Joint study report highlighting the challenges faced by India's logistics & warehousing industry - TCI and Insurance Institute of India

29 Aug, 2020 2:21:25 PM / by Transport Corporation of India Ltd

 New Bitmap Image.bmp

This comprehensive joint research aims to assess the insurance requirements of the Indian Logistics and Warehousing industry and their customers, from an in-country cum multimodal point of view and to indicate possible solutions.

The conceptual strength of the research emanates from a review of insurance policies, court verdicts, and published literatures. Interviews of 62 experts were taken. These experts belonged to the Insurance industry, Logistics and Warehousing industry, and the Corporate customers. Experiences and views shared by 231 customers through questionnaires have enhanced the practical relevance of the findings of the study.

This report extends help to (a) the logistics industry in protecting their business interests in a better manner, (b) the insurance industry in understanding the Logistics and Warehousing market and providing appropriate covers, (c) the government for policy framing and regulatory purposes, and (d) the customers of the logistics industry who would be the ultimate beneficiaries.

In today's competitive market conditions, protecting ongoing business interests is invariably the prime concern for all LSPs. UNESCAP points out that with logistic services getting integrated with the supply chain, services have become more complex; and setting up limits of liability and minimum standards for liability insurance has become more difficult.

 

The TCIL & III Research Paper key findings:

  • Despite the legal position ushered in by Carriage by Road Rules, 2011, which appear benevolent towards the Logistics Industry, in reality, the Service Providers continue to be in a highly vulnerable position.
  • There are instances where LSPs purchase cargo policies in their favor, which do not actually protect them, as these are designed to protect only the owners' interests and not those of the carrier or other bailees.
  • The Logistics Industry does not realize that its complex business models are often not fully understood by insurers and hence they do not enjoy the fullest confidence of the Insurance Industry.
  • The freight charged by the logistics provider is not sufficient to meet the risk exposure of transportation and warehousing losses even though losses are infrequent.
  • Insurers provide marine cargo policies to consignees based on the consignment notes issued by transporters. Insurers do not inspect the cargo, check the standard of packing, method of packing or insist on standard risk management practices.
  • Carrier’s Legal Liability policies are not practically effective as insurers do not settle claims till legal steps are initiated against the carrier. LSPs have no option but to pay to retain business.
  • Some of the contract wordings between shippers and LSPs are highly one sided and absolve shippers even when they are at fault.
  • There is scope for exercising more care in packing, loading and lashing of cargo to prevent accidents during transport as also in choosing appropriate vehicles. Efforts to create better awareness among the customers of the Logistic & Warehousing Industry are needed.
  • There is an acute shortage of skilled drivers and Transporters do not have the capacity to identify fake driving licences. This increases their commercial costs like vehicle maintenance etc.; as also social costs like damage to goods, loss of life and damage to road infrastructure.

 

Key recommendations:

  • LSPs may appeal to the Ministry to make it mandatory for all goods, at least those transported through third party LSPs, be insured.
  • LSPs should be aware of the risks which are not insured by the consignor/consignee and of the liabilities of the LSPs in a worst-case scenario. They should have a board approved risk management/risk transfer policy.
  • It would be advisable for the logistic Industry to build internal capacity to understand their insurance needs as also those of their customers. This would ensure adequate coverage of risks and buying effective insurance covers that give optimum protection.
  • Carrier’s Legal Liability policies need to be redesigned by Insurers after understanding the present day realities of the LW Industry.
  • Risks that are intentionally not covered by consignors/ consignees and those falling under the Excess/ High Deductible clauses need to be clearly communicated to the LSPs as part of the contract. Governmental mandates or collective decision by the LW Industry may be required in this regard.
  • The big players of the Logistic Industry can think of creating Protection and Indemnity clubs to take care of their uninsurable risks and the claims that do not fall under insurance policies.
  • Governmental systems for issuing/ renewing motor driving licenses may be made more robust by making mechanisms like 'Aadhar' linking compulsory and by providing mobile apps to check the veracity/ validity of licences and the drivers' accident record.
  • The LW Industry should make conscious efforts to position itself as a knowledge-rich industry performing a vital nation building activity. Every employee of the industry should be taught/ trained to improve the industry's culture and take it to greater glory in the years to come.

 

Undoubtedly, the need of the hour for the Logistic industry is to look at itself as a knowledge industry than a process based industry which involves logistics and risk management being taken to classrooms. Every single entity in the industry needs to be trained in assessing and improving risks and safety matters; the importance of wording their contracts properly; taking care of company interests in Courts of Law; getting the full benefit from insurance policies when losses/ liabilities arise; creating internal databases and knowledge repositories; and enriching the company and the industry by sharing experiential knowledge. This will broaden the outlook of the Logistics industry by bringing in fresh perspectives from other markets and other industries as also the objectivity that academic institutions can provide.

 

To read the full report, visit: http://cdn.tcil.in/website/tcil/Study_Report/INSURANCEREPORT.pdf

Lists by Topic

Posts by Topic

Recent Posts