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
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Global Security Threats
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Expanding Global Trends
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Complex and Extended Supply Chains
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Increasing Compliances
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Accumulation
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Multimodal Transfers
Cargo Risk Management
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Transit Chain
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Packing
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Handling
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Unitization
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Logistics
Focus is prioritized and inter-dependencies
addressed in accordance with client specific
risks and business impact analysis.
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Cargo Risk Management
Transit Chain
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Primary transit lanes & links
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Conveyance mix
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Intermediate ports & storage
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Political & weather routing
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Changing business activity
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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 :
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Establish nature and extent of existing processes
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Identify weak links and investigate / develop viable alternatives
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Identify, document and analyse procedures at key locations - people, machinery.
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Review intermediate location security and cargo tracking protocol
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Establish appropriate notification process & parameters for duration or accumulation
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Develop workable disaster and capacity contingency plans
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Cargo Risk Management
Packing
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Design & construction
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Assembly
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Marks & numbers
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Supply chain process
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Regulatory controls
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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 :
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Establish cost effective and fit-for-purpose packaging approach
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Ensure suitable packaging medium (type & strength) in relation to product
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Establish appropriate sizing dimensions for effective unitisation
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Evaluate impact of brand marking of shipping outers
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Validate expertise, experience and track record of packing designers/manufacturers
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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 :
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Review the level of packing integration within the manufacturing process
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Validate efficient combination between manual and automated assembly processes
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Establish correct and efficient process for assembly, filling and closing
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Review effectiveness of closing and sealing mechanisms and their application
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Ensure use of appropriate infill material and method of application
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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 :
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Establish compatibility between branding requirements and risk management strategy
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Ensure that labelling strategy complies with operational & legal needs
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Investigate application and viability of using blind and /or decoy marks and numbers
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Review point and method of marking - ensure secure and effective procedures
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Establish effective usage and profile for International handling symbols
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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 :
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Evaluate effectiveness of goods inward packing provided by raw material suppliers
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Review reception, integration and consolidation of pre-packed components
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Establish efficient integration between production line processes and packing activities
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Review post production consolidation processes for fully packed goods
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Establish effective contingency plans for packing resource failure (labour & materials)
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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 :
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Identify restrictive legislation relating to packaging in transitional & destination
countries and ensure compliance
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Ensure that packaging materials meet the legal requirements of the destination country
Consider max / min parameters (weight & dimension) for key modes of transport
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Ensure adherence to international transportation requirements for hazardous cargoes
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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 affecting
documentation 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 mode
transport 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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Cargo Risk Management
Handling
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Loading & stowage techniques
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Manual handling
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Mechanical handling
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Stevedore services
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Process efficiency
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Handling – Stevedore Services
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.
Risk management strategy :
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Review employment policy and implementation - casual labour, long term contracts
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Evaluate track record - losses, criminal events, insurance cover, contractual terms
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Review levels of competency and training standards
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Evaluate employee vetting procedures including update procedures
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Identify specialist experience and evaluate applicability to specific requirements
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Cargo Risk Management
Unitization
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Pallets
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Ocean Containers
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Airfreight Containers
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FCL Vs LCL
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Lashing & Stowage
Unit Tracking
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Unitization - Pallets
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 :
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Ensure pallet quality (materials & construction) meets operational requirements
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Establish effective selection procedure for correct pallet type
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Review pallet sourcing strategy - cost, quality & availability
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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
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Unitization – Ocean Containers
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 :
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Select the correct type of container consistent with product characteristics
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Ensure equipment integrity and sea worthiness
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Employ adequate / satisfactory securing methods and devices (bracing & blocking)
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Prevent uplift by using tie downs and fill all void spaces
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Seal the container doors with approved ISO sealing devices
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Cargo Risk Management
Logistics
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Supply Chain Management
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Warehousing
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Distribution
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Documentation
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Duty & Insurance
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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 :
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Analyse the information chain to validate access control and security procedures
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Establish secure and efficient authority and approval levels for key documentation
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Review document processes, office of issue and method of issuance
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Review existing document authentication methods
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Identify secure and acceptable cargo descriptions for use on all documentation
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Avoid surplus documentation and unnecessary multiple access to information
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Cargo Risk Management
Transportation Security
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Facilities
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Assets
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Personnel
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The Transit Chain
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Federal Initiatives
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Cargo Risk Management
Transportation Security - Facilities
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 :
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Evaluate location, environment and hazards
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Establish availability of local support services such as fire and police protection
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Review, analyse and validate external physical and procedural controls
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Review, analyse and validate internal physical and procedural controls
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Access controls
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Cargo Risk Management
Transportation Security – Personnel
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 :
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Formalize procedures, plans, accountabilities, contingencies and budgets.
•. Seek management capture and executive support
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Promote interdependencies through shared responsibilities and procedure manuals
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Encourage employee participation through skill enhancement and training
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Conduct compliance monitoring and auditing.
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Cargo Risk Management
Transportation Security – Transit Security
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 :
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Develop minimum security standards for cargo trucks.
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Develop minimum security procedures and pre-alert systems for high value goods
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Develop written plans to cover contingencies such as breakdown and hijacking.
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Agree minimum security standards and SOP’s with subcontractors.
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Monitor compliance
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Cargo Risk Management
Transportation Security – Federal Initiatives
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Maritime Transportation Anti-Terrorism Act 2002
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Customs-Trade Partnership Against Terrorism (C-TPAT)
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Container Security Initiative (CSI)
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Operation Safe Commerce (OSC)
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International Ship & Port Facility Security Code (ISPS)
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Cargo Risk Management
Value
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Risk Management
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Cost Benefit Analysis
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Image & Reputation
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Operational Efficiency
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Business Strategy
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Risk Management
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Risk identification & analysis
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Reduction of exposure & losses
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Practical & viable approach
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Risk transfer Vs risk retention
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Education and culture change
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Cost Benefit Analysis
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Explicit cost management
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Internal cost management
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Value assessment
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Business benefits
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Capital expenditure payback
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Image & reputation
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Market reputation
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Brand integrity & strength
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Company image
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Customer service
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Industry reputation
maintain market share
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Operational efficiency
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Supply chain management
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Work & document flow
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Distribution network planning
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Internal Vs external processes
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Information management
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Business Strategy
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Business development
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New markets & products
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Third party provision
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Trade relationships
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Internal cargo procedures
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Approach
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Establish partnership with client
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Establish scope, objectives and milestones for program
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Establish actions, responsibilities and resources for program
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Establish review and measurement criteria for program
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Review based development of program
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Example Assignment
Manufacturer & distributor of high value consumer goods
$1 billion global turnover
Turnover and profit decreasing in key markets
Loss of brand image
Cargo losses in excess of $2 million annually
Deteriorating relationships with insurers
Piece meal, re-active risk management not effective
New 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
LOGISTICS
•High percentage of consolidated shipments
•Multiple freight forwarders
•Poor communication channels
•Lack of incident tracking
CARRIERS
•Multiple inland carriers
•Traffic poorly co-ordinated
•Multiple carriers
•No performance records
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Practical
considerations
Key operational
issues
PACKING (China)
•Poor quality cartons
•Low grade packaging tape
•Poor integral strength
•High profile markings
Lack of structural strength
Breakage of cartons, collapse of
stow Exposure & spillage of contents
Unnecessary advertising marks
Lack of security of information
Theft on a grand scale
Change packaging
Increase structural strength
Remove high profile marks
Reduce number of consolidated
shipments.
Streamline export transit chain
Reduce multiple handling
Increase use of FCL
2 million cartons per year
Multiple third party manufacturers
Workflow process impact
Supply chain management from H.K.
Secondary storage/stock piling
Order processing subject to strict time
constraints
Business impact
analysis
Loss of market attributable to theft
Brand image impact
Benchmarking
Insurance premium
Insurance strategy
Overall loss of market share
Carton availability and cost
Alternative packing mediums
Strapping / securing availability and cost
Packing process efficiency
Handling characteristics - cost & safety
Efficiency & cost of H.K. operation
Alternative supply management options
Redundant stock policy
Warehousing and consolidation
Operational need for LCL/consolidation
FCL availability and cost
Agree & Implement plan
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