TAKING CARE OF BUSINESS: CSI – Claims Prevention

by Canadian Shipper

The ability to properly file and to pay claims is no longer the yardstick in dealing with carrier/shipper relationships. You must learn to invest in the relationship by reducing the occurrence of claims activity.

The very existence of claims has the effect of straining the relationships between the carrier, shipper and receiver. In addition to extra handling and administrative costs, you usually end up with a customer refusing their shipment. We must all invest in eliminating these delays in our distribution chain.

Claims must be accompanied by a number of supporting documents including (but not limited to): copies of the original bill of lading, notice of intent to claim (filed within the proper time limits), copies of detailed receipts showing itemized list of damages/losses and invoices supporting the value of the goods being claimed.
You should however also insist upon a number of the following documents being included to help in claims prevention: inspection reports, photographs, temperature reports/charts, impact records and loading diagrams.

Claims typically add expense for replacement product, lost sales, needless administration, time, loss of goodwill, increased inventory levels or additional burdens that limit your ability to produce new products at equal production costs. For example, to order a replacement sheet of steel in the gauge and colour required could be 2-3 months away if there is no raw material available. What’s the cost of this if it leaves hole in a customer’s roof until you can substitute for the damaged product?

Risk Management

What can we all do to minimize the risk of product loss or damage? Begin with a thorough understanding of product characteristics and product conveyance. Do you have the most appropriate outer packaging strength? Is the inner packaging protective? Do you have the ability to unitize your load to reduce handling, and improve ease of count? Do you mark and label your packages with suitable identifiers? Can you identify a package that might come loose from the unit load if this happens in the distribution channel? Do you stretch wrap or band your products? Is the product easily matched with any bills of lading or packing lists?

Understand the number of times your product will be handled, where this happens in the distribution chain and how it is to be handled (ensure the use of proper material handling equipment especially if your product requires specialized handling). Balancing a drum on the end of a fork lift truck is a picture that should not come to mind. Are you trading off service and/or increasing product handling (and chance of damages) in your transit cycle for lower freight costs?

Once again, partner with your carrier. They should not only be able to give you a full understanding of their service capabilities; they should assure you of their ability to transport your product in a safe and diligent manner. Visit their facilities and see how they handle product. Ask for and check their references.

Risk Management

Limiting risk is what will enable good business relationships to prosper. You and your service provider must work together in this area. Disclose ALL information about the products, the handing, and the distribution environment. There should be no hidden agenda with all parties involved. Pack to the portion of the handling and mode (distribution channel) expected that poses the greatest risk to your company’s products. Disguise obvious product "value" where possible as not to "red flag" it to potential thieves.

Check within your industry for carriers that handle your type of products for like customers. Tour those carrier’s facilities; talk to drivers, shippers, dispatch. Most service providers have an area dedicated to O.S.&D. (Overages, Shortages and Damage). Why are products here? What makes them candidates for being "set aside? Carriers are moving quickly to refusing to handle freight that continually finds its way to this area for obvious reasons ensure your products are not part of this process.

In any claims situation you need to isolate the problem and review the methods and equipment used for the storing, handling, and transference of your products. Offer incentives for claims prevention suggestions to all involved in the process of handling and conveyance.

Education and Training

The biggest investment (with the quickest payback) that one can make in claims prevention is education. Company personnel need to be trained on proper handing and practice safe conveyance. Published company standards for quality must accompany this training.

You need to ensure that all members of your supply chain know how to properly inspect/count your goods in all parts of the transit cycle. They need to be able to identify any damaged goods, and react to mitigate any potential further loss. They must understand how to properly identify and document the damage/exceptions on Bill of Lading and/or delivery receipt in such a manner that will expedite claims investigation. The famous "Subject to Inspection" notation removes more than liability in a claim it can take away valuable investigative tools in your goal to reduce and eliminate claims for damage/loss. On the discovery of any damages, distribution partners must be notified immediately. Photos remain one of the primary resources for damage assessment and prevention. In today’s day and age no busy dock can be without a digital camera. Ensure that the receiver who borrowed it for their daughter’s soccer banquet has it back in time for Monday’s receipts.

Educating, ensuring the use of proper packaging, and sharing in the nuances of the distribution channel you are using remain the primary components in the claims reduction process. If you have claims (and you will) then create and maintain a process to help eliminate them.

Jack Bradley, BA, CITT, P.MM, is president of MSM & Associates Consulting Inc. His column appears monthly in Canadian Transportation and Logistics. He can be reached at jbradley@consultmsm.com

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