Insurance and their role in managing the risk in Supply chains

Commercial Risk Africa Supply Chain Risk Innovation 2017

Johannesburg 07th June 2017

Captain Andrew Walker – AIG Loss Control Manager Africa & Middle East

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AGENDA

• Complex Logistics

• Threats to the supply Chain

• Questions

Identifying the RISKS in the supply chain.

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Financial Impact on the Enterprise :

• Loss of Market

• Loss of Sales

• Interruption to Cash Flow

• Potential increase of insurance

premium

• Increased administrative costs

Cargo Loss, Theft or Damage and its effect on

The Supply Chain

Operational impact on the enterprise :

• Interruption to Supply Chain

• Damage to reputation (with customers and to

the industry)

• Tension in relationships with customers and

suppliers

• Personnel frustration and loss of morale

• Loss of Brand image

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Primary Supply Chain – 1st Tier

Supplier Warehouse

Terminal

Land

Transport

Risk on Shore

Marine or

Aviation Risk

Exporting Country Importing Country

Risk on Shore

Land

TransportWarehouse

Terminal

Consignee

2nd Tier

Complex Logistics

Extended Journey with different conveyances, various transshipments

and potentially long storage periods = high exposure

Transit Chain

Changing business activity

Climate/Weather routing

Intermediate ports & storage

Primary transit lanes & links

Conveyance mix

Political

Review of the transit chain

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THREATS TO THE

SUPPLY CHAIN

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NATCAT PERILS

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Hurricane Sandy

• Largest Atlantic Hurricane on Record

• Largest Marine Loss in History

• 15,000 TEU of loaded

containers sustained

damage

• 16,000 + autos lost

• 65,000 boats / yachts

damaged

• Eight commercial vessels

grounded or damaged

significantly

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Hurricane Sandy

• Massive damage to port facilities

• 3,000 truck chassis lost

• 100 miles of rail cars and

chassis damaged

• Complete cargo control

systems lost

Transport

Infrastructure

Maritime industry depends on safe and reliable transport infrastructure

(ports, highways, railroads, air) to maintain cost effective shipping

services

Current investment in infrastructure is primarily fueled by a regional

desire to attract and increase international trade

Availability & Quality of Transport Infrastructure

Country Rank Score Country Rank Score

France 1 6.27 Russia 56 4.46

Singapore 2 6.15 Ukraine 61 4.34

U.A.E 11 5.84 South Africa 63 4.32

United States 14 5.75 Pakistan 75 4.06

Qatar 37 4.95 India 76 3.96

Turkey 39 4.89 Kenya 87 3.71

Tunisia 41 4.82 Uganda 128 2.63

Saudi Arabia 43 4.80 Burkina Faso 131 2.24

Egypt 55 4.48 Burundi 132 2.24

Availability & Quality of Transport InfrastructureThe Global Enabling Trade Report 2012

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Challenging Infrastructure or Terrain

• Inexperienced operators

• Poor route planning

• Improper or poorly

maintained equipment

• Poor packaging

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ACCUMULATION

PERILS

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ULCS – Evolution of the Container Vessel

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ULCS – Exposures / Issues

• Fires will be much harder to control from vessel itself. Heavy dependence

on automated systems and external support

• Boundary cooling may be less effective and harder to control due to larger

container bays

• Port constraints / lack of maneuverability may lead to increased incidents

of grounding

• Standard cranes utilized during salvage operations will not be sufficient for

ULCS

• Claims for Salvage and / or Wreck Removal will be higher

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Fire onboard APL Austria

• Source : gCaptain

22Source : gCaptain

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• Source : gCaptain

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Mis-declared Dangerous Goods

• Can lead to improper segregation of

dangerous goods

• Can lead to stowage that does not

conform to a vessel’s Document of

Compliance

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Mis-declared Container Weights

• Mis-declared container cargo weights

have been a long-standing problem for

the transportation industry and

governments

• They present safety hazards for ships,

their crews, other cargo on board,

workers in port facilities handling

containers, and on roads

• Incorrectly declared weights lead to

incorrect ship stowage and accidents

• The IMO's Subcommittee on Dangerous

Goods, Solid cargoes and Containers

(DSC) has implemented an amendment

to the Safety of Life at Sea (SOLAS)

regarding the verified gross mass of a

container which was in force July 01st

2016.

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Tianjin – One of the Largest Marine

Insurance Losses

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Cause

• Main explosion due to 800MT of Ammonium Nitrate

• Subsequent explosions due to hazardous chemicals

Losses

• Cargo Losses US$3.5 Billion

In addition

• 304 Buildings damaged

• 12428 cars damaged

• 7533 Intermodal containers damaged

Beyond insurance, the cost to businesses of the break in the

supply chain caused by the explosions was estimated at $9

billion

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Warehouses

• Location

• Surrounding industry

• Security in place

• Fire fighting capability

• Risk management in place- accreditation

CARGO THEFT

3017/07/20179 novembre 2010

Cargo crime - a growing problem

Logistics security

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 co-ordinated response

Lack of meaningful statistics

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Cargo Theft – A Growing Problem

Freightwatch International 2013 Global Cargo Theft Threat Assessment

Mexico, Brazil, South Africa, Russia and the United States are most at risk for cargo theft.

Modern looks of a pirate

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BMP4 AREA

West Africa- Gulf of Guinea

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Cargo Theft – Even at Sea…

• West Africa Piracy has exploded over the past

few years

• Completely different model from East Africa

Piracy (Somalia)

• Aim of piracy is cargo theft, robbery or kidnapping

• Many vessels specifically targeted; pirates have

good intelligence

• Vessels targeted are drifting, at anchor,

conducting STS; usually unprotected tankers with

low freeboard

• MO includes 2-3 skiffs or speedboats, 7-15

armed men, violence is often used

• Captured vessels forced to sail to international

waters for STS

• Vessels held for 2-5 days; as much as 5,000 MT

of petroleum products are stolen per incident

• Difficult to control…

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Growing Risk TrendsCargo Theft - Emerging Modus Operandis

• Cargo Jamming Devices

• Used to inhibit the communication signal of a tracking device during a hi-jacking or theft of a trailer

• Once activated, the Jammer neutralizes the communication between the onboard computer andmonitoring center

• The criminals intent on stealing the cargo then move the vehicle to another location, where theload is removed un-impeded

• Prevalent in Mexico, Brazil and South Africa, but now also now becoming involved in more theft /attempts in the U.S. and Europe

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Growing Risk TrendsCargo Theft - Emerging Modus Operands

Fake Security Seals:

Used to mask a theft

Produced in less than 10 minutes

using 3D printers

Detail down to actual manufacturer

and carrier numbers

Almost indistinguishable from

original seals

Source: Spedlogswiss

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• The Cube

• Constructed with Plexiglas

• Light weight and easy to maneuver

• Used to avoid heat detection and foil

motion sensors

• Allows intruders to enter a secure facility

and disable security systems

• Requires a degree of sophistication and

insider knowledge

Growing Risk TrendsCargo Theft - Emerging Modus Operandis

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Cyber Crime

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Every vessel and port operator creates, uses, stores,

manages, exchanges, and depends on digital data

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Source: www.mits-forum.org

The maritime industry sustains 90% of the global economy

• 4,764 Ports in 196 countries

• 68,000+ vessels by 2023

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Cyber Risk in the Maritime Sector

Theft, loss or exploitation of data

• Business, personal or client data (any data) with black-market value is at risk

• Motive: financial or competitive gain

Data destruction or compromise

• Wiping or scrambling electronic data / data alteration (loss of integrity)

• Motive: smuggling, ideological, extortion, terrorism, or war

Communication or location disruption / manipulation

• Website, network or communications disruption; GPS interference

• Motive: market manipulation, ideological, extortion, terrorism, or war

Operational or physical disruption or destruction

• Industrial control system takeover halting operations, breaking machinery, releasing pollutants, or destroying machinery and facilities

• Motive: ideological, extortion, terrorism, or war

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Port of Antwerp Cyber Attack, 2011-2013Cyber-enabled cargo theft

• Drug traffickers recruited hackers to

breach IT systems that controlled the

movement and location of containers

over a 2-year period from June 2011

• Cocaine and heroin were hid in

containers among legitimate cargo

• Hackers accessed data on location

and security of containers enabling

traffickers to steal the cargo before the

legitimate owner arrived

• Hacking technique involved physical

access to computer networks and

installation of snooping devices

• Impact: cargo theft

http://www.bbc.com/news/world-europe-24539417

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http://www.portstrategy.com/__data/assets/image/0026/207449/Antwerp-port-is-a-massive-operation-despite-being-50-miles-

inland.jpg

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Northern Sea Route

• Cuts approximately 14 days off

traditional Suez Canal Route

• No Piracy Risk

• Avoids congested traffic areas

However…

• Appropriate tonnage for this route is

limited

• Operator experience is limited

• Sea Ice can trap / damage vessels

• Frozen sea spray can effect vessel

stability

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Traffic Accidents / Truck Fires

Leading causes include:

• Faulty Electrical Cables

• Trailer Overload

• Improper Loading

• Improper Cargo Segregation

• High Speeds

• Driver Fatigue

• Tire Fires / Explosions

• Poor Maintenance

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Improper Cargo Handling

• Lack of training

• Inexperience

• Poor planning

• Poor maintenance

• Poor packaging

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About Captain Andrew Walker:

Captain Andrew Walker

Regional Marine Loss control manager – Africa and Middle East

AIG – Cape Town South Africa

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Bio:

• With a career of seafaring spanning 22 years at sea,

Captain Walker has gained experience on many types of

vessels and been involved with the carriage of many

different types of cargo.

• Prior to joining AIG in February 2012, he served as

Master Mariner for 10 years with Safmarine/Maersk line

and Alpha Ship.

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Bio continued:

• He began his career as a Navigating Cadet in 1990 with

Unicorn Lines and subsequently worked with various

companies such as the South African Environmental

Affairs on their research vessels, Bank Lines and Alpha

Ship. During this period of his sea career he has had

experience with the carriage of cargoes on Multi

Purpose, Ro-Ro (Roll-on roll-off), Heavy lift vessels,

petroleum product tankers, vegetable oils, bulk cargos

just to name a few at both junior and senior command

level.

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Bio Continued:

• He is now able to offer his extensive maritime experience

and knowledge to the AIG underwriters, brokers and their

clients.

• The principal role of a marine loss control engineer at

AIG is to assess risks associated with the carriage of

marine cargo in transit. Marine cargo transit is risky and

complex and there is often a lot at stake. It is critical for

the underwriter broker and client to have access to

expertise to protect the valuable assets of customers

during a maritime voyage.

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.