Accidents and Damage in Logistics Center
Because of the nature of business a logistics center services, it tend to be built
on a large site area and in a large construct and to use light-weight
construction materials and be vulnerable to flame.
A majority of large accidents that have occurred
at local logistics centers are either burned down or destroyed. Also, logistics
centers are vulnerable to a variety of accidents involving forklift operation,
vehicle accidents, dangerous materials and personal injury and material damage.
An overwhelming reason that causes these
accidents and incidents is primarily ignition of dangerous articles, short
circuit, ignitions made during construction works and intentional or negligent ignitions.
Most operators and
building owners think they are protected against these accidents and incidents,
when they choose, as a risk hedge, fire insurance or property insurance. Most
insurance coverage is divided into a security against personal (human injuries)
and things (material damage). These insurance products are far from universal
coverage, but realistically they are the only option for financial reparation compensation,
unless a concerned case of damage was not caused by a third party or a lack of
Major Logistics Center Accidents/Incidents Since 2008
However, the coverage of the local
financial & insurance products, in most cases, is too small to cover the
loss or fall short of a response to actual damage done or accidents caused.
Furthermore, local or international insurance products are limited in the type
and most insurance do not carry these products.
When insurance companies were asked why
they don’t develop or carry insurance products for logistics centers, the culprits
they pointed to was 1) that risks outweigh the insurance premiums and it is
difficult to exactly estimate an amount of compensation for the initial
collateral (buildings or articles in custody) and 2) that it is difficult to
identify causes for an event at the time of the occurrence of the concerned
event and to exercise the right of indemnify.
Insurance Is No Magic Club For Event
Prevention Some argue that we have to introduce the
same scheme or insurance product as the ones adopted in the advanced countries
to avert potential accidents at logistics centers, but it may prove challenging
to develop insurance products with universal coverage with no regard to the
Realistically, insurance offer minimum
guarantee at the time of accidents, and thus it is far from a magic club.
Thinking that insurance can solve anything is a problem, but it is far more
problematic to treat insurance coverage so lightly to meet the minimum legal
If I indulge a bit with my own
experiences, an owner of A logistics center that was three years old only
bought an insurance product that only covers retail part of the logistics
center like a beauty parlor and restaurants that would require low insurance
premiums, just enough to cover meet the legal requirement. Of course, in such
case, the coverage falls far short of emergency compensation as well as real
damage from an actual event. In particular, when a financial investor
who has operated a logistics center himself or has no real experience invests
in a logistics center, he tends to assume an insurance subscription will be
enough to provide a due risk hedge. It is a fact that although insurance cannot
hedge any or all risks, it is a requirement.
What keeps insurers from taking
insurance subscriptions for logistics centers
▲ Local fire and indemnify insurance
tend to have higher premiums for higher compensation caps. Of the local
products, products do exist that pay up to KRW 10 billion per event. (Dongbu
Fire, Ssamsung Fire)
▲ No product that pays KRW 90 to 100
billion, an amount that may be suitable to cover conserving the previous
accidents and cases, is available in the local market. Even if you can find a
product from an international insurer, the premium is too much for returns from
logistics center operation. (KRW 50 million in premium for KRW 1 billion
coverage / Dongbu Fire, Samsung Fire)
▲ No product that offer infinite
coverage in local or international market.
▲ Any damage that exceeds the
compensation is burdened by the lessor and operator.
▲ Logistics centers, in particular cold
storage, are designed, to keep the cold inside the structure, in a maze style
or in a vertical buildup style, both of which make it very difficult to put out
a fire at its initial stage and worsen the damage.
Precaution Is The Best Countermeasure Individuals, companies and corporations
who own logistic centers must make proper investment in their operators or
operating staff. In fact, the number of operators tasked with a room
temperature logistics center that is as big as two to three pyung is only one
to three members, except for those owned and operated by conglomerates. No
disrespect to a certain generation, the staff is either senior or lacks
professional safety training.
With it, initial response is practically
impossible or not properly done. When these few operators are set aside for
security, cleaning, repair functions, practically there is no one actually
responsible for accident prevention.
In a time of high throughput, tenant
companies put in part-timers, day workers or others with little awareness in
safety into vehicle entering & exiting. There are numerous potential causes
that might break out accidents: drinking, smoking or use of flammable devices
(fixed or portable gas burner) by employees of lessees (or residents of company
apartments); presence of bonfire in a winter season and ignorance by those
stationed on site of safety guidelines on fire related accidents.
As part of preventive and overseeing
measures against such unsafe factors, security or safety management staff must
be employed to educate users (lessees’ staff) on how to prevent unsafe
behaviors and accident prevention on a regular basis, to establish more
detailed patrol plans of the premises and to provide education and training on
how to execute initial response at the initial time of an accident.
Some may argue that this will hike up
the fixed costs and raise the rents, but you will enjoy a substantially lower
occurrence of accidents, if users (owner-operator or tenant) increase facility
management personnel and conduct proper patrol.
In particular, investment companies who
own and invest in leasable logistics centers must look carefully into facility
operation personnel when selecting operators or management companies. Logistics
center owners or operators are strongly advised to change their complacent
perception to cut down on management or supervising personnel for the sake of
payroll expenses or fixed costs reduction and return improvement. One cannot
emphasize enough when it comes to the necessity of developing professional
personnel or continuing safety education for those on site.
Some thoughts on risk hedging measure
is essential that you do not blindly reduce the coverage or value of an
insurance product just to pay less insurance premium and that you get insurance
coverage after thoroughly examining the terms and conditions. Especially, you
should try to avert damage from an occurrence of an accident, using a business
interruption insurance (BI), on top of personal and material reparation.
Already mentioned in the above, safety related rules and regulations are only
getting strengthened and actual owners, along with project managers and
facility managers, are held more responsible.
most urgent issue to tackle in today’s logistics center operation is to make
investment in training and expanding professionals, as management fees or
efforts to foster the expertise of operation personnel and safety trainers on
site. Lines of check-up and surveillance should be efficiently improved.
Surveillance system that leave no space on the premise hind-sight. Management
personnel and users (tenants) should join force in conducting emergency
response education on initial response on a regular basis.
personnel should be given a clear approval on their line of work and their
professionalism, in that they should not be tasked with other jobs than their
ones and be concentrated on their designed responsibilities. They should be
treated as professionals, so that they can approach their work with a strong
sense of professionalism.
investing in a logistics center, operational returns, term of tenant (shipper)
lease or other acquisition decision factor is all important. As important is
examination of the existing manner of management and operation of the property.
The existing tenant’s sense of safety helps address event occurrence factors.