Case Study 06 : Risk Transferring in MIST Ltd

Background

MIST Ltd, a mid-sized transportation company based in India, specializes in inter-city and intra-city freight services. The company operates a fleet of 150 trucks and manages logistics for over 200 clients across various industries, including FMCG, manufacturing, and e-commerce.

Challenges

MIST Ltd faced several risks in its operations:

1. Fleet Damage and Accidents: High probability of vehicle damage due to road accidents, theft, or natural disasters.
2. Liability Risks: Legal claims arising from delayed deliveries or damaged goods.
3. Business Continuity Risks: Financial strain caused by truck downtime or driver injuries.
4. Unforeseen Operational Costs: Expenses related to frequent vehicle maintenance and repairs.

Risk Management Strategy

To address these challenges, MIST Ltd adopted a robust risk transfer strategy, which included the following measures:

1. Insurance for Fleet and Cargo

MIST Ltd partnered with a reputable insurance company to:

• Insure their fleet: Comprehensive policies covered accidental damage, theft, and natural disasters for all vehicles.
• Insure the cargo: Coverage for goods in transit protected against losses or damages.

Impact:

When a truck was involved in a collision, the insurance policy covered 90% of the repair costs and compensated for the damaged goods, preventing a significant financial setback.

2. Third-Party Logistics (3PL) Contracts

MIST Ltd outsourced high-risk routes to third-party logistics (3PL) providers under contracts that transferred responsibility for delays, accidents, and cargo damage to the 3PL providers.

Impact:

This strategy mitigated risks in challenging routes, ensuring smoother operations and reduced liabilities for the company.

3. Risk Sharing Agreements with Clients

MIST Ltd introduced detailed service-level agreements (SLAs) with clients, including clauses for shared responsibility in events like delays caused by uncontrollable factors (e.g., weather disruptions or strikes).

Impact:

During a recent delay caused by heavy rains, the shared accountability clause minimized disputes and maintained strong client relationships.

4. Driver Liability Insurance

MIST Ltd provided personal accident insurance to its drivers, covering medical expenses and income loss in case of work-related injuries.

Impact:

This initiative improved driver morale, retention, and trust, while also shielding the company from legal liabilities related to workplace injuries.

Results

After implementing these risk transfer mechanisms, MIST Ltd achieved:

• A 25% reduction in financial losses from accidents and operational delays.
• Strengthened client trust through robust cargo insurance policies.
• Enhanced operational efficiency by outsourcing risky routes to 3PL providers.
• Increased employee satisfaction and loyalty among drivers.

Conclusion

By leveraging insurance, outsourcing, and well-defined agreements, MIST Ltd effectively transferred and mitigated operational risks. These strategies protected the company from financial setbacks, ensured business continuity, and enhanced relationships with both clients and employees.

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