Supply chains face major disruption and higher costs

3 October 2001
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04 October 2001 | Liam O'Brien

Procurement practitioners should be ready for disruption to international supply chains and sharp rises in air freight costs in the wake of the terrorist attacks in the US, supply chain consultants warned this week.

They predicted the jet crashes at the World Trade Centre and the Pentagon would lead to long-term disruption of many supply chains as the stringent security regime designed to prevent repeat attacks takes shape.

Michael Carnall, managing director of international business consultancy MCC, said: "We have been used to flying fruit into the UK from California and having it on supermarket shelves within 24 hours. Companies will have to pay for increased security costs and experience delays. This is bound to make them less responsive."

Businesses operating global supply chains and just-in-time inventories could be forced to seek out more local sources.

Allan Robertson, senior consultant at PMMS, said: "Companies should have fall-back positions. Those that don't could face a nasty shock."

Insurance premium hikes to pay for the expected £1.3 billion of claims from the collapse of the World Trade Centre and to allow for the heightened level of risk are being put in place.

The US government has had to underwrite US carriers' third-party war liability, as has the UK government, but in the longer term the costs will be borne by airlines themselves.

Additional security measures will also have to be paid for by companies and their customers.

Melvyn Peters, a director of Cranfield University, said: "There will be increased costs from screening passengers and aircraft, among other things. These will be borne by the airlines and their customers in rising insurance premiums."


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