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Transportation disruption risk management: business interruption insurance and backup transportation

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  • Zhen, Xueping
  • Li, Yongjian
  • Cai, Gangshu (George)
  • Shi, Dan

Abstract

Business interruption (BI) insurance and backup transportation have been widely used in distribution centers’ daily risk management. If disruption occurs, a firm (distribution center) can exert efforts to resume its transportation, although its unit transportation cost during the recovery process is uncertain. This paper studies how ex ante BI insurance can affect the ex post transportation recovery, and compares BI insurance with the ex post action—backup transportation. We investigate four strategies: basic strategy, BI insurance strategy, backup transportation strategy, and mixed strategy (integration of the last two). The distribution center that seeks the least profit loss prefers the mixed strategy to other three strategies. However, the mixed strategy might in turn require longer transportation recovery time than the BI insurance strategy. The BI insurance and transportation recovery are complementary, but the BI insurance and backup transportation are substitutable, the backup transportation and the transportation recovery are also substitutable. We also find that the choice of BI insurance strategy and the backup transportation strategy depends on transportation market, insurance market and distribution center’s operational environments.

Suggested Citation

  • Zhen, Xueping & Li, Yongjian & Cai, Gangshu (George) & Shi, Dan, 2016. "Transportation disruption risk management: business interruption insurance and backup transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 51-68.
    • Handle: RePEc:eee:transe:v:90:y:2016:i:c:p:51-68
    DOI: 10.1016/j.tre.2016.01.005
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    References listed on IDEAS

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    5. Wang, Haijun & Tan, Jie & Guo, Shuojia & Wang, Shenhao, 2018. "High-value transportation disruption risk management: Shipment insurance with declared value," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 293-310.
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    7. Giménez-Palacios, Iván & Parreño, Francisco & Álvarez-Valdés, Ramón & Paquay, Célia & Oliveira, Beatriz Brito & Carravilla, Maria Antónia & Oliveira, José Fernando, 2022. "First-mile logistics parcel pickup: Vehicle routing with packing constraints under disruption," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    8. Liu, Zhongyi & Li, Mengyu & Lei, Ying & Zhai, Xin, 2022. "A joint strategy based on ordering and insurance for mitigating the effects of supply chain disruption on risk-averse firms," International Journal of Production Economics, Elsevier, vol. 244(C).
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    10. Shao, Xiao-Feng, 2018. "Production disruption, compensation, and transshipment policies," Omega, Elsevier, vol. 74(C), pages 37-49.

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