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.
What is transportation risk management?
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.”
Every company faces risk. For transportation companies, the risks typically reside in three areas: fleet integrity and safety, driver safety and retention, and compliance. The first two areas are subject to external influences, particularly weather events, natural disasters, 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.
There isn’t an easy or quick solution to the infrastructure problems, either. The American Society of Civil Engineers (ASCE) gives the current U.S. infrastructure a grade of a D+ and estimates it will cost approximately $4.5 trillion to fix our roads, bridges, dams and other infrastructure.
Weather and traffic are risk factors we are all familiar with, but more have entered the picture in the past decade or so. Risk & Insurance believes some of the newer risks facing the transportation industry are advancing technology, cyber risk, 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.”
The entire supply chain is dependent on the carrier being able to deliver freight on time and in good condition as each stakeholder depends on receiving and/or shipping parts or products. If the driver has an accident, is stuck in traffic, or lost cargo, for instance, or the company has financial issues that limit resources, disruptions to shipments can spell disaster.
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The obstacle facing transportation companies is that so many of the risks they face are out of their control. They can’t redirect a storm, but they can reroute a shipment – but only if they have the right data early enough to make the change without impacting delivery commitments.
To mitigate as much risk as possible, transportation companies strive to execute strong enterprise risk management strategies. These strategies aim to put the company in a better position to effectively respond to risks in real-time before they cause harm.
Figure 1: Supply chain risks are on the rise, impacting global transportation operations.
Implementing transportation risk management is a way to assess the specific risks and devise a strategy to deal with those risks. The risk variability and pressure to meet demand while reducing costs are forcing companies to get serious about their transportation risk analysis. There is simply too much data to manually gather and analyze and that data is constantly changing, prompting companies to take their analysis capabilities to the next level with the use of modern technology.
Transportation risk management software offering proactive insights gives companies the ability to identify risks early in the process, take steps to lower their risks, and execute on proper response decisions. This is where transportation risk management has the most impact.
How enterprises managed transportation risks in the past
In the past, enterprises haven’t done much to deal with transportation risk threats.
For example, a national retail chain with more than 4,000 locations printed a map and drew dots to represent stores and facilities. They then overlaid a transparency of the forecasted hurricane track. This is how a billion-dollar-a-year business tried to understand the potential impact of a threat. And this had to happen before they could implement a single part of their plan.
The same type of “old” workflow happens across many industries. From digital maps with contextual balloons to emergency email distribution lists–the plans generally aren’t cohesive.
Meanwhile, transportation professionals look at radar on weather websites. They then attempt to mentally match it to their own shipment plans. This is often how they set their weekly strategy.
While pencils and overhead transparencies are an extreme case, a lack of preparedness is not uncommon. The accuracy level of many of these fragmented approaches is painfully low. In order to understand how threats relate to their business, team members are forced to compile information from different sources. Automated tools that identify weather and crime threats are often an afterthought.
And, as losses mount, ensuring your business is prepared for threats before they happen becomes paramount.
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.
Figure 2: Transportation risk management offers the advantage of visibility, resilience, and agility.
As more companies look to distinguish themselves in a competitive market, verifying your company has an effective shipping protocol in place that considers and plans for risk can be a competitive differentiator. In the end, your customers only want to know that they can depend on you delivering their shipments on time, in full as expected.
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 your enterprise can better manage transportation risks today
Today, there are tools that can help enterprises manage and react to uncontrollable events in real-time. These tools can be integrated with many popular ERP and transportation management systems (TMS.) They provide a quantifiable, visual way to understand both weather and crime-related threats.
Through supply chain situation rooms and control towers, shippers can see a visual representation of the threat. You can also see your plants, vendors, and customer locations, and sort by event type, lane, or even SKU.
These tools are offered by 3PL’s and visibility platforms as a value-added service for their customers. 3PL’s and brokers are looking at more customer-centric approaches to transportation management. They want integrate technology to help shippers take the right action at the right time. This reduces freight spend and wasted driver hours, while increasing engagement and customer loyalty.
Metrics to measure transportation risk management success
A functional transportation risk management system provides several important metrics, including:
- A consistent, real-time measurement of risk
- Hazards including:
- Weather
- Civil unrest
- Acts of terrorism
- Bridge collapses
- Risk scores based on your organization’s specific criteria
- Insights to help you quickly determine the lowest-risk alternative to your current plan
For example, Everstream’s platform offers a customized “risk score.” A risk score can be used as a normative benchmark, with different levels of risk fueling different strategies. What does this look like in practice? An environmental risk plan might dictate the following, with the highest possible risk score being 25:
- Management is informed when a certain facility’s risk score is 10;
- An official warning is issued to employees at 15;
- Facilities are closed at 20.
By applying gradations to risk, the score provides a higher resolution view of risk. This granular view does much more than simply showing which locations are in or out of an impact zone.
Risk scores eliminate the guesswork on when to take action. They help managers prioritize the locations or assets experiencing the greatest risk. A risk index can also be analyzed over time to understand and evaluate risk on a seasonal or historical basis.
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
The FHA also says that mature risk management practices include policies and procedures that identify, assess, manage, and monitor risks. The Administration identified the following practices among the leading international transportation agencies:
- Risk management supports strategic organizational alignment
- Mature organizations have an explicit risk management structure
- Successful organizations have a culture of risk management
- A wide range of risk management tools are used
- Risk management tools are key for programmatic investment decisions
- A variety of risk management methods are available
- Active risk communication strategies improve decision making
- Risk management enhances knowledge management and workforce development
- Implementing risk management tools
One of the most effective ways companies can mature their transportation risk management practices is with the use of modern solutions that enable carriers to detect risks, analyze their severity and automate the task of finding lower-risk alternatives.
Detection
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.
Analysis
Beyond detecting potential risks, those risks must then be analyzed to know their likelihood, severity, geography, and timing. As an example, a predicted ice storm may have a 70% chance of hitting 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.
Being able to predict the probability of those identified risks of occurring at a specific point in time is critical before a response plan is launched. Companies waste precious time and money reacting to risks that have a low probability of happening and can miss impending threats if they’re focused on the wrong risks. The biggest threats to the shipment may not be at the pickup or delivery locations but somewhere in between. When you compare all the shipments with all the risks along each route, it’s easy to see how technology can bring incredible benefits. Using the risk management technology, you can dramatically improve the accuracy, scale, and speed of discovery – all of which accelerates decisions that can reduce or eliminate risks.
Decisioning
When you combine real-time data with predictive data, you have everything you need to make the best decisions with confidence in the shortest amount of time. Sometimes, the decision is as easy as changing the date or time of a shipment to avoid a weather event. Other times, you may look at the data and realize the entire lane needs to be rerouted to avoid a natural disaster.
With 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.
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This kind of predictive data can help companies save money as well. Reefer trucks, for instance, are expensive. If you know you have an upcoming route where temperatures will remain below a certain threshold, you may be able to decide to forego the reefer truck for a standard truck to avoid the costs while ensuring the integrity and quality of the product.
Carriers can 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.
No matter what the risk, your transportation risk management solution should be able to help you plan for the next best course of action. Even if the threat can’t be avoided, you’ll have the data early enough to set the right expectations with your customers.
This agile planning is what transportation risk management is all about and is critical for carriers to implement 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 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.
Figure 3: Everstream’s advanced transportation risk management software supports transportation management systems (TMS) in multiple ways.
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. You need real-time and predictive data at your fingertips to be able to make decisions ahead of time, setting appropriate expectations with your customers, reducing costs, and ensuring shipments are safely transported as expected. Companies that invest in these technology solutions are poised to gain and retain the competitive advantage.
The most critical aspect of a transportation risk management solution is its ability to provide wall-to-wall visibility up and down the supply chain. Whether you are a shipper or a carrier, real-time insight into shipments is the only way to control risks. This includes every truck and its cargo, cargo requirements, available shipping lanes, pickup and delivery commitments and schedules, and of course, all the risks that could impact those variables.
Before you can choose the right transportation risk management solution for your organization, you must first ask what risks you know about now that could affect your company’s strategic goals and objectives. This is an investment, requiring decisions to be made on how to prioritize a transportation risk management solution. Remember, there is a dollar amount tied to your ability to deliver shipments on time and on budget.
When those factors are understood, a risk management solution can be designed.
In the past, transportation companies relied on manual data gathering and incomplete, outdated spreadsheets to assess risks. More mature companies may have used software, but it was limited in what it could do, particularly given the dynamic nature and breadth of the data.
Figure 4: It takes both AI and expert human analysis to turn data into transportation risk management insights that reveal what will happen next, and what managers should do about it.
Today, there are better, more reliable, and efficient solutions on the market, yet not all are created equally. The key is to find a comprehensive solution that can go beyond basic risk detection to offer actionable, predictive intelligence that informs decisions and sets a mitigation strategy in motion. When considering a modern transportation risk analysis solution, make sure it offers the following features:
1. Comprehensive risk assessment
The greatest benefit you’ll get from your investment into a modern transportation risk management solution is that it will offer complete visibility into all of your risks. One of the biggest issues with previous analysis methods is too many risks are missed, creating blind spots that leave organizations vulnerable. It is imperative to be able to look back at historical data to learn from the past, view present data to see in real-time what is happening, and have insight into forward-looking data that forecasts potential risks. This 360-degree view is the only way your company can see the full picture to make more informed decisions faster.
2. Instant and actionable reporting
Unfortunately, many software solutions fail to present the data in a way that instantly makes sense and is actionable. Stakeholders waste too much time breaking down the data to determine what really matters. Look for a transportation risk analysis solution that paints the picture, so all your team needs to do is strategize and execute. This means the data should be visual, identifying risks but also giving those risks probability and severity scores, for instance. In cases where the solution deems a risk as being high, make sure the system will send instant alerts to stakeholders for rapid mitigation. Look for software with root-cause analysis to reveal where the issues originate to foster continual improvement and more proactive future mitigation.
3. Easy and continual customization
One size rarely fits all, including in a transportation risk analysis solution. An off-the-shelf solution without customization features will end up frustrating more than helping, likely providing features you don’t need and lacking ones you do. Find a solution that considers your organization’s unique requirements, demands, vulnerabilities, and value streams. It should be able to analyze and present the data you and other stakeholders most want and need to see, how you each want to see it. In this way, each person can glean the information they need to make their own decisions, while also providing a standardized, trusted data set to drive conversations that impact the business.
Figure 5: Checklist for evaluating transportation risk management solutions software platforms.
4. Integration
Because data comes from so many sources, it is important that a transportation risk analysis solution easily integrates with other business systems. When data is siloed and disconnected, it is basically useless to the organization. It also consumes massive amounts of time when resources are having to manually locate and input data, delaying mitigation efforts and increasing the risk for errors. By the time data is collected, much of it is outdated and unreliable. On the other hand, when systems are sharing data automatically, there is less risk for error and the data is reliable and current. Stakeholders trust the data and can confidently base their decisions on the data. Everyone is seeing the complete picture and it’s consistent across the business.
5. Objective mitigation recommendations
Identifying transportation risks is important, but it’s how those risks are managed that counts. It’s not always easy to know what the best mitigation strategy is for every scenario, making it advantageous to have an analysis solution that also crunches the data to determine the best potential alternative actions would be. Having these recommendations saves precious time, enabling transportation companies to make faster, more proactive decisions earlier in the timeline to minimize disruptions to deliveries and the supply chain. The software will provide insight into “what if” scenarios, showing decision-makers how a change in a lane, a mode of transportation, the shipping date, and the type of vehicle used, for example, would impact the ability to meet on-time delivery commitments and the bottom line.
6. Scalable to evolving business needs
A transportation risk analysis solution should be able to not only meet the current needs of your business, but it should also be able to grow as your company evolves to meet whatever demand is placed on it and whatever risks threaten the supply chain. It should also scale to meet the individual business needs of each stakeholder, consuming and analyzing the specific data each stakeholder requires and then presenting the information in the “language” that speaks to each stakeholder. For instance, executives will require different data, higher-level data than a business unit leader who is more concerned with micro-level details that affect workflows. The solution needs to be able to handle both requirements, delivering the “just right” level of data.
Your transportation risk management solution needs a 360-degree view
Transportation companies can take advantage of the many benefits of technology to empower them to meet change and customer demands head-on. Risk mitigation leads to lower costs, less supply chain disruption, and a greater ability to deliver value. As PwC says, “Logistics companies will need to focus on ‘digital fitness’, cost efficiency, asset productivity, and innovation if they want to meet shopper expectations.”
This type of digital fitness requires historical, real-time, and predictive data. Transportation risk analysis is only effective when all data points are integrated. Executives and business leaders need more than data; they need insights that reveal patterns and identify opportunities to mitigate risks with recommendations on the best ways to do so. Data may be power but only when it’s operationalized and presented in a way that makes sense to each stakeholder. The sooner leaders have this information, the faster they can respond.
Investment in a transportation risk analysis solution is an investment into the profitability and success of your company.
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 has a 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.
Figure 6: The seven transportation safety categories monitored by the U.S. Department of Transportation
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.
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. 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.
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