Ocean cargo needs grow with trade

At Roanoke Trade Services, we are definitely part of the global economy. That is to say, we provide insurance, bonds and other products and services that make it possible to manage the risks associated with shuttling goods around the world. This is nothing new for us. Indeed, Roanoke Trade Services has focused on ocean-marine insurance since its founding in 1935.

Our clients are companies that are involved in international trade. They include exporters and importers, as well as businesses that facilitate trade, such as logistics providers, freight forwarders and customs brokers. To serve these customers we have a dozen offices around the country that are staffed by some 200 employees.

We're active in several associations fostering international trade. They include the National Customs Brokers & Freight Forwarders Association, the Airforwarders Association and various local import/export associations. Our involvement helps us maintain our profile in this market and directly or indirectly leads to business. We also demonstrate our knowledge of this field by publishing newsletters and conducting seminars (including “Cargo Insurance Basics”) for associations or existing clients. We post information about these products and services on our Web site, www.roanoketrade.com.

We arrange all coverages our clients need, including standard lines like property and general liability insurance. We also provide products geared to the nature of their businesses, like customs bonds, which are issued to assure the U.S. Treasury Dept. that applicable duties will be paid on merchandise imported into the country. Merchandise is imported on a release-first and examine-second basis. Importers often pay an estimated duty that may be revised upward after U.S. Customs evaluates the paperwork. The bond provides security for Customs that the additional payment will be made if the importer fails to honor its obligations. Customs bonds also guarantee the payment of penalties levied on importers fined for not following appropriate customs procedures.

One of our principal specialties is writing ocean cargo insurance. There are several policies that can be used for this purpose, but the workhorse is the open cargo policy, a flexible contract that can be used to cover all of an importer's or exporter's shipments on an ongoing basis. The cargo may be
transported by ships, by aircraft, by truck or by rail.

Coverage provided by domestic insurers often is written on a standard form promulgated by the American Institute of Marine Underwriters, to which myriad clauses can be attached to highly customize coverage. The terms of coverage, for instance, can be written to reflect trading partners' responsibility for cargo, as it is spelled out in the contracts governing its sale. Typically, insurance is written to protect an exporter's interest in goods from the time they leave its warehouse until they arrive at an importer's facilities. The scope of coverage may be less than “warehouse to warehouse,” however, for expensive, theft-prone merchandise, like fine jewelry. In that case, coverage for an exporter may end after the merchandise reaches the airport in the country of destination, at which point the importer will be responsible for it. There are many other ways coverage can be written to reflect when one party's responsibility for the goods ends and another's begins.

Most carriers have $5,000 minimum premiums for open cargo policies. Depending on the cargo, that would translate to an annual shipping value of at least $5 million. Exporters who ship less than that amount typically use the services of a freight forwarder, which not only can consolidate their shipments with others and transport them to their destinations, but insure them as well.

Submissions

We've created our own application form, which is broad enough to be accepted by most ocean-cargo insurers. Among other information we need to complete it are the value of all goods shipped in a year, the average value of each shipment and the maximum value of any one shipment.

We also need a breakdown of the types of cargos shipped and the key destinations. Exporters who ship all over the globe need to list the countries to which they send goods. But shipment destinations for most exporters will be concentrated in a half-dozen or fewer areas, and that's where underwriters will focus. Insurers require loss runs going back three to five years and details about packing. If the cargo is susceptible to rust damage, for instance, how will it be packed to prevent oxidation? They also may want to know how packing is marked. Is theft-prone merchandise packed in cartons announcing what's inside, or is any labeling less “revealing”?

For the most part, our clients use airlines, steamship companies and other third parties to transport their goods, rather than their own planes or vessels. Cargo underwriters may ask for the top three or four carriers an exporter uses. They may impose a charge known as a “steamer penalty” if cargo is transported on vessels past a certain age–e.g., 15 or 20 years old–or under a certain size, like 1,000 metric tons. Underwriters can check a vessel's size, age and condition on the Lloyd's Register. Old or undersized shipping vessels rarely are encountered on transatlantic or transpacific voyages. We advise our clients to ask about the condition of vessels used on shorter trips in places like the Bahamas, Bermuda and the Caribbean, however, where such “penalty vessels” are more often found.

Clients who ship merchandise that is targeted for theft, with cell phones being a prime example, must show a good track record with such cargo and present a security plan outlining the measures that will be taken to protect it. For some merchandise and destinations, armed escorts might even be needed. At the least, special seals will be required. They make it more difficult to break into containers and leave clear evidence of a theft if the seals are compromised. Without it, an insurer could question whether the merchandise was ever in the container. Insurers also might require an assured (as insureds are called in ocean-marine parlance) to make value declarations to the shipper. In the absence of any declared values, an airline's liability for international shipments is $9.07 a pound. By declaring the value of the shipment, a shipper can increase an airline's liability, giving it more incentive to safeguard the cargo.

When we make submissions, we inform insurers of any special insuring conditions our clients may require. For example, after cargo arrives in the country of its destination, the client may need to continue insuring it longer than the coverage timeframes provided by the standard warehouse-to-warehouse clause, which are 15 days after discharge from vessel at the port and generally 30 days after discharge outside the port. Duration of Risk clauses may be used for this purpose. Indeed coverage can be customized to fit almost any situation, as demonstrated by the following case studies, which are posted on our Web site.

Case No. 1: A seller and buyer of food products was shipping a load of frozen goods in a refrigerated container, but the ocean carrier forgot to plug it in. The policy covered cargo deterioration only if the refrigeration unit failed for a 24-hour period, but since it was never started in the first place, the damage claim was denied.

The cost to the shipper was about $40,000, yet the loss was unnecessary because its standard cargo policy could have been modified to cover the risk. The basic refrigeration clause needed to have language to address negligence.

Case No. 2: A seller of cannery equipment shipped an order to Italy via ocean vessel, which was scheduled to arrive in time to harvest and can the upcoming season's crop. The equipment was damaged in transit and couldn't be used immediately upon arrival. This left the first part of the crop in jeopardy of not being processed in time, so the shipper needed to deliver replacement parts to the customer rapidly, which it did by air.

Since the seller had only insured for ocean freight, the extra expense necessitated by the unanticipated air shipment wasn't covered. An air-freight replacement clause in the cargo policy would have taken care of it.

Case No. 3: Four containers of computer monitors were shipped from a U.S. manufacturer to a German distributor. Upon arrival at the German distributor's warehouse on a Friday afternoon, the four containers were taken off the trucks and carefully stocked. The warehouse employees saw no visible signs of damage, so they signed off “clean” (no damage) and full delivery on the trucker's receipt. When the distributor started making deliveries out of its warehouse the next week, however, a more careful inspection of the cartons disclosed that some of the monitors had been damaged in transit.

Based on the “clean” delivery receipt, the distributor's cargo insurer declined the damage claim as not having occurred during transit and presumed the damage was caused after arrival at the warehouse. A concealed damage clause would have allowed for a reasonable period of time, usually 30 to 90 days after the monitors were delivered, in which to report the discovered damage. Then if deemed to have occurred during transit, the claim would have been covered.

Markets and marine surveyors

Among our ocean-marine markets are ACE USA, CNA, Fireman's Fund, Great American, Navigator's Insurance Co. and St. Paul Travelers. We also have a cargo insurance binder facility with Lloyd's that includes a component of claims-settlement authority. This facility enables us to respond quickly and flexibly to clients' needs–while strictly adhering to the limits and conditions of the authority, of course.

We don't have loss control people on staff per se, but we work with many loss-control professionals and can provide our clients with expert advice, be it from independent loss control analysts or insurers.

We instruct clients how to get a claim documented and paid. In a nutshell, this is a three-step process: 1) You must be able to substantiate the amount of the claim. 2) You must show that the damages occurred during the course of transit and in the covered period. 3) You must show that you protected the insurer's subrogation rights.

To prove the amount of loss, you need invoices and packing lists. If five of 10 cartons in a $20,000 shipment are lost, that doesn't necessarily mean you have a $10,000 claim. It depends on what was in the lost cartons, which is where the packing lists come in.

Reports made by independent marine surveyors will help document the scope of loss or damage. For domestic claims, we dispatch the surveyors after clients notify us of incidents, selecting from lists of approved surveyors all over the globe that are authorized by the ocean-marine marketin question. Many of these surveyors do work for a number of different U.S. insurers. We normally are not involved in surveys of incidents that take place outside the U.S. The overseas importer–who may be responsible for the cargo at that point anyway–normally will arrange for the survey. Regardless, unless there is a very sizable loss, a domestic insurer will rely on local marine surveyors to assess losses in foreign countries. If an importer isn't sure whom to contact, we can provide names.

As you may surmise from this article, the ocean-marine niche is highly specialized and not one in which an agent or broker casually can engage. But for Roanoke Trade Services, insuring international trade has been an interesting, rewarding specialty for 70 years. Given the growth of global trade, that could remain the case indefinitely.