Evolving Risk Management Challenges In Transportation

1. Evolving Risk Management ChallengesIn Transportation Presented by: Michael S. Brown TLC - San Diego - 2013 Executive Vice President, Avalon Risk Management mbrown@avalonrisk.com +1 (978) 607-0169 Premier Provider of Innovative Insurance and Surety Solutions

2. Cargo Losses and Claims Trends

3. US Cargo Theft 1) FL 2) TX 3) GA 4) CA 5) NJ

4. US Cargo Theft 199 Thefts Reported $133,711 Avg. Value

5. US Cargo Theft 61% of Thefts From Unsecured Parking

6. Mexican Cargo Theft • 303 Thefts in Q1 2013 • 61% were hijackings • Some highways deemed too dangerous for carriers • 75 tons of grain stolen in one day • Rail theft of scrap metal

7. Jammer Assisted Hijacking • Truck containing consumer electronics components hijacked in Tlalnepantla, Mexico March 5, 2013 • Truck equipped with hard wired fleet tracking system & two covert tracking devices • Hijackers placed cellular signal jammer in passenger cabin of the truck • Fleet tracking system & one covert tracker were disabled • 2nd tracker remained functional • State of Mexico Transportation Police intercepted truck within 45 minutes • Thought to be first successful attempt to use jammers in Mexico

8. Risk Management Challenges • Vicarious liability & negligent selection claims • Hostage loads, carrier impersonation, fraudulent drivers • Motor Carrier Insurance price competition driving trend towards minimal coverage • Insurance Coverage transparency lacking

9. California Air Resources Board • CARB regulations impacting reefer units (TRUs) now in effect • Penalties for shippers, consignees, truckers, drivers & broker/forwarder nationwide that hires trucker (US$1,000 each) • Clean truck regulation in effect for CA based companies as well • Idling regulation expected in October

10. Hurricane Sandy – October 2012 Damage Estimates Now Total $50billion

11. Cat 3 – 109mph winds – 285 Fatalities 250,000 Cars Damaged

12. Avalon’s New York Office

13. Hurricane Sandy • Cargo damaged/destroyed/delayed • Significant impact on NY area businesses

14. MSC Flaminia

15. MSC Flaminia • Significant damage to vessel & cargo • Unloading of containers took significant time • Undamaged goods subject to market fluctuations highlight need to consider insurance cover for delay

16. Vessel Damage Claims

17. Vessel Damage Claims

18. Vessel Damage Claims

19. Vessel Damage Claims

20. Vessel Damage Claims

21. What Can Be Done?

22. Carrier Qualification • Authority & Safety Rating (Linhart v. Heyl) • Verify Identity (independent search) • Insurance (fraudulent certificates, appropriate coverages, frequency of verification) • Other Considerations • Credit • CSA Basics? • Insurance exclusions, warranties, scheduled vehicle policies • Hints (GL coverage, coverage limits)

23. Carrier Qualification

24. Carrier Qualification 5/1/12 5/1/13 $100,000 A Motor Truck Cargo

25. Carrier Qualification

26. Broker Qualification • Authority • Verify Identity • Insurance (E&O, Contingent Cargo, Contingent Auto, Limits?) • Who writes Bond / Trust? • Is Bond limit voluntarily higher? • TIA Member?

27. Communication & Cooperation • Once Carrier / Broker vetted, verify that carrier retained actually picks up load • Communicate with shipper (Photo, DL#, unique shipment ID, etc.) • Shipper authenticates • Works in certain industries (pharma) • MAP-21 makes this easier by making unauthorized re-brokering illegal

28. GPS Tracking • Wide array of options • Some devices sense light, temperature • Automatic alerts for change in motion, route deviation, door open, temperature change, etc. • Consignee cooperation can reduce cost • Have a plan in place to deal with GPS alerts

29. Appropriate Degree of Control • Too much control of driver can result in responsibility • Regular driver communication, controlling route / manner of performing work, etc. • Contrast between Hoffman v. Crane and Hayward v. C.H. Robinson

30. Contracts • Use standard contracts • Don’t go too far • Can invalidate subcontractor’s insurance • Indemnification for one’s own negligence problematic • Additional insured status on Auto Liability problematic • Model contracts available • Add CARB verbiage to contracts

31. Shipper’s Interest Insurance • Coverage if carrier/subcontractor coverage fails • Coverage for acts of god, general average, etc. • Full value door to door coverage air, ocean & LTL moves • Regulatory defense protection may be available

32. General Liability Coverage Territory • Most US policies cover events in US, Canada, etc. • Limited coverage for international waters/airspace • Improper packing / securement exposure • Endorse your coverage territory • Verify that subcontractors like packers & craters do this as well

33. Transportation Relationships • 3PLs play a vital role in the process • Outsource transportation management • Efficiently add needed capacity • Proper vetting important • Cooperation and information transparency critical

34. Thank you!