Ports must counter soaring levels of cargo theft with more robust insurance and security measures, warns Ed McNamara, CEO of global port insurer Armada Risk Partners.
Port and terminal operators are fighting a new tidal wave of crime.
It is reported that criminal gangs are using ever-more sophisticated methods to target cargo which can be quickly off-loaded on to the black market.
‘Hot’ goods most in demand include electronics, pharmaceuticals, clothes, alcohol and tobacco, toys, building materials, metals and scrap, art and collectables, automotive parts and cosmetics and beauty products.
Non-perishable food and drinks are often a target but if containers filled with perishable goods have their temperature seals broken by gangs, the contents are often left to rot, resulting in a heavy financial loss. Here specific insurance is needed as no items have been stolen meaning conventional insurance policies often do not cover the loss.
In this climate, we cannot overstate the importance of having the highest levels of security at rail yards and ports. If negligence or inadequate safety and security measures are involved, this can result in legal action and insurance cancellations. And if the thefts repeat, a terminal's reputation can be badly damaged meaning customers and supply chain partners switch to other ports with stronger security.
At Armada Risk Partners, we are working with port and terminals clients examining how they can protect themselves and the cargo on their sites.
The response to the huge financial losses that ports and operators are facing requires a combination of robust insurance, security and risk-management strategies.
First, let’s look at security. Port or rail hub insurance inspections should take place most years, so take the time to properly review the security at your site. If your site looks weak and you do not have a thorough security review policy, you are going to struggle to secure adequate cover. To add insult to injury what cover you do get is likely to be over- priced.
So, areas to consider include investing in more on-site security personnel. While it may be an additional cost it is money well spent as a deterrent and will be looked on favorably by insurance inspectors. Ensure your head of security is reporting directly to the port director in writing with comprehensive reviews of physical security such as alarm systems across warehouses and storage areas, perimeter fencing, security lighting, surveillance cameras, and secure locks. Show you are constantly identifying areas of vulnerability and tackling them. In addition, the security team needs to conduct background checks on employees and contractors and provide regular training for the security team on theft prevention.
Taking a firm lead on access control is a critical area of site security. Insurers want to see how you are deploying the latest technology for ID checks including biometric scanners and that you have strict access logs to limit and monitor areas where there is cargo, or which are sensitive. In addition, we advise showing evidence of how you work with transport partners to deploy tech like GPS tracking and RFID tags which can be used for asset tracking. Ensure you have a thorough risk assessment in place for loading and unloading of cargo, again working with all the relevant contractors on site. Having strong working relations with local police is another area to document, showing you are sharing intelligence and have a rapid-response strategy in place in case of a security breach. Cyber-crime is an area we are all very aware of, so ensure you are protecting digital records and inventory management systems against cyberattacks to prevent tampering that could facilitate cargo theft.
These are just a few points in a complex area. Every port is working hard on security but insurers are becoming more risk averse so you must take the time to document and review your security to get the best possible coverage and perform well in an inspection.
In terms of the insurance itself, this is again complex, and we advise working with a marine and transport specialist to get the best deal. Do not simply renew with your existing supplier based on cost as this could hurt you with insurers generally cutting coverage and increasing premiums. You must thoroughly read your small print as policies are changing every year, and you want maximum coverage at the best price.
Given the stakes on the line, we advise this renewal process is elevated to CEO level and is not solely a job for the financial director who may simply be looking to save money. This cost-cutting approach could result in a swingingly expensive bill if you find your insurance is cheap but weak on cargo theft coverage.
The types of insurance covering criminal activity to consider include Comprehensive Cargo Insurance. This ensures that cargo insurance policies cover theft as a specific peril. It is recommended to cover the value of the goods so there is adequate compensation. Liability insurance, meanwhile, will protect against claims by third parties for cargo theft that occurs within port premises. It is further advisable to consider Warehouseman’s Legal Liability Insurance – this insurance is for ports that store cargo and covers their legal liability for loss or damage to goods while in storage. Professional Indemnity Insurance is also important as it covers legal costs and claims for damages arising from errors or negligence by port staff in handling cargo.
The two other areas of insurance which touch on cargo theft are subjects we have been campaigning on for some time at Armada. They are painful and high-risk areas of insurance for ports namely Business Interruption Insurance and Cyber Insurance.
Business Interruption Insurance is absolutely key and too often ripped out by ports keen to find savings in their policies. This insurance covers financial losses due to disruptions in port operations caused by theft or other insured events such as ship collisions which close a port.
Cyber Insurance, meanwhile, is a big area in itself with dynamic risks beyond simply cargo theft. Ports need to show insurers they have thorough cyber security policies if they are to secure the best coverage against losses from cyberattacks that facilitate cargo theft by compromising security systems.
As you can see, cargo theft is one of the biggest and most complex challenges facing ports and terminals. Taking a thoughtful, methodical approach is vital to securing the most comprehensive insurance at the best price.
The climate for insurance is changing. Insurers are keenly aware of the problem of rising crime and they already are more risk averse because of massive marine industry-related pay outs, such as the Baltimore Bridge collapse, which resulted in the biggest insurance pay out in marine history.
On top of this insurers are also being hit hard by record pay-outs due to hurricane and weather damage, supply-chain disruption and the Red Sea attacks on shipping. For all these reasons, ports must tread carefully with insurance renewals.
The worst thing you can do is simply renew your existing policy without checking the small print.
About the author: Ed McNamara is the CEO of Armada Risk Partners, a Cleveland U.S.-based global port insurance broker that was a winner of the 2022 Fast Brokerage Award.
Ed has worked in the insurance industry for more than 15 years. Previously he ran his own technology company and has a lifelong interest in digital communication and is well versed in cyberattack planning.
A Cleveland native who grew up in Rocky River as the son of a Cleveland Police Captain, Edward’s charitable work includes working as a founding board member of the Prayers from Maria Foundation, and a board member at the Lorain County Board of Health (currently President), County Mayo Society, and Irish American Charitable Foundation.
