Our clients frequently ask us about the pros and cons of purchasing marine cargo insurance. It may be something you have debated yourself for your shipments. A recent event provides some real-world lessons that can help guide your decision.
If you are in the international shipping business, you’ve probably heard about the fire on board the M/V Yantian Express earlier this month.
An onboard fire erupted on the vessel and it was many days until it was contained. Many of the containers onboard suffered significant damage. Currently the vessel is being towed over 1000 nautical miles by three tugboats to a Canadian Port where the vessel will be unloaded and fire damage and resulting costs determined. There is little doubt that a general average claim will be forthcoming.
General Average Claims
A General Average Claim means that every customer with a shipment onboard will pay a “pro-rata” share of the additional incurred costs of the voyage and damage to the ship – whether their shipment was damaged or not. The commercial value of each shipment on board is determined, and then the damage is assessed and finally a formula evolves regarding each customer’s share, which those without marine cargo insurance will have to provide themselves.
The Cost of Going Without Insurance
The conditions of carriage are outlined on the back of every single Bill of Lading issued for every single shipment moving around the world. You may be surprised by your obligation contained in the fine print:
Additional General Average damage deposit
Suppose you have a shipment valued at $10,000 and the total value of the cargo on board the vessel is $100,000,000. If fire damage is estimated at, say, $10,000,000, or 10%, then every customer with a shipment on-board will be required to deposit an additional 10% of their shipment value in cash or bond pending resolution. The resolution process can take years.
Additional cost to deliver
If the boat is put in at Halifax, for instance, it will be discharged there, and all cargo will be removed. In this example, you would have to put up $1000 to the carrier and then you will have to pay to move the cargo to its final destination along with any other costs, in addition to having paid in full the original freight charges.
Why the Case for Marine Cargo Insurance
Cargo insurance for that $10,000 shipment would cost most likely a lot less than $50. With Marine Cargo Insurance, all of the above-mentioned items are covered. The insurance company:
- Pays the General Average deposit
- Handles working with the general agent of the vessel and the vessel operators/owners
- Pays to move the cargo to its final destination
- Absorbs the other “additional” costs
- Pays for your damaged cargo
Some customers believe that not paying the cost of the insurance premium on the individual shipments is more cost-effective in the long run because even if they sustain a loss, they have saved all of those years of premiums. But carrier liability is greatly limited and in many cases requires proof of some form of negligence in order to be used. Threatening the carriers or the forwarder with loss of business can make you feel better but does little to solve the issue, especially if it is more than some cosmetic damage to packaging.
Peace of Mind
In the case of the Yantian Express, most likely 70% or more of the cargo on board the vessel is fine, but to be noted:
- The ensuing headaches and time needed just to release your cargo without the benefit of a professional advocate such as the Insurance company is beyond the expertise of most importers.
- You would then have to engage the services of a Maritime attorney, losing any savings from not paying cargo insurance premiums. Though your cargo could still be perfectly intact, the additional costs to you could be staggering.
- Abandoning your cargo is not a solution as it does not relieve you of further costs/obligation to the parties.
Furthermore, if you buy under CIF (Cost, Insurance, Freight) terms to a named place, remember these policies are underwritten by insurance companies at the country of origin and they are not your advocate on this side. Their goal is to minimize costs and not continue a long-term business relationship. As a general rule, insurance bought at origin is not less expensive, but it is always less effective.
The recent calamity on the M/V Yantian Express should be a reminder that you should know your options and the risks involved. Thankfully, most shipments that move internationally do so without such drama and turmoil, and in fact experience little to no damage or disruption at all. But having great insurance coverage through an aggressive Customs Broker/Freight Forwarder who works with a specialist in the Marine Cargo Insurance business will be extremely helpful and can give you peace of mind.
At WB Skinner, we have maintained a long-term insurance partnership that has been very beneficial to our customers. We are able to offer Marine cargo insurance for your next shipment at a very aggressive and cost-effective price.
Please contact us if you would like to know more about this option to protect your next shipment.