December 2004 | Commentary | Risks and Rewards

Compliance the Top Concern of 2004

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Q: Looking back at 2004, regulatory compliance issues posed a big concern for my business. Am I facing this challenge alone? What were the biggest issues logistics professionals faced this year, from a liability standpoint?

A: Security issues dominated the news in the supply chain industry throughout 2004, as various government agencies took steps to implement anti-terrorism measures.

Regulations issued pursuant to the Food and Drug Administration's Bioterrorism Rule came into effect early in the year. These regulations meant new reporting requirements for importers of food products intended for human or animal consumption in the United States. The rule also mandated registration requirements on the facilities handling those goods.

On July 1, the Marine Transportation Security Act (MTSA) went into effect. The MTSA, which is the U.S. equivalent of the International Ship and Port Facility Security (ISPS) code, requires port facilities and steamship lines to comply with security measures aimed at the prevention of terrorist acts.

While it does not appear that absolute compliance to these regulations was achieved by the deadline, the majority of affected operators were able to respond to the new rules on time.

These and other initiatives underscored the need for shippers to work with their intermediaries to ensure that goods are not subjected to inordinate delays during transit.

Transit losses or delays are often caused by operators who fail to follow proper procedures when handling or transporting goods. Of course, the more hands a shipment passes through, the greater the likelihood that something could go wrong.

All logistics professionals would do well to view regulatory compliance as a team effort. Shippers should provide detailed, timely, and accurate information to their transportation intermediaries, who should, in turn, ensure that these details are reported to their sub-contractors. This increases the likelihood that the shipment will travel to its destination unimpeded.

While regulatory compliance questions certainly kept the industry busy this year, other liability issues were on the minds of logistics professionals. Topics that spurred frequent discussions include insurance management, and best practices for choosing a logistics operator.

The importance of having an effective insurance management program was apparent this year. The logistics industry is constantly expanding the services it provides to its customers, and the challenge it now faces is the need for policy that will cover the expanding risks faced by operators.

Every operator along the transportation chain should also ensure that its service partners are properly insured and have active loss-prevention programs in place.

Selecting the logistics operator most suited for a particular shipper's needs involves significant thoughtful consideration.

Questions to ask include: Is the operator a specialist in handling the type of goods that the shipper moves? Does the operator have a good reputation? Does it employ any specialist training for its staff?

Shippers should be familiar with the logistics operator's network, the typical routes it employs, and the specific procedures it uses to safeguard against delay or loss.

Without a doubt, logistics and supply chain professionals will face more challenges in the coming year. By keeping abreast of industry developments, we can be sure that we meet those challenges.

Do you have a question about cargo insurance or liability? Ask the expert. Send your question to Dan Negron at Dan.negron@thomasmiller.com

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