"AT YOUR OWN RISK"                                               

Protecting High Risk Cargo    

by Peter Schlactus, CIC, AAI                    [ Back To Table Of Contents ]

Your driver has just called in -- out of breath, practically screaming over the line: "They robbed me, the bastards. 
Stole my van. Got everything! I was inside for just a minute dropping off so-and-so's package and...Sh--!"

No matter how you view it, this is not good news. However, depending upon your business practices and cargo 
insurance, it can be much better -- or much worse.

Obviously the nature of the cargo you were transporting makes a difference: What exactly was in the van? How 
many different customers' goods were there? How easily can the lost items be replaced? How serious are the 
consequences if they don't reach their destinations on-time?

Equally important is how you have defined your liability with the customer(s) involved. What was your understanding 
about who would be responsible for this kind of loss? What documentation is there to back you up? Do you use a 
"bill of lading" or "delivery receipt" or do you have a contract with the customer(s)? Does this (or any other document) 
contain language limiting your liability in case of loss? Did your people request and obtain declared values? Did the 
customer at the pick-up location sign a receipt and manifest?

Inquiring minds (e.g. underwriters, adjusters, lawyers, etc.) want to know.

Finally, there is the insurance factor. Do you have cargo insurance? Is it off-the-shelf 'Motor Truck Cargo (which 
usually contains many limitations and restrictions not suitable to a courier service) or is it a specialized courier policy? 
Does it matter if you have not obtained declared values? Will it only cover you if you are legally liable for the loss (in 
this case of robbery you may not be)?

Seller Beware!

You who sell transportation services are common or contract carriers under the law. In your industry the law protects 
mainly the buyer. Therefore you must expect to be held responsible for most problems with your customers' shipments --
unless you carefully prepare beforehand.

All too often the magnitude of the risks you are taking is not recognized. All too often standard insurance will fail you, 
and even specialized insurance requires you to take precautions and obtain declared values.

You should regularly consult with your insurance agent and/or attorney regarding new and special kinds of deliveries 
you are making. Finally, you CAN limit your liability and substantially reduce the risk of a loss - if you commit your 
company to the task.

In the course of one column we cannot thoroughly cover every point raised above. Instead, we will point out some types 
of deliveries that carry a greater-than-normal risk and suggest broad approaches you can use to reduce those risks. Future 
columns may delve more deeply into specific areas if readers desire -- please contact me or the editor.

High-Risk Deliveries

Let's face it. These days most couriers carry much more than envelopes, documents, and innocuous small parcels. Indeed 
most couriers are actively seeking ways to expand the types of deliveries they make. Your challenge is to expand your 
business without threatening its very existence by taking on risks and obligations you are not prepared to meet.

High-risk deliveries fall into two categories: "special care" and "I don't care, it's not worth it." Most opportunities fall into 
the first category, but it is vital to recognize that there are some kinds of deliveries that your business simply is not equipped 
to make -- at least not with any degree of security. Details will vary depending on what delivery methods you use, but certain 
business deserves to be turned down by practically any courier.

One example is the ATM Machine sweep. This scenario is starting to pop up with greater frequency as banks look for yet 
another way to cut costs, in this case the cost of an armored car service. A colleague of mine told me recently that he strongly 
advises his clients to refuse the work, and I must agree. There is simply too great a risk of suffering a large loss.

ATM's are like sitting ducks for theft rings -- easy to stake out and lightly guarded. Your guy shows up at about the same 
time each day -- very predictable. Maybe he wants in on the heist? Are there more bags in the vehicle? A few days of 
observation will reveal all, and then...

In addition to the loss of the cash, which is not covered under normal cargo insurance, you need to consider injury to the 
driver and the resulting Workers Compensation claim or lawsuit. You could arm your courier, but do you really want to assume 
the liability for anyone caught in the cross-fire? There is a reason armored-car, services act and charge as they do.

As you think over your own company's delivery work, are there perhaps other scenarios like this one? Regularly scheduled 
pickups of high-value jewelry from a fancy store are sure to attract thieves' attention, cash deposits, jobs where you are forced 
to leave a vehicle laden with valuable commodities unattended, the list goes on. Is the ongoing threat really worth the short-
term gain?

The Case for Care

While some work is simply a bad bet, most high-risk shipments fall into the "needs special care" category. The type of care will 
vary from case to case. Sometimes your people should take extra precautions. Sometimes you must demand that your customer 
exercise special care. Sometimes you must protect yourself ahead of the time by including appropriate language on your delivery 
receipt or contract of carriage, or by securing insurance for a particular customer or delivery. Often the best solution will be to 
mix several or even all of these strategies.

Jewelry provides a perfect example of a high-risk type of delivery that can shatter you if you are not prepared, but that can be 
fairly safe and profitable if you institute special handling procedures. In the last several months we have received an increasing 
number of calls from clients asking how they can get extra protection for jewelry shipments. Of course, for every client that 
calls to inquire, I assume that there are several more who are doing the same work but doing it blindly.

The phone call usually involves a request for special insurance to meet the demands of the customer (most cargo policies either 
exclude or severely limit coverage for jewelry - as well as art, antiques, etc.). I ask about special care and typically receive a vague 
answer. I then indicate a price range and pull back quickly so as not to lose an ear! "But," I add "if underwriters know that you 
consistently take extra precautions to safeguard more valuable shipments, you can get coverage for much less."

The first step involves training your order-takers that when they hear the word "jewelry" -- or "computers," "clothing," "spare 
parts," "pharmaceuticals,'' or "package" for that matter --they need to inquire if the value of the goods is greater than your 
normal limit of liability. If it is, they should ask for a declared value and offer to provide insurance at whatever rate you charge.

Declared values should be communicated to the driver for inclusion on the delivery ticket/slip/receipt. And remember to get a 
signature on both ends. In many cases that are decided against the courier - I recall one involving a dropped refrigerator - there 
is a problem with or lack of signatures.

The process becomes a lot easier if your limit of liability is something more realistic than the customary $100. It does not take 
much these days for a non-paper shipment to be worth more than that. Consider adopting a higher limit, say $250 or $500 or 
even $1000. Not only will it save time if fewer shipments require declared values, but also in the event of a loss a higher limit 
carries more legitimacy. After all, if something was that expensive it was reasonable to ask for advance warning so that special 
precautions could have been taken.

Returning to our jewelry example, you have many options for safeguarding the shipment. You can use a non-stop run to prevent 
the items from ever being left unattended. You can use more experienced and trustworthy personnel depending on the values 
involved. You can make sure the bag is innocent-looking, not a felt jewelry bag! You can vary the people you use and the timing 
of your deliveries. With other high-risk, high-value commodities the process is much the same. Use secure vehicles equipped 
with straps or nets to secure the load and vehicles where cargo is not visible from outside. Emphasize to your driver or biker 
that you can't afford a crash so they won't take chances. Sometimes a second pair of arms and eyes is indispensable if you 
would otherwise have to leave a loaded vehicle unattended.

In This Together

The example above shows how you can make a big difference in controlling risk by changing the way you handle high-value 
and target commodities. In other situations, it is the customer who can make the greatest difference. Where this is so, couriers 
would be wise to insist that the customer guarantee certain practices as a condition for accepting the work.

If the customer fails to do its part, you the courier should be exonerated from the cost of any loss. This is not arrogance, it's 
common sense. You and the customer are in this together, and organizations - like people - tend to perform better with the 
proper incentives in place.

The easiest way to establish safety rules with your customers is with a written agreement or contract.

One clear example is the common bank deposit delivery, where you carry a business' daily bank deposit to the nearest branch 
and submit it to the teller on your customer's behalf. The risk comes from thieves who stake out bank branches, looking for 
patrons who follow regular patterns. Not knowing whether or not cash is involved they target unlucky couriers for a hold-up. 
Often there is nothing negotiable to steal, but by the time the thieves find this out they are miles away. The "worthless" bags 
are tossed into the nearest garbage bin and may never be recovered.

Could you have taken steps to prevent this loss? Perhaps you could have varied your messenger more, but your customer 
often demands that deliveries be made at about the same time each day to the same branch. Transparent bags could show a 
would-be robber that no cash is involved, but sometimes a customer does slip in some cash. Your room to maneuver is limited.

Your customer, however, can easily mitigate the effects of a loss by taking a few basic precautions, such as stamping all 
checks "for deposit only" and keeping records of checks that allow for simple reconstruction. It is hard to overestimate the 
difference that these measures make in determining the size of a loss. If you and the customer agree to these practices and 
they slip up, why should you be responsible?

If the customer cannot comply because, for example, it is a supermarket that does not record individual checks, then perhaps 
it will hold you harmless for loss beyond a certain reasonable point. Or perhaps you should pass up this work.

The easiest way to establish safety rules with your customers is with a written agreement or contract. One courier we know 
follows the admirable practice of having every new customer sign and fax back a "Transportation Agreement" prior to pickup. 
Given the power and flexibility of today's computers it would not be difficult to vary the contract somewhat to fit the type of 
account. Keep in mind that this is but one example of how a customer's actions can make a difference. Other high-risk deliveries 
will call for other measures like proper packing or secure loading areas. Sometimes it is best to let the customer handle the 
loading and unloading.

Heed the Consequences

Our last example involves a mother who was killed in an automobile accident. Her family sued the other driver for a lot of 
money. Their lawyers hired our client to carry an important brief to the court, where it had to be delivered that day by a 
specified time. Needless to say the driver got "distracted" (by what is still being determined) and the brief arrived late. The 
case was dismissed. As you may have guessed, the law firm is claiming negligence and suing our client for well into six digits.

This type of loss is called a "consequential loss" or "loss due to delay." By not completing the delivery as arranged, someone 
suffered damaging consequences. It has nothing to do with the intrinsic value of the shipment, in this case a piece of paper 
with ink, nor can the situation be remedied by replacing or reconstructing the shipment. The only recourse for the injured 
party is to "work something out" or sue.

Of course you can't avoid time-critical shipments. What then is to be done? Again we return to our three strategies.

Special precautions you can take include training order-takers and dispatchers to recognize time-critical shipments and 
assign the most trustworthy drivers to a non-stop run if possible. Often just an extra word to the driver is enough to 
deter any "distractions." As for your customer, once they let you know their needs there is not much else they can do.

For this type of high-risk delivery the emphasis needs to be on protecting yourself in advance (strategy 3) using special 
language on your delivery tickets, manifests, contracts, and other documents. It is customary to use language to the effect 
that you will not be responsible for consequential losses at all and, if the customer signs off on this, you have a good 
defense even though you can never prevent a lawsuit.

Also, investigate whether you can obtain protection for consequential losses on your cargo insurance policy. Most 
exclude this type of loss, but certain specialized policies will let you "buy back" the coverage. For example, a $25,000 
limit should be relatively inexpensive and gives you room to settle in addition to paying your defense costs. The potential 
legal bills alone make this coverage a worthwhile investment.

Summing Up

By now it should be clear that this column's title is no exaggeration. From computer chips and jewelry, to bank deposits 
and financial institutions, to refrigerators and legal filings - high-risk deliveries happen every day. Couriers are transport-
ing more types of high-risk cargo and, according to numerous industry studies, professional cargo thieves are becoming 
more bold, sophisticated, and effective each year.

As the seller of transportation services to the public you must be aware of the risks you take and prepare yourself 
accordingly. Your first task is to do a better job at identifying high-risk deliveries when they are first ordered. Next, you 
have three strategies you can employ depending on the circumstances.

First, set up special procedures and precautions for your people to use whenever they handle a high-risk shipment. 
Second, communicate with your customers about special steps they can take to safeguard special cargo. Third, review 
your transit documents to make sure they clearly and consistently clarify your limits of liability.

If all this sounds like too much, start by making a list of your ten largest customers and the ten customers you feel give 
you the riskiest work. Tackle these accounts first, and then use your experience to create broader policies and procedures 
for your overall business. Your insurance broker should be of considerable assistance if he or she knows your industry.

Finally, check your insurance to make sure it fits your business practices and provides you with real protection. Look 
closely at the fine print, beware of off-the-shelf "Motor Truck Cargo" polices, and look into extra protection for risks 
such as consequential losses. By committing yourself to a cargo risk management regimen, you can prevent uninsured 
cargo claims that force you to pay legal expenses and damages out of your own pocket. Perhaps more importantly, by 
reducing losses you will have fewer angry customers. Moreover, the losses that do occur can be settled more quickly 
and amicably when both parties know the rules. Over the long run, the courier companies that pay attention and protect 
themselves will be the ones that succeed.

Peter Schlactus, a Certified Insurance Counselor and  Accredited Advisor in Insurance, is Co-President of KBS International Corp., which provides specialized  insurance programs, benefits, and  risk management services to courier companies and executives nationwide. Mr. Schlactus is available to answer inquiries  at 1-888-KBS-4321 or via e-mail at peter@courierinsurance.com.

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