Top 5 steps to insuring your Supply Chain
Written by Richard P. Lewis and Ann V. Kramer of Reed Smith LLP
The events of 2011 â€• including the Arab Spring protests, the Sendai Earthquake and Tsunami and now, the Thailand floods â€• have caused supply chain disruptions to 85 percent of businesses. Insurance coverage for supply chain disruptions is typically found in property insurance policies, which usually contain Contingent Business Interruption coverage (CBI). CBI covers your company’s losses due to damage suffered by either your suppliers or your customers.
Despite the importance of this coverage in our global economy, policyholders often do not focus on it. Based on experience with prior CBI claims, we suggest you review such coverage, focusing on a five crucial areas:
1. Typically, CBI covers loss sustained due to a "suspension" of operations. One must ensure the policy's definition of "suspension" makes clear that the policy covers slowdowns – i.e., partial or total suspensions. This is critical because insurance companies frequently assert that there is no coverage unless there has been a “total cessation” of all operations. In the CBI context, this is even more important. Even catastrophic loss to a supplier or customer is not likely to cause the policyholder to cease operations entirely. It will be able to find substitute, emergency suppliers or customers or will have sufficient inventory to continue operations for a period.
2. Absent negotiation, CBI coverage typically comes with a very low sublimit. The CBI limit should be highlighted with your broker to find the proper balance between premium cost and higher limits that reflect the supply chain risks the company faces.
3. The words used in policies defining the relationship between the policyholder and the customer or supplier vary greatly. Some policies limit coverage to named customers or suppliers, while “blanket” CBI policies can cover loss from damage to "direct” or "direct or indirect" suppliers or customers or suppliers or customers" of any tier." Limitations to named or “direct” suppliers or customers can present serious problems and should be avoided where possible.
4. In addition to physical damage to the property of your supplier or customer, other events can stop production or consumption, for example, a service interruption or orders from governmental authorities like the “frozen zone” in lower Manhattan after the 9/11 attacks. It is now possible to purchase Dependent Properties coverage for this type of risk. Called “Contingent Time Element Extended” (CTEE), it extends coverage for Civil or Military Authority, Ingress or Egress, Service Interruption. This is a major expansion of coverage that many of those affected by the Sendai Earthquake no doubt wish they had.
5. Many policies sold to domestic policyholders contain Coverage Territory provisions limiting coverage to the United States or North America. Insurance companies will resist paying CBI claims where the loss, even though it is suffered in the US, stems from damage to property of a supplier or customer elsewhere. Although there are defenses to this argument, try to get worldwide coverage territory in your policy.
Cainiao Network Launches Customer-Centric Logistics
As the logistics division of the Alibaba Group, Cainiao Smart Logistics Network has decided to provide its Southeast Asian customers with unsurpassed service during its annual shopping festival. Based on customer feedback surveys, the company will expand its real-time customer service support and speed up delivery times. ‘By expanding and deepening our services, we aim to provide a stronger logistics infrastructure that can bolster the booming eCommerce sector, support merchants’ expansion into new markets and diversify retail options for consumers’, said Chris Fan, Head of Cross-Border, Singapore, Cainiao Network.
Who Is Cainiao?
According to TIME Magazine, Cainiao ‘is far from a typical logistics firm’. The company controls an open platform that allows it to collaborate with 3,000 logistics partners and 3 million couriers. This means that merchants can choose the least expensive and most efficient shipping options, based on Cainiao’s real-time logistics analytics. The company’s goal is to ship packages anywhere in the world in under 72 hours—and for less than US$3.00.
For countless small business owners around the world, from coffee-growers to textile-weavers, this could change everything. Usually, it costs about US$100 to ship a DHL envelope from Shanghai to London in five days. Cainiao aims to change that. Said its CEO Wan Lin: ‘The biggest barrier to globalisation is logistics’.
What’s Part of the Upgrade?
Throughout the Tmall festival, Cainiao’s logistics upgrade will be divided into four critical segments:
- Real-time customer service support. Cainiao has launched a direct WhatsApp channel for customers to receive logistics updates and ask questions.
- Expansion of air freight parcel size and weight limits. Packages can now be up to 30 kilograms or 1-metre x 1.6 meters to help ship large items such as furniture.
- Daily air and sea freight connections. Shipping frequency will almost double to seven times weekly to maintain resilience and efficiency.
- Compensation for lost or damaged packages. Customers will be reimbursed up to RMB 2,000 (US$311).
Where is the Company Headed?
From June 1st to June 20th, the finale of Tmall, Cainiao will ensure that its customers feel confident in the company’s ability to deliver their packages. Despite global shipping delays due to COVID, the show will go on. Said Fan: ‘This series of customer-centric logistics upgrades reaffirms our goal of pursuing value-added services to enhance customers’ shopping experience while mitigating challenges posed by external factors’.
Furthermore, Cainiao has recently expanded its Southeast Asian operations, achieving revenue growth of 68% year-over-year. In Malaysia, the logistics operation has partnered with BEST Inc. and Yunda; in Singapore, the company has partnered with Roadbull, Park & Parcel, and the Singapore Post. And if its recent measures help retain and grow its customer base, the company will be well-poised to lead the industry in resilient and customer-centric global logistics. ‘COVID-19 made everyone realise how important the logistics infrastructure backbone is’, said Wan. ‘And it gave us a peek at what Cainiao should look like in three years’.