Supply Chain 101 teaches that the more touches there are on an item, the greater the risk of damage. That seems to hold true regardless of the size of the item in transit. And, of course, the more items you ship, the greater the chance that something will get damaged or be lost at some point. For the seller, insurance can soften the blow.

That's something that Kerry Williams, the sole proprietor of CDI Marketing of Davenport, Fla., knows well. Williams is a retailer of souvenirs and collectibles from Walt Disney World and other theme parks in the area, such as Universal, SeaWorld and Gatorland. His business is entirely online, and it involves shipping between a 1,000 and 3,000 parcels a month both domestically and around the world. Half of those may have a single item inside, the rest of the packages generally contain three to five pieces or more. Some collectibles can be costly. A 9-inch Disney Vinylmation Yeti figure costs $84.95, for example.

Though he ships some parcels via FedEx and UPS, the United States Postal Service is his main carrier. For the most part he has been satisfied with the post office's delivery service. It's the inevitable damage - or lost package - that causes the headaches, he says. That's because the claims process that follows is cumbersome, lengthy and often results in denial of reimbursements. With the volume of parcels that a company like CDI moves, a long and drawn-out claims process is a money drain that no business, no matter how profitable, can afford.

For one thing, if Williams were confident that a claim would be successful, he says he would be inclined to immediately issue a replacement for broken items. That would ensure customer satisfaction, something that any business values. With his volume, it's guaranteed that each month there will be some claims, and replacing collectibles can run into money, he says.

Customer service, another basic tenet of supply chain, is vital to CDI's competitive advantage. Williams is acutely aware that people can buy souvenirs and collectibles from the theme parks' web sites. Having worked through eBay for quite some time in the past, he's aware that purchasers can match sites' pricing. To set himself apart from the competition, Williams says he guarantees that he can ship items to customers much quicker than anyone else, beating many of the parks by weeks sometimes. That's important because the margins can be quite thin in his business, Williams says.

CDI did use the post office insurance plan initially, but Williams said it didn't take long to realize that it wasn't feasible for his business. "If you had the item insured, they would honor the claim up to $50, but that was done at the postmaster's discretion. If the claim was for more than $50 or it was international, you had to fill out too much paperwork and surrender the broken item to the Postal Service. Buyers don't want to take broken items to the post office, so they just ship it back to us. We fill out the papers, send in the item and the claim and they would say in six months you would get a response, then likely deny the claim saying that you had filled out the wrong forms or that you were filing out of the time limits. We knew pretty quickly this wasn't going to work for us at all."

There are private companies that insure parcel shipments, of course, and CDI took its business to one of them, but soon found the claims process was equally painful and difficult. The amount of documentation was onerous not just for CDI but for the purchaser as well.

Then CDI learned about Parcel Insurance Plan, a third-party shipping insurance provider. The claims process is so much easier now that Williams says he would signed up with PIP sooner had he known about them.

For one thing, customers may have to email a letter to say their item was broken, and they can submit digital pictures of the damage. But they don't have to sign documents or return anything either.  "For us, it's easy," Williams says. "We take a snapshot of the order page and the tracking page. We attach the jpegs to the customer's email and forward it to PIP, and they take care of it. They are really quick and easy."

Once the claim has been received, Williams says it takes five to seven days for PIP to process it. Then, says Lisa Lash, PIP sales and marketing manager, a check is cut and sent to CDI.

"We are so confident in the professionalism of PIP because they have never turned us on down on a claim that's warranted. I know when a customer's claim is legitimate or not, and I have confidence that they will honor the claim. So we send out a replacement to the customer the same day."

CDI Marketing's premium is based on a percentage of the value of the items moved, Lash says. "At the end of each month, they send us their shipping report and they pay us per 100 dollars of value shipped." She says PIP's actuaries have a good idea of what the volume should be and what a typical claim history should look like.

Parcel Insurance Plan can work with whatever shipping software a client chooses. PIP itself doesn't require a download of proprietary software, although it has software that it sends to client who choose to work with UPS WorldShip.

Lash says there are no restrictions on international shipping except to Russia. To qualify, a company must have insured packages over $100 in value on a daily basis or spend at least $1000 annually on declared value charges. Underwritten by Fireman's Fund, Parcel Insurance Plan offers deeply discounted package insurance rates compared to declared-value coverage purchased from UPS, FedEx, USPS and other small parcel or freight carriers, she says.

"But the value that CDI gets is not so much in lower rates," says Lash. "Frankly, it's in the streamlined process that allows them to enhance their customer service levels."

Resource Links:

Parcel Insurance Plan
CDI Marketing


Keywords: retail supply chain, supply chain risk management, supply chain insurance