The costs of loss

Transport profitability is a delicate balance between ones ability to operate efficiently all the while avoiding adversity in the form of damage claims, theft control, asset management, fuel costs and driver turnover to mention a few. Besides being a formidable task, transportation providers seem to compete more on price than on the value added service they perform, therefore losses in any form reek havoc with their bottom line. By dissecting some of the common pitfalls systemic to the transportation industry and evaluating their negative impact to profitability, it is likely that companies can look more critically at funding proactive operational changes to avoid losses than reactive remedies when losses happen. Many of these changes can be seamless to most companies culture, and by their implementation they are able to mitigate or at least reduce the propensity of many types of loss.

Most transportation providers are self insured at some level. Many have high thresholds where any short fall becomes their liability. Most contractual arrangements with larger shippers now include limited carrier liability for many conditions of loss including but not limited to damage, spoilage and theft. Many of these situations have contingent liability associated with them which compounds the negative impact should there be a claim.

Most asset based providers pay dearly for equipment, maintenance, fuel and infrastructure and view systemic proactive product oriented change as insurmountable and unnecessary. I have personally heard many companies say that they cannot afford a particular technology simply because of their size, yet the cost of loss or profit drain far exceeds the remedy. Telematic solutions have just now impacted the industry where those nay sayers are now outspoken advocates for such solutions. Countermeasure for theft are still a step child to logistic technology but will soon follow although far less expensive and far easier to implement. Physical asset monitoring technology such as measurement tools for brakes and many safety products are gaining acceptance rapidly. Of course GPS is not a security tool nor are door locks any help to operational efficiency yet both product types can easily enhance the profit picture of any company.

Theft related losses are particularly troubling as they damage both the brand and reputation of the company. No one wants to align themselves with a ‘target’ as a carrier. No carrier wants to move only high profile and highly vulnerable cargo as his total diet. Theft losses in the US from domestic freight moves easily exceed five billion dollars and affect every facet of the industry. From a missing flatbed with a million dollar piece of construction equipment on it to shoes, food, electronics and of course pharmaceuticals, carriers engaged in the movement of these goods are particularly vulnerable to liability. The smaller the carrier, the higher the financial impact of a loss. The smaller the fleet the higher the cost of equipment related losses because of the impact of a tractor loss has on a companies overall productivity. Damage losses are additionally an undesirable moniker for anyone in transportation. Damage losses exceed theft related claims at a ratio of 5 to one and receive far more proactive attention than do theft losses. Remedy however is typically provided by the shipper and rarely is able to be implemented by the carrier where the inverse is true with theft.

Employees cause the vast majority of damage claims through rough or improper handling and operational laxity. Many times, mechanical failure, is a cause of damage but more often than not, damage is a preventable event with reasonable care while theft is uncontrollable and random. Carriers recognize this and can train for it where theft losses are 80% based on employee infidelity and change with operational area, equipment diversity, employee concentration, systems and operational procedures. The most common conditions leading the theft losses can in fact be planned for and many remedies have no physical cost but rather operational changes to address known threats. Losses associated with theft or damage affect the bottom line of the shipper, carrier and the insurance provider as each has a vested interest in seeking appropriate remedy. It is an imperative to choose remedy that benefits all concerned parties and that funding for such changes or products be spread out amongst those prone to bearing the loss. Insurance providers cannot institute remedy but rather incentivised companies through more attractive rates to implement the appropriate technology to reduce vulnerability. Likewise carriers need to explore the cost of loss vs. the cost of remedy to determine their respective role in protecting their interests and those of the client. Shippers have already been socialized into protective packaging and equipment choices to avoid damage yet they have done little to nothing to reduce their risk of theft related losses, even though their exposure is far more costly than the limited liability of the carrier and insurer.

By enhancing logistical efficiency, the value proposition to justify GPS and asset tracking technology, was embraced by the trucking community yet at far lower cost per unit, theft control countermeasures remain aloof.