Cargo Security/Insurance: Argus achieves peace of mind

If things go wrong along the supply chain for Argus Group Ltd., a global shipper of heavy oil and pipeline equipment, they could go very wrong. And because the company’s transportation network runs through some of the world’s most complicated and high-risk countries in the world—primarily Russia and its former Soviet satellites— having comprehensive cargo insurance is now a given.

That wasn’t always the case. When David Lax, now vice president of operations, began his career at Argus back in 1993, claims were rare for the first few years. At that time, the company relied on carrier liability insurance policies covering each individual shipment. “But that was really difficult and expensive,” he says.

In 2001, Lax opted for a comprehensive policy—issued by UPS Capital—that insures their shipments, regardless of carrier or mode. Sure, the rates were much cheaper than what the freight forwarders were charging at the time, but the Argus team was still concerned about cutting cost.

“And as time wore on we began to wonder if the expense for cargo insurance was worth it,” says Lax. “It crosses your mind sometimes, especially if you don’t have many claims.”

Argus is well known for its meticulous packing procedures and logistical planning, and had only one claim through the summer of 2012. In June of that year a truck carrying a load of welding equipment was making its way from Finland to a jobsite in Moscow. Just outside St. Petersburg, debris from another truck struck the grill. A few minutes later, the driver noticed smoke and realized his truck was on fire.

The driver was able to call for help, but firefighters didn’t arrive for 40 minutes. When they finally arrived, the truck and its contents were consumed by flames, and the $809,000 shipment was a total loss.

“Of course we had to replace the goods right away for our customer,” Lax says. “Without insurance, it would have been an unmitigated disaster for the company.”

The company’s claim was paid in full about the same time the invoice came due for the replacement parts that Argus had ordered. “We weren’t out-of-pocket long,” says Lax. “And considering where it happened, and the process in Russia, it turned out very well.”

Taking measure
According to Lax, overland truck transport poses the great¬est risk to Argus shipments. “This is largely due to the fact that we work and make deliveries in countries where the road infrastructure is often of poor quality,” he says. “It’s very easy to have cargo damaged due to inadequate roads.”

Lax also observes that in emerging markets there are always threats of banditry and corruption. “For example, cargo can easily disappear at Customs posts or at various transit points,” he says. “So considering where we move freight, a good cargo insurance policy is invaluable to mitigate the risks associated with these threats.”

However, even in the developed world, shippers must be mindful of chance and Acts of God, Lax insists. For example, on July 14, 2012, the MSC cargo ship Flaminia was bound from Charleston, S.C., to Antwerp carrying two of Argus’ containers full of adhesives for oil pipelines. While making its slow Atlantic voyage and still 1,200 miles from the nearest shore, it suddenly burst into flames.

It took 11 months to salvage the ship, tow it to port, resolve the General Average claim—which was covered by Argus’ cargo policy—and deliver Argus’ goods to their destination in Russia. Though the containers, valued at $150,000, were undamaged, their contractual shelf life had expired and Argus had already replaced them for the customer.

Through the arduous international process of evaluating the viability of the goods, Argus received a claims settle-ment for $150,000, plus an additional 10% to help cover the demolition of their goods. And although the process “took quite a while,” Argus renewed their policy twice during the ordeal.

However, bulk and breakbulk cargoes pose other challenges, says Lax. “Sometimes we deliver very large equipment that can only be shipped on the deck of a ves¬sel,” he explains. “Cargo insurance policies usually limit insured amounts for on-deck cargo, but our goods must be fully insured at its value, and not all insurance companies will do this.”

Brand protection
Lax says that “brand erosion” due to an accident or incident is almost as bad as losing cargo. Having the right insurance, he adds, protects a company’s reputation.

“The greatest concern about engaging any insurance company is customer service and responsiveness,” says Lax. “In our business, if we suffer any cargo losses, we have to incur expenses immediately to purchase and deliver replacement cargo to our customers—this is part of being a customer-focused company.”

After the summer of 2012, Argus could have been in a dramatically different place financially than it is today. “I never thought I’d have a truck and a ship burst into flames,” Lax reflects. “But sometimes it’s just out of your control. Without cargo insurance, it would’ve been a complete loss and we’d have been out nearly a million dollars.”

Besides providing competitive pricing and efficient delivery to its customers, Argus is committed to delivering cargo undamaged. But if an accident does occur, making things right is also a priority, says Lax. This holds true for shipments as mundane as those headed for industry exhibition events.

“Trade shows are traditionally a great way to market our products in the countries we work in,” says Lax. “However, you must always guard against theft or damage to any demo products we are exhibiting.”

At first glance, adds Lax, damage to equipment might not be immediately discerned. “If there’s an internal problem that can’t be spotted from the outside, we still have to make sure that even those concealed issues are insured,” he says.

And Lax adds one piece of advice for shippers considering “spot” insurance over comprehensive policies: “Don’t do it. Having an umbrella cargo insurance policy with a single provider is far safer—and in the long run will save you money.”