Poor Compliance: The logistics industry’s hidden risk

Poor qualification is a common compliance risk in the logistics industry!

In recent years, the supply chains of companies have become larger and, above all, more complex. The growth and success of companies like Amazon are a prime example of an ever growing and complex supply chain at work. The digital marketplace giant Amazon, successfully serves nearly every country on the planet, something that wouldn’t be possible without building and maintaining a vast and complex network of supply chains that allow it to serve it’s global clientele effectively. Companies like Amazon are the result of the increasing trends of globalization and digitalization. Globalization and digitalization mean that the supply chains are becoming even more fragmented and suppliers within them come from a wide variety of regions with a broad spectrum of standards and legal requirements. This means that freight forwarders are faced with ever changing liability risks which complicates compliance within the entire supply chain. Companies working in the manufacturing industry will face more and more new compliance challenges in the coming years because of the increasing globalisation of the production. If compliance is not maintained within the supply chain, this will lead to the violation of laws and international treaties, which could permanently destroy any company reputations that have been built in the last few decades in such a competitive market because of something like a missing document. 

According to a study by KPMG, more than 43% of respondents see an effective compliance solution as a competitive advantage over other companies in the logistic industry. In addition to protecting against reputational damage, such a solution helps to proactively manage risk through early risk identification and assessment. In addition, it increases the efficiency of the company and protects it from most risk associated with inadequate qualification of partners, up to and including violation of guidelines and laws. This becomes even more important when working with carriers from other countries, where the legal guidelines are not as clear as in their own country of origin.

What is qualification?

Qualification generally describes the verification of the totality of skills and knowledge of a person or a company, which allows them to fulfill requirements in certain work functions within a certain period of time. In the context of logistics, this describes the process by which a forwarder qualifies the carrier with whom they want to cooperate with. Successful qualification depends on documents like an EU license or another community/geographic specific license depending on the region that business is being conducted in, the declaration of compliance with the minimum wage regulation and also insurance certificates. In most freight forwarding companies this process must be completed for each new carrier and even for a known carrier after the documents expire which happens every quarter of a year. Currently qualification is a manual process, which is very time consuming, and often neglected due to many pressures of everyday work. However, the current opinion about compliance and especially qualification being a time consuming and unhelpful process is wrong. The appropriate qualification not only brings security when it comes to contracting, but also helps to build trustworthy relationships and, most importantly, improve the external presentation to customers. In today’s market, there are a few solutions to minimize the administrative effort for qualification and automate the process to take logistics companies to the next level. Therefore, all we can say is: “It is never too late to become a reliable forwarder which your clients can trust!”. 

What are the benefits of proper qualification? 

When you hear the term qualification, most people outside of a compliance team would immediately start thinking about “additional costs”, and while yes, carrying out proper qualification can mean additional efforts and costs, these costs are miniscule when compared to the costs of neglecting proper qualification, being caught and then being fined.

Spending money to ensure proper qualification, creates far more value than one would initially expect, and it is actually best practice in the industry. While many companies choose to avoid putting the proper qualification procedures in place, others have chosen to put rigorous systems in place. Here’s a quick look at the benefits proper qualification can bring to your business: 

• Strengthened relationships

Building relationships with parties that you can verifiably trust often happens faster thanks to the trust aspect being in the relationship from the start. New business relationships benefit from trust early on, it allows each party to focus on bringing real value to the table for long lasting mutually beneficial relationships. Proper qualification can benefit your labour party relationships too, it’s quite common for logistics companies to violate minimum wage and work safety laws. 

• Strengthened credibility

Proper qualification boosts your level of compliance which can help businesses to get investment. Investors doing proper due diligence, will be comforted by the fact that you’re operating compliantly and only engage with other fully compliant parties too. This will strengthen your brand’s credibility and this credibility will also be seen by your clients and service providers, who can have peace of mind, that you operate at the highest standard and abide by the regulations. 

• Compliance as a competitive advantage 

Believe it or not, compliance can be leveraged as a competitive advantage. In an industry where many neglect to enforce compliance diligently, being able to market your offerings as verifiably fully compliant, puts you a notch above the competition. You may even be able to negotiate better insurance premiums with your insurance provider by being able to prove that you’re managing your risk so well that the likelihood of claiming for something that results from poor qualification is really low or completely mitigated. 

• Easily enter new markets

Proper qualification will get you into new markets with less hassle. Having the correct documentation and proof of capability are essential for working in foreign markets, therefore being able to prove that you are fully compliant and qualified will help you to tap into market potential abroad and conduct business internationally.   

Proper qualification and compliance can bring these kinds of benefits to your business, in an increasingly competitive global market it’s important to look for an edge over your competitors, why not use proper compliance as your edge? 

Without proper qualification your company faces significant risk

Poor qualification and compliance practices will lead to more than just a hefty fine. In many cases a company’s non compliance can really blow up and often make the news, ending up in company representatives being hounded by the press for comment. This kind of publicity is always negative and will damage your brand’s value and credibility. Event’s like these have the potential to reduce your customer base, bring upon increased regulatory scrutiny and yes, you will be fined. Here’s a closer look at some of the risks a company can face when poor qualification or compliance results in an error.

• Diminished brand value

Every party included in an export transaction will be subject to the same rules and regulations. Export fines and penalties are recorded and can result in extensive media coverage, this can weaken your position when engaging with insurers, as your non compliance is public knowledge they are likely to classify you as a risk and charge you higher premiums based on this evidence. 

• Reduced customer satisfaction

You now have unhappy customers who will likely avoid doing business with you in the future, especially in such a competitive market where your clients can shop around very easily, you run the risk of going bankrupt should enough clients leave your business.  

• Increased regulatory scrutiny

After slipping up with your compliance duties, you now have regulators keeping your company under the scope. Your transports could likely face delays due to more rigorous checks than usual.

• Financial penalties

Paying fines can set your company back financially and may hinder your future operations. 

• Lose clientele to competitors 

Sub par performance as the result of poor qualification and compliance can lead to your clientele choosing to work with your competitors instead.

• Sanctions 

Poor qualification can lead to sanctions from countries you are working in. This may not only decrease your company’s performance but also makes it more difficult to work with the people there, especially with orders that public authorities are involved in.

Trade compliance and logistics go hand in hand. Therefore carriers and freight forwarders need to be aware of the rules and exactly what is required of them in export transactions.

Some of the latest compliance violations include aviation safety violations, wage and hour violations as well as workplace safety and health violations, more examples can be found here. 

Find out how TrustedTrucks can help you with the qualification process

TrustedTrucks is a transparent and intuitive platform that enables carriers and forwarders to connect with each other and build trusted relationships. The platform helps to make the qualification process less complex and time-consuming. With just one click through TrustedTrucks, a connection can be established with new business partners, who’s respective qualification documents can be checked and verified. Once this is done, business can be conducted at will. TrustedTrucks users can be sure that they are working with qualified professionals. TrustedTrucks not only impresses with a smooth and compliant qualification, but also sets a new benchmark among logistics platforms with regard to data handling, privacy and confidentiality are enforced throughout the platform. Data is owned and controlled by its owners and it’s owners alone. 

If you want to follow the signs of the times and are looking for a suitable tool to carry out the qualification of your carrier partners, then try out TrustedTrucks and convince yourself!