emerging risks in marine transportation webinar...forms of marine liability. through his knowledge...

Emerging Risks in Marine Transportation Webinar

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Emerging Risks in Marine Transportation

http://corner.advisen.com

• White Paper: Industry Analysis: Marine Transportation

• Copy of these slides

• Recording of today’s webinar

Today’s Moderator

David Bradford- President, Research & Editorial Group, Advisen Ltd.

Today’s Panelists

Barbara Spain, Senior Vice President, National Logistics Manager- Marine, Aon Risk Solutions

Patrick Hickey, Vice President- Cargo, Zurich Global Corporate

Robert DeMotta, U.S. Practice Leader- Marine, Aon Risk Solutions

Linda Conrad, Director of Strategic Business Risk Management, Zurich

Anthony J. Ten-Barge, Director of Risk Management, Genco

Today’s Panelists Robert DeMotta, U.S. Practice Leader- Marine, Aon Risk Solutions Role Bob is the U.S. Practice Leader for Aon Broking’s Marine Practice. Responsibilities include strategic planning for Aon’s presence in the marine industry and consistent delivery of high quality products and services. Bob personally leads the Account Executive or broking role for serveral large Aon marine accounts. He participates and/or assists others in the marine practice with the strategic program design for many marine accounts. Experience Bob has devoted most of his 30+ year career to the design, placement and handling of large risk management programs, predominantly for marine industry companies. Technical coverage experience includes Cargo, Hull, P&I, Builders Risk, Terminal Operators, and other forms of marine liability. Through his knowledge of the marine insurance market, Bob has helped lead Aon in the development of new products and services for marine clients. Education/Service Bob earned his B.A. from the State University of New York at Stony Brook. His completed his post graduate studies at The College of Insurance, New York and The School of Offshore Operations, Texas. Bob also maintains his broker’s licenses in New York and several other states. He is an Associate Member of the American Institute of Marine Underwriters, Chairman of the American Institute Marine Underwriters Producer Advisory Committee, and Council Member of American Bureau of Shipping – Special Underwriting Committee.

Today’s Panelists Barbara Spain, Senior Vice President, National Logistics Manager- Marine, Aon Risk Solutions Role Barbara is the National Logistics Manager for Aon’s Marine Practice. She assists colleagues and their Third Party Logistics clients and prospects by using her vast knowledge of the industry and applying services that Aon can offer. She also assists in broking logisitcs. Expertise Barbara has over thirty years of insurance knowledge as both an underwriter and insurance broker, with her recent years specializing in insurance solutions for third party logistics providers and Fortune 1000 companies with dedicated logistics operations. Barbara’s specialty is customizing insurance programs for each individual logistic client’s unique and specific needs. She understands the quick paced world of logistics and ensures that each client’s needs are met on a timely basis. She was recognized by Risk and Insurance Magazine as one of the top six international marine Power Brokers for 2012. Education/Service She is a member of the American Institute of Marine Underwriters, Council of Supply Chain Management Professionals, and past president of the Propeller Clun, Port of Chicago.

Today’s Panelists Patrick Hickey, Vice President- Cargo, Zurich Global Corporate Patrick Hickey is the senior ocean cargo product line officer for Zurich in North America. He is responsible for underwriting, strategy, planning, marketing, compliance and IPZ (International Programs from Zurich) for the cargo portfolio. Hickey is a dedicated ocean marine professional with more than 20 years in the field. Prior to joining Zurich, he was Vice President, Western Zone with AIG Global Marine & Energy and focused his attention on Fortune 500 multinational corporations. Hickey has managed national broker relationships and multi-line insurance product offerings for global freight forwarders and third party logistics providers. His past experience has led him to opportunities in the New York, Los Angeles and San Francisco marine markets. He is a past officer of the Marine Underwriters of Southern California and past President of the Board of Marine Underwriters of San Francisco, Inc. He is currently a member of the American Institute of Marine Underwriters (AIMU) Cargo Committee and the National Cargo Bureau.

Today’s Panelists Linda Conrad, Director of Strategic Business Risk Management, Zurich Linda Conrad is Director of Strategic Business Risk for Zurich. She leads a global team responsible for delivering tactical solutions to Zurich and to customers on strategic issues such as business resilience, supply chain risk, Enterprise Risk Management (ERM), risk culture and Total Risk Profiling. Linda also addresses enterprise resiliency issues in print and television appearances, including CNBC, Fox Business News and the Financial Times, and is featured in a Wall Street Journal site. Linda holds a Special designation in ERM, and serves on the Board of the Institute of Risk Management in London. Linda is deputy member of the ERM Committee of RIMS, sits on the Supply Chain Risk Leadership Council, and was Chairwoman of the Asian Risk Management Conference. She has taught at University of Delaware Captive program and in the Masters on Supply Chain Management program at University of Michigan’s Ross School of Business, where she also serves on the Corporate Advisory Council. Linda studied at the Graduate Institute of International Studies in Geneva, Switzerland and Fox Business School.

Today’s Panelists Anthony J. Ten-Barge, Director of Risk Management, Genco Experience Tony has over 20 years of operational risk management experience at a multinational electronics firm, aerospace, automotive remanufacturer, and logistics. He has extensive experience in managing the due diligence process and managing liabilities during and after transaction. His expertise also includes the managing of environmental remediation, compliance and regulatory affairs, facility security, contract management and review as well as risk project management. While at the multinational electronics firm he managed the international program and a special worldwide HPR engineering and business interdependency program which reduced the property loss exposure and quantified the business interruption and contingent business interruption exposure. The aerospace firm was a portfolio legacy company of a major private equity firm. While there Tony quantified, managed, reduced and eliminated liabilities of operations previously closed and sold, including a Bermuda captive. He reduced workers’ compensation claims cost for ongoing operations and placed aircraft products liability insurance. Tony has also developed cost effective loss control and security programs and has implemented and monitored environmental risk control programs. Service Tony is on the Board of Trustees of the Dwight D. Eisenhower Society of Gettysburg, PA which manages a trust to provide Eisenhower Leadership Scholarships at Gettysburg College and to ROTC students and oversees the management of the Eisenhower Farm National Historic Site in Gettysburg, PA.

How has the prolonged downturn in the global economy impacted the marine transportation industry?

Dave Bradford- Advisen Ltd.

Shipping Market

Source: IUMI and Bloomberg

What are some of the changes to transportation you have observed over this period?

U.S. 3PL Market 1996-2012E (US$ Billions)

Source: Armstrong & Associates

Logistics Trends in Supply Chain Management

• Order Management

• Warehouse Management – Logistics Global Clusters

• Labor Management

• Yard Management

• Transportation Management

• Carrier Management

• Trading Partner Management

• Reverse Logistics RFID Solutions

• Risk Management

• Reshoring

Focusing on the logistics industry, how important is this business to the economy and what are its growth expectations?

The U.S. Business Logistics System Cost is the

Equivalent of 8.5 Percent of Current GDP in 2011

Up 7.6%

Up 6.2%

Up 6.6%

$ Billions

Carrying Costs - $2.184 Trillion All Business Inventory

Interest Taxes, Obsolescence, Depreciation, Insurance Warehousing

3 294 120

Subtotal 418

Transportation Costs

Motor Carriers Truck – Intercity

Truck – Local

Subtotal 629

Other Carriers Railroads

Water (International 28, Domestic 5)

Oil Pipelines Air (International 16, Domestic 15)

Forwarders

Subtotal 177

Shipper Related Costs 10

Logistics Administration 49

TOTAL LOGISTICS COST 1,282

Source: 2012 CSCMP Annual State of Logistics Report

U.S. 3PL/Contract Logistics Market

3PL Segment

Gross Revenue/Turnover

(US$ Billions)

Domestic Transportation Management – Asset Based (1) 11.1

Domestic Transportation Management – Non Asset Based 41.3

International Transportation Management 46.1

Value-Added Warehousing and Distribution 34.0

Software 3.0

Total (2) 133.8

What are some of the Risk Management issues for companies in the logistics business? Are all logistics services and contracts the same?

Operational Risk Management

Responsible for Limiting Loss Due to Operations

Identify Risks

-Operating Environment

-Internal Operations

-Stakeholders

-New Operation & Divestures

• Contractual Risk

• Liability Risk

• Professional Liability Risk

• Environmental Liability Risk

• Crime and Theft Risk

• Workers’ Compensation Risk • Contract Employee Risk

• Employment Practice Liability Risk

Logistics Risk Management (From 3PL Perspective)

• Components of Logistics Risk Management – Senior Management – Risk Manager – Logistics/Transportation Manager – Procurement Officer

• Business Insurance Protection – Property/Casualty Insurance – Cargo Liability Insurance – Professional Liability Insurance – Worker’s Compensation – Crime – Supply Chain Insurance

• Transfer Options for Customers – Shipper’s Interest Insurance – Who’s placing? Buyer/Seller/3PL – Customs Bonds – Buy your own or outsource?

• Issues – Loss Valuation

Logistics Risk Management

• Contract Negotiations

-Key Contract Components

• Liability

• Shippers Interest

-Time Schedules

• Non-Standard Risk Issues

• Customer Bidding

-Bid specifications – reasonable/unreasonable

• Unusual requests

-Competition

Standard Terms & Conditions • Standard contractual trading conditions for freight forwarders and customs

brokers in the United States. Similar rules are followed by other major trading nations of the world.

• Contents Be Careful

– Service by third parties -- Reviews by management, risk managers,

– Indemnification for freight & duties attorneys, underwriters – Choosing routes/agents, etc. -- Ability to negotiate terms &

conditions – Quotations not binding -- More and more contracts! – Duty to furnish information – Declaring higher value – Insurance Requirements – No responsibility for government requirements – Loss or damage due to delay – Limitations for loss – Presenting claims – Construction of terms and venue – Indemnity clauses – Force Majeure

What are the key insurance needs of a logistics company, and are there any specialty coverages required?

Logistics Customers Need Strong Broker Capabilities

• Markets – strong relationships with the highest quality international insurance markets

• Risk Control – claims specialist who provide claims handling, settlement and recovery services on an international basis

• Technology – intranet capabilities tailored to fit the needs of each individual client

• Service – prompt day-to-day service that understands the pace of the logistics industry

• Global Operations – Global buying power with centralized coordination and standards and local service

• Intellectual Consultation – Enterprise Risk Management; Supply Chain Management

Three Aspects to Your Policy

Pre Loss—How to Get Details Right

Insured Insurer

Expectation GAP

in event of claim

Policy

Wording

Expectation Gap

Insured Insurer

Policy Structure

Policy Declared

Values and Limits

Is the insurance marketplace receptive to logistics risks? Are there any specific underwriting concerns and/or solutions?

Marine Premium 2011

by Line of Business

Source: IUMI

Market Availability

• Broader coverages available – specifically developed for logistics

• Global economy / supply chain

• Success requires using specialized global service providers

• Typical limits

– Cargo Liability: $1 Million and up

– Motor Truck Cargo Liability: $100,000 and up

– E & O: $250,000 and up

– Zurich’s Supply Chain Insurance: up to $100 Million

• Typical deductibles – retention has been increasing among larger companies

– Cargo Liability: $5,000 and up

– E & O: $25,000 and up

– Supply Chain: 10% of limit

From Factory to Shelf Insurance Solutions

Importer/Shipper Cargo Insurance

Customs Bonds

Supply Chain

Consolidator/NVOCC Cargo Liability for bill of lading,

warehouse receipt, etc.

Customs Broker Customs Bonds

Factory/Warehouse/DC Property/Casualty/W.C.

Include Completed Ops

Bailee Liability

Warehouse Contents / storage

“Pick & Pack”

Foreign Ports/Terminal Operators

Workers Compensation

Stevedores Liability

Terminal Operators Liability

Property/GL

US Ports/Terminal Operations US L & H

Stevedores Liability

Terminal Operators Liability

Property/GL

Freight Forwarders Shipper’s Interest/Cargo Insurance

(transferable)

Cargo Liability

Bailee Liability

Professional Liability

Motor Truck Cargo Liability

Warehouse Legal Liability

Ocean Carrier Hull & P & I

Sometime Cargo Insurance

Trucking Companies

Rail Lines Motor Truck Cargo Liability

Shipper’s Interest/Cargo Insurance

Bailee Liability

Cargo Insurance “Shipper’s Interest” vs. Cargo Liability

Shipper’s Interest

Must have an insurable interest

Terms of Sale

By written contract - Logistics company can demonstrate insurable interest through letter or contract with written instructions to insure from client

Named insured is shipper/owner of merchandise

Common Policy Terms

Limit of Insurance

Geographical Territory

Valuation

Insuring Terms

“All Risks”

“Named Perils”

Duration of Coverage – warehouse to warehouse, until delivered, including interruptions in transit that are beyond the control of the shipper (port delays, deviations, etc.)

Basis of Premium Collection

Cargo Liability

Protects carrier for loss or damage to merchandise of others

Common Carrier Liability

– Carmack Amendment

– Contract Carrier Liability

Named insured is carrier

Common Policy Terms

– Limit of Liability

– Geographical Territory

– Valuation

– Insuring Terms – Broad Form

– Common Exclusions

– Duration of Coverage

Basis of Premium Collection

E & O Insurance Overview

• Covers consequential or financial loss suffered by the shipper as a result of the carriers negligence, error or mistake

• Exposure

– No standard international limits of liability

– Risk from errors or mistakes such as:

• Freight delay due to negligence

• Lost or stolen freight

• Improperly completed documentation

• Negligent selection of an airline, carrier, packer, sub-contractor

– Legal fees can be costly

Cargo Liability Package Programs

• Liability for loss or damage to cargo

• Liability for errors and omissions

• Third party liabilities

• Fines for regulatory breach, i.e. customs, pollution and safety at work

• Costs including misdirection, investigation defense, disposal and mitigation

• Coverages may include cargo liability, air liability, motor truck cargo liability, warehouse liability, packing liability, specific contractual liability

Earlier in this webinar, mention was made of Supply Chain Management. Can you explain what this entails and why it is important?

Supply Chain is Everywhere – So Many Opportunities!

• High Tech & Electronics • Consumer Products • Automotive & Transport Equipment • Food & Beverage • Life Sciences, Pharma & Healthcare • Industrial Manufacturing • Retail • Chemical

Source: 2010 15 Annual Third-Party Logistics Study/CSCMP

Key Industries with Supply Chain Concerns

What are some of the Risk Management issues and concerns with Supply Chain management?

Risk Management

Operations Contracts

New Business

Development

Transportation

Real Estate

Regulatory Finance International

Environmental Management

Health & Safety

Training

Data Management

Human Resources

Business Development

Supply

• Physical Property Risk

• Cargo Risk

• Business Interruption Risk

• Trade Credit Risk

• Political Risk

• Supply Chain Risk

Supply Chain Risk Events

Manufacturing

Raw MaterialInventory

Manufacturing

Raw MaterialInventory

Supplier

Warehouse

Packaging

Earnings Per Share

Free Cash Flow

Distributionand Sales

Excess Capacity

Unexpected Loss

Safety

At Capacity

Net Decrease in

Production

• Difficulty obtaining information about affected Suppliers and the extent of damage

• What caused the damage? Insured Peril?

– Earthquake

– Tsunami – (How is tsunami defined? Flood or Earthquake)

– Power outage

– Nuclear exposure / threat

– Prevention of Access

• Definition of Occurrence – Continuous 72-hour limitation vs. Aftershocks weeks or months later

• Territorial limits – Japan specifically excluded

• What is the impact upon US companies?

Issues Arising From Japan Earthquake

What are some of the Risk Transfer Solutions for supply chain?

Credit Risks

Protracted Default

Insolvency

Losses due to Payment Default

Political Risks

Contract Frustration

Expropriation etc.

Property/ Business Interruption

Mobile Assets (Stocks & CCP)

Fixed Investment (Equity)

Corporate Loans Lenders Interest

Project Finance (Equity & Debt)

Asset Risk Sovereign Contractual Default

Catastrophic Perils

Supply Chain

Other Perils

Physical Loss or Damage

Global Logistics

Transportation Perils

Customs

Physical Loss or Damage

Supply Chain or Trade Disruption

Trade Disruption: Political and/or natural disasters perils that prevent the delivery of key equipment or supplies.

Reimburse extra expenses and lost profits

Potential Risk Transfer Solutions

Supply Chain: 'all risk' supply chain cover with a pre-agreed claims methodology from Zurich

Reduced fluctuations in results

No physical peril required

Protect balance sheet, brand & reputation

Informed decision making

Protecting profitability and balance sheet funding

Can cover delay costs

Increase transparency

SC13(V2)Jul/05/10GC/ZCA

Supply Chain Insurance

Covering risks not covered by other insurance products

How does one assess their Supply Chain Risk

Supply chain disruptions are more frequent

BCI survey over 300 companies responded

number of supply disruptions per company per year

BCI/Zurich survey over 500 companies

Number of supply disruptions per company per year

Over 50% had more than one disruption

Over 85% suffered a supply disruption in 2011

Identify vulnerabilities

Quantify and benchmark risk exposures

Prioritize mitigation actions

Informed decision making

Understanding where and how your supply chain could be vulnerable

Support operational profitability

Zurich’s family of Supply Chain risk tools

Risk understanding

Total Risk Profiling

Risk Room

NatCat -Location risk

Profit risk exposure

Disruption understanding

Business interruption analysis

Risk assessment

Provides macro country insights, e.g. political stability, economic status, labour situation

Provides exposure information for supplier locations in respect of e.g. floods, earthquakes, windstorm, related transport infrastructure

Helps in the understanding of the level and nature of disruptions in the particular industry or a particular location from a unique database

Enables a company to understand its total supply chain profit exposure in terms of a particular location, country or region

Helps a company model its relevant BI exposures

Formalised assessment of relevant areas which are part

of the due diligence process within the sourcing activity

Structured approach to defining risk appetite and

prioritisation for dealing with risks in the supply chain

Business Interruption Analysis

Helps a client model their relevant BI & CBI exposures.

Many Thanks to our Sponsor!

Barbara Spain, Senior Vice President, National Logistics Manager- Marine, Aon Risk Solutions. Email: barbara.spain@aon.com

Patrick Hickey, Vice President- Cargo, Zurich Global Corporate. Email: patrick.hickey@zurich.com

Robert DeMotta, U.S. Practice Leader- Marine, Aon Risk Solutions. Email: robert.demotta@aon.com

Linda Conrad, Director of Strategic Business Risk Management, Zurich. Email: linda.conrad@zurichna.com

Anthony J. Ten-Barge, Director of Risk Management, Genco. Email: Tony.Ten-Barge@genco.com

Thank you Panelists

White Paper: Available on Advisen’s Corner Store

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emerging risks in marine transportation webinar...forms of marine liability. through his knowledge...

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