Preparing for the Worst Is the Best Logistics Strategy — Now More Than Ever

In short:

• The Russian invasion of Ukraine is creating a number of risks for the global logistics industry.
• These risks span air freight, rail service, road freight, sea freight, fuel and cybersecurity.
• Use the targeted mitigation strategies detailed below to cope with disruption. 

Despite diplomatic efforts followed by severe sanctions, the Russian invasion of Ukraine continues to escalate. Logistics, as it always is, finds itself at the sharp end of globally significant events such as this. As leaders in the field come to terms with the near- and long-term consequences, risk mitigation is the only strategy that really counts. We believe that the potential risks detailed below could have detrimental effects on different aspects of the global logistics industry.

Read more: Resources for Executives and Their Teams Amid Russia’s Invasion of Ukraine

Key Logistics Risks

Air Freight

Mitigation strategies:

• Extend pricing agreements beyond the next six months.
• Implement index-based price adjustments.
• Work closely with core partners to mitigate cost increases.
• Block capacity where necessary.
• Prioritize cargo and establish charters to protect service.
• Identify alternative routes and carriers and their impacts on supply chains.

Rail Service

Mitigation strategies:

• Switch modes of transport to ocean, air and air-bridge services.
• Use the rail link between Kazakhstan and Turkey.
• Consider switching to road or short sea routes.

Read more: The Top Business Questions About the Russian Invasion of Ukraine

Road Freight

Mitigation strategies:

• Work with affected road carriers to understand the changes in routes and services, and plan for increases in lead times and costs.
• Find out whether your carrier of choice will apply a surcharge.
• Expect the addition of war risk or other surcharges.

Sea Freight

Mitigation strategies:

• Continue with contingency plans for capacity constraints and price fluctuations.
• Switch modes to road freight or other short sea routes.

Read more: 5 Key Cost Considerations as Oil and Other Input Prices Rise

Other Key Logistics Risks

Mitigation strategies:

• Hedge fuel prices by forward purchasing.
• Increase tolerance for fuel surcharge adjustments.
• Ensure third-party logistics (3PL) partners have a robust contingency plan to address cyberattacks.
• Ensure alternate suppliers are in place should core carriers be impacted.

The Tip of the Disruption Iceberg

The rapid escalation of the Russian invasion of Ukraine has exposed many companies’ lack of preparedness to deal with disruption. Be under no illusion: Disruption has become — and will remain — a constant that every logistics leader must accept and adapt to. 

Disruptions That Continue to Challenge Logistics

• COVID-19 outbreaks and globally low vaccination rates
• Cybersecurity
• Military conflicts
• Trade disputes
• Financial constraints
• Weather/natural disasters
• Labor shortages
• Fuel costs
• Capacity shortages
• Physical infrastructure (roads, bridges, airports, ports, warehouses, factories)
• Digital infrastructure (power grid, fuel supply, internet connectivity)
• Environmental regulations
• Security, hijacking and theft
• Terrorism 
• Bankruptcy
• Mergers and acquisitions (M&As)

Read more: What's Ahead for Semiconductor Shortages

Logistics professionals can hope for the best, but they must absolutely prepare for the worst. These four immediate actions are essential to ease the pain of disruption:

1. Plan for the unexpected. Prepare risk assessments across the logistics network, and be ready to act on alternate scenarios if necessary.
2. Reduce surface area and eliminate exposure to risk. Increase transport planning lead times, and reassess network resilience and agility.
3. Enable alternate sources of supply, modes of transportation, ports and routes. Diversify the carrier and 3PL supplier base to expand capacity.
4. Create contingency funding to cover the incremental costs of increased fees from fuel surcharges and alternate modes of transport.

David Gonzalez is a VP Analyst and KI Lead for Logistics Strategy and Operations based in the EMEA region. Matthew Beckett is an Australia-based Senior Director Analyst in Logistics and Supply Chain. Brian Whitlock is a Senior Director Research Analyst in Logistics and Fulfillment, and he works out of the U.S.

This story was originally published on the Gartner Blog Network.