October 2007 | Commentary | Risks and Rewards

Your Services Are Expanding...Are You Covered?

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Q: I am the risk manager for a global logistics company that provides complete door-to-door service. A large part of our operation involves shipping goods by air. While we do have partners, our own employees perform most of our services, including airport consolidation and warehousing. We are insured through a global program that covers most of our logistics operations. My company is now expanding into airport ground handling operations, and I am finding it difficult to work this new operation into our logistics insurance program. Can you explain why insurance companies see such differences in these operations, and can you suggest a solution to my dilemma?

A: The logistics industry has been undergoing a significant transformation over the past few years. Through mergers and acquisitions, many operators have broadened the services they provide to their customers.

This increase in services has brought a corresponding change in the complexion of risks that insurers have been asked to cover. As an operation increases its services, the risks it faces tend to increase as well.

Logistics operators can provide an arsenal of services—forwarding, trucking, warehousing, packing, crating, and consolidating. They can also use any means of transport—land, sea, or air. Their operations and contractual relationships are multifaceted and complex.

Add the need to insure their risks through domestic policies in foreign countries, and you can appreciate that structuring a comprehensive program creates a logistics problem of its own.

Then mix airport ground handling operations into the equation and you're bound to hit more obstacles.

Airport ground handling operators, typically called fixed-base operators (FBOs), provide a mixed bag of services, including aircraft loading/discharge, aircraft positioning and cleaning, catering, passenger boarding, ticketing, and numerous other related activities.

Virtually every airport has a need for these services, which are insured separately from the risks of the airports themselves.

While logistics industry risks are generally insured in the marine insurance market, airport ground-based risks tend to be insured through the aviation insurance market.

Although aviation has its roots in the marine industry, marine and aviation insurance operate independently of each other. This might be part of the reason for your dilemma.

But while airport ground-based operations differ from forwarding, warehousing, and other logistics activities, they do share maritime parallels.

In the marine world, forwarders consolidate, warehouse, and transport cargo. Terminal operators transport passengers, operate lounges, provide ship catering, handle luggage, shuttle crews, clean septic systems, and provide other related activities. Ship agents provide husbandry, fueling, maintenance, and other vessel services to the steamship lines.

Although the regulatory framework and verbiage may differ, these services are similar to those FBOs provide.

The Aviation/Maritime Divide

Insurance for these operations also has its rough equivalents—hangarkeeper's liability for aircraft push-back operations, or a wharfinger's legal for ship mooring operations, for example.

In the past, these risks were insured separately from each other, but this is changing. In an effort to provide a broader range of coverage, especially to companies whose services cross multiple disciplines, some insurers have become specialists in international trade and transport, and provide packages that straddle the aviation/maritime divide.

Ask your insurance agent to speak with an international trade and transport specialist. This will help you find an insurer who can satisfy your needs.

Have a liability question or concern? I will try to help. Please send your questions to me via e-mail at: dan.negron@thomasmiller.com.

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