TT Club warns of heightened risk profile for logistics operators
23 June 2005
The growth in end-to-end logistics services and the greater complexity of long-distance supply chains are increasing risks for logistics operators, often in areas that are imperfectly understood. This warning to logistics service providers was delivered by the leading transport mutual TT Club in a presentation at a recent (June 15) conference in Antwerp.
Speaking at TOC Europe Alan Wilkins, business development director of TT Club, highlighted the insurance provider's concerns regarding the heightened risk profile for logistics operators.
Global trade expansion has put enormous pressure on all involved in the supply chain, including ports and shipping lines as well as logistics operators, to accommodate and handle the increased throughput by every available means. As a result, said Mr Wilkins, there was a greater risk of service disruption or of compromising on safety for speed than had been the case when operational demands had been less intense.
Besides the risk of cargo delays arising out of port congestion there is also the added problem of limited terminal space that further adds to the pressure on working. This may lead to compromises on, for example, the elimination of sight lines and the need to stack containers over recommended heights, so making them more vulnerable to adverse weather conditions. An increase in personal injury and property damage claims are possible consequences.
The growth in outsourcing has resulted in the expansion of service offering by companies who have not historically operated as supply chain managers, said Mr Wilkins. He evidenced examples of operators taking on supply chain activities outside their traditionally-recognised core businesses, and warned of the need to evaluate liability risks in these new activities carefully and professionally.
"Although the risks of national and international carriage, warehousing and distribution may not have changed with the development of logistics, the obligations undertaken by the logistics service providers certainly have," said Mr Wilkins. He warned logistics service providers to ensure both that their customers were providing clear and complete data and setting realistic goals and that their operational competencies were sufficient to fulfil their contractual obligations. The onerous nature of a number of contracts is generally dictated by the principal who, in outsourcing a number of former in-house functions, is entrusting key commercial relationships to the service provider. This protection by contract is one way to fill the void of uncertainty between protecting, not just against the loss or damage of product, but providing for the consequential loss of the principals livelihood too. "Certainly TT Club has seen claims examples involving companies signing contracts that they were either unprepared for or ill equipped to handle," he observed.
Commenting on the current trend towards mergers and acquisitions in the transport and logistics industries, Mr Wilkins said that an impact on risk can arise where the company has not thought through the integration of staff and the slow take up of company procedures by the newly acquired business.
"We have a number of instances where the flow of goods to particular facilities has expanded too rapidly, following acquisition, so that the original staff (adequate for the original volumes) quickly became overloaded. The operation can then get rapidly out of control," he said, "as the company struggles to correct the previous errors while also running and coping with the ongoing and increased cargo flow."
In addition to cautioning logistics providers to carefully examine their risk profiles, if necessary with professional external help, Mr Wilkins acknowledged the arguments that the insurance industry needed to "get back into step" with the transport industry's requirements.
"As the supply chain industry looks to eliminate individual transport silos and streamline the service so that profit is charged only once, insurers cannot stand aside from such developments and offer separate policies for the various different segments of the transport business," he said.
Mr Wilkins' remarks echoed comments by TT Club deputy chairman Mr Bernd Menzinger, in an interview at the recent 'transport logistic' symposium in Munich, when he pointed to an integrated logistics operator's insurance cover as the way forward for the industry.
Notes for 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.
www.ttclub.comFor further information please contact:
Ian Lush, Marketing Director, TT Club
Tel: +44 (0)20 7204 2642
Peter Owen, ISIS Communications
Tel: +44 (0)1737 248300