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Digital Connectivity – Evolving Opportunities and Risks for Logistics

The benefits of connected physical assets will extend across the logistics value chain. IoT will bring with it increasing interdependencies and non-damage business interruption risk.

Parcels on conveyor belt in a warehouse.

By , 

03/06/2018

The networked connection of physical objects is the new norm – both in our homes, and more so in our businesses. The influence of the Internet of Things (IoT) on logistics and transport is increasing in sophistication, and may be a ray of light during a challenging period for the sector. Currently facing the pressures of rising costs and squeezed margins alongside customer demand for additional services, operators are keen to find new ways to achieve growth.

Harnessing the opportunities of IoT has the potential to transform the industry in a number of ways. It could allow for increased visibility into operations, such as the tracking of shipments with connected sensors; this paves the way for better decisions about routing, staffing, predictive maintenance and warehousing, which in turn could lead to less downtime and improved employee and asset utilisation. Increased interoperability will also increase efficiency by transforming how operators make judgments about how goods are stored, monitored, and routed. 

The benefits of connected physical assets will undoubtedly extend across the entire logistics value chain, from warehouse to last-mile. However, the IoT will bring with it increasing interdependencies between processes and companies, exposing operators to increasing levels of non-damage business interruption risk.

PREPARING FOR CHANGE AS YOUR BUSINESS EVOLVES

Perils ranging from cyber-attacks, data breach, and power outages, to mundane technical failures and employee errors, could potentially cause large losses for companies. As this complex area of risk continues to develop, the increased connectedness of the industry should be a cause for concern and demands a new approach:

ASSESS AND ANALYSE: Identifying loss scenarios specific to your organisation is essential in understanding the potential losses for business interruption. A bespoke approach will highlight risks in less prominent parts of the business and will provide a greater understanding of the insurance policy capability, attachment point, or intention to cover.  As digital connectivity continues to develop, so must policy wordings and the depth of cover provided.

SECURE AND INSURE: The impact of a cyber event can be acute, putting pressure on revenue and sources of funding. It is important to model different loss-scenarios and their impact on capital and cash-flow, providing a financial basis for making trade-offs on how much to spend on defensive measures.

RESPOND AND RECOVER: While tailored insurance solutions can be considered where your business is exposed, further discussion regarding whether internal process changes are required should also be in scope as your business changes.

Understanding the changing nature of business interruption risk in today’s technology-driven environment is crucial in building a business for the future.