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The 10 Megatrends for Insuring Goods in Transit

Companies that consider these trends when making strategic decisions are likely to be prepared for future shifts in this dynamic industry.

J. Paul Dittmann, Ph.D. | University of Tennessee

Fifth in a Six-Part Series. Click here to read part one,  part twopart three and part four

What does the future hold for insuring goods in transit? Below is a list of 10 megatrends for insuring goods in transit, some of which are already apparent in the marketplace today.

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Increased supply chain visibility

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Companies will realize that speed is needed to protect cash flow and their bottom line.

More technology and carrier services will be available to provide round-the-clock, real-time, proactive monitoring and intervention.

For example, UPS Proactive Response® Secure offers shipment monitoring 24/7, and if any critical milestone is not hit, alerts are sent to a global control tower. A team springs into action to retrieve the shipment and develop an alternative delivery strategy.

With built-in insurance from UPS Capital Insurance Agency Inc., expenses incurred for intercepting, re-routing or expediting a shipment are covered.

[Also by J. Paul Dittmann: An Up-to-Date Twist on Supply Chain Risk: The Survey Says…]

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Fast claims processing, resolution and payment

This will be a growing trend, and a real point of differentiation for insurance companies.

More and more companies will realize that speed is needed to protect cash flow and their bottom line.

Shippers should be aware of the insurance company’s claims payout rate, and speed of claim resolution. info button 3 yellow

Insurance provider as a partner

Companies will want to partner with an insurance broker who can help them develop an overall strategy to manage supply chain risks, customize an insurance policy to fit their needs and also work with them to anticipate and avoid losses. And, some companies can bring packaging and security experts to the table to create a layered risk mitigation plan.info button 4 yellow

Big data, business analytics and modeling

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Click to download whitepaper

The power of big data and business analytics will help firms better manage risk.

Companies using this technology will be able to better anticipate risks before they happen and prevent losses.

Loss history databases will evolve that show losses by commodity, route, customer, package type, etc. Sophisticated mathematical models will help firms optimize their risk profile.

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The omni-channel and its implications

Power is shifting toward the end consumer as more people are using the Internet and their smartphones to shop online.

Amazon®, with thousands of affiliated sellers, is revolutionizing retailing. Consumer-based insurance coverage designed for the home delivery market will become increasingly important.

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Business interruption coverage

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The power of big data and business analytics will help firms better manage risk.

The Japanese tsunami and Thailand floods of 2011 brought the need for this front and center.

Serious business interruptions due to supply chain failures are common, with over 80% of the firms in our database having one that caused a major cost spike, revenue/profit loss and/or stock market decline.

Good insurance products that deal with business interruption caused by supply chain failures will be developed.

To qualify for this coverage, companies will need to map their supply chains, rigorously identify risks and be able to provide insurers the information they need to underwrite such policies.

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A changing global landscape

Global trade routes will continue to evolve. The risk profile by region of the world will dynamically shift.

For example, at some point the Silk Road train (trans-Asia railway) will replace a portion of ocean and air transport from Asia to Europe.

Even within a country, urban delivery will evolve to same-day delivery and delivery to access points (e.g. convenience stores, dry cleaners or florists) for consumer pickup.

The global marketplace will continue to change with a range of different regulations by country.

Insurance products will have to be customized by country and be sensitive to the changing regulations and political risks around the world. info button 8 yellow

Growth of 3PLs (third-party logistics companies)

More and more firms are outsourcing the management of their logistics operation to a third party.

It is important that firms closely manage the insurance aspects of their goods in transit.

If the 3PL is empowered to handle the insurance and claims, they may create a hidden profit center around it.

They cannot mark up the insurance itself, but they can add a service fee.

One expert from a large consumer packaged goods company that we spoke with estimated that this gross insurance spread could be one of their freight forwarder’s highest profit items.

The lesson here is don’t outsource your supply chain risk function.

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Larger loads

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More firms are outsourcing the management of their logistics operation to a third party.

More companies are getting adept at filling the cube of their transportation equipment. More cube means more product in a load with more value and more risk.

Container ship capacity is increasing, and as a result, exposing more cargo to peril.

Ships at 5,000 TEU were considered large for many decades, and 5,000 TEU is the capacity of the Panama Canal.

With its expansion next year, the Panama Canal will accommodate 13,000-TEU ships. At 15,500 TEU, the Emma Maersk, built in 2006, was once considered the largest ship that would ever be built.

But since then, 12 larger container vessels have been launched, culminating with the MCI Oscar this year at 19,200 TEU.

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More control of inbound freight

More companies are taking control of the inbound freight management from their suppliers and, in the process, taking on more risk for cargo loss.

[Also by J. Paul Dittmann: Hidden Risks in Your Supply Chain]

Companies that consider these trends when making strategic decisions are likely to be prepared for future shifts in this dynamic industry. In my next (and last) post, I will share some action steps that shippers can take in order to assess and mitigate their supply chain risk.

Dittman’s white paper, Will you be ready when a loss happens to you? can be downloaded heregoldbrown2

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JPD3
J. Paul Dittmann, Ph.D. is the Executive Director of the Global Supply Chain Institute at the University of Tennessee. Dittmann comes to the University of Tennessee after a 30-year career in industry. He has held positions such as vice president, logistics for North America; vice president global logistics systems; and most recently served as vice president, supply chain strategy, projects, and systems for the Whirlpool Corporation.

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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.

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