Covering your future operations

Insurance is becoming more important for logistics companies wanting to handle the growing number of business risks.
COMMENT, Supply Chain


The Middle East logistics industry has experienced a massive evolution over the past decade. The list of success stories amongst local and international players operating in the region is growing bigger and bigger every year. However, the competition is also heating up and logistics companies are attracting customers by expanding the range of services they provide. Offering transportation and warehousing is no longer sufficient. Today, customers are demanding labelling, packaging, procurement, sub-assembly, merge-in-transit and countless other services too.

Although there are obvious financial benefits of introducing value-added services, this strategy is also exposing logistics companies to greater liabilities. As such, there is legal responsibility associated with cargo handling and freight forwarders cannot protect themselves by simply placing written details of liability limitations on warehouse receipts.

Purchasing insurance is therefore increasingly important for logistics companies wanting to handle the growing number of business risks. Unfortunately, it seems the industry is currently failing to give insurance enough importance.

A seminar organised by the NAFL (National Association of Freight and Logistics) highlighted some interesting statistics. It seems only 10% of freight forwarders in Dubai are purchasing liability insurance. This means a large percentage of small and medium sized operators are risking their businesses - probably without even knowing.

This highlights the need for education, which is something the NAFL has already acknowledged. The association has previously brought a specialist team from Singapore to conduct various training programmes in Dubai.

Hopefully the region's insurance industry will also provide some support to freight forwarders wanting to purchase insurance. We need a wider range of liability packages catering to the unique requirements of the logistics industry. Each policy should also cover the defence costs of claims made against a logistics company, regardless of liability. This is important because the costs of defence can outweigh the damage payments in many liability cases.

It is encouraging that the NAFL has kick-started this process. A number of similar associations around the world have already made liability insurance an essential requirement for membership. For example, members of the CIFFA (Canadian International Freight Forwarders Association) must secure liability insurance with a minimum coverage of CAD $250,000. Such requirements will be mirrored in this region soon enough.

Of course, there is a long road ahead before the Middle East logistics industry catches up with the insurance policies of its counterparts in Asia and Europe, but at least we are making progress and heading in the right direction.

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