Slide 1

Report
Premier Provider of Innovative Insurance and Surety Solutions
State of the
domestic transportation market
ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO
About Avalon
Seattle
Boston
New York
San Francisco
Chicago
Los Angeles
Atlanta
Charleston
Houston
Miami
• Ten U.S. regional offices located in major ports (+1 in Canada)
• Customs bond and transportation insurance specialists
• International and Domestic risks insured
© Avalon Risk Management, Inc.
State of the domestic transportation Industry
State of the industry
• Many motor carriers have seen major shippers declare
bankruptcy
• Remaining clients slowing payments
• Rates down (-15% in some cases)
• January truck tonnage down 10.8% (1/09 vs. 1/08) – ATA
• Licensing & Insurance costs will likely rise
• More regulation on the horizon?
• Financing harder to come by
© Avalon Risk Management, Inc.
State of the industry
• 3065 Trucking company failures in 2008
• Transport Capital Partners Feb. 2009 trucking fleet
survey found that 22% of respondents would consider
liquidating in next 6 months
© Avalon Risk Management, Inc.
State of the industry
• Fuel prices down dramatically from summer of 2008
• Market adjustment through reduction in capacity (Motor
Carriers as well as vehicles)
• Economic recovery
© Avalon Risk Management, Inc.
State of the industry - Trends
• Weak economy leads to increase in cargo theft and
pilferage
• Threat of abandoned loads and double payment of
freight charges
• Continuing trend whereby shippers seek to take greater
control of transportation process through use of
contracts
© Avalon Risk Management, Inc.
Considerations for Shippers
Insolvency of a Business Partner
Insolvency of business partner
• Carrier insolvency can result in lost or abandoned loads
and disrupt supply chain
• Insolvency of 3PL can result in double payment of
freight charges
• Client insolvencies can potentially be the most
damaging
• Bankruptcy preference claims are a threat
© Avalon Risk Management, Inc.
Insolvency of business partner
• Create policies for selecting transportation providers
• Mandate 100% compliance with policies
• Get bank and trade references
• Use credit reporting agencies
• Outsource carrier review & selection to 3PL
• TIA Performance Certified – Up to $100,000 in protection
© Avalon Risk Management, Inc.
Insolvency of Clients
• Stay in touch with customers – make sure they are
visited periodically
• Watch for changes in payment trends
• Beware of sudden decrease or increase in business
• Re-evaluate creditworthiness regularly
• Don’t hesitate to turn accounts off
• Automate credit and collections process
• Consider purchasing Credit Insurance
© Avalon Risk Management, Inc.
Credit Insurance
• Good credit procedures protect your business
• Credit Insurance protects you from shock losses
including bankruptcy and preference issues
• Credit Insurance may allow for increased sales
• Access to credit experts and the ability to outsource
credit evaluations
• Cost (1/4% –1/2% of receipts) may be less than expected
credit losses due to claims avoidance
• Could improve your own creditworthiness
© Avalon Risk Management, Inc.
Vicarious Liability for Actions
of Motor Carriers
Vicarious Liability for actions of motor carriers
• Shippers and Brokers not customarily responsible for
acts of Motor Carriers
• Recent lawsuits have addressed this issue. Potential for
liability increased by:
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Negligent selection of MC (SAFER, Insurance, etc.)
Increased control / oversight of MC or driver, routing, etc.
Being listed as MC on the bill of lading
Contractual assumption of liability
Loading of conveyance
Statements in marketing materials / on website
© Avalon Risk Management, Inc.
Vicarious Liability for actions of motor carriers Contracts
• Discuss carrier vetting procedures with 3PL
• When executing contracts with 3PLs
– Be certain contract does not exert undue control
– Don’t force 3PL to undertake carrier responsibility
– Recognize that contract can negate 3PL insurance coverage
(contractual exclusion, AI)
– Realize that 3PLs who sign onerous contracts without
question may lack financial wherewithal
– Determine if 3PL has 3rd party liability or contingent
auto liability coverage
• When loading trailers/containers
– Consider involvement of your employees in process
– “Signoff” that driver inspected
– Inspect geographic scope of your GL Policy
© Avalon Risk Management, Inc.
Vicarious Liability for actions of motor carriers Summary
• Carefully select carriers
• Consider outsourcing task to 3PL
– They will/should have well defined process
– Adds layer between you and carrier
• Don’t “go too far” in contracts or in actions (loading)
• Verify carrier / 3PL insurance
© Avalon Risk Management, Inc.
Cargo Loss and Damage
Cargo Loss & Damage
• Cargo loss claims rise in a down economy
• Pharmaceuticals are a top 10 theft commodity by
number of losses (recent $44 Mil loss reported)
• 57% of theft losses occur over weekends or holidays
• Truck stops most common loss location
• Thefts consistently spreading past LA, NY, MIA and
becoming nationwide problem
© Avalon Risk Management, Inc.
Cargo Loss & Damage
• Motor carriers generally liable for loss under Carmack
• Carmack is a strict liability standard but will not cover
Acts of God
• Brokers are not liable for cargo loss/damage
• INSURE YOUR SHIPMENTS (Cargo/Property)
• Look at carrier vetting as a means to maximize
subrogation when losses occur
© Avalon Risk Management, Inc.
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Cargo Loss & Damage
• The Bottom Line: Just about anything can
happen to your shipment
• Know your transportation provider
• Insure your cargo!
© Avalon Risk Management, Inc.
Cargo Insurance
• Shipper’s Interest Cargo Insurance can insure all modes
of transit
• Coverage is consistent with terms pre-agreed
• Loss, Damage, Theft, Pilferage and other perils can be
covered
• Acts of God covered vs. carrier negligence only
• Without insurance, how many shipments would you do
for free to make up for one lost load?
© Avalon Risk Management, Inc.
Certified Cargo Screening Program
Cargo Screening
• 50% requirement now & 100% by August 2010
*Wide body passenger aircraft
• Certified Cargo Screening Facility (CCSF)
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Many shippers & forwarders applying for status
Specific concerns for Pharmaceuticals & Food
SAFETY Act offers protection in some cases
Coverage territory and terrorism extension are critical
Cargo loss/damage/misdirection exposure
CGL Policy will respond in accordance with policy terms
© Avalon Risk Management, Inc.
Certified Cargo Screening Facility
• Competitive advantage of on-site screening
– Marketing advantage
– Greater control over process
– Time savings & supply chain predictability for clients
• Discuss plans with your insurance broker
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CGL Territory
Property / cargo coverage scope
Terrorism Extensions
Safety Act protections
© Avalon Risk Management, Inc.
Regulatory Issues
Regulatory Issues
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10+2 (Importer Security Filing/ISF)
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Surety/CHB/Importer liability will increase with enforcement Jan. 2010
Added supply chain time and expense
CBP still contemplating surety issues
Based on CBP position for SEBs, pressure on broker to obligate own
bond
Bureau of Industry & Security
– Penalties for exporters & forwarders
– Increasing enforcement focus
– Looking back three months…
• $1.9 Million in fines
• $238,000 average fine (per company)
• 384 distinct infractions ($5,000 avg. per infraction)
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Lacey Act makes it unlawful to import, export, transport, sell, receive,
acquire, or purchase in interstate or foreign commerce any plant in
violation of domestic or international laws.
– Extraordinary range of products impacted
– Importers must rely on party overseas for information
– Phased in enforcement beginning April
© Avalon Risk Management, Inc.
Regulatory Issues
• Consider a Regulatory Defense Contract
– Covers legal expenses but not fine
– Covers enforcement by U.S. government agencies
– Provides purchaser with a plan at an economical cost before
things go wrong
© Avalon Risk Management, Inc.
Conclusion
Conclusion
• 2009 will be a challenging year for shippers and
transportation providers alike
• Those that execute better than their peers will realize
opportunities for success
• Enter Partnerships with your transportation providers
for more predictable outcomes
• Consider outsourcing the management of physical
carriers
• Exercise care in developing transportation contracts
• Be sure that you are properly insured
© Avalon Risk Management, Inc.
Michael S. Brown
Executive Vice President
Avalon Risk Management, Inc.
Phone: 978-740-5677
[email protected]
Premier Provider of Innovative Insurance and Surety Solutions
Thank you
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