Let's continue the Transportation Series with a general introduction to logistics risks.
As one of the top 10 largest industries in the world, logistics plays an important role in everyone's life. The logistics industry facilitates business activities by transporting, storing and delivering goods through B2B, B2C or C2C supply chain networks. Today, logistics companies provide cargo transportation services by land, air and water while adapting to the changes in the economy and digitalization. The worldwide value of the logistics industry, one of the backbones of trade, exceeded €8.4 trillion in 2021 and is expected to exceed €13.7 billion in 2027. The biggest market of this sector is Asia-Pacific.
Regarding the logistics sector in our country, UTIKAD's (Turkish Forwarding and Logistics Association) 2021 report contains very detailed information on this subject. Transportation and storage services have a very important share of 8.4% in GDP. Türkiye's location connecting the mainland makes it an important logistics base, and with this advantage, it is possible to increase its share in GNP significantly.
I spotted the necklace in the picture on an e-commerce site and ordered it. It is a personalized product with my and my son's names on the necklace. The package is smaller than a matchbox. The journey of this tiny package from the company's cargo tracking page was so interesting that it was a great experience to watch every stop and every point where the package passed from hand to hand.
The manufacturer in New York entrusted the package to a local logistics company. The package waited at the port in New York where it was delivered about 1 week later. The ship arrived - it took about a week to load; from there the ship sailed to Jamaica. It waited in Jamaica for 5 days and then left again. I couldn't trace it for a while, I even gave up hope for a while, but it showed up in Italy. After waiting there for a week, it was loaded and arrived in Izmir, received by a well-known local logistics company, and after waiting in the main warehouse for a day or two, it was loaded onto a truck and arrived at the Istanbul transshipment warehouse. Then I tracked it as we know it from the cargo tracking page of the local cargo company and it arrived at my door in 2 days. The journey took about 2 months. This tiny package, along with many other goods, went through such a long journey and various stages that looking at each step one by one, it was possible to see the transportation and storage services, the IT infrastructure, the players in each process and the strong network of forwarding companies in all their glory.
Logistics offers a wide range of services ranging from planning, controlling and transporting the transportation of products to end users from their sources. In addition to the transportation service provided from the first point of origin to the final destination, an important service of the sector is also storage.
And of course, Chain Services - the means by which my tiny necklace was transported on its journey, the ports, warehouses, storages, carriers, sub-carriers, the systems that plan and track this journey, labeling and all the services we can think of are all services of the logistics industry.
Logistics service providers face financial, strategic, physical, legal and operational risks during their operations.
Financial Risks - Cash, treasury, creditworthiness, contracts
Strategic Risks - Change management, political risks, customer satisfaction, e-commerce logistics, merger and acquisition risks, brand image
Physical & Operational Risks - Asset Risks, Terrorism and sabotage, cargo security, cargo damage, damage to third parties, claims management, storage and handling damage, vehicle security, weather and climatic problems, employee compliance, recruitment, employee safety, IT engagement, fleet management, environment
Legal, Compliance and Regulatory Risks - contractual responsibilities, supplier management, asset utilization and management, legal compliance, international trade laws, local practices
Source- GRMI Institute (research blog- 2021)
What should be the ideal insurance program of a logistics company? These can be listed as
- Asset Risks
- FFL (Freight Forwarder Liability)
- Physical Risks for customer goods in warehouses (Fire Insurance)
- Employer Financial Liability
- Executive Responsibility
- Cyber
- Compulsory and voluntary insurances for their own vehicle fleet, if any
- Employee Insurance
- Green card and truck carnet for international road transportation
- Transportation (on project basis)
Logistics companies operating globally are required to have insurance in accordance with the laws of the countries in which they operate. I must point out that logistics companies have significant shortcomings in this regard.
FFL- Freight Forwarder Liability- insurance, which I have briefly mentioned before, provides the transfer of some of the risks of the logistics sector mentioned in 4 groups above to insurance. Since FFL- insurance is a very special protection, I will share it in detail in a separate article. With the FFL Policy, the logistics supplier's responsibilities such as transportation, storage, documentation, customs clearance, errors and omissions, fines, loss of profit, misconduct are covered by a single policy. However, since this insurance is not very well appreciated, it has unfortunately become very difficult to obtain an FFL insurance that meets the needs in recent years.
The right risk management and insurance program is vital for logistics service providers operating in the logistics industry.
During my time focusing on logistics industry risks, I was very interested in the multiplicity and complexity of the risks that the industry faces. Logistics companies have to allocate significant budgets for all the different risks mentioned above. In general, it is possible to say that logistics companies are unable to access insurance that meets their needs due to the complexity and difficulty of their risks, inadequate risk management and loss frequencies, and that the existing insurance is inadequate and full of many flaws. Insurance is an area that the logistics sector generally perceives as a cost, concentrates on frequency damages apart from premium negotiations, does not spend much time on the content of larger and more complex risks, and frequently experiences problems in the event of claims..
At a point in time when logistics companies are not only limited to services but also investing in ports, functional logistics bases, specialized IT solutions and software, warehousing, customer-specific solutions/services, it is an inevitable requirement for logistics companies to include insurance in all their processes in order to maintain their operations and assets in order to support risk management. In the next article, we will examine insurance protections against FFL and logistics contract risks in detail with examples,
Until then...
Sources:
www.statisca.com
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