Keeping the odds in your favour

The golden rule of any casino is that business should never be a gamble. With the logistics industry being at far greater risk of “bleeding chips” due to unforeseeable events than any dice joint, FOCUS takes a look at how to keep the winnings high and the stakes low

Like any good gambling house, no insurance company will insure something if the odds aren’t already stacked in its favour. A heap of gold bars may be worth insuring if they’re locked in a vault in Fort Knox, but a lone chocolate chip cookie lying on a table in an orphanage certainly isn’t.

The cookie is barely worth its ingredients, has no security measures in place and is surrounded by hungry children. The gold in Fort Knox, on the other hand, has military type guards who shoot terrorists for a living and are worth their weight in, well, gold.

This is the guiding principle of risk profiling. By factoring into an equation the financial value of the object one is insuring, and the statistical chance of this object being damaged or stolen by foreseeable or unforeseeable forces, an insurance company determines the viability of insuring said object. In short, the higher the risk profile, the higher the insurance costs.

With trucks worth millions and the cargo they carry often worth even more, the financial and asset losses can be enormous. The need for insurance is absolute and, therefore, logistics companies and their supplementary market companies are constantly looking for ways to lower the risk profile of their trucks and haulage.

The simple fact of the matter is, however, that despite even the most impeccable managerial skills, stuff happens; accidents, theft and hijacking all form part of a logistics company’s regular financial losses. And unlike the light vehicle motoring sector, the logistics and trucking world has its fair share of unique challenges.

In the case of abnormal load transport for instance, special considerations must always be taken by both insurance and transport companies.The same is true for hazardous goods.

“The major challenges related to the transportation of hazardous goods are: the risk of spillage; contamination; loss or damage to the conveyance carrying the goods; loss of the goods being conveyed; damage to third party property and the death or injury to third parties,” says Steve Cornelius, head of the specialist risk sector of Indwe Risk Services’ automotive and transportation division.

Founded in 2004, Indwe Risk Services specialises in risk assessment and assistance in the corporate sector, tailoring insurance packages to fit the individual needs of companies.

“The structuring of the correct insurance cover will depend on the contractual and statutory arrangements that apply between the transporter, consignor and consignee,” he further states.

On average, the cost of spillage and rehabilitation in South Africa is often well over R400 000 per incident. With stricter law enforcement with regard to spillage and clean up, the need for correct risk management is very clear.

“It’s important that all potential risks attached to these loads are identified, quantified and insured,” says Cornelius. “Qualified brokers and specialist insurers cannot be ignored.”

As with aviation, motorsport, and horse racing, one of the ways to circumnavigate this problem is to try and employ logistic-specific insurance companies such as Truck Financing.  

Of course the notion that higher risk means higher insurance is an overly simplified one. A myriad of other factors need to be taken into account, according Piet Trytsman, senior broker at Truck Financing. “Some of the factors that influence and contribute to the insurance industry are economic growth, recession, employment, investments and competition,” he says.

Furthermore, Trytsman states that the process of ascertaining the risk profile and insurability of a logistics company’s fleet is a lengthy process: “If possible, we like to meet up with the fleet manager to get a general background on the company’s servicing and maintenance procedures and to ascertain whether the vehicles are regularly maintained.”

“This demonstrates the extent of good management and housekeeping,” he says, “which usually translates into being a good insurance risk. We then go into the market to secure the best terms for the client with credible and reputable risk carriers that have a fair claims settlement history.”

Considering the dangers of the open road, driver training is also a good way to lessen the chance of bad decision making from drivers in a time of crisis. Better training and more experience results in better crisis management and less road and hauling incidents.

Most insurance companies refuse to insure any logistics fleets without electronic tracking systems and electronic fleet management resources at their disposal.

However, despite the general reliability of vehicle tracking, it still faces some industry challenges which, in turn, may affect a risk profile negatively. Each time a car tracking company comes up with a new idea to better hide, or miniaturise the tracking systems installed into their clients’ vehicles, it is usually just a matter of time before some hoodlum figures out a new way to get around it.

Cartrack, one of South Africa’s leading car tracking service providers, recently handed over R58 700 to Sandor Minik, after the company was unable to recover his stolen vehicle.

Founded in 2004, Cartrack also specialises in fleet management software and devices and lays claim to a 95 percent success rate in vehicle recovery. In September last year, the company announced that it would pay up to R150 000 back to any customer whose vehicle the company was unable to track or recover, with Minik’s claim being the first since the announcement.

Another addition to Cartrack’s service offerings, is its new Communicator for fleet management. Communicators are wireless navigation devices that supply real-time navigation data and support for drivers. The new device should allow drivers to spend considerably less time trying to locate destinations, allowing them to pay better attention to their driving.

It is common to hear rumours of car thieves having radio jammers that can jam tracking signals, similar to cellphone jammers. However, Cartrack’s operations manager, Jerry Pierce, states that this is not necessarily the case: “Considering that most car thieves rely on cellphones to communicate with each other, this seems an unlikely scenario.”

Nevertheless, there remains a criminal element and they often seem able to find the tracking devices before the tracking companies find the vehicles. Pierce states that this usually happens because vehicles can often be stripped for their parts in an exceptionally short time.

Pierce goes on to say that it also depends on what the criminal underground’s “order of the day” is. Sometimes, they are after the truck, while at other times, it the haul – and sometimes it’s both. This complicates vehicle tracking even further.

Cartrack is confident, however, that it remains ahead of the criminal curve, which is vital if electronic tracking devices are to remain a staple of precautionary features used to keep a fleet’s risk profile as low as possible.

Something else to consider, that won’t affect a risk profile all that much, but still helps to improve the costs involved with fleet insurance, is the nature of commerce and capitalism itself.

The more an industry grows, the greater its internal competition and therefore also its quality. As the need for logistics-specific insurance grows therefore, so too does the competition among insurance companies wanting to constantly outdo each other. This, in turn, means that logistics-focused insurance will keep on growing in cost and service competence as long as the logistics industry itself keeps on growing.