In an economic downturn, there is typically an increase in the frequency and severity of marine claims. This may be the result of cost-cutting affecting crewing levels and expertise, a lack of regular maintenance, or vessels being laid up for an extended period.
Cargo theft claims
Although largely unrelated to the economicdownturn, theft and hijacking of cargo is an increasing problem. There is still a very high frequency of the targeting and successful theft of consumer retail goods, particularly consumer electronics, pharmaceuticals and high-value commodities that are easily sold on the black market, especially in South-East Asia and Latin America.
In the US, perhaps surprisingly, it is food and beverages that are most commonly stolen. According to FreightWatch International’s
Bi-Annual Cargo Theft Report (July 2010), food and beverages (notably meat products, canned beverages and raw products such as sugar and coffee) are the most commonly stolen cargo products in the US, accounting for 22% of all theft incidents. This is followed by electronics, which account for 19%. There has been a noteable shift in the area of marine theft claims globally, from low value pilferage claims to an increase in the hijacking and theft of full container loads. They are fewer in number but much bigger in value. Rather than the USD 5,000 or USD 10,000 pilferage claims that Zurich used to see in the 1990s, we are now seeing USD 500,000 or USD 1 million theft claims.
In the past: Pilferage
Cargo security within containers was a challenge in the past. The industry tended to consolidate smaller loads into one container,
which meant containers had to be opened and closed a number of times during the transportation process, resulting in high
levels of pilferage. Pilferage happened largely in the ports where the stevedores would help themselves to the goods being shipped. Today, with fewer consolidated loads and improved container security, pilferage has largely gone away. For example, doors can be locked in such a way that they cannot be broken into without it being obvious. Additionally, security at ports has increased as a result of the threat of terrorism, so it is now almost impossible to get past the gates without significant security clearance.
Now: Organized criminal gangs
Theft is now on a much bigger scale and involves organized crime due to a lucrative black market. With the expansion of the global economy, goods can be ordered easily and quickly on the internet from anywhere in the world, with the consumer having no idea
of the source of those goods and whether that source is legitimate. The opportunities created by significant values concentrated in a container, as well as the lack of traceability and the ease with which goods can be sold in a market where it cannot be tracked, has made cargo theft much more attractive. Organized criminal gangs are now sophisticated. Specific goods can be targeted for theft and stolen or sold to order based on the demand of the black market.
The increase in major hijacking and violent crime is also due to the fact that the distribution network is changing. In the US, for example, many of the high-value goods that enter the country come in via Mexico where criminal gangs are much more active.
Is your product in demand?
An example of how organized the criminal gangs now are, and how they steal to order, was highlighted during an analysis of a
customer’s loss portfolio. The customer had seen the number of thefts of one of its products, a mobile phone, fall signifi cantly,
to virtually none in the previous 12 months. The reason was not an improvement in security or re-routing – it turned out that no-one wanted their outdated product as it had been replaced by demand for newer technology in the form of their competitor’s
smart phones. That customer was preparing to launch a smart phone of their own, and Zurich warned them to prepare for a signifi cant increase in theft. Zurich is working with them now to mitigate this increased exposure.
Sophisticated criminals tracking cargo
Criminal gangs are stealing containers, attacking warehouses where the products are stored, and taking products that are in
strong demand. The sophistication of these criminal gangs is highlighted by their ability to exploit online freight exchange websites by hacking into those sites and ‘stealing’ the information. Additionally, the ease of access and user-friendliness of cargo tracking facilities offered by large forwarders and
transport providers also represents a new potential security threat to shippers of valuable or high-target goods.
The industry has become much better at securing container shipping information from the days when terminals would post
information about the shipper and container number for all to see. There is, however, still enough criminal reconnaissance conducted
by gangs that allows them to literally ‘shop’ for what they want to steal. This is a problem as much in northern europe and the uS as it is in Mexico, Argentina or Brazil.
It is clearly important for companies to assess the security around their own website, or the website that they are using to track their cargo. This should, however, only be one part of an overall integrated network of security and loss prevention measures.
Vulnerabilities: The final leg of the journey
The majority of cargo theft or accidental damage losses occur during the final two or three days of the transportation, rather than at sea. When cargo is onboard a ship it is easier to protect, but after it has been unloaded at the port, and the final distribution by road or rail begins, it becomes much more vulnerable. Of course, there can be damage to cargo at sea, or there can be a vessel casualty, but once it gets onto the
roads or rail, the cargo is more susceptible to loss and / or damage from theft or damage incidents during transportation.
Infrastructure deficiencies
The nature of the infrastructure in some territories is a major concern when it comes to inland transit. Inland transit in Mexico, China and especially India can sometimes be problematic, particularly away from ports and large cities. In some territories, the quality of warehousing is poor, secure parking for trucks is non-existent, road quality is inferior, intermediate storage
conditions are weak and there can be banditry in remote areas.
In India, the infrastructure is not up to speed, and the quality of roads, bridges and tunnels is questionable. China is investing heavily in infrastructure, so improvements away from large ports and in the south of the country will help the transportation of cargo as growth continues.
Claim protocols
Claim protocols are documents issued after the inception of a marine policy that establish the people and process involved in mitigating a loss after it occurs. It is vital to have them in place for the following reasons:
- Claim protocols identify all personnel from the insured, insurer and the producer who should be involved in the loss, and the process by which the claim will move from first notice of loss through settlement and recovery.
- They allow the insured and the insurer to discuss potential claim situations before they arise and determine how they will be handled and who will be notified. In this way, when a loss occurs, everyone involved is familiar with the process and can quickly react to mitigate the loss.
- Claim protocols also serve as an outline for the insurer’s global team to recognize, and appropriately respond to, the losses of an insured that might occur in another country or region of the world.
Customer checklist: Helping protect cargo on the road
- Ensure that secure parking is used where available.
- Install tracking devices and have a plan to intervene,
if necessary.
- Improve container security.
- Secure online cargo tracking facilities.
- Check routes in advance and identify alternatives.
- Train employees in handling and packing of cargo.
- Know your logistics provider and review freight contracts
regularly.
