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Secure Logistics Insurance

To be there when You need it or to need it when You’re already there?

Lars Johansson, Independent Counsel - Secure & High Value Supply Chains

If the questions on basic logistic costs come only after the trade deal is made then the worries regarding Insurance only happens once something goes wrong. In the high value logistics environment the insurance factor is surprisingly disregarded considering that repercussions in a case of loss could put most stakeholders out of business or cause from substantial up to unrepairable financial damage if not managed properly and prior to any deal-making whatsoever.

Some say Insurance is like an umbrella - if it rains You don’t have one. This may be true but the root cause usually lies with the fact that You didn’t do Your risk management and audits properly in advance.

Again we can divide between Vaulting and Transportation and where the Interfaces between one service/action/partner/location and another is critical. The more Interfaces You have, the risk increase and more question marks usually arise at a time of loss.

One single service provider and one single insurance policy from Door to Door is often the ideal but more costly solution but it doesn’t offer the flexibility of a “menu-based”, tailor made product. The latter allows definition down to any detail, where and when insurance should cover, when not and at what level.

Common wording like Wheels-Up, Vaulted-Out, Touch-Down and Airport Arrival gives You some information about the Interfaces but at a time of loss it’s unclear if Your umbrella will fully resist the rain.

Were all wheels really up when the plane was hi-jacked? Is the Gold considered Vaulted-Out while still physically in the Vault? Is Airport Arrival already when the plane is taxiing, once offloaded or only once in the Airport Vault? And was the Vault Receipt already signed at the time of the attack?

For General Cargo insurance and transportation are often and for many reasons separated with the application of Incoterms. Ex-Works, FOB, CIF, CIP etc. are well-known abbreviations and allow for tailor-made conditions to any trade-deal. Seller pays insurance, Buyer the transportation, for example. Or split transportation 80/20, maybe 30/70 while at the same time splitting insurance coverage 50/50? Seller pays FOB and the Buyer onwards? The combinations are many as are the opportunities to save on costs.

The problems, again, start in a case of loss, damage, delay etc. Then the insurance companies step in – at least two of them at this point. The negotiations start, Your Gold will idle until the insurers find an agreement - 3 days or 3 months down the line and not always do they agree on covering the value 100%. Meanwhile someone continues to pay financing, someone still await final delivery.

Was the material really lost as the ship went down or the truck went off the cliff? No! We know exactly where it is but weather permits a recovery only in about 3 months. Financing costs continue to build.

High Value Logistics and Insurance are different than General Cargo but ultimately it’s about managing risk and costs. Maybe You could even afford a few losses per year and use a Courier for Your low values like some major Swiss watch-brands do. Losing 15 watches yearly out of 5000 shipped to one single country still cost less than running a distribution centre and national deliveries in that country. Make no mistake: losses are also linked to reputational risk.

As for Vaulting and Storage insurance there are also considerations to be made, not only with regards to the location but also to the material, the volume and the value. In case of an attack, time is key and the cavalry, police and military should arrive within a short time to the correctly organized service provider’s facilities.

How long will it take for the bad guys to pinch 50kg? 500kg? 5’000kg?

Different vaults, different countries, different risks, different standards – and one doesn’t compare to another. India is different from Switzerland which is different from Brazil. Some bullion banks and large trading companies have their risk audits made by internal risk auditors and they may or may not approve one vault or the other – not even between themselves. A third party auditor could also be a solution but at the end of the day what matters is getting best possible understanding of the risks involved. That You made Your own risk-audit also shows You’re serious about what You do. Sometimes that’s an advantage when negotiating with insurers.

Eventually it is down to Your requirements and possibilities and how they correspond to available insurance products on the market.

A best possible understanding of Your business and a dialogue with the insurance company and/or the service provider is fundamental.

At least if You want to make sure You have a good umbrella in the case it starts to rain.

Disclaimer: Views are personal and not the views of the publisher