Today's third-party logistics providers--also known as 3PLs--are providing a broader range of more sophisticated services, in more places around the world, than ever before, and they are encountering more exposures as a result.
As some discover too late, some of these exposures are addressed only tangentially, if at all, by conventional "business as usual" insurance coverages. In addition, when faced with new exposures, it's not uncommon for 3PLs to buy different policies from different insurers. This patchwork approach may provide uneven coverage at best, and at worst, could result in costly coverage gaps.
Insurance designed to reflect the scope and complexity of the rapidly changing 3PL industry and the evolving global marketplace in which it operates is vital, yet the insurance industry as a whole has been slow to meet this need.
Despite this void, risk managers can minimize risk, curb losses and protect the bottom line by structuring insurance programs that accurately reflect the real risk to their organizations and protect against potential exposures at every level.
The international logistics market is growing more rapidly and generating more revenues than the U.S. market, and in response, more and more 3PLs are broadening their global capabilities.
Worldwide, and especially in Asia, the number of 3PLs outsourcing to, buying from, absorbing and partnering with local entities continues to rise.
Larger 3PLs are increasingly broadening the scope of their services and capitalizing on international market opportunities by acquiring smaller or more specialized competitors. Mergers and acquisitions like these increase capabilities and exposures.
As 3PLs increase the value they offer clients by establishing one-stop shops, growing overseas and becoming more closely integrated into their clients' business processes, they assume never-before-encountered risks.
With the global supply chain growing in importance and more businesses adopting "just-in-time sourcing," protecting against interruption-related exposures is a critical risk management imperative. Regardless of the cause (trade embargos, governmental seizures of products or property, product recalls, natural disasters, and terrorism are some examples), when supply chain glitches occur, 3PLs can be deemed liable.
The logistics industry must also protect against information technology liability. As 3PLs develop deeper client relationships and offer more complex services, they have greater access to proprietary and highly sensitive data (such as customer credit card- and Social Security numbers). Security breaches are all too common, and exposures can be catastrophic.
3PLs must recognize these and other new and emerging exposures, as well as conventional global exposures related to transportation, shipping, warehousing and cargo. "Conventional" or not, exposures can quickly outstrip coverages, and vice versa.
Effective risk management requires regular and ongoing risk assessment at every level. It's not uncommon for 3PLs to assume tremendous professional liability risks, for example, yet a remarkable number fail to carry errors and omissions coverage.
The business relationships 3PLs develop, partnerships they establish and businesses they acquire open them to potentially costly exposures that may not be immediately evident. A U.S.-based trucker that acquires a warehousing operation in Asia, for example, may not recognize the risks until an overseas exposure results in legal action.
Across the 3PL industry, risk managers are challenged to structure coordinated and comprehensive insurance programs that accurately reflect, and protect against, the risks to their organizations. Maintaining a patchwork of insurance carriers and coverages is the least efficient and least effective approach to that challenge.
The best global insurers offer a comprehensive and global range of risk assessment and risk management products and services and have the flexibility to tailor the global coverage to the global risk.
How does your insurer (or insurers) measure up? Don't risk your company's assets by waiting too long to find out.
