Alexander C.H. Skorna
Research Associate – Institute of Technology Management, University of St. Gallen
Postdoctoral Researcher – Department of Management, Technology and Economics,
Swiss Federal Institute of Technology (ETHZ).
risk management along
the transport logistics
The transportation and logistics operations are vulnerable to numerous types of
risks. Several new technologies offer interesting capabilities to help firms safe-
guard their supply chains from these risk.
This chapter aims at introducing sensor-based telematics technology in transpor-
tation and logistics and at discussing its potential to reduce theft and damages
in-transit and subsequent economic loss. The technology contributes to an im-
proved security throughout the whole transportation network and supports anti-
terrorism laws as well as quicker customs clearance. In essence, the proposed
active risk management concept consists of a combination of communication,
positioning, and sensor technologies (e.g., temperature, humidity, gas, move-
ment, and door activities) that are mounted on transport containers or trailers
and that link the tracked data via a dedicated software platform with respective
enterprise systems. The enterprise systems store and analyze the data to recog-
nize critical discrepancies such as damaged or spoiled goods and misrouted
containers. This allows for quick reactions and early interventions as part of the
proactive risk management is another crucial step to avoid damages of the goods
to be conveyed based on real-world data which has a direct impact on loss ex-
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Today's business world is characterized by globalization, trade liberalization,
rough competition, high customer demands and strict law obligations. In this
environment logistics services providers (LSP) need to fully integrate efficient
and effective supply chains, and hence help to realize sustaining competitive
advantages for their customers (Christopher and Towill, 2002). Today, competi-
tion takes place at the level of sourcing and distribution rather than at the level
of production. Thus, commercial supply chains evolved into dynamic networks
of interconnected firms and industries in recent years. The trend of increasing
business process outsourcing (BPO) of transportation and logistics activities
induced logistics companies to coordinate and accelerate physical goods and
information flows on multiple levels of the supply chains. Logistics providers
play a key integrative role, linking different supply chain elements with the en-
tire delivery process by the systematic management of information (Cooper et
al., 1998). In order to keep better control of the sourcing and shipping along
with achieving productivity and efficiency gains, companies also started to im-
plement more or less collaborative strategies across their entire network (Barratt,
2004; Sahay, 2003; Horvarth, 2001). Inventory is now pulled from one stage to
the next based on real-time demand to synchronize manufacturing execution and
customer demand. Within lean-based supplier replenishment cost cutting strate-
gies are executed, which affects industries/companies prevailing safety stock,
lead times and other buffers deflating working capital. All depends on more
proficient and reliable transportation and communication systems (Aberdeen,
Although companies can realize efficiency and productivity improvements with
lean principles, the growth of globalization, supplier dependency and variability
of demands has led simultaneously to an increasing vulnerability of supply chain
networks to disruption (Peck, 2005). Christopher and Peck (2004) define supply
chain vulnerability as: "an exposure to serious disturbance, arising from risks
within the supply chain as well as risks external to the supply chain". As the
chapter focuses on transportation and logistics, the scope can be narrowed down
to risks that occur during the transportation and warehousing process. Sources of
risk in these specific logistics processes are e.g. theft, damage or spoilage of
goods as well as in-transit or customs delays (Peleg-Gillai et al., 2006). Risk
itself is an elusive construct that has a variety of different meanings, measure-
ments and interpretations depending on the academic research field. In this con-
text a hazard-focused interpretation common in risk management is used, which
presents risk in terms of: 'Risk = Probability (of a given event) x Severity (nega-
tive business impact)' (March and Shapira, 1987).
If applied in the context of sourcing, risk can be described as the possibility of
an incident with inbound supply that would have a negative effect on a firm's
ability to meet its customers' needs (Zsidisin et al., 2000). Identifying and as-
sessing likely risks and their possible impact on operations is a complex and
difficult task for a single company. However, to properly assess vulnerabilities in
a supply chain, firms must not only identify direct risks to their operations but
also the risks to all other entities as well as those risks caused by the transporta-
tion linkages between organizations (Jüttner, 2005). The process of supply chain
risk management, as discussed by Closs and McGarrell (2004), refers to: "the
application of policies, procedures, and technologies to protect supply chain
assets from theft, damage or terrorism, and to prevent the unauthorized intro-
duction of contraband, people or weapons into the supply chain". Risk man-
agement related to the transportation and logistics chain includes processes
which reduce the probability of occurrence and/or impact that detrimental
supply chain events have on the specific company (Zsidisin and Ellram, 2003).
Though many companies are devoting increased resources and attention to secu-
rity efforts, little guidance is available to firms seeking to minimize their expo-
sure to unexpected and potentially damaging or disruptive events impacting their
supply chains (Autry and Bobbit, 2008). The use of Information Technology
(IT) has permitted the development of faster, more reliable and precisely timed
logistics strategies, which leads to information-intensive transportation services.
Adopting lean and flexible principles, firms now require current and immediate
information about the location of productive activities as well as information
linking the locations with available transport opportunities. With IT firms are
enabled to more closely track and trace the flow of goods and the production
process can be managed accordingly (Capineri and Leinbach, 2006). In this
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regard, information and communications technology is of critical importance to
meet challenges arising with extended supply chain networks and lean logistic
strategies. Due to standardization efforts and decreasing prices for electronic
parts, tracking and tracing has become a widely common service of logistics
companies. According to Sauvage (2003) technology is a significant tool for
differentiation of logistics services. Through using enhanced technologies, logis-
tics companies are able to develop new services and customized products to stay
ahead in a highly competitive business characterized by time compression and
the need to maintain competitive lead times. Therefore leading freight forward-
ers, carriers and logistics service providers have developed new solutions based
on localization and sensor tracking and tracing. Localization, sensor technology,
and communications are part of ubiquitous computing, which sets out to inte-
grate applications and databases with the real operational environment such as a
warehouse or transport vehicle. By closing the gap between information and
reality, ubiquitous computing systems are able to recognize changes in condi-
tions in the real world (Fleisch, 2001). Condition monitoring allows all supply
chain parties to 'manage by exception' being capable to recognize and react to
unplanned events during transportation and warehousing.
This chapter follows the steps of a traditional risk management circle. First the
pain points in transportation and warehousing are identified through a subse-
quent analysis of real claims data. The analysis is followed by an overview of
enabling technologies to monitor and control the freight conditions. In order to
reduce and manage risks effectively throughout the supply chain, the proactive
risk management concept based on ubiquitous computing is introduced. The last
section of the proactive risk management concept addresses early intervention to
avoid theft, damages, and spoilage of the goods, which has a direct impact on
2 Pain points when managing risks in the
transport logistics chain
Logistics service providers play a critical role in modern supply chains, because
they integrate and coordinate material and information flows throughout the
chain. Transportation, the initial core service of logistics service providers, has
become a very competitive business. Customers demand high levels of flexibili-
ty and customization, information systems integration, and fast transit times –
but all at low costs. Therefore, today’s transportation networks of logistics ser-
vice providers are highly complex and tightly-coupled systems that are vulnera-
ble to many types of disruptions. In the presence of complexity and tight-
coupling, supply chain systems become prone to accidents (Wagner and Bode,
2007). In order to impose a proactive risk management system, it is essential to
have reliable information on the major pain points in transportation.
2.1 Empirical analysis
To study this issue, we analyzed claims data from one of the largest transporta-
tion insurance providers in Europe. The sample consisted of 7,284 claims made
in the recent four years (2005 – 2008) as a result of incidents in transportation.
The average loss given incident was US$ 19,265. The five largest incidents ac-
counted for a loss of US$ 4 to 11 Million; all of these five incidents involved
trucks and valuable pharmaceuticals. It is important to note that this data set is
not representative for the entire transportation insurance industry, as it affected
by the specific customer base of this insurance provider. Still, it provides some
clues for the identification of the current major pain points in transportation.
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Figure 1: Total loss by means of transport and cause of incident
We investigated the relationship between the modes of transport and the causes
of incidents. Figure 1 visualizes the amount of loss differentiated by the various
modes of transport and causes. First, the figure shows that truck, ship, and air
cargo transportation operations are most vulnerable to disruptions. Most inci-
dents (both in terms of frequency and total loss) involved these three modes of
transportation. Second, cargo theft (includes also pilferage), rough handling, and
environmental conditions (includes condensation, contamination with fresh or
sea water, fire, or natural disasters) are the most salient causes for disruptions in
transportation. These causes are followed by changes in temperatures which also
seem to pose a significant threat to transportation. Third, cargo theft and rough
handling are particularly important issues for the modes of truck, ship, and air
cargo, while environmental conditions are a significant threat to in-transit sto-
rage. An interesting finding is that cargo theft is also a major problem in air
Figure 2: Average loss given incident caused by theft on routes in and between continents.
As cargo theft is one of the major causes for insurance claims, we took a closer
look at how cargo theft occurs in various geographic regions. Figure 2 shows
that cargo theft is a major problem for transportations from or to Africa or the
Middle East. Most of the theft incidents involved routes connecting these re-
gions. Transports which stay in the same regions (diagonal) show also a relative-
ly high exposure to theft, although the transport duration is not that long, but
therefore having a much greater portion of truck loads. Moreover, and in com-
parison to Europe, our data indicates that theft is also a concern in North Ameri-
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2.2 Value of sensor information
As the claims data analysis in the previous section indicates, the main damages
and theft takes place primarily during land transportation, warehousing, and
handling the goods. A locked and sealed ocean container, trailer or swap body
represent a black box for all supply chain parties involved. Yet, no one is able to
predict, if harsh environmental conditions have affected the goods in transport
until the package items are opened at their final destination (consignee) or at
distribution centers and cross-docking facilities in between. Shipments might be
crashed or impaired by hidden damages and spoilage which would not be clearly
seen through quick visual inspection. Though, identifying the localization of the
incidents or the responsible is practically impossible. As a likely result unex-
pected delays also affect the on-carriage and operations downwards the supply
chain. Tracking environmental parameters such as temperature, humidity, and
shock for individual logistic units allows problems in the supply chain to be
spotted and the actual state of individual products to be more precisely deter-
mined (Sahin et al., 2007).
To express the value of information (VOI) in this case, a comparison of the ac-
tual situation without any sensor technology existing and the sensor enhanced
approach has to be done. The VOI in inventory replenishment is defined as the
marginal improvement that a system achieves through the use of additional in-
formation (Ketzenberg et al., 2007). This concept is also well suited to adopt it
to logistics and transportation operations, as they are essential in each reple-
nishment. In a recent simulation study concerning the replenishment of perisha-
ble goods, Ilic et al. (2009a) have shown that sensor technology, which monitors
the goods' temperature throughout the transport yields to a decreased number of
unsellable goods (-36 percent) and in-store waste (-50 percent) due to sensor
enhanced sorting in the upstream warehouses. Goods which are affected by
(hidden) spoilage or damage should be sorted out of the supply chain earlier as
the indicating sensors' information. In this particular case the VOI has add up 8.5
percent in profit, which proofs the positive outcome using sensor information.
Moreover, the technology has the potential to improve the resource efficiency of
the related processes. Because of less amounts of transports are necessary, emis-
sion and carbon footprint reductions will be possible (Ilic et al., 2009b); thus the
condition monitoring concept maintains the current 'green logistics' initiatives by
leading logistics providers.
Employing enhanced technology in warehousing and transportation such as
sensors, localization and continuous communication systems has an operational
benefit in supply chain management. The data collection and availability pro-
vided by the technology infrastructure discussed in the following sections will
allow to improve forecast accuracy, and to increase cross-enterprise integration
among partners in the supply chain. Sensor and localization information would
adjust plans and re-allocate resources and distribution routes when changes
within established parameters are indicated. Indeed, there is a real opportunity
for process innovation in transportation and logistics triggered by technology
(Rodriguez et al., 2007). The implementation of advanced technologies, which
are used to process information quickly and productively, are fitted for safer
transportation and efficient work. Companies can optimize their means of trans-
portation and routing with respect to potential risks along the whole logistics
chain. With respect to dangerous freight, sensor and localization technology
allows to effectively control all transport facilities and the integrity of all pack-
age items to avoid accidents, thefts, and damages. The information of any devia-
tion from the route and other related data such as door opening protocols are
recorded to improve transportation security as well (Batarliene, 2007).
2.3 Requirements for the technology-enabled risk management
Technology-based continuous condition monitoring is today already common
when transporting deep-frozen goods or pharmaceuticals and statutory by Euro-
pean law. Specialized logistics companies have therefore implemented indicator
or logger systems, which are going to fade or rather track the temperature on
physical memory. His helps to reveal rises in temperature and abusive storage
conditions. The International Organization (ISO) for Standardization has recent-
ly launched the ISO 28000 series specifying the requirements for a security
management systems to ensure safety in the supply chain. This ISO framework
gives all supply chain partners an increased ability to effectively implement
mechanisms that address security vulnerabilities at strategic and operational
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levels, as well as to establish preventive action plans. Besides, a variety of inter-
national security initiatives such as the Customs-Trade Partnership Against Ter-
rorism (C-TPAT), the Container Security Initiative (CSI), and Europe's relatively
new Authorized Economic Operator (AEO) require control at loading freight.
The objective of these initiatives is to improve the movement of cross-border
trade (i.e. through using 'green lanes') by ensuring that members of the supply
chain are confirmed as secure trades (Banomyong, 2005).
Integrated risk management is so far focused on claims management and risk
transfer through underwriting. Addressing risks in the supply chain requires the
identification of risk events and vulnerabilities while risks are assessed mainly
with support of risk management tools (dark processes in figure 3). Operative
risk management principles expand this traditional process chain regarding loss
prevention consulting, promotion of risk controlling, and cooperation in the field
of technology-supported early intervention avoiding or at least minimizing
losses (light processes in figure 3). Risk prevention should consequently be
based on continuous monitoring of the transport and warehousing conditions
aiming to confine claims amounts.
Figure 3: Risk management circle in transportation
Thus, the technology-enabled risk management appears lasting in two different
directions loss decreasing: Firstly, recurring risks can be identified based on
collected data by sensors and localization systems. Adjusted transport planning
optimizes risks on the long-term. Secondly, continuous condition as well as
integrity monitoring of goods and transportation vehicles, containers, and trai-
lers allows responding to unforeseeable exceptions in real-time. If critical values
are exceeding a pre-defined range, an alarm would be generated with exact time-
stamp. Henceforth, counteractive actions can be initiated even before an event of
damage or loss. Aiming at realizing the above stated operational improvements
by enhanced technologies, condition and integrity monitoring systems should
consist of the following modules:
World-wide, self-contained localization of containers, trailers and other
transportation vehicles based on satellite or mobile phone networks featuring
a real-time positioning tracking in a world map scenario down to street le-
Sensor technology being capable to monitor temperature, humidity, shock
and gases inside the containers or transport vehicles, which record the condi-
tions in dedicated intervals. Motion and light detectors as well as door sen-
sors improve transport security and contribute to threat protection.
Communication systems that allow sending sensor and positioning data in
case of an exception or alarm. Communication is usually carried out by
common mobile phone network derivates or satellite networks. Server or in-
tegrated enterprise applications receive the data packages and visualize the
raw data user-orientated in web-based portals.
Localization, sensor and communication systems are all part of ubiquitous com-
puting technologies, which connect things in the real world to the internet in
order to provide information on anything, anytime, anywhere. Applied to objects
such as containers and transportation units, they could thus react and operate in a
context-sensitive manner appearing to be "smart" (Mattern, 2001). How these
technologies create visibility in transportation and warehouse processes regard-
ing risk management and prevention is discussed in the following two sections.
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3 Technologies to create visibility
Because of ongoing prize degression and standardization efforts, technology is
becoming smaller, more affordable, and more powerful, which creates enhanced
business values. In the field of transportation and warehousing, the use of tech-
nology is today common or 'ubiquitous' when tracking or tracing goods through
the supply chain. Ubiquitous computing is a logical next step in the development
of business computing. Integrated information systems like enterprise resource
planning (ERP) have linked individual functions and departments with compa-
nies, and thus enabled consistent business processes. The internet and e-
Business systems such as supply chain management or electronic markets have
extended these processes beyond the boundaries of organizations and support
the management of business networks (Fleisch and Dierkes, 2003).
In order to develop an intelligent transportation system Garcia-Ortiz et al. (1995)
have previously defined several key technologies such as digital maps for posi-
tioning, sensors, communication, vehicle control, and route planning. According
to the predefined requirements enabling through real-time visibility the proac-
tive risk management in transportation logistics, the concept concentrates on the
three technology fields localization, sensor systems, and communication. These
are often summed up as telematics, which is a combination of telecommunica-
tion and information technology.
A successful positioning technology must meet the accuracy requirements de-
termined by the particular service, at the lowest possible cost and with minimal
impact on the network and the equipment (Kos et al. 2006). The localization of
general cargo can be divided into two main categories: Discrete and continuous
tracking and tracing methods (Hillbrand and Schoech, 2007). Discrete systems
identify a shipment on predefined locations, using barcode or nowadays gro-
wingly radio frequency identification (RFID) scans within warehouses. Even in
the case of using RFID, these systems only locate goods in a relatively re-
strained area of 100 to 150 meters. The continuous approach mode guarantees
the necessary seamless real-time tracking and tracing service, which bases on
satellite or cell phone networks. Permanent localization is today dominated by
the Global Positioning System (GPS) comprising of a US-based military satellite
network. Actual initiatives by the European Union known as 'Galileo project'
will add stepwise more satellites to the GPS-system for a global positioning
service under civilian control in the next five to ten years. Because of more sa-
tellites in place the tracking correctness will also increase by then (Batarliene,
2007). The receiver triangulates its position anywhere on earth by accurately
measuring the distance from at least three satellites. Distance is measured by
evaluating the time required for the signal to travel from the satellite to the re-
ceiver. In order to receive the GPS-signals, receivers require a direct line of sight
to the satellites, which cannot be achieved inside containers or packages. To
overcome this limitation, this technology often comes in a form that is known as
Assisted GPS (A-GPS) where the receiver utilizes aiding data about the relevant
satellites from a terrestrial A-GPS Location Server. This allows the A-GPS re-
ceiver to operate in difficult GPS signal environments such as high buildings,
forests and narrow valleys. A-GPS yield will nonetheless drop in environments
where the satellite signals are severely blocked (Weckström, 2003).
Localization based on mobile phone networks is in comparison to GPS-systems
available in- and outdoors with the same quality as long as network coverage
exists. Kos et al. (2006) separates the adopted methods to determine the location
in this regard into two opposite ones. Network-based positioning relies on vari-
ous means of triangulation of the signal from cell sites serving a mobile device.
Device-based positioning performs estimation calculations using suitable infor-
mation available wirelessly. Hybrid systems are a combination of both methods
for better effectiveness and efficiency. However, positioning accuracy varies
heavily on which localization method used and is in general significantly below
the GPS-systems (Sage, 2001). Figure 4 exemplifies the different accuracy de-
pending on the positioning method.
The basic positioning method is cell identification (CI) operating in all mobile
networks, since all devices support this technology. The network performs the
identification of a base transceiver station (BTS) to which the cell phone cur-
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rently communicates to and locates that particular BTS. depending on the cell
dimensions, the positioning accuracy location ranges from several 100 m in
urban areas to 35 km in the country. Using timing advance (TA) to estimate the
distance between the mobile device and the serving BTS equates to an average
accuracy of 550 m (Kos et al., 2006). The observed time difference (E-OTD)
method operates in GSM (global system for mobile communication) and GPRS
(general packet radio service) networks and determines a position by the use of
time delay or arrival time of radio signals which are transmitted by at least three
synchronized BTS. Because time is critical to the location estimation, E-OTD
requires precise time information which is ensured by the so-called location
measurement units (LMUs) placed everywhere in the network where a location
service is offered. Typically, one LMU is needed per three to five BTS providing
an accurate timing source (Hofmann-Wellenhof et al., 2003). In case of operat-
ing in UMTS (universal mobile telecommunication systems) networks this me-
thod is called observed time difference of arrival (OTDOA) and works alike as
Accuracy in positioning
Figure 4. Accuracy of different positioning technologies (Kos et al., 2006)
For the purpose of improving indoor mapping and localization, new methods
based on wireless LAN (WLAN) access points networks are currently developed
and tested. By combining GPS outdoors and WLAN indoors a continuous posi-
tioning service can be achieved with only slight decrease in accuracy indoors
(Reyero et al., 2008). This could possibly enable permanent goods tracking dur-
ing transportation and warehousing with the same device closing a still existent
technology break in terms of an active risk management.
3.2 Sensor technology
Sensors permit the automatic measurement of a large number of environmental
conditions such as temperature, humidity, acceleration, chemical composition,
pressure, etc. These sensors are designed for data capturing (sensing), informa-
tion sharing, monitoring, and evaluating data throughout the transport logistics
chain. Ultimately, this approach would result in semi-automated analysis and
action (response) when a set of sensor inputs are determined without hindering
human autonomy (Rodriguez et al., 2007). Sensor-enabled "smart boxes" offer
detailed analysis of trade lanes regarding conditions which may impact the
freight. Sensor technology in combination with positioning enables an electron-
ic, real-time tracking, which creates additional visibility to all supply chain part-
ners. The transportation monitoring gives a direct view into the container or
respective means during the shipment at all times. For product liability reasons,
transports are in this case already sensor continuously monitored and not only
the drugstores, but also both the carrier and manufacturer have a strong interest
in ensuring product quality up to the end consumer. Applying sensors to the
truck or container enables i.e. the timely notification of problems before they
arise and provides more time for actually resolving the problem.
Currently, new services and solutions are emerging because of interfacing sensor
systems to monitor freight conditions with telematics modules. Controlled
access, monitored conditions, and electronic documentation throughout the
transport meets the requirements of the C-TPAT and AEO customs programs. It
also allows to identify effectively risky containers which makes the whole chain
more efficient and safer, if these are monitored more closely. The specific sensor
components can basically be configured for every individual operation purpose.
The various digital or analogue sensors are usually linked through cables or
radio communication based on Bluetooth or ISM-frequencies, which are re-
served internationally to industry, science and medical purposes. As self-
containing units, the sensor telematics modules are then integrated into the con-
tainers, trailers or vehicles and where applicable connected to the on-board elec-
tronics for example to save battery power.
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Since GPS-satellite networks cannot be used for communication, additional
components are necessary to send the collected data and to obtain external que-
ries to retrieve i.e. the actual transport conditions. Considering the solutions on
the market, communication regarding transport monitoring is dominated today
by mobile phone networks which have a relatively well developed global infra-
structure in most of the populated areas. Due to quad band modems all four
regional network standards can be used to communicate between the device
mounted on container, truck or trailer and the receiving server. Generally, GSM-
based short message service (SMS) and GPRS are as communication protocols
applied. In order to save costs the monitoring units store the determined posi-
tioning and sensor data on an internal memory and send the data in predefined
time intervals. In case the unit is outside the network coverage, the internal
memory stores the information as long as communication is available again.
Typical communication intervals are every 6 to 12 hours in ocean freight and 8
to 12 times a day in land transportation. But, whenever the monitoring unit de-
tects an exception, it is usually programmed to send the alarm immediately or as
quickly as possible after notice.
For areas without GSM/GPRS coverage, satellite communication is the only
option to achieve connectivity with the backend. Communication satellites have
in contrast to GPS-satellites bidirectional antennas, which enable sending (up-
link) and receiving (downlink) simultaneously. Hundred percent global coverage
is the main advantage compared to mobile phone networks and hence communi-
cation is possible anytime provided that a direct line of sight to the satellite ex-
ists (Maral and Bousquet, 2002). The data transmission through satellites is
additionally encrypted protecting the data integrity and accordingly no one from
outside is able to intercept. Because of the high infrastructure costs a satellite
network implicates, only a limited amount of providers in the market exists
(Sheriff and Hu, 2001).
Satellite communication can characterized by their orbit: Geostationary satellite
systems are stationary relative to a point at earth's surface, as they resolve in the
same direction and with the same speed as the earth's rotation. To provide global
coverage only a few satellites in a very high distance to the earth are required.
But from a usage perspective this means the antenna of the devices should be
directed to the equator to achieve favorable results in terms of reliability and
throughput. In case of transportation additional equipment is needed to adjust
the antenna direction relative to the driving course. Low earth orbit (LEO) sys-
tems cover a smaller radius because of their lower altitude and require far more
satellites for global network coverage. Thus, communication and maintenance
fees are quite high, this service is only cost-effective when the data packages are
small and respectively data transfer is only done in case of an alarm. As the
smaller distance between the earth and the satellite this has a positive impact on
the required transceiver power and on satellite latency, which makes LEO-
systems most suitable for sensor networks (Schaefer, 2006). As containers can
face any direction, communication is not depended on the antenna facing the
equator. But in comparison with mobile phone networks, the bidirectional satel-
lite antennas require more space and need larger antennas, which affects the
overall module size of the monitoring units negatively.
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4 Proactive risk management along the
transport and logistics chain
The goal-oriented execution of the claims analysis reconfirms the value of in-
formation in supply chain management. Henceforth, the integration of technolo-
gy into a distinct risk management concept clearly enables to detect potential
weaknesses in supply chains prior to failure or mistreatment. Besides, the poten-
tial supply chain security relies on other "softer factors" such as the development
and continuance of business relationships among the supply chain parties.
Communication between the involved companies allows for sharing informa-
tion, risks, and rewards were identified as critical factors for effective supply
chain risk management (Autry and Bobbitt, 2008). A study by Peleg-Gillae et al.
(2006) confirms quantifiable benefits of investments in supply chain security
including a 38 percent reduction in theft/loss/pilferage, a 14 percent cut in
excess inventory, a 49 percent reduction in cargo delays, and a 29 percent reduc-
tion in overall transit times. Accordingly, the US Congressional Budget Office
has noted savings of 0.8 percent of the value of smart container's contents
The technology-enabled risk management is based on a threefold concept com-
prising of GPS-positioning, sensor technology and communication either
through mobile phone or satellite networks. The raw data received by sensors
and the localization are processed by sever systems. Those drastically reduce the
complexity by filtering and unmistakeably visualizing the key information. The
map-based view is intuitively to operate and comprises a hands on approach.
Users are able to zoom in getting a more detailed view on a specific area or to
zoom out viewing the supply chain from a more high-level perspective. In order
to inform the supply chain partners about the status of a shipment a three-color
coding scheme is used. 'Green' signifies that no inconsistencies are detected,
'yellow' signals some deviation but no critical one, and 'red' informs that there
are critical events ongoing, which may result in potential damage or loss and
therefore indicates a serious problem.
As seen in figure 5, the status report is sent by the monitoring device in specific
intervals and visualized as dedicated nodes throughout the transport. In this case,
an ocean freight shipment was monitored from the manufacturing site in main-
land China to its final destination in the heart of Germany. This demonstrates the
ability of the active risk management to operate globally in inter-modal transpor-
tation. The active risk management philosophy unites different shipping parties
such as ocean and rail carrier, logistic service provider, port authorities, and
trucking companies together with one aim: Controlling the transportation chain
to improve and maintain container security, which ultimately guarantees consis-
tent product integrity along the whole shipping processes.
Price, time, and reliability are the fundamental factors in the decision process of
the enterprises when selecting logistic companies, but similar importance is
ascribed to the minimization of risks regarding the transported good loss and
damage (Bolis and Maggi, 2003). How effectively a company can quantify the
impact may also depend on its ability to identify collateral benefits of various
investments in security and resilience. An investment in telematics technology
can improve not only security by real-time tracking and monitoring cargo
movements but also visibility. According to Rice and Caniato (2003), a better
Figure 5: Active risk management spans protective 'shield' across the network
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visibility leads to decreased inventory requirements and improved service levels.
Standard operating procedures (SOP) developed by shippers and carriers how to
handle and protect goods will benefit from avoiding loss and damage. Moreover,
involving marine cargo insurance companies in this concept may lower insur-
ance premiums, which positively affects premium calculation and potentially
eases claims administration. Cargo insurance companies offered in the recent
years low premiums because they were feeding revenue of its profits from their
stock market turnover. This has made it easier to compete aggressively in the
insurance market with dumping premiums. Depending on the economic situa-
tion, insurance companies in general are setting the premiums in the industry
insurance sector after the overall return of investment (ROI). But because of the
actual downfall of global stock exchanges, premiums are on the rise and espe-
cially valuable goods are only insurable with tight orders as to secure the trans-
In addition, competitive advantage for logistics and transportation companies
could be achieved through securing the supply network and managing supply
chain risks. Unsecured companies will experiance significantly greater time
delays than secured firms in resuming regular conditions. Similarly, companies
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