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Prime Mover Magazine

The Chain of Responsibility that anchors our industry

In the late 1990s, aquatic-themed LEGO pieces started washing up on the beaches in Cornwall.

First it was plastic octopi, then cutlasses, scuba-gear, rigging nets and tiny plastic spear guns.

Locals gathered to collect them, and neighbours competed to find the rarest ones (green dragons, in case you’re wondering). The question they were all asking each other was, ‘Where on earth is all this LEGO coming from?’

The answer was lying twenty miles off the British coast.

Far under the waves, a broken shipping container resting on the sea bed was emitting a steady flow of five million pieces of LEGO.

It was just one of sixty containers swept overboard by a rogue wave that tipped the cargo ship Tokio Express 60 degrees one way, then 40 degrees back as it carried its cargo towards New York.

The Tokio Express Lego incident took place at about the same time that I joined the insurance industry, and my imagination was captured by the appearance of these nautically-themed toys.

Up until that point, I had never given a thought to the supply chain and network of agreements that carry goods from warehouses onto ships and then onto the shelves of my local stores.

Or, in this case, into the Atlantic Ocean.

Global shipping has made it possible for goods to be delivered around the world.

Incidents like the one experienced by Tokio Express highlight how waves can wreak havoc on transport routes but it might just as easily have been a truck crash, a rollover, a warehouse fire or a train derailment.

Sellers and buyers will suffer from loss or damage to their goods as a result.

That’s why transport insurance isn’t just desirable – it’s a critical part of our industry. And it’s becoming more and more important as fundamental shifts in customer and government expectations continue to change the way our industry operates.

Back in the days of the Tokio Express, most customers had their own warehousing and distribution operations.

Or, if they used a transport operator, the operator’s job would be to simply pick up a container from one place and deliver it to another, with liability for any damage done to goods in transit severely limited or excluded.

Now, in efforts to increase profitability, customers are replacing their logistics departments with agreements with transport operators – along with the expectation that operators will take on more of the risk and manage every step of the distribution process.

This shift in focus is presenting our industry with multimillion-dollar opportunities, but it’s also putting considerable pressure on transport operators in a variety of ways.

Firstly, the increase in liability means operators now need to think carefully about whether each new agreement they take on is profitable for them. It may not be worth the risk to accept the same level of liability for smaller, one-off shipments from irregular customers as for larger, repeat-business contract customers.

Secondly, if operators choose to mitigate their increase in liability by making agreements with contractors and sub-contractors, they need to be sure they’re not breaching any regulatory requirements around unfair contracts and are maintaining a reasonable level of risk transfer between all involved.

They also need to make sure their contracts don’t take on liability for liquidated damages, or consequential costs, as these can lead to ongoing claims and disputes.

Lastly, operators also need to comply with increasing regulatory requirements. Over the past 10 years, the government has focused on reducing fatalities and injuries through road incidents by imposing mandatory laws for how heavy vehicles can operate, with the aim of protecting drivers from fatigue.

While extremely important, this can make it difficult to balance customer expectations with what is best for drivers and compliant with government regulations.

The inter-connected logistics chain across land and sea means this is an issue for all transport providers, not just those who specialise in road transport.

The risks for our industry in this current environment of constant change are considerable – but so are the opportunities.

That’s why it’s important to partner with an insurer that understands how to balance these competing needs, while being realistic about what is achievable.

The right insurer can help customers get their products into consumer’s hands by any reasonable means – provided the contract matches customer, operator and sub-contractor needs – while protecting operators from the risk of something going terribly wrong.

That goes for air, land and sea . . . because even though the chances of another Tokio Express incident are low, we never know when another rogue wave will send a customers’ goods being washed, wave by wave, onto the shores of the world’s beaches.

- Iain Sharples, Zurich Financial Services, National Manager Marine and Transport Liability 

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