risk management of exporting 100,000 mt dragon fruits from phan rang to china by sea, ddp incoterms 2020

Associated strategy - Reduce strategy - Mitigation plan: When the rainy season syncs with the main dragon fruit crop,the quantity of dragon fruit produced is increased, supply is more th

-*** -MID-COURSE ASSIGNMENT Major: Risk Management and Insurance

RISK MANAGEMENT OF EXPORTING 100,000 MT DRAGON FRUITS

FROM PHAN RANG TO CHINA

BY SEA, DDP INCOTERMS 2020

Group: 4 Class: K58CLC4 Intake: 58

Lecturer: Vuong Thi Bich Nga

Ho Chi Minh City, April 10, 202

TABLE OF CONTENT

1 Natural risk 8

1.1 Sea-related natural disasters 8

1.1.1 Risk topic 8

1.1.2 Evaluation 8

1.1.3 Associated strategy 8

1.2 Farm-related natural disasters: 9

1.2.1 Risk topic 9

1.2.2 Evaluation 10

1.2.3 Associated strategy 10

1.3 Covid-19 pandemic 10

1.3.1 Risk topic 10

1.3.2 Evaluation 11

1.3.3 Associated strategy 11

2 Technological risk 12

2.1 Infection 12

2.1.1 Risk topic 12

2.1.2 Evaluation 12

2.1.3 Associated strategy - Reduce strategy 12

2.2 Freezer breakage 13

2.2.1 Risk topic 13

2.2.2 Evaluation 13

2.2.3 Associated strategy 13

2.3 Long time perishing 14

2.3.1 Risk topic 14

2.3.2 Evaluation 14

2.3.3 Associated strategy – Reserve strategy 14

2.3.4 Associated strategy – Protect strategy 14

2.4 Container shortage 15

2.4.1 Risk topic 15

2.4.2 Evaluation 16

2.4.3 Associated strategy – Reserve strategy 16

2.4.4 Associated strategy – Reduce strategy 16

2.4.5 Associated strategy – Protect strategy 17

2.5 Port congestion 18

2.5.1 Risk topicd 18

2.5.2 Evaluation 19

2.5.3 Associated strategy – Reserve strategy 19

2.5.4 Associated strategy – Protect strategy 20

2.5.5 Associated strategy – Reduce strategy 20

2.5.6 Associated strategy – Avoid strategy 21

3 Daily risk 21

3.1 Fire Hazards 21

3.1.1 Risk Topic 21

3.1.2 Evaluation 22

3.1.3 Associated strategy 23

3.2 Risks of shipping vessels 25

3.2.1 Risk topic 25

3.2.2 Evaluation 26

3.2.3 Associated strategy 26

3.3 Risks of human resources 28

3.3.1 Risk topic 28

3.3.2 Evaluation 29

3.3.3 Associated strategy 29

3.4 Other risks 31

3.4.1 Risk topic 31

3.4.2 Evaluation 31

3.4.3 Associated strategy 31

4 Company risk 33

4.1 Capital Shortage and Budget Decreasing 33

4.1.1 Risk topic 33

4.1.2 Evaluation 34

4.1.3 Associated strategy – Reduce strategy 34

4.1.4 Associated strategy – Reserve strategy 34

4.2 Strike 35

4.2.1 Risk topic 35

4.2.2 Evaluation 35

4.2.3 Associated strategy – Reduce strategy 35

4.2.4 Associated strategy – Reserve strategy 35

4.3 Employee Turnover 36

4.3.1 Risk topic 36

4.3.2 Evaluation 36

4.3.3 Associated strategy – Reduce strategy 36

5 Conflict risk 37

5.1 War and Civil war 37

5.1.1 Risk topic 37

5.1.2 Evaluation: 37

5.1.3 Associated Strategy – Reduce strategy 38

6 Economic risk 38

6.1 Currency risk: 38

6.1.1 Risk topic: 38

6.1.2 Evaluation 39

6.1.3 Associated strategy – Reduce strategy 39

6.1.4 Associated strategy – Avoid strategy 40

6.1.5 Associated strategy – Transfer strategy 40

6.2 Rising prices in input and product 41

6.2.1 Risk topic 41

6.2.2 Evaluation 41

6.2.3 Associated Strategy – Reduce strategy 41

6.2.4 Associated Strategy – Transfer strategy 42

7 Legal risk 42

7.1 Unqualified products 42

7.1.1 Risk topic 42

7.1.2 Evaluation 43

7.1.3 Associated strategy – Protect strategy: 43

7.2 Inability to clear custom formalities 43

7.2.1 Risk topic 43

7.2.2 Evaluation 44

REFERENCE 45

Abstract

RISK IDENTIFICATION

Natural risk

StormingLighteningFloodingTsunamiWater canonTyphoonCrop failureInsect infectionDrought

Covid-19 pandemic

Technological risk

InfectionFreezer breakageLong time perishingContainer shortagePost congestion

Transshipment truck firePort fire

Aground vesselsCollision

Delayed vesselsAbsenteeismWork accidents

Theft/fraudNon-payment/ Non-receiptCorruption/Bribery

Rising prices in input and product

Inability to clear custom formalities

 These natural disasters occur due to the Act of God.

 Besides, it may happen because of many business activities of humanssuch as building dams for water storage in the hydroelectric industry, orover-exploiting the forests for wood business

- Consequences: It will affect negatively to the shipment, mainly the maincarriage time and quality of the goods shipped Suffering from these naturaldisasters, ship vessels cannot go but find safe places to ensure the crew livesand goods quality Therefore, it will delay the transportation time, and evencause shipwrecks or goods sinking if it is unable to avoid calamities

 Always update forecasts related to weather and climate to take appropriateprevention or treatment measures to reduce the frequency and impactsuffering from many serious natural disasters.

 Upgrade the ship's resistance and facilities, fully equipped with rescue toolsand emergency communication lines in case of danger

 Work with reputable shipping lines and choose reasonable and safe routes forthe shipment

- Contingency plan:

 Always have back-up time for shipping, thus in the sales contract with thebuyer, delivery time must be set reasonable to reduce the impact of delaytime if these natural disasters happen If there are any issues, contact thebuyer to present the incident and propose a solution to avoid as much damage

as possible to your side

 For emergency situations, always give priority to saving lives by throwinggoods into the sea, or using emergency lifebuoys

1.2 Farm-related natural disasters:

1.2.1 Risk topic

- Title: Crop failure, Insect infection, Drought

- Causes:

 Crop failure or insect infection and drought happen due to the strong impact

of the Act of God Humid tropical weather in Vietnam always becomes anideal environment for insect reproduction, occupied with inappropriategardening procedures, will act as the main agent leading to crop failure

 One another root is inadequate and low-quality gardening tools would alsoaffect seriously to the crop harvest

- Consequences: These risks will result in a serious crop failure of dragon fruit.Because we have already signed the contract, we have to supply and deliver the

quantity and quality as stated Therefore, crop failure will impact detrimentally therequirement of the contracted shipment

 Drought: Select suppliers and growers in regions with abundant waterreserves

- Contingency plan:

 Crop failure and Insect infection: Shortlist many different suppliers andalternative sources of goods in different places if the shortage situationsuddenly occurs to deal with the urgent situation; Be careful in describing thegoods in the contract and take advantage of the open contract

 Drought: Contact with many water suppliers to conduct business with them ifnecessary

1.3 Covid-19 pandemic

1.3.1 Risk topic

- Title: Covid-19 pandemic

- Causes: Coronavirus which is originated from a kind of bat spreads fast andwidely without any strong vaccine or preventative methods, causing awidespread pandemic among the whole world

 One more thing is productivity, Covid 19 leads to serious infection, whichresults in health decline in ship crew, thus, may cause less underproductivity

 Check health status and test Covid of the crew regularly before the shipment

 Fully vaccinated all staff on board

 Learn the regulations and quality requirements of dragon fruit whenexporting to China to choose a shipment that meets the standards

- Contingency plan:

 If the goods are not in conformity with regulations of China's import customsclearance, exporting to neighboring countries where standards are lower orrepatriate back to Vietnam to sell at a favorable price for the domesticmarket

2 Technological risk

2.1 Infection

2.1.1 Risk topic

- Title: Infection

- Causes: Areas of dragon fruit are infected with white spot disease Dragon

fruit will have ear rot, black skin, or internal rot due to bacteria These arediseases that often appear in the rainy season Due to continuous heavy rain,spraying is not effective So these fungi have the opportunity to break out

- Consequences: Because of this infection, diseased dragon fruit is discarded,

causing a huge loss to the Seller These infected dragon fruits will be sold atmost to break even, otherwise, it will be a huge loss, when the price of dragonfruit is low, the cost of hiring a cutter is even higher than the selling price

2.1.2 Evaluation

2.1.3 Associated strategy - Reduce strategy

- Mitigation plan: When the rainy season syncs with the main dragon fruit crop,the quantity of dragon fruit produced is increased, supply is more thandemand, which lowers the price Therefore, the Seller shall discharge theirgoods, cutting off the dragon fruit or fruit buds to reduce the cost of care andtime spent caring for the plants so that they can grow well in the next crops

- Contingency plan: When a crop of dragon fruit is infected, there shall be asmall amount of dragon fruit which is not affected by the disease, the Sellercould pick out these unaffected dragon fruits to bring back to resell to anumber of small retail stores, selling them at a low price to break even,reducing loss at the minimum

2.2 Freezer breakage

2.2.1 Risk topic

- Title: Freezer breakage

- Causes: A broken cold storage block can be caused by a variety of factors.

There are several major causes for this, including an unstable power supply,causing damage to the machine block, or the space is too big for the freezer'scapacity The warehouse's insulating properties will also be degraded if thecold storage is damp

- Consequences: The inherent vice of dragon fruit is perishable, if dragon fruits

are not stored properly, the quality of the dragon fruit being stored in coldstorage is reduced, causing a huge loss to the Seller

 Subjects matter insured: Goods in cold storage

 Coverage: Bao Long will indemnify the Insured for sudden and unforeseenphysical loss or damage to the subject matter insured caused by any cause,other than those excluded by contract or insurance policy

2.3 Long time perishing

2.3.1 Risk topic

- Title: Long time perishing

- Causes: China has a relatively high requirement for fresh fruit to be imported

to China, therefore, fresh fruit is perishable Vietnam’s climate is a hot tropicalclimate, under hot temperatures, the quality of dragon fruit is reduced over theperiod Usually, dragon fruit can be kept fresh for 25 days

- Consequences: In case of perishable products like dragon fruit, when the

quality of dragon fruit is not meet the requirement of the Buyer in China, theBuyer shall have the right to refuse cargo When using DDP in a salescontract, the Seller is at very high risk of non-payment

2.3.2 Evaluation

Risk Probability Impact Lead time RE Seriousness

2.3.3 Associated strategy – Reserve strategy

- Mitigation plan:

 When Fresh dragon fruit does not stay long, so the Seller must collect it andbring it to the factory throughout the day to pack it for cold storage orrefrigerated containers

 The Seller must hire a packing crew who is strong, healthy, experienced inpacking, and when the dragon fruit arrives at the warehouse, packingemployees should be available to immediately execute the packing processregardless of the time of day or night

 Estimated cost of risk strategy: Salary per experienced dragon fruit packingemployee, working full-time is around $500 per month

2.3.4 Associated strategy – Protect strategy

- Mitigation plan

 So as to prolong the freshness of dragon fruit, the Seller could store dragonfruit in cool storage and deliver dragon fruit in reefer containers.

 The Seller should use allowed chemical preserves in the allowed amount tokeep dragon fruit fresh for a longer period of time:

 Preserving dragon fruit by stimulant treatment

 Preserving dragon fruit by adjusting the air composition

 Preserving dragon fruit with ozone and chlorine chemicals: applying thismethod in combination with cold storage, the shelf life is up to 75 days

- Title: Container shortage

- Causes: The outbreak of the COVID-19 pandemic is the major reason for thelack of empty containers, which results in the reduction in the ability to unloadand load goods This leads to congestion at ports, making it impossible forcontainer ships to clear customs at those ports, causing a shortage of domesticcontainers and high freight rates

The scarcity of empty containers also derives from the fact that the end of theyear is peak export season, as well as the fact that Vietnam is a surplusexporter A scarcity of containers in Vietnam has resulted not only from theimpact of container delivery at the depot but also from the depot shippingline's lack of effective control of empty containers

Furthermore, owing to the impact of storms and fog, product shipment toChina, Japan, and South Korea had to be delayed China pulls many emptycontainers into their country, many ships of the world's shipping lines are alsostuck at ports in many parts of the world.

Deep-water port receiving capacity transferred to ICD ports is still restricted,particularly in Ho Chi Minh City There are over 50 empty depots in Ho ChiMinh City, Dong Nai, and Binh Duong, but only about 20% of them in ICDcan receive empty containers straight from deepwater ports

- Consequences:

The lack of containers for products import and export has caused congestion inthe entire supply chain Furthermore, because shipments are crowded atseaports and firms are unable to rent empty containers, many enterprises areforced to pay higher warehousing and storage fees This has the downside oframping up product costs, making it harder for Vietnamese export businesses

to compete with other rivals In several cases of export shipments, the risingcost of renting empty containers even exceeds the worth of the items in thecontainer

Longer waiting time for empty containers shall decrease the quality of dragonfruit since the inherent vice of dragon fruit is perishable

2.4.2 Evaluation

Risk Probability Impact Lead time RE Seriousness

2.4.3 Associated strategy – Reserve strategy

- Mitigation plan: Exporting company shall prepare a fund for this case

- Contingency plan: Be prepared to pay at a higher price to be able to have anempty container

2.4.4 Associated strategy – Reduce strategy

- Mitigation plan:

 When negotiating clauses in the sales contract, the Seller should deal on aperiod of time, not an exact date to reduce the likelihood of contract breachdue to late delivery.

 Maintain a good business relationship with the Buyer to enhance theacceptance rate of renegotiating a new delivery date in case of emptycontainer shortage

 Maintain a long-term relationship with the shipping line and forwarder sothat the shipping line would not sell empty containers to another party at ahigher price and the forwarder would have good faith to deal with issues ofempty container shortage

- Contingency plan:

 When the Buyer refuses to receive the cargo due to late delivery, the Sellershould be flexible to reach out to other Buyers to reduce the cost oftransportation cargo back to Vietnam and offer backup Buyer competitivediscount to reduce the Seller's loss

 When it is impossible to sell dragon fruit in China, the Seller should attempt

to sell dragon fruit at producing cost in the Vietnam market to cut theirlosses Moreover, the Seller could collaborate with other dragon fruitexporters to contact publishers, spreading news of the current situation sothat local citizens are acknowledged of the issue and give a helping hand toconsume the remaining dragon fruit

2.4.5 Associated strategy – Protect strategy

- Mitigation plan

 The Seller shall be prepared for backup selling methods, aiming for localconsumption of dragon fruit in the event of being unable to export dragonfruit to China

 When signing the contract, the Seller should negotiate to add matter relating

to empty container shortage into the Force Majeure clause so as to mitigatethe Seller's responsibility

- Contingency plan

 When the Seller has already paid for the container but the shipping linerefuses to provide the container as promised and lends the container toanother party, the Seller should be aware to ask for a full refund for thedeposit fee for a container

 Shipping dragon fruit in bulk, dragon fruit is loaded onto the vessel's holdand transported directly, not packed in bags and containers

2.5 Port congestion

2.5.1 Risk topic

- Title: Port congestion

- Causes: Compared to other modes of transportation, the marine transportation

system has become increasingly essential in international trade, accounting for

a very high share of annual cargo transportation Maritime transportation isgrowing increasingly crowded and bustling, and the rate of development andimprovement is growing sharply However, the port infrastructuredevelopment has not been able to keep up with the growth of marinetransportation This leads to frequent port congestion

- Consequences:

 When a ship arrives at the delivery port or discharging port, congestion atport may lead to a reduction in the quality of dragon fruit since the inherentvice of dragon fruit is perishable; an increase in the demurrage fee; a delay inthe other steps of the supply chain

 If the delivery can not be completed, the Buyer will not receive their cargo asrequired, as a result, the Seller will be at risk of non-payment, especially interms of DDP, Seller shall receive payment only if the Seller fulfills his

obligation of delivery - until the cargo is put in truck at Buyer’s warehouse;

or the Exporter will be required to reimburse the Buyer or discount off thecompulsory price for the Buyer, which leads to a decrease in Seller'sexpected revenue and profit Furthermore, late delivery to the Buyer wouldreduce the reputation of the Seller, increasing the likelihood of controversies,the risk of litigation, lawsuits, disputes between two parties, such legalproceedings may result in unfavorable spending on the legal fee

 Exporting companies should self-prepare a fund for this case

Estimated cost of risk strategy: The exporting company could use 10% oftheir annual revenue for this fund to prepare for such cases like portcongestion

 Hire experienced employees with a good sense of the current import-exportmarket in Vietnam, follow-up with updated information of seaports inVietnam, experience in dealing with such cases, as well as Chinese importingregulations

Estimated cost of risk strategy: To be able to hire such an experiencedemployee, the company shall have a salary budget of $800 up to $1,000

 Employ the services of a reputed forwarding business to cut down on timespent dealing with ports and customs

Estimated cost of strategy: around 500$ spent on service charge forforwarder company

 Close network with port officers to receive recent update situation at the port.Estimated cost of strategy: creating a relationship with port officers shallinclude face-to-face conversation in form of social hangouts, cost ofpreparing gifts in important events like Tet holiday and other lobby fees,facilitation payment.

- Contingency plan

 Hire extra employees for loading and unloading, loading and unloading shall

be continued until midnight to speed up the loading and unloading process so

as to reduce the demurrage fee Estimated cost of strategy: up to $25 per dayper loading worker; bonus for loading and unloading in night shift, etc

2.5.4 Associated strategy – Protect strategy

 Negotiate carefully between the parties so that the shipping time is specified

in the contract and is advantageous to the parties in the case of Force MajeureThe Seller and the Buyer should agree on a period of time for delivery,instead of a fixed day

 Keep a good business relationship with the Buyer to increase the acceptancerate of renegotiating on the delivery clause in case of port congestion

- Contingency plan: When being informed of port congestion, the Seller shall

inform timely, update the current situation at the port for the Buyer so that theBuyer is prepared, parties can renegotiate on a new delivery date

2.5.5 Associated strategy – Reduce strategy

- Mitigation plan:

 The Seller should be well acknowledged of the current situation at the port

 The Seller should avoid choosing busy hustling ports in the sales contract

- Contingency plan

 If the contracting party refuses to accept the goods due to late delivery, theSeller shall contact and deal with another backup imported company,offering them a preferential discount off the original selling price, reducingthe loss if the dragon fruit is rejected, reducing the transportation cost ofdelivering the container back to the home country

 In a worse situation, when it is unable to look for another Buyer, the Sellercan reduce its loss by delivering dragon fruit back to Vietnam and sell thesedragon fruits at the Vietnam market with a lower price to cover the plantingcost

2.5.6 Associated strategy – Avoid strategy

- Contingency plan

 Not accepting business in terms of DDP

 Not exporting dragon fruit in peak season

- Causes:

 Warehouses: The warehouses are prone to fire due to several causes:electrical leakage which leads to overheating of the equipment and/orwarehouse system; human negligence and inconformity to operation code,

such as the use of cigarettes during goods handling, especially nearcombustible material; environmental overheating, combined with drysurrounding (such as a forest in the summer); careless handling ofcombustible material and fuel like gas and oil.

 Transshipment trucks: Fire risks of trucks or vehicles that transport the goodsfrom the warehouses to the port of delivery can be attributed to: leakage offuel; failure of vehicle engine, which causes overheating; environmentaloverheating combined with dry surrounding; careless handling ofcombustible material

 Ports (of delivery and arrival): There might be fire at both ports of goodshandling that could destroy the shipment Causes include: environmentaloverheating; careless handling of combustible material and other failures thatcould lead to overheating of a particular part of the port

- Consequences: All of these can lead to delays in or the inability of delivering the goods in accordance with the contract

 Warehouse fire: Casualties, loss of goods, warehouse function failure (whichleads to a breakage in the supply chain), equipment damage, vehicle damage

 Transshipment truck fire: Casualties, loss of goods, loss of functionaltrucks/vehicles

 Port fire: Casualties, loss of goods, delay in goods handling and delivery,delivery inability

Cost of risk strategy

Warehouse

fire

Develop a systematic equipment management plan, incl

procurement, installation, operation and maintenance

- Procurement department

- Warehouse manager

- Casualties compensation

- Goods, equipment &

vehicle loss

- Warehouse recovery

- Cost of putting out fire

- Salary for human resources

- Sourcing and maintenance cost

Develop proper fire hazard education program and warehouse operation code;

ensuring that warehouse workers understand &

practice well

Warehouse manager

- Cost for humanresources & materials needed

to build education and code programme

- Cost of supervising workers

Develop measures for