Part 3: Supply chain disruption

Global supply chains are facing the worst disruption since the 1970s, with businesses grappling with everything from trade barriers to goods and labour shortages.  

Current supply chain disruption can be traced back to the pandemic. As lockdowns shut down production lines and fuelled very different consumer buying habits, there were shortages in everything from timber to toilet paper. 

Pandemic-related disruption may be behind us now, especially since China abandoned its zero-Covid policy in December 2022, but other disruptors remain.

A shortage of lorry drivers has grounded goods around the world. In the UK, the Road Haulage Association says the combination of an ageing workforce, the loss of EU drivers and the economic shock caused by the pandemic mean the sector has a 50,000 shortfall in drivers.¹

Trade barriers are another cause of disruption. Brexit has reduced the amount of goods that flow between the UK and the EU. The latest government figures show that total trade in goods (imports plus exports) with EU countries was down by 23.1% in the first quarter of 2021.²

Another major supply chain challenge results from the war in Ukraine. This has seen supplies of metals, grains and other commodities seriously affected. As an example, between them, Russia and Ukraine account for almost a third of the global wheat export market.³

Even the weather can cause disruption. In February 2023, British supermarkets were forced to ration tomatoes and other vegetables as cold weather, heavy rain and flooding ruined the harvest in southern Europe.

Supply chain disruption is a headache for businesses but also for D&O insurers. As delays in the supply chain can increase the likelihood of businesses failing to meet contractual agreements, this pushes up the risk of insolvency and litigation.

The UK is already seeing a sharp rise in the number of registered company insolvencies. In February 2023, 1,783 businesses in England and Wales were declared insolvent – a 17% increase on a year earlier.

While factors such as lorry driver shortages and the weather are out of most business owners’ hands, there are ways to manage the risk in a supply chain.

Technology and supply chain risk management can also help to manage risk across a company’s suppliers. These approaches can identify potential risks quickly and ensure that goods are moved in the most efficient way possible.

But, as supply chain disruption continues, businesses must ensure that risk is kept to a minimum with all their suppliers and customers.