Global Risk Management; Problems and Solutions A presentation for the Houston Marine Insurance Seminar 2006 Houston Marine Insurance Seminar 2006

Risk management is (Sophisticated audience version)

Risk management is (Common audience version)

Risk management is

Successful all about

Problems…………….what problems? The practical management of modern day marine risk can neither be classified as rocket science nor pure common sense. Cargo crime continues to grow and evolve at every level of operation – global, local, organised, ad-hoc. 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. Identity crisis? New priorities? Some things never change? As risks, priorities and players change, the traditional, specialist marine risk management workforce is facing new challenges. Resourcing the future?

The global cargo risk environment Copyright © 2000 Cargo Solutions Limited. All Rights Reserved. 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 today’s 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.

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.

Create a new level of awareness and control. Identify, analyse and improve cargo risk. Develop and implement effective preventative strategies. Expand awareness and proven successful actions through the transit chain. Deliver tangible improvements / measurable results. Retain, share and utilise knowledge and experience. 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: Take ownership and control of the risk management process.

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? Identity – Outcomes and Solutions?

The search of a cargo ship by anti-terrorist off the Isle of Wight could take up to three more days to complete. A detailed examination of the vessel is continuing, but so far no noxious, hazardous or dangerous substances have been found. Cargo and the threat of terrorism In the Italian port of Bari, An Egyptian-born Canadian national was discovered hiding in a container bound for Montreal with maps of airports, airport security badges, a computer and phone cards. Osama bin Laden and the Al Qaeda terrorist network have vowed to cripple the U.S. and world economy. More than half of all goods that enter the United States arrive by oceangoing cargo containers ………….. A man has shipped himself as air cargo from New York to Texas in a scheme to save money. Speaking from his cell, he told local TV he had been feeling homesick and a friend suggested he could save money by flying as cargo. Container Ships – The Next Terrorist Weapon?

Operation Safe Commerce Customs-Trade Partnership Against Terrorism …………….improving global cargo risk? Improving global cargo security………….. Container Security Initiative International Ship and Port Facility Security (ISPS) Code Maritime Transportation Security Act

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?

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, still a growing problem

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 overview - the negative impact

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. Cargo crime – current trends and facts

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? Crime – Outcomes and Solutions?

The changing shape of risk management – the future  insurer or insured  change of driving force  impact of legislation  technical capability  experience  network and communication  who should pay?  cost control  tangibility  what is the benchmark?  technical training & resourcing  practical IT solutions  competitive cooperation  multi-line approach? Responsibility Cost of risk management Competence Future evolution

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

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. What about the “former seafarers” ?

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. thousands Bimco/ISF 2000 Manpower Update Seafarers by area of domicile, 2000

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?”

Risk management isSuccessful all about

Questions and discussion THANK YOU FOR YOUR ATTENTION

Risk management isSuccessful all about