Analyse every element along the supply chain

‘We need to be smarter than the smart crook’ ALAN PEAT
THE OLD adage about cargo risk management is that 70% of losses are preventable and 30% are catastrophic. “There’s so much you can cure,” said Dave Keeling, executive of Underwriting Management Services (UMS), “but you’ll always be left with those uncontrollable factors – the “acts of God” you might say.” The ultimate intention of risk management is to get the insurance premium down, he added. But, with the uncontrollable elements as part of the odds, it will only drop so far – because you’ve got to allow for the catastrophe that is always lurking in the wings. “Cargo risk management, therefore,” Keeling told FTW, “will generally only ever apply to the preventable factors – not to those which are catastrophic.” To conduct risk management effectively, you have to examine every single element along the length of the supply chain – from sourcing the raw materials or components to ultimate delivery into the buyer’s hands. “The principle is that you look at a bad account – one which has had too many losses,” said Keeling, “find out what’s causing them, and remove the loss factor. “And that can be anything from a high risk carrier – one which has a history of hijacking, for example – to a packer who only uses cheap packaging, and increases the risk of damage or pilferage for the cargo. “You then take these out of the equation.” In South Africa, cargo risk management is becoming more and more important in insuring goods, said Mark Caietta, group manager of Mutual and Federal’s marine division, and chairman of the Association of Marine Underwriters of SA (Amusa). That, he told FTW, because of a growing crime rate and an increasing sophistication amongst the criminal element in society. The Johannesburg International Airport (JIA) is a perfect example of where risk management comes to the fore, with low-volume, high-value goods being a major temptation for SA’s criminal gangs. Computer equipment and cell phones are just two of the types of cargo which now need full-scale protection and security when they are being distributed from the airport to the end-destination. “We’re up against highly-sophisticated crime syndicates,” Caietta told FTW. “We need to be smarter than the smart crook, and stay ahead.” Target goods need cargo risk management. “This includes things like satellite tracking,” Caietta added, “which is becoming much more prevalent when it comes to moving target goods. “From a client’s point-of-view it costs money, but most of us (in marine underwriting) will not insure target goods unless the vehicle has full satellite tracking.” Companies which have insurance claims are losing money, and even the smaller companies need to go for cargo risk management - with expertise at senior management level. “So,” said Caietta, “it’s a matter of educating businesses to get cargo risk assessment programmes into place.” The birth of any cargo risk management exercise starts with an analysis of two risk areas in the supply chain, according to Victor Vaz, MD of Eikos Risk Applications. They are “evidenced losses” and “potential losses”, he told FTW. An evidenced loss is the easier to find in a detailed analysis of the supply chain. How, who and where are the questions you ask. “Without the answers to these,” Vaz said, “you can’t consider preventative measures.” But the analysis of those potential risks is more difficult. “If you don’t understand everything about the contractual relationships between all the parties in the chain,” Vaz added, “you can’t identify them. And all this needs an element of analytical skill. “The precise measurement of the loss history, and any results from preventative measures, is vital,” said Vaz. And it’s an assessment evaluation that needs to be continually applied to the supply chain, so that when things happen something can be done about them. “It’s continual improvement of the profile of the risk, and reduction in the resultant cost,” said Vaz. While it may not be really difficult to assess something obvious, it is more difficult to work out a cost-effective solution. The basis of effective cargo risk management is that you must continue that control and management, according to Vaz. “You need a commitment from the client to implement these solutions,” he said, “and his continued support.”