Risks to Freight Forwarders in Pandemic  2.0:  7 risks and practical solutions


The latest in the world of insurance



Posted 2020-08-17



Freight forwarding is arguably one of the most adaptable industries in the world. They have had to be. For centuries forwarders have navigated around world wars, country coupes, natural disasters, nationalisations, dictatorships, currency collapse, draconian regulations, and trade wars.  Pandemic supply chain disruption is just one more challenge to the ability of forwarders to adapt, change and survive.   
As is already happening, change brings with it new opportunities to profit. And with change and opportunity emerges a new set of risks.  The velocity at which forwarders are having to creatively evolve tempts even the best to act with the Fire-Ready-Aim approach to business.          
The following information was gathered from current experience, claim data, supply chain experts and active trade lawyers. Here are 7 practical risks freight forwarders are encountering today and how they are being managed.   
 
  1. CRIME RISK.  Thieves worldwide seem to be out in force to capitalize on the current disruption to normalcy.  Intentional short shipping, fraudulent letters of credit, cargo theft of personal protective equipment, and computer fraud top the list of favorite methods by thieves.

    The pros are suggesting forwarders seriously tighten security protocols including computer, delivery, receiving, and partner selection practices.   P.S: Invest in a Cyber Crime Insurance policy that includes a technology security assessment. A great value!
     
  2. CASH RISK.Cash is still king.  No one truly has a firm grip on the long-term impact of sustained closures, supply chain disruption and mass employee furloughs.  Forwarders that mindfully preserve cash and avoid debt are doing what many say will be essential just ahead. And if the experts are wrong, you will have the cash to buy that boat you always wanted.  
     
  3. CREDIT RISK. Credit and Accounts Receivable Management have never been so important. Recalling the lesson learned in 2009 – big companies do fail and they take little companies with them. If the financial fallout from the pandemic is half of what the smart people say it will be, then we haven’t seen anything yet. No credit
     
  4. CONTRACT RISK. Forwarders use a myriad of contracts although we don’t think of them as such.  Every bill of lading, air waybill, delivery order, shipper letter of instruction, and master service agreement is a binding contract.  Shippers facing major expenses related to Covid 19 are having their lawyers read those contracts and seek cracks to recovering losses.  Consult with your trade attorney and insurance provider and use the Covid 19 disclaimers even if it does look ridiculous in an email signature. 
     
  5. FORCE MAJEURE RISK.Force Majeure is a fancy way of saying “our contractual obligation is canceled due to circumstances outside our control”. Forwarders need the ability to cancel their contractual terms and conditions in the same way carriers do. Communication is key at a time like this.  Let shippers know that you’re not responsible.
     
  6. INSURANCE RISK: Cargo insurance policies have a “Delay Exclusion” that renders the policy unresponsive to pandemic related losses.  Whilst Forwarder Freight Liability and Errors & Omissions insurance remain an essential with respects to protecting forwarders, it is probably not going to make all parties whole and happy in the event of a pandemic-related claim.  This is one time when insurance is not the answer to all our problems.
     
  7. NEW OPPORTUNITY RISK:  In large number forwarders are embracing the new not-normal and adapting their businesses to a new paradigm.  Nicely done! Adaptation and flexibility wins. However, insurers and trade lawyers warn forwarders to first seek professional advice before pushing the button on that new business activity. Charge ahead and conquer but do reconnaissance before opening that warehouse, starting a delivery service, offering procurement or any other new service.      
 
Like always, most freight forwarders will survive and flourish through this. Based on history, the most successful will be those who do their homework and manage the risk along the way.   Safe shipping.
 
Author Greg J Kritz, CIC
Greg is Executive Vice President of World Insurance Services and a 38 year veteran of logistics and insurance. A former freight forwarder, he is a respected authority on supply chain risks, insurance and freight forwarder risk management.
Reach Greg at greg@worldinsuranceagency.com