Categories of Risk
A first step in risk management is to determine what
risks we face in a global economy.
As part of the process, management should grade each
potential disaster according to both probability and severity.
For example, the risk of flood in your community may
be rare, but if it happens the severity may be great. Other
risks, such as civil disturbance, are likely events in some
nations, but rare in the USA.
The grading process for both probability and severity
will differ, depending on the operation and its location.
For that reason, in this exhibit, these two columns were
filled in only on the top line. Each user must grade the
events according to the individual risks that might apply
to each particular warehouse.
Managing the Risk
These are the three ways to control the risk of any loss:
Insurance
Loss prevention
Contingency planning
Nearly every warehouse operator has insurance. You
need to recognize the significant differences in liability
among logistics service providers, common carriers and
wholesale distributors.
In the US, and most nations having English common
law as the basis of their legal codes, the service provider is
a bailee for hire, and therefore is not responsible for cargo
losses unless caused by operator negligence. This law also
governs parking garages and dry cleaners. If your product
is lost due to “acts of God” or another disaster, your own
insurance coverage must pay for the loss. In contrast, the
common carrier must insure the cargo. Wholesalers own
the products that they store, so they must insure them. Because
rules are different overseas, users of logistics service
firms need to understand the local legal system.