What Is Transportation Risk Management?
The U.S. transportation industry is among the most risk-prone of all industries, requiring transportation companies to implement strong enterprise risk management strategies. Using the right methods and tools, these companies can mitigate much of their risk and be in a better position to respond to situations when they arise.
According to the Federal Highway Administration, “Risk management is a process of analytical and management activities that focus on identifying and responding to the inherent uncertainties of managing a complex organization and its assets.”
The risks transportation companies face may vary but can include fleet integrity and safety, driver safety and retention, and compliance issues. Some of these risks are directly impacted by outside influences, particularly weather events, traffic and road conditions.
Carriers take on plenty of other risks as well. They are responsible for delivering the very shipments that keep their shipper customers in business. Any disruptions, including accidents, losses of cargo or financial woes, can create a supply chain disruption that damages reputations and decreases profits.
Risk & Insurance believes some of the newer risks facing the transportation industry are advancing technology, cyber exposure and market fluctuations created by international trade disputes. Additionally, “a worsening driver shortage, regulatory compliance and the sad state of America’s infrastructure also present persistent challenges.” While many of these risks are out of the control of the transportation company, there are steps they can take to lower their risks and be able to respond to them appropriately.
Implementing transportation risk management is a way to assess the specific risks and devise a strategy to deal with those risks.
Who Benefits from a Transportation Risk Management Solution?
With so much on the line, every transportation company should develop a transportation risk management solution that guides their policies and operations. Not only will a solution mitigate risks, but it can serve as a powerful sales tool that attracts shippers who want to know their goods are in the best hands.
When a transportation company fails to put an effective transportation risk management solution into practice, they communicate to their employees and customers that risk management is not a top priority. This can have a detrimental effect on morale, attracting conscientious drivers, and winning business. Many shippers are now asking their carriers what policies are in place to reduce the risks that have the potential to impact their shipments. Without a concrete, clear risk management solution in place, one they can easily point customers to and define, shippers will likely go elsewhere. They have too much at stake to take chances.
Keep in mind that the shipping companies will likely have a transportation risk management solution in place as well. Their main concern is keeping their supply chain running smoothly. As part of their transportation risk management efforts, they will consider their and their carrier’s insurance coverage and terms, the liability at each stage of the supply chain, business continuity plans, the value of their shipments per truck, and loss prevention.
How Does Transportation Risk Management Work?
Transportation risk management may not look the same for every company. There are, however, foundational elements every transportation company should put into place. The Federal Highway Administration offers several helpful recommendations for transportation companies seeking to reduce the risk inherent in their industry:
- Develop executive support for risk management
- Define risk management leadership and organizational responsibilities
- Formalize risk management approaches using a holistic approach to support decision making and improve the successful achievement of strategic goals and objectives
- Use risk management to reexamine existing policies, processes and standards
- Embed risk management in existing business processes so that when assets, performance, and risk management are combined, successful decision making ensues
- Identify risk owners and manage risks at the appropriate level
- Use the risk management process to support risk allocation in agency, program, and project delivery decisions
- Use risk management to make the business case for transportation and build trust with stakeholders
- Employ sophisticated risk analysis tools, but communicate results simply
Modern solutions will enable carriers to detect risks, analyze their severity and automate the task of finding lower-risk alternatives. Detection involves the identification of the shipment and the variables that may impact their delivery. Inclement weather, extreme temperatures, social hazards, natural disasters and infrastructure outages are among the most common risks.
The solution can then take those identified risks and gauge their probability of occurring during any stage of the delivery route. This is an important factor to consider because by only looking at the pickup and delivery locations, every point in between is ignored and that’s precisely where the biggest interruptions may occur. Most carriers lack the personnel, technology or time to collate that much information, particularly with multiple shipments moving in various locations around the country. Technology dramatically improves the accuracy, scale and speed of discovering this data and it has improved considerably over the past decade.
Beyond detecting potential risks, those risks must then be analyzed in order to know their likelihood, severity, geography and timing. As an example, a predicted ice storm may have a 70 percent chance of hitting a northern state on the shipment route on Tuesday, but if the truck is expected to clear that state on Monday, the shipment can go ahead as scheduled. Alternatively, if the truck isn’t expected to be in that state until Wednesday, there is a more than average chance it will be delayed due to the icy road conditions.
That’s where the next phase of a risk management solution can be effective: decisioning. With this type of information in hand, a carrier can decide when the shipment should launch. By moving the pickup date earlier in the week or delaying it until the temperatures rise above freezing, the shipment can miss the ice storm. Yes, the shipment may be early or late, depending on that decision, but the cargo is safe and unaffected by the low temperatures or slick roads that may cause cargo and/or truck damage.
The carrier is able to better schedule the pickup date, determine how much risk they are willing to take with each shipment, decide what kinds of equipment they may need to secure and protect the cargo, determine which mode of transportation is best, and identify optimal lanes that can speed shipments and reduce costs. This decision-making phase must include accurate, real-time and predictive data that is presented in a clear way.
This agile planning is what transportation risk management is all about and is critical for carriers to implement in order to stay competitive, profitable and provide value to its customers.
How to Choose a Transportation Risk Management Solution
The key to finding a transportation risk management solution is to understand the value of visibility. Both shippers and carriers need real-time insight into the shipments: what’s in each truck and how specific cargo should be transported, the shipping lanes, expected and actual pickup and delivery times, and all of the variables that could impact these various elements.
Variables are many and some are unpredictable. Weather, natural disasters, crime, protests or riots, infrastructure issues, driver health and safety, wildfires and other issues can directly or indirectly affect delivery reliability. By predicting these variables ahead of time, carriers are better able to set appropriate expectations, reduce costs and ensure shipments are properly cared for and delivered as expected.
This type of granular visibility requires technology, of course, but not just basic or legacy technology. Today, more companies are relying on artificial intelligence, cognitive technology and machine learning to data mine bits of information that are spread across multiple systems. The capability is there and now the transportation industry must leverage it to “drive” their decisions.
When looking for a transportation risk management solution, be sure to find one that addresses all of your company’s risk threats, as well as provides usable data that will inform decisions. That means your company must know its risks by performing a thorough risk assessment on a regular basis. Transportation companies should ask themselves, “What risks could affect our company’s strategic goals and objectives? How should we prioritize our investments? What is the probability of delivering shipments on time and on budget?”
When those factors are understood, a risk management solution can be designed.
How Are Safety Considerations Part of Transportation Risk Management?
Beyond weather and other variables that can impact a carrier’s performance, there are always safety concerns. If a driver, for instance, is not practicing safe driving habits, not only is the shipment at risk, but the company is at risk for causing accidents, injuries and even death. They are liable for every truck that leaves each dock. Ensuring drivers are adhering to safety guidelines and the fleet of trucks are in good condition is up to the carrier. These considerations are critical in reducing risks.
The Federal Motor Carrier Safety Administration rolled out a relatively new program intended to improve the overall safety of commercial vehicles and reduce the associated accidents and fatalities. The CSA (Compliance, Safety, Accountability) are its pillars, holding carriers and their drivers accountable for adhering to regulations that directly impact safety.
CSA scores are given to carriers. They are meant to provide a measurement of compliance and safety. These scores include details from roadside inspections, crash reports and investigations, vehicle registration, public complaints and carrier citations. The number of violations, as well as their severity and dates, are weighed. Often, shippers will ask for these scores when evaluating carriers. Below are the CSA measurements per carrier:
Unsafe Driving - Operating a commercial vehicle unsafely, e.g. speeding, reckless driving, improper lane change, inattention, etc.
Hours of Service Compliance - Violations of or non-compliance with Hours of Service regulations, or driving while fatigued.
Driver Fitness - Drivers must have the proper medical qualifications, training, and experience to operate a vehicle safely.
Controlled Substances/Alcohol - Misuse of prescription or over the counter medication or impairment due to controlled substances.
Vehicle Maintenance - Failure to properly maintain vehicle (lights, brakes, required damage repairs)
Hazardous Material Compliance - Leaking containers, improper placarding, improperly packaged HM.
Crash Indicator - Frequency and severity of crashes.
The Benefits of Transportation Risk Management
The purpose of transportation risk management isn’t to eliminate risks. Risks are inherent in every industry and many are completely out of the control of any organization. Instead, transportation risk management serves as a system to anticipate potential disruptions for one purpose: to help transportation companies develop dynamic processes and systems that quickly, effectively and reliably respond to changing logistics and transportation issues.
These predictions are only the beginning. They shed light on what may happen, when and where, but the goal is to have the right mechanisms in place to properly respond to those predictions before they negatively impact the business. In order to have a plan of action in any circumstance (known, predicted or unknown), transportation companies must constantly reevaluate their risks. It’s not a one time and done sort of thing, either. Those risks travel with each truck across thousands of miles of roads and across borders. They fluctuate and can change every mile of the journey.
Data is at the center of risk prediction. Companies must have access to accurate, reliable and comprehensive information that offers a clear picture of supply chain and transportation network vulnerabilities. By predicting interruptions, companies can be proactive in minimizing their impact. They can create backup plans or alter plans entirely to lessen the blow. In essence, they can be more resilient to changes and threats.