Understanding the environmental risks of transportation

Transportation

Authored by AIG Senior Environmental Underwriter, Brazil, Bruno Pieroni and Casualty Underwriter, Mexico, Mónica Yee-Ben

Transportation is a vital part of the industrial process but one where the environmental risks are often not adequately understood. As a result, there are some in the haulage industry who are operating with uninsured or underinsured exposures, leaving themselves – as well as the environment – open to significant damage if something goes wrong.

The risks involved in both road and rail transportation are significant, albeit with some differences. Rail risks are typically more severe than road risks, due to the transportation of larger quantities of dangerous products. However, the risks involved are different as transport by rail will usually involve crossing less populated areas with fewer third parties exposed, but these can be more environmentally sensitive, with the potential for more severe claims.

With regulations in many countries becoming more demanding and the cost of non-compliance more expensive, claims are becoming increasingly complex and difficult to resolve. Any transport company at fault for causing an environmental incident can expect to feel the impact on both their finances and reputation.

Closing the knowledge gap

The causes of environmental damage during transportation are generally well understood. The most common is an accident or crash involving a vehicle, but leaks are another frequent cause if a valve or hose on a tanker fails. In addition, loading and unloading is a crucial time when spillages can occur.

But less well understood are the environmental risks of different products. Those involved in the transportation of dangerous goods such as chemicals and hydrocarbons are likely to have a high level of awareness of the consequences of a spillage or leak during transportation.

However, there are a range of other products, generally considered to be more benign, that can have significant polluting effects - especially if they come in to contact with water. These include milk, orange juice or even grain. In particular, vegetable oil can cause significant environmental damage which can be difficult and costly to resolve. Typically, the most expensive spills to clean up involve fuels and oils, especially when contamination reaches rivers and remediation of soil and groundwater is required, as well as the restoration of animals, fish and the replanting of plants and trees.

In some countries, it is mandatory to take out a liability policy for environmental damage before dangerous cargo can be transported

Effective risk management

Risk management is subject to a different set of variables inside a facility or storage area compared to those involved with transportation. Once products move into transit, the risk environment becomes much more unpredictable and actions from outside parties can lead to an incident that may cause a crash, for example.

Transportation companies can do some basic things to help mitigate the risks. These might include checking the carriers they are working with and that they are able to control the speed limits on trucks that are being used. Drivers need to be adequately trained in how to handle the cargo they are carrying, be aware of the environmental risks that it presents and know what do to in the event that something goes wrong.

An emergency response plan needs to be in place, that starts with the driver and quickly escalates to all other key stakeholders including emergency services, local authorities, regulators, the company’s leadership and its risk management and legal teams.  If goods are going to cross international or state borders on the way to their final destination it is important to be aware of the current legislation governing environmental liabilities in each jurisdiction and reflect that in the response plan. For example, in some countries, it is mandatory to take out a liability policy for environmental damage before dangerous cargo can be transported.

The right cover

In fact, having an insurance policy that includes environmental liability and understanding the scope of cover is critical should the worst happen.  Some transportation companies only buy policies to cover cargo but not environmental damage.  Others might think that their transportation policy will cover them for environmental damage, but this is not necessarily the case. It is vital that they check that they have insurance cover to deal with property damage, bodily injury, third-party claims and the cost of clean-up and restoration in the event of any spillage leading to the threat of environmental damage.

In the aftermath of an incident there is a very real risk that they can be left with a large bill for clean-up and remediation costs, as well as potential fines from the regulator. Although regulatory fines may not be covered by the insurance policy, having it in place can be useful in discussions with the regulator who, in some countries, may be minded to waive or reduce a fine in return for swift and effective clean-up. For example, in Mexico, a liability policy for environmental damage is considered a financial guarantee, mitigating the economic sanctions that may occur.

Finally, environmental legislation is changing all the time. It’s important for transportation companies to keep up with developments to protect themselves, as well as the environment.

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