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Tue 1 May 2007 09:49 AM

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Risky business

What are the primary benefits for air cargo companies adopting an insurance policy and what factors can help downsize insurance costs?

Question:

What are the primary benefits for air cargo companies adopting an insurance policy and what factors can help downsize insurance costs?

Expert:

Albert Rodrigues

Managing director, Millennium Insurance Brokers

Threatening thoughts

An air cargo company providing freight services under standard trading conditions has an obligatory duty to take care of its customer's cargo or goods. From the point of receipt till delivery, the cargo is in its custody and control. As the cargo passes through innumerable phases of transit, it faces potential risks such as accidental loss, damage, theft, pilferage, rough handling and disappearance. Liability towards third parties and financial losses to customers can be the result of such errors or omissions. Interestingly, a certain risk currently holding the air cargo industry is liability claims resulting from negligence of other people involved in the operation. An effective insurance policy can limit the headaches these threats pose.

Minimising risk

Air cargo companies can minimise risk by acquiring adequate insurance cover that would protect them from these realtime contingencies. They may also insist that customers take adequate liability protection thus avoiding confrontation with airway bill limitation issues. In the case of subcontracting, air cargo companies should transfer part of their risk by insisting the subcontractor has back-to-back liability protection. Insurance is often considered an avoidable cost, particularly under adverse economic conditions where margins are squeezed, but as the saying goes, ‘if you think insurance is expensive, try paying a claim'. This mentality needs to be overcome in the region.

Identifying liability threat

Considering the current conditions of the air cargo industry in the Middle East, companies need to face the challenge of identifying potential risks. This is a continuous process that involves analysing each risk in detail and creating awareness of the need for protection against any potential disasters that may await. Risk is defined as doubt, uncertainty, unpredictability, occurrence of an unexpected event resulting in loss, chance of a loss, or combination of hazards. These can be minimised but cannot be eliminated, which means there is no substitute for prudent risk management. Risk management techniques include the employment of trained and motivated staff, well defined systems, adequate controls and clearly laid down procedures.

Downsizing insurance costs

In order to minimise insurance costs, air cargo companies must have proper risk management systems set in place. These systems should involve the previously mentioned techniques of adequate control and precaution. Some specific examples would be methods of packing in a professional manner and the subcontracting of work to companies that possess adequate liability protection. Continuous training and educating of employees is essential and this includes all various aspects of handling cargo; be it of sensitive or hazardous nature, or the simplest of documentation errors. Also, it is advisable to investigate how airlines monitor cargo movements at various locations, minimise exposure to atmospheric conditions and avoid leaving goods unattended.

Beneficial policy

At this point of time, insurance is not a legal requirement for air cargo companies in the Middle East. However, it may become one in the near future and the benefits of insuring are still nevertheless innumerable. To cite some of its key benefits would be the protection it offers air cargo companies against liabilities arising out of loss or damage to cargo whilst under their custody. This increases the credibility of air cargo movers, which results in more business, enhancing the company's reputation and reliability. The company will also save on onerous litigation costs, thus buying insurance means buying peace of mind.

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