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To cut losses from truck hijackers preying on VF Corp.'s products, Risk Manager Richard L. Broderick plans to drive a "dreaded" stretch of highway south of Mexico City.
Mr. Broderick does not intend to confront the gun-wielding thieves. But he does want to learn more about the highway and the truckers hauling VF products, which include Wrangler and Lee jeans and Vanity Fair-brand undergarments, he said.
Getting closer to the truckers helped VF Corp. thwart hijackings in Italy a few years ago. Now Mr. Broderick hopes a similar approach will work in Mexico, he said.
By getting to know the truckers and the highway, he will be able to distinguish between legitimate problems and bogus complaints in a country where drivers sometimes participate in the hijackings. He also will be more capable of making loss control recommendations, Mr. Broderick said.
Driving Mexican highways to discourage hijackings is not something he ever imagined would fall within his responsibilities, Mr. Broderick said.
But more risk managers are grappling with international hijackings as an increasing number of corporations seek to cut labor costs by manufacturing their products in foreign countries, said David S. Walls, Malvern, Pa.-based account vp for Arkwright Mutual Insurance Co.
Truck hijackings once were thought to be the domain of corporate security departments, observers say. But hijackings are driving up insurance costs and forcing insurers to tighten coverage terms for high-risk areas, Mr. Broderick said. Even in this soft market, insurers are demanding larger deductibles and self-insured retentions for high-risk areas.
Insurers also are demanding more loss prevention efforts, so risk managers are getting involved and seeking the advice of colleagues who have experience with the problem.
"If they are (in Mexico) ahead of you, they have had the problem before you," Mr. Broderick said of other consumer product manufacturing companies.
VF Corp. manufactures its products throughout the world. They are hauled in to and out of China, Hungary, Poland, Russia, all over Europe and several Latin American countries, Mr. Broderick said. But Mexico has emerged as the leader in hijackings, observers say.
Poverty and ineffective law enforcement fuel the problem in Mexico, Messrs. Broderick and Walls said. Hijackings became increasingly common after Mexico suffered an economic crisis in 1994 that threw many people out of work.
Some experts and media accounts report that Mexican law enforcement officials often are involved in the crimes.
"I don't know if I feel like that, but clearly they are not prosecuting anybody," Mr. Broderick said of Mexican officials. "They are not catching anybody."
Once stolen, merchandise rarely is returned, he added. "We have from time to time found some, but you are talking about a couple of boxes compared to thousands that were stolen."
Electronics goods, clothes, medicines and other consumer goods that are easy to fence all are targets, experts say. Merchandise worth hundreds of thousands of dollars disappears with a single stolen truck.
In many countries, hijacked truck trailers often are retrieved, but not in Mexico, Mr. Walls said. There, trailers become housing for the poor.
The nearer to Mexico City, the more acute the problem becomes. Winding, mountainous roads leading into Mexico City from the south force trucks to slow, which accommodates hijackers. The city also has a large population of consumers and a ready-made distribution channel of sidewalk vendors continually selling name-brand consumer products. Guadalajara is also particularly troublesome.
Italy, too, is well-known for hijacking problems, Mr. Walls said.
He expects the problem will increase in former Eastern Bloc countries. Much like Mexico, those countries are poor and attract companies wanting cheap labor to manufacture goods that are shipped to European countries with a higher standard of living.
"We have transit difficulties in Mexico, in Brazil, the former Soviet Union, and some in Argentina," said a risk manger for a well-known consumer products company. "In the developed part of the world we have some concerns with Italy, but they are not major compared to some of those other areas."
Mr. Broderick's best advice to other risk managers is to warn their company's managers about hijackings when they begin calculating potential cost savings from manufacturing in less-developed countries.
"There are other hidden costs, such as transit losses and pilferage," Mr. Broderick said.
To thwart hijackings, experts often suggest operating trucks in convoys with two drivers in each truck. But Mr. Roderick said his company has had to redefine the definition of a convoy to mean more than two trucks.
"We actually had one convoy of two where both were stolen," he said. Mr. Walls, in a presentation on the subject, advises clients to form convoys with at least four to six trailers. Convoys can be formed by making arrangements with other companies that also ship their goods by truck.
The more trucks traveling together, the greater likelihood some of the drivers will be honest witnesses to the crime rather than participants, Mr. Broderick added.
In Mexico, VF has begun using private security guards. So far, their presence has helped reduce hijackings, Mr. Broderick said. The guards are not armed; this avoids putting people's lives at risk.
In Mexico, private ownership of weapons is restricted, and security companies licensed to carry guns are "quasi-governmental authorities," Mr. Broderick said.
"Do you trust those quasi-governmental authorities, or are you inviting the fox into the henhouse?" he wonders.
Mr. Walls advises risk managers to thoroughly investigate the trucking companies who will ultimately move their products. Meet with their management, check their references and see if they check their drivers' references. Visit the carrier's facilities to gauge the facilities' security. Evaluate truck and garage maintenance, which will help in judging their operations.
Those are other reasons why Mr. Broderick plans to visit Mexico soon. He wants to meet with trucking company officials to see how they hire drivers. Reviewing their procedures might help get VF Corp. off the list of companies whose shipments get hijacked, he said.
"The more aware, more attentive you are, the less likely you are to have your stuff taken," he said. That sort of involvement helped stem losses four years ago, when VF products bound for Germany were being hijacked in Italy.
"Whether it was the Mafia or organized crime or whatever, within a four-month period, we had three trailers hijacked," Mr. Broderick recalled. So VF arranged to ship more of its goods by other means and work around the troubled areas. That also pressured the trucking companies to do more to reduce losses or risk losing VF's business, Mr. Broderick said.
Freight forwarders' operations should also be scrutinized, Mr. Walls said. By contract, they move merchandise after the goods pass through customs. But their employees can be involved in the hijackings. Or they may inadvertently help hijackers by contracting with the cheapest trucking company available without first investigating their operations, Mr. Walls added.
Other advice Mr. Walls has for risk managers includes:
* When signing a contract with a trucking company, do not waive your insurer's subrogation rights.
* When there is a loss, notify the police immediately. In countries such as Mexico, where police do not take or maintain detailed reports, make sure the trucking company requires that a driver complete a thorough incident report immediately after a hijacking.
* When scrutinizing a carrier, check to see if it has a standardized incident reporting form and a procedure for its drivers to follow.
* Use the reports to monitor the trucking company's performance and to make recommendations for improvement.