What is the Total Cost of Risk?

How security costs can erode savings on labor and shipping

Companies often shift production to lower-cost countries to realize savings on wages or shift their cargo transportation to a cheaper modality to decrease costs. In other cases, emerging markets such as China, Brazil, Indonesia, or Mexico are simply too large to ignore and companies begin rapidly distributing their products in these areas to satiate growing consumer demand.

For the most part, security concerns are an afterthought in these decisions. Executives often think of security in terms of personnel protection or higher-level geopolitical risks, with product losses considered an insignificant cost. As a result, corporate or supply chain security professionals struggle to convince their organization that investments in security can help prop up the bottom line.  

Unfortunately, most of the major emerging markets pose cargo theft risks that are far larger and costlier than in developed markets in Europe or the United States. 

BSI projections indicate that:

  • Cargo theft cost companies an estimated $22.68 billion in 2015  
  • Brazil sees over 17,500 cargo truck hijackings each year
  • Mexico sees at least several thousand

For some industries, such as pharmaceuticals or electronics – where the value of products on a single truck can easily top $1 million – the theft of just a few vehicles can begin to cut into savings due to lower labor costs. Shifting to other transport modalities can also increase risk. Ports are often less secure than airports, leading to much higher levels of loss. While transportation savings are often measured in the hundreds of thousands of dollars, BSI has recorded container losses that top $5 million.  

Quantifying risk to justify security investment

Calculating and quantifying what these risks mean for your company helps show executives that investing in security has its own pay off and adds value to the organization as a whole. BSI’s Supply Chain advisory team uses our extensive repository of supply chain loss data and unique methodology for forecasting cargo theft risk to weight the cost of not spending on security against the savings or potential benefits of operating in a new market. Armed with these projections, security professionals can scale their preparations for each country more effectively and demonstrate that they are proactively identifying and mitigating risk.

What have you done to help justify your organization’s security budget?