• ITVI.USA
    15,462.460
    -34.260
    -0.2%
  • OTLT.USA
    2.752
    0.009
    0.3%
  • OTRI.USA
    20.670
    -0.440
    -2.1%
  • OTVI.USA
    15,437.200
    -29.190
    -0.2%
  • TSTOPVRPM.ATLPHL
    3.300
    0.000
    0%
  • TSTOPVRPM.CHIATL
    3.140
    0.190
    6.4%
  • TSTOPVRPM.DALLAX
    1.590
    0.150
    10.4%
  • TSTOPVRPM.LAXDAL
    3.330
    0.020
    0.6%
  • TSTOPVRPM.PHLCHI
    2.170
    0.020
    0.9%
  • TSTOPVRPM.LAXSEA
    4.080
    0.130
    3.3%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
  • ITVI.USA
    15,462.460
    -34.260
    -0.2%
  • OTLT.USA
    2.752
    0.009
    0.3%
  • OTRI.USA
    20.670
    -0.440
    -2.1%
  • OTVI.USA
    15,437.200
    -29.190
    -0.2%
  • TSTOPVRPM.ATLPHL
    3.300
    0.000
    0%
  • TSTOPVRPM.CHIATL
    3.140
    0.190
    6.4%
  • TSTOPVRPM.DALLAX
    1.590
    0.150
    10.4%
  • TSTOPVRPM.LAXDAL
    3.330
    0.020
    0.6%
  • TSTOPVRPM.PHLCHI
    2.170
    0.020
    0.9%
  • TSTOPVRPM.LAXSEA
    4.080
    0.130
    3.3%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
American Shipper

The Bottom Line: Necessary supply chain evils

   Like lawyers, insurance is a real problem, until you need it.
   And that’s not the way it should be. Lawyers are an integral component of the global supply chain and their value is not only when you need them but in assisting you to grow and manage your business.
   Those of us who have been involved in global supply chains know that loss and damage to cargo in transit is always going to happen. It is just a matter of when and to what extent.
   Typically, few executives focus on cargo insurance or liability exposures until a loss occurs. And that’s when it is too late.
   Insurance can also be a tool to:
     • Understand risk and exposure in the supply chain.
     • Mitigate the opportunities for loss and damage.
     • Transfer the risk to a third party.
     • Determine acceptable levels of risk tolerance.
   Importers and exporters can go direct to insurance companies, like Travelers, Zurich, Hartford, AIG or Lloyds of London, or approach underwriters through specialized cargo insurance brokers, such as Roanoke, AON, Marsh and Gallagher. 
   Roanoke, which is one of the leading and more specialized cargo insurance brokers, arranges marine cargo insurance policies through its own company based in London or other third-party carriers. 
   Companies like Roanoke will work with shippers, freight forwarders or carriers in assessing their risks and provide customized and tailored terms and conditions to the benefit of these clients’ exposures for goods or services in transit.
   Tied into the assessment is the opportunity for mitigation. This is also referred to as “cargo loss control,” which is defined as steps or actions in packaging, marking, labeling, materials handling, routing, stowage, or any measure which will favorably impact cargo outcome.
   Loss control actions can prove to be a very wise spend in that many extol for every dollar spent the return comes back 10-fold.
   I recently worked with a company in Chicago that imported chemicals in 55-gallon drums in 40-foot containers originating in Shanghai, China. In almost every shipment, particularly through the winter months, 5-8 percent of the drums had damage. In the investigation from our staff, it was determined that the breakbulk stow in the container, which maximized space utilization, combined with the ordinary motions of the vessel in heavy seas, was the culprit.
   The recommendation from the cargo loss control consultant was to palletize the loads to provide greater stability and prevent shifting from occurring. The consequence of the palletizing was that each shipment contained 2 percent less load, and there was the cost to the pallets and the pallet certification process.
   On the other hand, the importer utilized pallets in the domestic distribution and could unload the containers mechanically, which reduced the unloading time.
   Additionally, the underwriter offered the shipper a 15 percent premium discount on its cargo insurance when the freight was shipped on pallets in lieu of bulk in containers during which the losses had previously occurred.
   After 18 months and 37 shipments, loss frequency was reduced by more than 80 percent. The loss control process clearly outweighed the loss of 2 percent of freight space on each shipment.
   Importers and exporters also need to hold their forwarder, brokers, service providers and carriers liable for the freight in their care, custody and control. This transfer of risk is typically accomplished through a contract, which goes above and beyond the liabilities set forth in bills of lading.
   In addition to expectation to recover loss and damage, most financial exposures that result from an error or omission are recoverable. The shipper requires the service provider or carrier to provide a third-party legal liability policy, along with a professional liability policy (E&O).
   These are all best evidenced by certificates of insurance outlining the underwriter, terms and conditions. The underwriter should be assessed by reputation, experience and overall best rating.
   Most companies will have a risk tolerance. This is often referred to as a claim deductible or retention level. This is a “dollar amount” for when a claim occurs, so that the loss will be shared between you and the insurance company at that agreed amount. It makes for a more cost-effective approach when purchasing insurance. Typically, the more risk the principal is willing to tolerate, the lower the insurance premiums and more liberal underwriting terms and conditions, that would be offered.
   Keep in mind that marine insurance is written on “manuscript policy forms”. This allows negotiation on terms and conditions and offers more room for customization and tailoring to specific supply chain requirements.
   Managing global supply chain risks can be daunting. But taking the time to understand the exposures and applying some solid foundation risk policies can go a long way to reducing the opportunity for loss and damage, and when it does occur, know that you have the necessary protections available.
   Cook is a global supply chain professional, author of more than 19 books on global trade, and managing director of Blue Tiger International. He can be reached by email at tomcook@bluetigerintl.com.

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