If you’ve never suffered a major cargo loss in your supply chain, it’s too easy to languish in a false sense of security, believing your carriers to be your source of supply chain insurance, when in fact that’s probably not the case.


In reality, carriers are able to limit their liability significantly and should the worst happen, you might be surprised to find it difficult bringing your carrier to account.


Even if you are able to prove the carrier negligent, you’re unlikely to receive adequate reimbursement for your losses. Despite this reality though, cargo insurance receives minimal, if any consideration from the majority of supply chain leaders.


6 Steps to Protecting Your Supply Chain With Cargo Insurance

In a future post, we’ll take a more in-depth look at why supply chain insurance matters so much, but for now we’ll focus on a more practical topic—how to use supply chain insurance effectively.


After following the first five steps below, you should be able to evaluate the cargo insurance options available to your business.


At that point you will know enough to move on to step six, which is to discuss those options objectively with the most knowledgeable subject matter experts—supply chain insurance providers.

Step 1: Identify how your shipments are protected today: The first thing is to make sure you know how your shipments are currently protected against cargo loss or damage.

Are shipments covered through carrier liability alone, or does your company already utilise some degree of insurance? If insurance is used, what gaps and limits exist in terms of coverage?

Step 2: Know your incoterms: If your supply chain operates internationally, verify that incoterms are clearly set out in agreements between your company, its suppliers, and its customers. Ownership of liability should be very clear for all your inbound and outbound shipments.

Step 3: Understand network risk: Identify all the countries involved in your supply chain and the risks associated with their involvement. Do shipments pass through high-risk countries? What is the typical value of your shipments? You should understand the risk profile associated with all your inbound and outbound shipments.

Step 4: Become familiar with corporate risk management: Some companies have mature risk management strategies, while others have none at all. Does your company already have processes in place for corporate insurance, risk management and continuity planning? If so it shouldn’t be too difficult to build a case for integrating supply chain insurance into the corporate risk program.

Step 5: Understand the cost of cargo loss: To use supply chain insurance effectively, you need to know what your company stands to lose in the event of an uninsured loss.

Large cargo losses in your supply chain will depress your company’s cash flow and increase working capital. Cash will be tied up in the lost inventory while at the same time; you will have to replace that inventory. To break even, you may have to make sales of ten times the value lost; perhaps even more.

Step 6: Consult with a specialist in supply chain insurance: This might be the toughest step at all, but really it’s essential to try and find an unbiased risk and insurance expert to help you cover all your risk management bases.


Where to Get Impartial Supply Chain Insurance Advice

Although you can often get sound risk management advice from freight forwarders, insurance-company representatives and brokers probably have even more current knowledge and expertise, especially if you speak to those specialising in your industry.

Understandably though, it can be hard to get unbiased input from supply chain insurance providers. After all, they naturally want your company to do business with them, rather than simply get your questions answered.


Supply Chain Leaders Insights–the unique round table and coaching day from Logistics Bureau–is one place where insurance experts are guaranteed to share their knowledge impartially.


Two SCLI events will take place in 2017: one in Sydney and the other in Melbourne, but seats will fill up fast, so please make an early reservation. Don’t miss this rare chance to get objective, unbiased help with risk management and supply chain insurance—from those who know most about it.


Best Regards,
Rob O’Byrne 
Group Managing Director
Email: robyrne@logisticsbureau.com
Phone: +61 417 417 307