Mitigating Supply Chain Risk: Effective Transportation and Logistics Provider Diligence and Management Practices

by Benesch


Every day, supply chain managers and logistics coordinators navigate a world of risk.  Those risks include interruption due to delay, the damage, contamination, or loss of goods, customer service failures, and even regulatory compliance violations.  Perhaps the greatest example is the 2016 bankruptcy of ocean carrier Hanjin that stranded $14 Billion USD in freight and shocked supply chains.  Fortunately, both commercial shippers and service providers can implement practices to help avoid or mitigate risk as goods circle the globe in the hands of others.

Supply chain risk is an acute vulnerability for transportation and logistics.  In today’s market, these services contribute not only operational efficiency but also serve as the face to end-users and in some cases play a significant part of the enterprise value proposition.  Some global supply chains aggressively mange providers while others do not.  Other supply chains in-source many of these services while others do not.  In either case, third parties are likely handling material inputs, finished products, and returns, in all jurisdictions to which the supply chain extends. 

Transportation and logistics services are high-value and high-impact because they are essentially outsourced operations.  Each functional element of the global supply chain operates within its own regulatory framework, contractual requirements, and accepted business practices.  The “rules of the road” differ when dealing with direct carriers, forwarders and brokers, transportation management providers, customs brokers, export agents, warehousing and distribution companies.  An effective plan to manage supply chain risk and resiliency will leverage each of these business realities during procurement and throughout operations management. 

Service provider due diligence is a valuable part of any procurement and provider management strategy because it is both achievable and effective in the transportation and logistics sector.  Most jurisdictions regulate transportation and logistics activates for public safety and convenience.  Public records are often available from the respective regulatory agencies, which makes due diligence fast and inexpensive.  Insurance and bonding information is also often available to the public due to the requirements imposed by law.  Additionally, certifications and trade associations can serve as both badges of quality and evidence of market-standard practices and terms.

Taking brokers and third party logistics companies as an example, the range of services directly and indirectly offered will frame the impact of regulation and the areas for diligence.  It is reasonable to inquire regarding a service provider’s ability to perform, to require identification of its respective operating authorities and insurance, and to require representations and warranties to that effect under contract.  The starting point for this analysis often begins with the nature of the services, such as:

  • Surface Transportation – Does the provider hold a broker or freight forwarder permit from the Federal Motor Carrier Safety Administration? 

  • Air Transportation – Does the provider operate pursuant to a security program approved by the Transportation Security Administration and does it hold certification from the International Air Transport Association?

  • Ocean Transportation – Does the provider hold an ocean forwarder or non-vessel operating common carrier (”NVOCC”) license from the Federal Maritime Commission? 

  • Customs Brokerage – Does the provider hold a customs broker license from U.S. Customs and Border Protection?

To further the review, many of these regulated services also require bonds, trust funds, or other evidence of financial responsibility.  It is not uncommon to request evidence of additional insurance based upon an internal Risk Management team’s tolerances.  These requests often include commercial general liability coverage, workers compensation and employer’s liability coverage, contingent cargo coverage, warehouseman’s liability coverage, and even errors and omissions professional liability coverage.  Sophisticated commercial shippers also require representations about the insurance requirements that the brokers and third party logistics providers impose on their portfolio of underlying carriers.

Certifications are another indicator of a provider’s experience in a particular service or jurisdiction and in some cases offer independent third-party verification.  For example, it is not uncommon to require Customs-Trade Partnership Against Terrorism (“C-TPAT”) certification in the United States where the desired activities include cross-border traffic or other forms of trade.  Among the North American Free Trade Agreement (“NAFTA”) countries, Partners in Protection (“PIP”) certification is available as an analog in Canada and Nuevo Esquema de Empresas Certificadas (“NEEC”) certification is available in Mexico.  Trade association membership may also be representative of a provider’s commitment to professionalism.  In the United States, many international forwarders are members of the National Customs Brokers and Forwarders Association of America (“NCBFAA”) and in the United Kingdom, as an example, British International Freight Association (“BIFA”) membership is available. 

Active provider management strategies help to further manage supply chain risk and resiliency after qualified service providers are selected.  As an initial matter, this involves negotiating appropriate contract terms and conditions applicable to the service, service provider, and country of operation.  Developing agreement templates can facilitate the bidding process by comparing “apples to apples” while also gaining a view to which particular terms may be pain points for providers.  Tailored agreement templates will also make contract administration and provider management easier following awards by clarifying expectations for renewals, updates to services and rates, and continuous improvement, and because similarly situated providers will be working from the same or nearly identical terms.  Agreement templates will also help to manage the impact of incidents.  For example, a transportation and logistics company can align with internal contingency plans by addressing: (1) required data feeds and event notices; (2) business continuity and disaster recovery; (3) termination rights and post-termination assistance; (4) escalation procedures; and (5) dispute resolution requirements. 

Service provider files age over time and require attention, such as updating operating authorities, insurance, and any other qualification that was raised during initial diligence.  Operational characteristics and risk management tolerances may also change over time, and open and frequent communication offers an opportunity to problem-solve as well as to update any commercial or legal terms that may need adjusting.  Contractual mechanisms are available to nurture these types of mutually beneficial relationship, including agreeing in advance to participate in periodic management meetings and continuous improvement discussions.  The best-case-scenario is, of course, to develop a long and fruitful relationship throughout the supply chain that yields few surprises.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Benesch | Attorney Advertising

Written by:


Benesch on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.