BY AA&B SPECIAL REPORT
By Joe Tracy, Rich DeSimone and Scott Cornell
Technology has made moving cargo from Point A to Point B so much faster and easier that few people are nostalgic for the bygone era when shipping freight meant manhandling boxes and checking lading lists with a clipboard. Today, cargo is often containerized, micro chipped and seamlessly tracked from one shipper to its destination, across oceans and land masses.
Sometimes overlooked, however, is that the same technology that streamlines the process for shippers also has provided thieves with unprecedented opportunities to use technology for their ulterior motives. Containerization has made it easier for criminals to steal millions of dollars’ worth of goods at once. In a limited number of instances, satellite tracking capability has enabled hijackers to plan how to move in quickly when a load is most vulnerable.
To stay ahead of the thieves who target cargo, those who own the goods and those who take custody of them in transit need to be aware of crime trends and security innovations. These subjects are often far from their own areas of expertise, and they should look for assistance as needed. The independent insurance agent or broker who can connect them with the proper resources to help improve cargo security practices will provide a valuable service that strengthens customer relationships. The key is to take advantage of the liaisons that insurance carriers have formed with industry experts to combat cargo theft.
Whether the need is for inland marine or ocean marine coverage, the following information about trends and industry alliances can help agents become knowledgeable risk managers for their customers.
By the numbers
Walk into a local big-box store and the variety of goods gathered in one spot is a tangible reminder of how the movement of cargo affects our daily lives. Products may come from a different part of the state, across the country or around the world.
In a 2010 report on freight transportation, the U.S. Dept. of Transportation reported that freight exports totaled $16 trillion worldwide in 2008, the most recent year for which statistics are available. More than 200 countries shipped 13 percent of those goods—$2.1 trillion worth—to the U.S., with 55 percent arriving by sea, 20 percent by air and 25 percent over land. In the same year, the U.S. exported $1.3 trillion worth of goods to other countries.
The Journal of Commerce reports that about 250,000 U.S. companies are involved in importing or exporting goods. Hundreds of thousands more ship or receive cargo within the country.
Of all of the world’s countries, the U.S. has the most extensive network of infrastructure to move goods, according to the U.S. Dept. of Transportation. The network includes 4 million miles of public roads, 25,000 miles of navigable waterways, and 9,800 coastal and inland waterway facilities.
Because cargo theft can be reported in various ways, it’s hard to get a handle on exactly how prevalent it is. Although next year the FBI will begin gathering data as part of its Uniform Criminal Reporting system, the full story may still not emerge, as many haulers fail to report lost loads to avoid damaging their reputations. Currently, the impact of cargo theft in the U.S. is estimated as being between $15 billion and $30 billion annually.
Freight Watch International reports that thieves often target high-value loads, such as electronics (TVs, computers, cell phones) and pharmaceuticals. See chart. They also target goods that can be sold easily, such as food and clothing. Sometimes they are opportunistic, taking whatever they find and hoping they hit pay dirt. One California case involved a stolen truck trailer that was abandoned by the thieves when they realized it contained steam cleaner solution.
Even without a firm statistic on losses, the ripple effect on the economy is evident. When a container of goods en route to a store is stolen, the store does not have the goods available for sale, the producer must manufacture goods to resupply the store, the shipper loses business, the insurer pays a loss claim and consumers face higher prices to cover the hidden costs. In addition, the goods typically are sold outside of regular commerce at discounted rates, undercutting legitimate businesses and depriving governments of tax revenue.
Cargo theft clearly is a tremendous drain on the economy that needs to be fought at every level. By leveraging the alliances that insurers have created, independent insurance agents and brokers can provide their customers with the best defense against crime.
Make it tough for thieves
Because the conditions under which cargo are moved vary, inland marine and ocean marine coverage is designed to be flexible. While this is a strength when someone is insuring shipments that may move not only from country to country, but from train to truck to cargo ship, it also means that businesses need insurers that see issuing extensive coverage not as just a quick sale of a standardized product, but as a key part of the value they can offer. Cargo owners and shippers also benefit from their insurer’s assistance not just after the fact, when the cargo is missing and a claim is filed, but before a loss ever occurs.
This means independent insurance agents and brokers have a role to play that goes beyond finding the cut-rate premium, the lowest deductibles or the highest coverage limits. Agents can guide their customers not only to policies that fit their needs, but also to the insurers most likely to open the door to resources that can protect cargo. The following are insurance carrier services that provide high value to cargo owners and shippers.
Risk management expertise
Most insurance carriers offer some level of risk mitigation services. Some may provide handouts with general guidelines and tips for improving security; others may suggest outside vendors that sell security devices. The best value, however, is risk management advice that is customized to a customer’s specific circumstances. Working together, they can improve the culture of security that is so important to a business.
For example, a cargo owner or freight forwarder may need to improve his security practices and insist upon similar practices when deciding which trucking company used to haul goods for which he is liable. Has he checked the shipper’s reputation with other customers, its financial well-being and its safety history (which is largely provided on the Federal Motor Carrier Safety Administration’s Website)? Does he ask to see the trucking company’s security plan to make sure appropriate precautions are in place? Has he verified the trucking company’s insurance coverage for adequate limits? Or reviewed contracts for limitations?
A warehouse operator may benefit from a theft vulnerability assessment conducted by experienced cargo theft prevention advisors. The assessment can determine if adequate access controls exist at the loading docks, bays, doors and at the entrance to the parking area. Advice may include recommending camera systems with sufficient resolution to capture useable images, as well as placement so they cannot be easily disabled. Theft prevention advisors also can recommend procedures that ensure warehouse workers and truck drivers have separate responsibilities, which acts as a disincentive for criminal collaboration.
Trucking companies often operate on tight margins, which can make them leery of costly security measures. Working with an insurer’s risk management consultant means they can consider a range of service options and practices. These begin with cost-free practices such as "red zone policies" (driving 200-250 miles before a first stop to discourage thieves who follow trucks from the warehouse or port), include mid-price alternatives such as high-security locks and air cuff locks, and range up to sophisticated electronic tracking devices embedded in cargo containers.
Law enforcement relationships
The conventional wisdom about cargo theft is that the more time passes, the less likely it is that the cargo will be recovered. Unfortunately, law enforcement too often is overburdened and under-resourced to quickly tackle cases of cargo theft.
Therefore, it’s important to work with the right insurer. Keep in mind that not all investigative services are of the same quality. Some insurers simply outsource cases to vendors. Others may have in-house staff but are limited in their responses because of geography or lack of expertise in the logistics industry. Experienced cargo insurers that maintain strong investigative services capabilities recognize the importance of maintaining their clients’ reputations in executing a cargo shipment successfully. If a theft does take place, these high-quality investigation groups also are available to help their clients track down the stolen cargo.
The most effective investigative services come from insurers that have formed dedicated cargo theft investigation units and strong relationships with regional cargo theft task forces and law enforcement agencies over a wide range of jurisdictions. This helps them quickly connect to the right people with the most helpful information when a crime occurs. Investigative units typically have access to claims information that helps them identify common trends in crime, as well as "hot spots" where criminal enterprises may be operating.
Whether goods are moving from Chicago to New York or from Singapore to Los Angeles, having someone on the ground who knows about local conditions can be of vital assistance to cargo owners, shippers and purchasers. This ensures that insurers who have networks of contacts around the world are a valuable resource.
This may be particularly important overseas, where nontraditional modes of transportation—from donkey carts to baskets balanced on a person’s head—may form part of the chain of transit. Many insurance companies maintain worldwide networks of settling agents and claim correspondents who also can assist with loss prevention. A local settling agent will know where road hijackings are common, what kinds of goods are targeted and which haulers are more reliable.
For example, a shipment of raw cashmere from the interior of Mongolia can be brought to the U.S. by a number of different routes. A local claims correspondent knows the risks involved and can recommend a particular itinerary to avoid problems, such as routing the shipment over the Trans-Mongolian Railway, connecting to the Trans-Siberian Railway, on to a port in the Russian Far East, and finally by ocean vessel to the U.S.
Local experts are in a good position to know that expensive shoes are a target for thieves in Italy, while in the Far East high-tech cargoes are particularly vulnerable. Closer to home, locals can assess current conditions when goods travel through Mexico, where 10,000 cargo thefts occurred in 2009 at a cost to businesses of $9 billion, according to Mexico’s National Chamber of Cargo Transport.
In addition to providing insight about cargo safety and transit options, local contacts can be invaluable when goods need to be inspected for damage at faraway ports, or disputes arise that need to be settled in person.
The more often goods change hands to reach a destination, the more opportunities there are for things to go wrong, for coverage to have unexpected gaps, or for the transfer of risk to others to create a gray area on liability. Working with insurers that have strong underwriting expertise in cargo transit can help avert these problems.
For example, an exporter of wedding gowns from Italy had pieces brought in from various parts of the country to a warehouse near the Italian port for consolidation into the overseas shipment. When a trucker drove off the road, the wedding dresses en route to the consolidation facility were destroyed. Although many ocean marine policies normally would not cover such losses, in this case the policy had been written to include transit prior to the consolidation point.
In another example, a U.S. exporter sold a cargo destined for the Russian interior. As the insurer advised the exporter that trucks were frequently hijacked along the route from the port to the inland destination, the exporter was able to negotiate terms of sale so that ownership of the cargo changed hands after it reached the Russian port. As a result, the risk of hijacking within Russia was shifted to the purchaser, and the seller’s risk of loss was substantially reduced.
By relying on the expertise of insurance underwriters, those involved in shipping goods can arrange terms and conditions to their own advantage, shifting risk to others whenever possible. They also can control costs by setting deductibles and limits at levels they are comfortable with financially.
At the end of the day, the best cargo shippers, warehouse operators and logistics providers know they have to focus on security because their reputation and future business contracts depend on it. Cargo owners and cargo buyers want to use companies that reliably deliver and store their goods, not ones that are frequent targets for theft.
In addition, cargo handlers soon learn that crime has a long-term impact on their expenses. There is the immediate business disruption that a robbery causes, as well as future insurance premiums that typically are driven higher by loss claim records.
By helping their customers understand the resources that insurers provide, through both their expertise and partnerships, agents and brokers can play a key role in making sure cargo gets from Point A to Point B safely and securely.