Cargo Risk Management

Corporate Programs

Reducing Risk Through Knowledge Management

Cargo Risk Management

Cargo risk management is the identification, analysis and control of risk within the transportation environment. The impact of a cargo

loss in today’s competitive business environment extends far beyond the amount that may be recoverable through an insurance claim. Effective cargo risk management contributes significantly to

a business’s efficiency, reputation and results.

The Global Cargo Environment

• Global Security Threats

• Expanding Global Trends

• Complex and Extended Supply Chains

• Increasing Compliances

• Accumulation

• Multimodal Transfers

• Transit Chain

• Packing

• Handling

• Unitization

• Logistics

Focus is prioritized and inter-dependenciesaddressed in accordance with client specific risks and business impact analysis.

Cargo Risk Management

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Transit Chain

• Primary transit lanes & links

• Conveyance mix

• Intermediate ports & storage

• Political & weather routing

• Changing business activity

Cargo Risk Management

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Transit Chain – Intermediate Ports & Storage

Risk summary : Transshipment at intermediate ports is a common activity even on many of the most popular world trade voyages. In many cases cargo owners may not be aware of the intended voyage schedule and large volumes of goods in transit may be subject to anonymous handling and unknown or unplanned storage exposures.

Risk management strategy :

• Establish nature and extent of existing processes

• Identify weak links and investigate / develop viable alternatives

• Identify, document and analyse procedures at key locations - people, machinery.

• Review intermediate location security and cargo tracking protocol

• Establish appropriate notification process & parameters for duration or accumulation

• Develop workable disaster and capacity contingency plans

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Packing

• Design & construction

• Assembly

• Marks & numbers

• Supply chain process

• Regulatory controls

Cargo Risk Management

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Packing - Design & Construction

Risk summary : The quality, integral strength and overall robustness of packing is a primary risk factor for all goods being transported as cargo. Lack of commitment to the packing design process and inherent inefficiencies in the construction of packing units can lead to serial damages to cargo in transit and the potential of additional costs involved in redesign or other remedial actions.

Risk management strategy :

• Establish cost effective and fit-for-purpose packaging approach

• Ensure suitable packaging medium (type & strength) in relation to product

• Establish appropriate sizing dimensions for effective unitisation

• Evaluate impact of brand marking of shipping outers

• Validate expertise, experience and track record of packing designers/manufacturers

• Ensure appropriate packaging to withstand known or expected transit conditions

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Packing - Assembly

Risk summary : Well designed packaging can be rendered ineffective due to improper or careless assembly techniques and procedures. Poorly managed and monitored packing assembly, stuffing and closing processes can lead to inefficiency in the production line, an increase in unaccountable or inventory losses and an increase in the susceptibility of the goods to even the most minor of in-transit disturbances.

Risk management strategy :

• Review the level of packing integration within the manufacturing process

• Validate efficient combination between manual and automated assembly processes

• Establish correct and efficient process for assembly, filling and closing

• Review effectiveness of closing and sealing mechanisms and their application

• Ensure use of appropriate infill material and method of application

• Review packing staff competencies and applicable training standards

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Packing – Marks & Numbers

Risk summary : Marks and numbers are intended to categorically identify a cargo throughout the transportation process. Inappropriate or poor marking can lead to shipments being badly handled, mis-routed or lost and can also alert cargo thieves to the contents of particular packages.

Risk management strategy :

• Establish compatibility between branding requirements and risk management strategy

• Ensure that labelling strategy complies with operational & legal needs

• Investigate application and viability of using blind and /or decoy marks and numbers

• Review point and method of marking - ensure secure and effective procedures

• Establish effective usage and profile for International handling symbols

• Consider the application of other special instructions or marks to improve risk

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Packing – Supply Chain Process

Risk summary : Interruption to the packing supply chain process or the presence of anomalies/ faults in the chain, create operational pressures that can lead to the implementation of incorrect packing procedures. The efficient functioning of the packing supply chain and associated maintenance of quality and timescale requirements are integral to the delivery of an effective cargo risk management strategy.

Risk management strategy :

• Evaluate effectiveness of goods inward packing provided by raw material suppliers

• Review reception, integration and consolidation of pre-packed components

• Establish efficient integration between production line processes and packing activities

• Review post production consolidation processes for fully packed goods

• Establish effective contingency plans for packing resource failure (labour & materials)

• Consider packaging recycling options in line with corporate or legal requirements

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Packing – Regulatory Controls

Risk summary : Correct identification of and compliance with all regulatory packing controls that apply to cargo during the intended transit is essential to avoid unnecessary delays and deviations, and the possibility of confiscation. Detention of goods in transit, not only causes delay but also may expose cargo to unplanned and potentially unsuitable handling and temporary storage conditions.

Risk management strategy :

• Identify restrictive legislation relating to packaging in transitional & destination countries and ensure compliance

• Ensure that packaging materials meet the legal requirements of the destination country• Consider max / min parameters (weight & dimension) for key modes of transport

• Ensure adherence to international transportation requirements for hazardous cargoes

• Establish effective methodology for disposal of spent inbound packing materials

Dangerous Goods

The movement of dangerous or hazardous substances frequently calls for highly specialized transport

operations, special packing, marking & labeling. Failure to comply with stringent regulations affectingdocumentation and stowage can lead to very severe penalties and endanger the safety of ships,

aircraft, passengers & crew.

Before the movement of any dangerous substance the shipper is responsible for ;

Commodity Identification Accurate description of the article or substance - not trade or brand names

Consultation With core reference manuals for the particular modetransport i.e. IMDG, IATA, CFR 49, etc

Classification Allocation of the appropriate Class no. & UN no

Compliance With regulations covering packing, marking and labeling.

Completion Of the appropriate Dangerous Goods Declaration

The carriage of dangerous goods is a highly specialized subject and detailed advice must be sought where appropriate

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Handling

• Loading & stowage techniques

• Manual handling

• Mechanical handling

• Stevedore services

• Process efficiency

Cargo Risk Management

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Handling – Stevedore Services

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Risk management strategy :

• Review employment policy and implementation - casual labour, long term contracts

• Evaluate track record - losses, criminal events, insurance cover, contractual terms

• Review levels of competency and training standards

• Evaluate employee vetting procedures including update procedures

• Identify specialist experience and evaluate applicability to specific requirements

Risk summary : The manual handling of cargo continues to be common practise throughout the transportation process. Many manufactured and consumer goods are at least handled manually or mechanically by stevedores at the beginning and end of the transit chain. Stevedores are responsible for ensuring that cargoes are handled safely and for maintaining security of information - particularly for high value shipments.

Unitization

• Pallets

• Ocean Containers

• Airfreight Containers

• FCL Vs LCL

• Lashing & Stowage

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Unit Tracking

Cargo Risk Management

Unitization - Pallets

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Risk summary : Due to their easy and rapid manipulation, palletized cargoes are often subjected to high-speed mechanical handling and the associated impact of sudden acceleration and deceleration in both the vertical and horizontal axis. The global variance in quality of mechanised handling equipment (normally fork-lift trucks) and competency of operators, exposes palletized cargoes to numerous physical contacts during the normal transportation process.

Risk management strategy :

• Ensure pallet quality (materials & construction) meets operational requirements

• Establish effective selection procedure for correct pallet type

• Review pallet sourcing strategy - cost, quality & availability

• Ensure selection of correct pallet size for maximisation of cargo space with reference to mode(s) of transportation • Establish effective methods of cargo consolidation to pallet

Unitization – Ocean Containers

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Risk summary : The most common method of ocean transit, around 7 million containers transited the US last year, ocean containers, in their various forms offer convenient benefits such as standardization and intermodal capabilities. A knowledge of dynamic forces affecting any particular mode of transport will allow shippers to anticipate cargo movement and plan securing arrangements

Risk management strategy :

• Select the correct type of container consistent with product characteristics

• Ensure equipment integrity and sea worthiness

• Employ adequate / satisfactory securing methods and devices (bracing & blocking)

• Prevent uplift by using tie downs and fill all void spaces• Seal the container doors with approved ISO sealing devices

Logistics

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• Supply Chain Management

• Warehousing

• Distribution

• Documentation

• Duty & Insurance

Cargo Risk Management

Logistics - Documentation

Risk summary : Documentation and the information that it contains represent very real security considerations for all shipments of consumer goods and particularly for high value consignments. As the flow of electronic information increases, the need for enhanced awareness should be considered as carefully as the demand for increased operational efficiency.

Risk management strategy :

• Analyse the information chain to validate access control and security procedures

• Establish secure and efficient authority and approval levels for key documentation

• Review document processes, office of issue and method of issuance

• Review existing document authentication methods

• Identify secure and acceptable cargo descriptions for use on all documentation

• Avoid surplus documentation and unnecessary multiple access to information

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Transportation Security

• Facilities

• Assets

• Personnel

• The Transit Chain

• Federal Initiatives

Cargo Risk Management

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Transportation Security - Facilities

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Cargo Risk Management

Risk summary : At many times before, after and during transit, goods and commodities maybe stored (or staged) for lengthy periods. Due consideration should be directed towards the safety and security arrangements at these numerous storage depots and sites.

Risk management strategy :

• Evaluate location, environment and hazards

• Establish availability of local support services such as fire and police protection

• Review, analyse and validate external physical and procedural controls

• Review, analyse and validate internal physical and procedural controls

• Access controls

Transportation Security – Personnel

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Cargo Risk Management

Risk summary : A transportation security and asset protection program may be adversely affected by exclusive decision making processes, poor communication, lack of employee awareness, and internal management conflicts. People are key in every respect.

Risk management strategy :

• Formalize procedures, plans, accountabilities, contingencies and budgets.

•. Seek management capture and executive support

• Promote interdependencies through shared responsibilities and procedure manuals

• Encourage employee participation through skill enhancement and training

• Conduct compliance monitoring and auditing.

Transportation Security – Transit Security

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Cargo Risk Management

Risk summary : The process of transporting cargo from the point of origin to destination can be a complex procedure involving, multiple modes of transport, staging areas, warehouse and port facilities, and national jurisdictions. Cargo in transit is exposed to risk through, improper handling, misplaced routing, theft and physical damage. While the efficiency of the supply chain has improved considerably, transit security requires improvement.

Risk management strategy :

• Develop minimum security standards for cargo trucks.

• Develop minimum security procedures and pre-alert systems for high value goods

• Develop written plans to cover contingencies such as breakdown and hijacking.

• Agree minimum security standards and SOP’s with subcontractors.

• Monitor compliance

Transportation Security – Federal Initiatives

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Cargo Risk Management

• Maritime Transportation Anti-Terrorism Act 2002

• Customs-Trade Partnership Against Terrorism (C-TPAT)

• Container Security Initiative (CSI)

• Operation Safe Commerce (OSC)

• International Ship & Port Facility Security Code (ISPS)

Value

• Risk Management

• Cost Benefit Analysis

• Image & Reputation

• Operational Efficiency

• Business Strategy

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Risk Management

• Risk identification & analysis

• Reduction of exposure & losses

• Practical & viable approach

• Risk transfer Vs risk retention

• Education and culture change

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Cost Benefit Analysis

• Explicit cost management

• Internal cost management

• Value assessment

• Business benefits

• Capital expenditure payback

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Image & reputation

• Market reputation

• Brand integrity & strength

• Company image

• Customer service

• Industry reputation

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maintain market share

Operational efficiency

• Supply chain management

• Work & document flow

• Distribution network planning

• Internal Vs external processes

• Information management

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Business Strategy

• Business development

• New markets & products

• Third party provision

• Trade relationships

• Internal cargo procedures

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Approach

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• Establish partnership with client

• Establish scope, objectives and milestones for program

• Establish actions, responsibilities and resources for program

• Establish review and measurement criteria for program

• Review based development of program

Example Assignment

Manufacturer & distributor of high value consumer goods$1 billion global turnoverTurnover and profit decreasing in key marketsLoss of brand imageCargo losses in excess of $2 million annuallyDeteriorating relationships with insurersPiece meal, re-active risk management not effectiveNew market expansion in volatile areas

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Example Assignment – (exporting)TRANSIT CHAIN•Unnecessarily complex•Dependence on Hong Kong

PACKING (China)•Poor quality single walled cardboard cartons•Low grade packaging tape•Poor integral strength•High profile markings

HANDLING (China & Hong Kong)•Multiple manual handling•Handling areas exposed to elements

UNITISATION (Hong Kong)•Lack of supervision•Lack of security of information•No container inspection procedures in place•Multiple consolidation premises

CARRIERS•Multiple inland carriers•Traffic poorly co-ordinated•Multiple carriers•No performance records

LOGISTICS•High percentage of consolidated shipments•Multiple freight forwarders•Poor communication channels•Lack of incident tracking Next

Agree & Implement plan

Carton availability and costAlternative packing mediumsStrapping / securing availability and costPacking process efficiencyHandling characteristics - cost & safety

Efficiency & cost of H.K. operationAlternative supply management optionsRedundant stock policyWarehousing and consolidationOperational need for LCL/consolidationFCL availability and cost

PACKING (China)•Poor quality cartons•Low grade packaging tape•Poor integral strength•High profile markings

Lack of structural strengthBreakage of cartons, collapse of stow Exposure & spillage of contentsUnnecessary advertising marksLack of security of informationTheft on a grand scale

Change packagingIncrease structural strengthRemove high profile marks

2 million cartons per yearMultiple third party manufacturersWorkflow process impact

Reduce number of consolidatedshipments.Streamline export transit chainReduce multiple handlingIncrease use of FCL

Supply chain management from H.K.Secondary storage/stock pilingOrder processing subject to strict time constraints

Loss of market attributable to theftBrand image impactBenchmarkingInsurance premium Insurance strategyOverall loss of market share

Business impact analysis

Key operational issues

Practical considerations

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