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Global Risk Management; Problems and Solutions

A presentation for the Houston Marine Insurance Seminar 2006

Risk management is

(Sophisticated audience version)

Risk management is

(Common audience version)

Risk management is

Successful Risk management is all about

Problems.what problems?
Identity crisis? The practical management of modern day marine risk can neither be classified as rocket science nor pure common sense. New priorities? State initiatives and legislation designed to improve or enforce corporate governance and protect the global supply chain from the threat of terrorism are changing cargo and transportation practises. Some things never change? Cargo crime continues to grow and evolve at every level of operation global, local, organised, ad-hoc. Resourcing the future? As risks, priorities and players change, the traditional, specialist marine risk management workforce is facing new challenges.

The global cargo risk environment


Traditional cargo exposures typically relate to an ocean voyage and the associated perils : poor handling, inadequate stowage, heavy weather, pilferage and non-delivery. These exposures still exist today but have been overshadowed by modern cargo risk factors such as the steady escalation of commercial crime and the de-skilling or automation of many cargo handling functions. The potential business impact of suffering a loss in todays volatile risk environment is intensified by the growing demands of the global consumer market and modern trade concepts such as just in time. Whilst the conventional insurance policy provides the necessary financial security to protect the balance sheet, there is an equally important commercial need to prevent loss and protect trade relationships. Alongside the traditional association and interaction with insurance, the practical management of cargo and transportation risks is becoming a key component of Corporate Governance guidelines on risk management, and growing state legislation designed to protect the global supply chain from the threat of terrorism.
Copyright 2000 Cargo Solutions Limited. All Rights Reserved.

Cargo risk management - a dynamic business process


Cargo risk management is the identification, analysis and control of risk within the transportation environment. Knowledge and understanding of the multiple exposures experienced by cargo throughout the transit chain is converted into effective practical measures to reduce exposure to risk and to positively impact the operational business. The risk management process is as much about analysis, co-ordination and culture as it is about practical surveys and fact finding. An effective risk management programme is both pro-active and interactive and depends upon successful development of teamwork, shared goals and accountability and a modern approach to the sharing of experience and knowledge. Cargo risk management is a dynamic process that evolves with the changing needs and circumstances of the business, and continuously improves both risk exposure and risk awareness.

The cargo risk management concept


The risk management process is as much about analysis, co-ordination and culture as it is about practical surveys and investigation. Successful delivery and outcome is achieved by working with clients, their partners and other stakeholders to develop and implement business-impacting risk management programmes. The key objective is to encourage, assist and work with clients to: Identify, analyse and improve cargo risk. Create a new level of awareness and control. Develop and implement effective preventative strategies. Deliver tangible improvements / measurable results. Expand awareness and proven successful actions through the transit chain. Retain, share and utilise knowledge and experience. Take ownership and control of the risk management process.

Identity Outcomes and Solutions?


Practical risk management will depend less upon the insurance industry as the prime mover / instigator? The insurance industry will resolve / re-set risk management priorities?  Expertise & experience the need/demand for specialisation  Service standards use of IT, the internet, standardisation, automation  Risk management and claims the traditional interface  In house expertise and resources versus outsourcing Insurance brokers will provide practical marine risk management as part of their consultancy-based services? Non-insurance related requirements will cause risk management activities in the marine sector to become more structured and defined. and identifiable? Your on-line, tick box / drop down menu marine risk management programme is just around the corner?

Cargo and the threat of terrorism

Improving global cargo security..

Operation Safe Commerce

Customs-Trade Partnership Against Terrorism

Container Security Initiative

Maritime Transportation Security Act International Ship and Port Facility Security (ISPS) Code

.improving global cargo risk?

Terrorism Outcomes and Solutions?


The current emphasis on protecting the global supply chain (and all associated elements and activities) from the threat of terrorism will continue to grow? There is a high risk that too many laws, codes, programmes, regimes and conventions will not compliment each other..potentially causing confusion and duplication of expenditure? Terrorist related incidents are likely to continue to occur? The nature, location and severity of such incidents will impact the speed and scope of all anti-terrorist initiatives? Non compliance with state anti-terror legislation will carry heavy penalties for the responsible / liable parties? Increased attention and focus on the global supply chain will improve marine risks?

Cargo crime, still a growing problem

Theft, pilferage and non-delivery Hi-jacking of entire loads Theft by deception Organised and opportunistic A global problem Not a priority issue in many parts of the world Lack of coordinated response

Cargo crime overview - the negative impact


Financial impact Interruption to cash flow Loss of market Loss of sales Potential increase in insurance premium Increased administrative costs Operational impact Interruption to supply chain Damage to reputation (with customers and within the industry) Tension in relationships with customers and suppliers Staff frustration and loss of morale Loss of brand image

Cargo crime current trends and facts


Accurate records on cargo theft are almost impossible to find. Current industry and specialist observer estimates place the loss through cargo theft at between $25 billion and $120 billion a year 85% of all business security losses are attributed to the loss of product in transit. Between 80% and 85% of cargo thefts involve inside information. The high profit potential of high-tech cargo thefts is attracting more sophisticated international criminals.

Crime Outcomes and Solutions?


Smart technology will eventually start to have a more measurable impact on certain types of cargo crime? Police forces around the world will be increasingly challenged to find time and resources to tackle cargo crime? The international drive to improve protection of the supply chain against the threat of global terrorism will improve the cargo crime risk? Increased collaboration between state security forces will improve international criminal intelligence and facilitate quicker action? Commitment (of money and resources), corporate culture and a programme of continued security diligence will remain the most effective deterrent?

The changing shape of risk management the future


Responsibility Competence

 insurer or insured  change of driving force  impact of legislation


Cost of risk management

technical capability experience  network and communication


Future evolution

who should pay? cost control tangibility what is the benchmark?

technical training & resourcing practical IT solutions competitive cooperation multi-line approach?

The changing face of risk management - the future


   New ways of working Changing workforce Former seafarers  Necessary?  Available?  Affordable?     Multiple disciplined vs. specialisation Still a 24/7 job Standardisation, automation and the internet Transferability of information, experience, knowledge and solutions

What about the former seafarers ?


There is a growing shortage of suitably qualified candidates for some specialised posts (e.g. Marine Surveyors) largely as a result of the decreasing number of potential applicants with sea-going experience. OECD / MCA Oct 2004 Evidence from recent maritime exams shows that standards have dropped. Will an increasing demand for officers to man the growing world fleet mean a dilution of the experience pool and less competence at sea? Traditionally, many key vacancies in the UK's shore-based, maritime-related sector have been filled by ex-Merchant Navy personnel. This 'natural' process is now endangered by the reduction in Britain's merchant fleet and its manpower.

No Captains.no salty old seadogs??


Who is going to help us with this.

.and this.

.and ..

investigating incidents like this..

.?

No former seafarers?
Worldwide population of seafarers serving on internationally trading merchant ships is estimated to be in the order of: 400,000 officers and 825,000 ratings.

E D countries Eastern Europe frica Latin merica Far East Indian sub continent
Bimco/ISF 2000

Seafarers by area of domicile, 2000

Officers Ratings

100

200

300

400

Manpower Update

thousands

Resourcing Outcomes & Solutions?


The merchant navy and directly related industries are no longer a sustainable (nor most applicable) source for providing marine surveyors to the insurance industry? The geographic focus or location of recognized centres of excellence for technical marine risk management consultancy will change? The increase in cost of employing proven and suitably experienced personnel will accelerate? New specialist service providers and consultants are entering the cargo & transportation risk management sector?:  Logistics and freight management  Supply chain management  Security A generalist approach to providing practical risk management services is replacing the more conventional specialist approach? The internet age promotes transferability of information, experience, knowledge and solutions?

Surveyors of the future.?

Surveyor to base.. Surveyor to base..

Hi Surveyor One; this is base reading you loud and clear. What happened to the cargo?

Successful Risk management is all about

Questions and discussion

THANK YOU FOR YOUR ATTENTION

Successful Risk management is all about

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