risk

How SMBs Can Re-evaluate Risk

Supply chain disruption has been a major issue since the onset of the pandemic, affecting consumers’ ability to get everything from toilet paper and pharmacy items to cars and houses. At the same time, porch-pirated theft is on the rise, with around 210 million packages disappearing from porches across the United States in 2021, according to a Safewise study.

Given increased supply chain volatility, lost and damaged package rates are also rising. UPS Capital Insurance Agency has seen a 65% increase in shipping insurance claims, including a 107% increase in lost package claims and a 78% increase in damage claims, compared with pre-pandemic levels.

Supply chain issues have resulted in residual effects on consumer preferences, as concerns about shipping mishaps now outweigh their desire for delivery speed. Nearly half (47%) of consumers responding to a recent research report commissioned by UPS Capital say they would now prioritize the guarantee that their product arrives safely and quickly.

Shipping Experience More Important

In this new landscape, the shipping experience becomes more important to a brand’s bottom line and reputation. In the face of modern shipping challenges, small and mid-sized businesses (SMBs) may evolve their logistics models to better compete. But as SMBs shift their business strategies, their risk models may also change, which could lead to new risks.

Uncertainties around delivery timelines and the frequent need to have goods in stock led many SMBs to modify their inventory practices. Fearful about running out of stock, especially ahead of sales events or peak season, many SMBs have turned to purchasing products in bulk—weeks or even months earlier than normal. This has led to a trend of stockpiling inventory to better meet demand.

Stockpiling goods, however, can change a business’s risk profile. This strategy is a gamble, as a business could lose tens of thousands to millions of dollars of product in one fell swoop if they are not fully covered. When inventory strategies change, SMBs should re-examine new risk exposures, and develop new strategies to address them.

As businesses streamline their own supply chains, 86% of SMBs have increased their use of drop-shipping since 2020, according to a UPS Capital report. Drop-shipping is considered a cost-effective strategy that ships orders from the supplier to the customer.

But it may come with risks. The same report finds that 66% of SMBs have seen an increase in package theft, damages, and losses from drop-shipping, compared with shipments delivered directly from their business. Businesses using drop-shipping should consider purchasing insurance and selecting supply chain partners with strong quality assurance protocols.

Risks Around the Globe

Geopolitical risks are more prevalent than ever. Port shutdowns, congestion, shipping backlogs, and labor shortages, may have lasting effects on the supply chain. SMBs should seek to diversify sources to reduce reliance on singular supply lines.

SMBs that have adjusted their operating model should conduct a risk assessment to help shore up potential exposures. Mitigating new risks may require minimizing the time shipments spend at rest and unsecured, and vetting partners and freight carriers to ensure reliability.

Shipping insurance can help minimize out-of-pocket losses, reduce time spent on claims, and improve the customer experience by helping ensure that most shipping issues can be resolved quickly.