Risk Insider: Pat Hickey

Intelligent Use of Technology Is the Key to Managing Risks in Third-Party Logistics Arrangements

By: | June 18, 2018 • 5 min read

Pat Hickey is Executive Vice President, Head of U.S. Marine, for Aspen Insurance, Pat’s expertise includes global freight forwarders, third-party logistics providers, warehousing and supply chain. He is a current member of the AIMU Cargo Committee and National Cargo Bureau. Pat can be reached at [email protected]

Estimates indicate that real gross domestic product (GDP) in the U.S. increased at an annual rate of 2.3 percent in the first quarter of 2018, with forecasts of +2.9 percent and +2.7 percent for 2018 and 2019 respectively.

Simplistically speaking, economic growth leads to more freight in transit, but the trend of globalization and increased retail-to-retail partnerships is gaining momentum and contributing to the upward trajectory of the Freight Transportation Index shown in the chart below. Growth in third-party logistics (3PL) is a key contributor to this trend.

Most manufacturers and retailers now employ 3PLs for at least a percentage of their domestic activities and almost all of their global operations. 3PL services embrace essentially all aspects of the supply chain from transportation and warehousing to global services and information technology requirements.

The advantages are numerous and include reductions in current costs and capital expenditures. 3PL global expertise includes documentation, customs and freight forwarding services as well as arranging global air-freight, vessel and truck transit.

Outsourcing supply logistics enables manufacturers and retailers to focus on their core activities and improve customer relationships through more certainty of timely and accurate delivery.

These companies are in a consumer-driven market, producing and selling goods with little margin for error. They are not in the business of moving goods around the world within a complex, global supply chain.

Global 3PLs help by providing expertise, efficiencies and insight into shipping issues so these businesses are able to meet the ever-increasing needs and demands of their consumers.

These 3PLs not only offer the benefits of shared costs, scalability, accountability and global reach, but also have capabilities for improving and reducing a company’s environmental and personnel risk.

Reduction in certain risks is not to say that risks do not still exist. Questions surrounding global insurance should be included in any client’s assessment of 3PLs together with those concerning performance indicators of claims, order error and success ratios, as well as on-time shipping percentage and inventory management.

In turn, the underwriter must be fully informed of the delivery route from start to destination – that includes multimodal transport on road, rail, sea and air and all staging posts in between, such as warehousing facilities. This entails fully understanding a carrier’s legal or contractual liability for damage to customers’ goods in their care, custody and control, at all stages of the global supply chain.

Risk assessment includes the value of the goods and degree of fragility. Poorly designed packaging, for example, may be a factor in the latter and high-value goods, such as pharmaceuticals or electronics, are more susceptible to theft, especially if they can be resold easily.

The track record of the carrier is also a consideration not only for the client but also the insurer should there be any indication of an unreliable record or poor visibility of their subcontracted carriers.

A strong, global logistics provider will be able to work with their insurance broker and underwriter to offer their customer a variety of insurance solutions for their goods in transit. In addition, the 3PL should be able to demonstrate long-term relationships with the companies who help them move freight and prove the commitments their partners make to them for the safe delivery of the goods.

Without reliable partners and the proper controls, freight could be sub-brokered multiple times. The freight then becomes highly susceptible to loss or damage, due to breakdowns in communication and failures to exercise adequate controls.

Outsourcing supply logistics enables manufacturers and retailers to focus on their core activities and improve customer relationships through more certainty of timely and accurate delivery. These companies are in a consumer-driven market, producing and selling goods with little margin for error. They are not in the business of moving goods around the world within a complex, global supply chain.

Changes in Logistics

The logistics industry – like many others – is facing considerable change, which is introducing new challenges to deliver better service at lower cost. New entrants and new collaborative partnerships are part of the strategic change, but intelligent use of technology is the common thread. This includes data analytics, automation, platform solutions and the Physical Internet.

Risk management needs to span these developments as the more digitally-advanced providers are able to benefit from improved forecasting, appropriate scalability and route flexibility.

The rate of technological progress is likely to be determined by customers’ acceptance and regulatory oversight but the opportunity is great.

Cyber exposure in all its manifestations is an emerging risk and the potential benefits will have to be set against the new challenges. The Physical Internet could bring improved supply chain transparency and more efficient planning through standardization of shipment sizes and labeling, but this is likely to be accompanied by issues of data privacy and security.

Likewise, IT standardization could enable greater collaboration, efficiency and transparency while also raising questions of data security. This is also the concern for data analytics, cloud platforms and crowd sharing.

Automization is increasing and is a vital part of the push for low-cost service goals as supply chains continue to increase in complexity. Automated loading and unloading are already in use but, in the future, technology could bypass obstacles and amend routes automatically at the appropriately adjusted speeds.

The use of robotics and automation has the potential to reduce human error, but the use of autonomous vehicles and drones is likely to depend on regulatory approval with liability issues yet to be clarified. Blockchain technology could reduce incidence of fraud and errors but there could be increased risk of aggregation.

The name of the game for 3PL companies – and their insurers – is coping with complexity. Technology, spurred on by customer demands, shifting requirements and the possibility for new competition and collaboration, is introducing change to the industry, and risk managers need to be part of the conversation with manufacturers and retailers reassessing their strategic direction.

Transportation is operating in a different world than it was five years ago, and it will keep evolving over the next decade as just-in-time supply chains continue testing the limits of saving time and money while raising the bar on consumer expectations.

This new world means it is more important than ever for risk managers, logistics professionals, insurance brokers and underwriters to partner together and address these changes and challenges so that the shipper, and ultimately the consumer, can enjoy the benefits of a seamless, fully integrated global supply chain.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]