Premier Provider of Innovative Insurance and Surety Solutions State of the domestic transportation market ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON.

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Presentation transcript:

Premier Provider of Innovative Insurance and Surety Solutions State of the domestic transportation market ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO

About Avalon Ten U.S. regional offices located in major ports (+1 in Canada) Customs bond and transportation insurance specialists International and Domestic risks insured Chicago Boston New York Atlanta Miami Houston Los Angeles San Francisco Seattle Charleston © Avalon Risk Management, Inc.

State of the domestic transportation Industry

© Avalon Risk Management, Inc. State of the industry Many motor carriers have seen major shippers declare bankruptcy Remaining clients slowing payments Rates down (-15% in some cases) January truck tonnage down 10.8% (1/09 vs. 1/08) – ATA Licensing & Insurance costs will likely rise More regulation on the horizon? Financing harder to come by

© Avalon Risk Management, Inc. State of the industry 3065 Trucking company failures in 2008 Transport Capital Partners Feb trucking fleet survey found that 22% of respondents would consider liquidating in next 6 months

© Avalon Risk Management, Inc. State of the industry Fuel prices down dramatically from summer of 2008 Market adjustment through reduction in capacity (Motor Carriers as well as vehicles) Economic recovery

© Avalon Risk Management, Inc. State of the industry - Trends Weak economy leads to increase in cargo theft and pilferage Threat of abandoned loads and double payment of freight charges Continuing trend whereby shippers seek to take greater control of transportation process through use of contracts

Considerations for Shippers

Insolvency of a Business Partner

© Avalon Risk Management, Inc. Insolvency of business partner Carrier insolvency can result in lost or abandoned loads and disrupt supply chain Insolvency of 3PL can result in double payment of freight charges Client insolvencies can potentially be the most damaging Bankruptcy preference claims are a threat

© Avalon Risk Management, Inc. Insolvency of business partner Create policies for selecting transportation providers Mandate 100% compliance with policies Get bank and trade references Use credit reporting agencies Outsource carrier review & selection to 3PL TIA Performance Certified – Up to $100,000 in protection

© Avalon Risk Management, Inc. Insolvency of Clients Stay in touch with customers – make sure they are visited periodically Watch for changes in payment trends Beware of sudden decrease or increase in business Re-evaluate creditworthiness regularly Don’t hesitate to turn accounts off Automate credit and collections process Consider purchasing Credit Insurance

© Avalon Risk Management, Inc. Credit Insurance Good credit procedures protect your business Credit Insurance protects you from shock losses including bankruptcy and preference issues Credit Insurance may allow for increased sales Access to credit experts and the ability to outsource credit evaluations Cost (1/4% –1/2% of receipts) may be less than expected credit losses due to claims avoidance Could improve your own creditworthiness

Vicarious Liability for Actions of Motor Carriers

© Avalon Risk Management, Inc. Vicarious Liability for actions of motor carriers Shippers and Brokers not customarily responsible for acts of Motor Carriers Recent lawsuits have addressed this issue. Potential for liability increased by: –Negligent selection of MC (SAFER, Insurance, etc.) –Increased control / oversight of MC or driver, routing, etc. –Being listed as MC on the bill of lading –Contractual assumption of liability –Loading of conveyance –Statements in marketing materials / on website

© Avalon Risk Management, Inc. Vicarious Liability for actions of motor carriers - Contracts Discuss carrier vetting procedures with 3PL When executing contracts with 3PLs –Be certain contract does not exert undue control –Don’t force 3PL to undertake carrier responsibility –Recognize that contract can negate 3PL insurance coverage (contractual exclusion, AI) –Realize that 3PLs who sign onerous contracts without question may lack financial wherewithal –Determine if 3PL has 3 rd party liability or contingent auto liability coverage When loading trailers/containers –Consider involvement of your employees in process –“Signoff” that driver inspected –Inspect geographic scope of your GL Policy

© Avalon Risk Management, Inc. Vicarious Liability for actions of motor carriers - Summary Carefully select carriers Consider outsourcing task to 3PL –They will/should have well defined process –Adds layer between you and carrier Don’t “go too far” in contracts or in actions (loading) Verify carrier / 3PL insurance

Cargo Loss and Damage

© Avalon Risk Management, Inc. Cargo Loss & Damage Cargo loss claims rise in a down economy Pharmaceuticals are a top 10 theft commodity by number of losses (recent $44 Mil loss reported) 57% of theft losses occur over weekends or holidays Truck stops most common loss location Thefts consistently spreading past LA, NY, MIA and becoming nationwide problem

© Avalon Risk Management, Inc. Cargo Loss & Damage Motor carriers generally liable for loss under Carmack Carmack is a strict liability standard but will not cover Acts of God Brokers are not liable for cargo loss/damage INSURE YOUR SHIPMENTS (Cargo/Property) Look at carrier vetting as a means to maximize subrogation when losses occur

© Avalon Risk Management, Inc.

Cargo Loss & Damage The Bottom Line: Just about anything can happen to your shipment Know your transportation provider Insure your cargo!

© Avalon Risk Management, Inc. Cargo Insurance Shipper’s Interest Cargo Insurance can insure all modes of transit Coverage is consistent with terms pre-agreed Loss, Damage, Theft, Pilferage and other perils can be covered Acts of God covered vs. carrier negligence only Without insurance, how many shipments would you do for free to make up for one lost load?

Certified Cargo Screening Program

© Avalon Risk Management, Inc. Cargo Screening 50% requirement now & 100% by August 2010 *Wide body passenger aircraft Certified Cargo Screening Facility (CCSF) –Many shippers & forwarders applying for status –Specific concerns for Pharmaceuticals & Food –SAFETY Act offers protection in some cases –Coverage territory and terrorism extension are critical –Cargo loss/damage/misdirection exposure –CGL Policy will respond in accordance with policy terms

© Avalon Risk Management, Inc. Certified Cargo Screening Facility Competitive advantage of on-site screening –Marketing advantage –Greater control over process –Time savings & supply chain predictability for clients Discuss plans with your insurance broker –CGL Territory –Property / cargo coverage scope –Terrorism Extensions –Safety Act protections

Regulatory Issues

© Avalon Risk Management, Inc. Regulatory Issues 10+2 (Importer Security Filing/ISF) –Surety/CHB/Importer liability will increase with enforcement Jan –Added supply chain time and expense –CBP still contemplating surety issues –Based on CBP position for SEBs, pressure on broker to obligate own bond Bureau of Industry & Security –Penalties for exporters & forwarders –Increasing enforcement focus –Looking back three months… $1.9 Million in fines $238,000 average fine (per company) 384 distinct infractions ($5,000 avg. per infraction) Lacey Act makes it unlawful to import, export, transport, sell, receive, acquire, or purchase in interstate or foreign commerce any plant in violation of domestic or international laws. –Extraordinary range of products impacted –Importers must rely on party overseas for information –Phased in enforcement beginning April

© Avalon Risk Management, Inc. Regulatory Issues Consider a Regulatory Defense Contract –Covers legal expenses but not fine –Covers enforcement by U.S. government agencies –Provides purchaser with a plan at an economical cost before things go wrong

Conclusion

© Avalon Risk Management, Inc. Conclusion 2009 will be a challenging year for shippers and transportation providers alike Those that execute better than their peers will realize opportunities for success Enter Partnerships with your transportation providers for more predictable outcomes Consider outsourcing the management of physical carriers Exercise care in developing transportation contracts Be sure that you are properly insured

Premier Provider of Innovative Insurance and Surety Solutions Thank you ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO Michael S. Brown Executive Vice President Avalon Risk Management, Inc. Phone: