It sounds like an opening scene of Miami Vice: A shipment of televisions worth several hundred thousand dollars waits as a call goes out to the carrier for pickup. Forty-five minutes later, a driver appears to haul away the container. Half an hour later, another driver appears. As it becomes clear the second driver is the legitimate one, the realization sets in that the first was an imposter—and the shipment is never recovered. Though you could accurately call it a television crime drama this was a real-life scene, one that illustrates vulnerabilities in the supply chain.
“These happen all the time,” says Mike Brown, executive vice-president for Avalon Risk Management, which provides insurance and surety products for the transportation industry. “It’s pretty common in the U.S., but it’s also becoming quite common in Europe, particularly in Eastern Europe.”
The men and women who earn their livings selling cargo insurance don’t understand why some manufacturers—who secure their personal lives with property insurance, auto insurance, travel insurance and health insurance—don’t alleviate the risks facing their products as they journey around the globe. There are still too many companies rolling the dice on shipments, chancing the risks of theft, damage, pilferage and total loss against the cost of paying a few percent more for insurance.
But the moment something goes wrong, they usually come around for the future.
What could possibly go wrong? It’s not always a made-for-TV theft—seawater could intrude into containers; containers could be (and often are) dropped during loading and unloading, especially on the trucking legs; refrigeration unit settings could get confused mid-shipment (“Was that Fahrenheit? Or Celsius?”); and, of course, there is always the risk of theft by deception schemes such as dishonest pick-ups.
Cargo at rest is cargo at risk. In other words, whenever cargo stops or sits is when it’s most in danger. As a result of Superstorm Sandy in 2012, many East Coast ports were shut down, causing not only a backlog of cargo out at sea that couldn’t be received, but also of cargo on its way in by truck or rail that couldn’t enter the ports, either. Where did that cargo go? It sat en route, creating an opportunity for theft.
“The goods are out of the manufacturer’s control,” says William Markham, second vice-president at Travelers, Cargo Product Line. “They’ve been put in the transit stream; they don’t have any direct control over them any longer. That’s something to be concerned about. They need to insure it so they feel comfortable and safe about the product getting delivered in sound condition.”
In other words, hope is not a plan.
Scott Cornell, second vice-president at Travelers, Inland Marine Crime and Theft, says the top six states for cargo theft are California, Texas, Florida, Georgia, New Jersey and Illinois. What do they have in common? Ports. And while the ports have done a much better job securing access in the last decade—full load cargo thefts are unusual, according to Cornell—they can’t control what happens away from the ports where many trucking companies perform staging operations.
“Drivers,” Cornell says, “in order to enter a port, are required to have a Transportation Worker Identification Card (TWIC), which shows they passed a federal background check. But not every driver has a card, whether it’s because they just haven’t gotten through the background check or the company doesn’t want to spend the cost associated and time. So they’ll have a certain number of drivers who do have that access to the port. And those drivers will, on a daily basis, go in and out of the port to get the loads and bring them out. They’ll stage those loads in areas just outside the port, so that the drivers who aren’t working with port access can pick up loads and move that cargo to the final destination. That creates opportunity, a smorgasbord of cargo for the bad guys.”
What kind of cargo gets stolen? It will surprise some people to know that the No. 1 stolen commodity in the United States is food and beverage, according to Cornell. Most people think it’s laptops or TVs and high-end electronics. But in recent years, Cornell says, food and beverage has surpassed electronics. It’s a commodity that’s less traceable; frozen chicken doesn’t have a serial number.
Companies that specialize in cargo shipping insurance want to help their customers with security precautions and transportation best practices. Travelers, for example, offers a dedicated cargo theft unit of experienced investigators and experts.
“We work closely with our insureds,” Cornell says. “If there is a loss, we’ll do an investigation to recover the cargo that was stolen and bring it back to our insured. But what we really want do is work with them on the prevention side. We’ll learn their business, how their company works. Then we’ll make recommendations for right processes and procedures or technology or security devices to prevent cargo theft from happening to them.”
Normal cargo insurance policies are two inches thick, full of ancient mariner clauses and language.
“It’s my job to interpret those clauses, to perfect the coverage to the client’s needs, to make sure there are no gaps in coverage,” says Leslie Wells, cargo insurance product developer at Schenker of Canada Limited.
“Nobody reads their policy. Nobody. That’s why a broker has to be clear. You know who reads contracts? Insurance brokers. Some clients will ask for certain situations, which will give me a guideline as to how to answer them. ‘If my container is stolen from a yard where it’s awaiting pick up, am I covered?’ And depending on the coverage that they purchase, yes. With all risks.”
Carriers and freight forwarders are not responsible for many common causes of loss that occur in transit, according to Wells.
“Acts of God. Floods. Earthquake. I’m not too sure about a blowing up volcano, but I bet that’s not covered, either,” she says. “At the end of the day, if the shipper can successfully prove the carrier is negligent, they would recoup pennies on the dollar. That’s all they’re ever going to get (without insurance).”
Companies invest a lot of money trying to make a product and have everything taken care of, “but they forget about the insurance aspect of it,” says Claudia Belcourt, national claims coordinator for Schenker of Canada. “It’s an investment that needs to be protected at all costs. Don’t look at insurance as an expense, but an investment.”
The experts advise choosing only insurance companies with AAA credit ratings.
And understand where a shipping company’s limited liability ends and general average begins. General average is an internationally accepted principle where certain types of accidents occur in a vessel, and all parties share the loss equally. “Every time there is a general average,” says Belcourt, “the customers are required by the ocean carriers to post a cash deposit in order to obtain a release of the cargo. It is possible that the cargo is not damaged, but they are still responsible to contribute to the loss. In those cases, where the exporter has purchased an insurance policy, the insurance company will step in and facilitate everything for the customer.”
That becomes important because adjustors can take as long as five years to settle these cases.
“When people really understand,” Brown says, “when they think about it that way and they understand the limitations—the liability limitations that the carriers have—they’re more inclined to insure their shipments. And more sophisticated shippers do tend to insure their shipments.”
Source: Written by Bob Andelman, GlobalTradeMag.com