TT Club Issues Frosty Warning to Cold Chain Suppliers

17 November 2003

Specialist liability insurer, TT Club urges loss prevention disciplines must be adopted by supply chain service providers to improve low profit margins

Speaking at the Intermodal Transport & Logistics Conference in Rotterdam earlier in this month perishable trade expert and consultant to TT Club, David Heather made clear the necessity for operators dealing with the transport of perishables to adopt more disciplined loss prevention strategies. "If claims and losses are not kept under control the high cost of insurance combined with secondary, uninsured costs will have a direct influence on the profits of the operating company," he said.

By way of an example taken from the transport of perishable goods sector, Heather cited the case of a milk and dairy produce distribution company, which was quoted by the UK Health and Safety Executive as having suffered costs of insured and uninsured losses equivalent to 1.8% of its operating costs in one year. Because of the low margins inherent in the transport sector, these losses equated to some 37% of the company's profits.

Heather put forward a seven-point strategy of disciplines and actions, which companies should employ both to help mitigate loss and as proof to insurance companies that they are a good risk. The full paper is available for study (please see below) but significant points in Heather's plan are; recognition of high-risk operational areas and contingency plans to cover these; acceptance of a level of self-insurance through deductibles and a correct assessment of equipment values.

In the 'Cold Chain' (the supply chain for perishable goods) the value of transport equipment is a particularly critical factor in the setting of premiums and Heather stated that the trend to over-value refrigerated containers for insurance purposes by operators needs to be reviewed. "A good example," stated Heather, "is a 40 ft reefer container, which appears on claims as having an original new value in excess of USD28,000. This is the value on which premiums are assessed. However, for the last four to five years the new built cost for a 40ft reefer has been in the range of USD18,000 to USD20,000. If the high value is used, it is a de-facto 30 to 35% increase in value as compared to original purchase value."

In addition, citing a number of serious incidents that have recently occurred, such as Typhoon Maemi and the Hanjin Pennsylvania, Heather emphasised the importance of team efforts in mitigating the losses and claims arising. In these cases insurance companies, and TT Club in particular, have taken a 'team-leader' role in bringing all the parties involved, such as, carriers, equipment owners, terminal operators, cargo owners, salvors and local authorities, in acting positively, in Heather's words, "to relieve the true pain of such incidents."

ENDSNote to Editors:

The TT Club is the international transport and logistics industry's leading provider of insurance and related risk management services. Established in 1968, the Club's membership comprises ship operators, ports and terminals, road, rail and airfreight operators, logistics companies and container lessors. As a mutual insurer, the Club exists to provide its policyholders with industry-leading benefits, which include specialist underwriting expertise, a world-wide office network providing claims management services, and first class risk management and loss prevention advice.


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