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Export cargo in transit needs special insurance cover. This feature looks at what is and isn’t covered, the terminology, the horror stories, and other important issues associated with marine insurance.
Did you hear the story about the containerised chocolates sent by rail across the US in summer with no temperature specifications and no refrigeration? They melted, of course.
The exporter insisted such carriage had worked many times, but his insurer denied cover.
Marine (also known as cargo) insurance only pays for physical damage or loss of the goods in ‘fortuitous’ (accidental or unexpected) events, not ‘inevitable’ outcomes.
In another case, a ship sank because fireworks were loaded against the ship’s hot engine bulkhead and the fireworks went off. The exporter had failed to identify the goods as hazardous to avoid the higher freight rate, so was liable.
Marine cover normally starts the minute the goods are on the move, when the risk of cargo damage and loss increases – in the air, on land and on the sea.
Cunningham Gill freight forwarders director Jan Dupker explains marine/cargo cover is for freight on its international journey including domestic transport en route to the overseas destination, such as the few kilometres from Penrose to Auckland Airport, but not for internal transport alone – i.e. not just for Auckland to Christchurch.
The most common reason for damage to goods in transit is preventable, she says. It’s inadequate packaging for the nature of the goods and the journey. Unpadded goods joggle around inside their boxes, and cartons that are too soft get pierced.
There’s the odd bit of pilferage, which is more likely if goods are not packed securely. Never indicate on the outside packaging what goods are inside, Dupker advises. Handlers only need barcodes, numbers and accompanying documents.
She says exporters sometimes choose not to insure a shipment, and wear the cost of any loss, delay or damage they deem is unlikely.
Other exporters are unaware they have insufficient cover or that airlines and shipping lines have limited liability for damaged cargo.
“Many exporters are more interested in freight rates and how quickly they can get there, etcetera,” Dupker says.
Andy Timms, senior marine executive at Vero Marine Insurance, adds that ‘Insufficiency/Unsuitability of Packaging’ is generally excluded from cover anyway. The exporter is considered to be in the best position to know how his product reacts to natural movement during transit, whether it is susceptible to temperature variations and how it must be protected from handling damage during transit.
Timms agrees claims usually relate to damaged goods, but could be due to any number of factors.
“In the main though, accidents do happen – pallets get dropped, cartons get banged against other cargo or even an incident like the Rena [stranding] occurs and containers end up being damaged or lost overboard.”
Cover for goods ‘during transit’ can apply whilst being loaded or trans-shipped or packed into a container within a warehouse, explains Fraser Walker, senior underwriter – marine at Chartis Insurance New Zealand.
During transit transportation risks seem to provide more claims, and more for damaged goods, but closely followed by ‘general missing’ (or stolen) portions of consignments.
Some cargoes are more fragile than others and some are more theft attractive (desirable), which varies among trading zones. For example, bagged milk powder is not overly fragile by nature, but one tear and the entire bag is a loss; and although it is cheap and un-theft attractive in New Zealand, in Africa it is extremely theft attractive and valuable. Looters in parts of Papua New Guinea have been known to discard iPods and keep the milk powder and consumables, Walker says.
Everyone interviewed for this article recommends exporters have a grasp of the terms of sale agreed with their buyers to understand which party is responsible for clearance of the goods [at the border], for transport and marine insurance.
The International Chamber of Commerce provides a globally recognised framework, Incoterms, to facilitate dividing the risks and responsibilities between international buyers and sellers.
For example, selling ‘ex works’ makes the exporter liable for the goods till they leave his factory door and from then on the buyer’s/importer’s insurance applies.
Inclusions, exclusions and claims
QBE Insurance (International) authors the insurance chapter in the New Zealand Export and Trade Handbook 2012 that is available from the publisher of Exporter magazine.
The chapter explains that although much of the language around insurance, and in fact the transit of goods, is old fashioned and obscure, the exporting and insurance sectors have agreed common insurance clauses to demonstrate cover and expedite claims.
The common clauses provide cover from the time the goods are removed from their pallet racking in the warehouse in New Zealand, while in the air or on the sea or land, at the next port, on the transhipped vessel, across the port through Customs and other checks at the destination country until positioned onto the receiver’s warehouse pallet.
Anything outside the ‘ordinary course of transit’ will need to be agreed with the insurance company, and provided as additional cover.
Standard exclusions from cover include the costs of expediting replacement goods and costs due to interruption of transit – i.e. delivery delay, and lost profit.
Generally marine cargo policies do cover two fundamental risks in ship transit: general average and salvage expenses.
Graeme Orchard, New Zealand marine manager at QBE, explains that an export company is covered when it incurs ‘salvage expenses’ from a shipping line that has to retrieve (salvage) cargo that the ship has jettisoned to lighten itself when grounded, for example.
The shipping line’s view is the offloading was for the common good of all shippers, so now the cargo owner pays.
The ‘general average (loss)’ risk arises when a stranded ship, for example, has to choose which cargo to chuck over the side. All cargo owners reimburse the shipping line proportionate to the value of cargo saved.
The insurance policy might be ‘as and when required’ for a single shipment or an ‘open’ policy covering exports and imports for a period of time and to a specified value – the latter often less expensive.
Fraser Walker says the most comprehensive ‘all risks’ cover would be the broadest and provide the highest level of cover. Insurers can leave the typical exclusions excluded, or delete them to include the cover.
Another common exclusion is ‘Inherent Vice’: apples ripen, meat products deteriorate and chocolate melts, so in most circumstances outcomes due to the inherent nature of the goods cannot be insured. 
“Some insurers may include cover for specific ‘types’ of inherent vice, but I find such clauses are carefully worded to restrict any extension,” says Walker.
“I’d rather be upfront and tell the assured it’s excluded rather than face claims resolution issues down the line.”
Exporters of produce such as dairy and meat can buy ‘Rejection’ cover. Each voyage faces different perils. Ocean voyages are typically longer than flights and if they cross the equator, the temperature will increase inside a container. But another typical exclusion is ‘Heating and Sweating’ related losses. 
Walker adds that when certain countries face international trading restrictions some insurers (including Chartis) use ‘Embargo and Economic Sanctions Exclusion Clauses’ which impose conditions on trading with those countries. Some countries are prohibited entirely.
Vero’s Andy Timms says additional levels of cover, for example ‘Expediting Expenses’, pay for replacement product to be expedited (usually by airfreight) to market to replace goods lost or stolen in transit.
QBE’s Graeme Orchard says most traders don’t read the fine print, hate insurance and are not aware of their cover or exemptions, or right to claim.
For example, a little-known traditional area of exporters’ liability is damage to the inside of containers (owned by shipping lines) caused by cargo moving around.
A classic illustration is frozen bread dough that was shipped at 4 degrees Celsius instead of -4 degrees, which thawed, swelled, blew out the sides of its three containers and oozed out. The cause? A freight forwarder set the temperature wrongly due a ‘typo’ on a shipping document!
Orchard has written new polices in plain English that encompass more transportation and business risks than standard policies, relevant to modern times, including a small amount of liability for when cargo damages containers. For example, the company’s new policy for ‘dry stuff’ covers cargo in transit as well as at overseas trade exhibitions, for insolvency of the carrier, cargo diverted due to strikes, and loss of profit (mostly applying to importers).
QBE’s new ‘wet stuff’ policy is designed for New Zealand’s many primary produce and other perishables exporters. Unlike standard policies, it has cover for ‘inherent vice’.

Charges: no rack rates
Numerous factors influence the value and price of a marine policy and premiums vary among underwriters.
Timms says pricing factors include an exporter’s historical loss record, the product type, the level of cover afforded, the amount of capacity required, the volume of goods exported, the destinations, the method of shipment and the level of proactive risk management the client has undertaken to identify and minimise risk factors in relation to the consignment.
In turn, exporters need to know the marine insurer understands their export risks and has a claims team that can promptly deal with any issues.
Fraser Walker adds to the list of factors affecting rating risk and pricing:
• Value of the product.
• Deductible (excesses) applied.
• How the product is valued – for example, the inclusion of duty and VAT/GST can adversely increase the ‘increased’ value of the commodity,
• The need for extra (endorsed) covers such as Warehoused cover, Rejection, Vehicles and Live Animals.
“There are no set ‘rack rates’,” he says.

Choosing an insurer
Cunningham Gill recommends an insurance broker to clients, or can apply online for a simple shipment to a low risk country on a direct flight without prior storage, for example.
“But if it’s curly we would phone the broke – for example, for seafood to Japan that has to travel at a certain temperature,” Dupker says.
She says most businesses rely on a broker for each aspect of their business, sometimes to hedge their bets in case an insurance company goes under. But discounts apply for staying with one insurer. Some offer a good rate for certain journeys.
“Choose an insurance company with a global presence or at least an arm in the country you want to go to, or in your biggest market. You can talk to your New Zealand insurer if there’s a problem – it’s easier language-wise and the insurer can deal with their agent in China,” she adds. “Shop around for a policy that suits.”
When New Zealand exporters manufacture overseas then export directly from those countries like China, Thailand or Mexico, should it really matter that the goods are not actually exported from New Zealand? Some countries require exports or imports to be insured locally – check with a broker, says Timms.
 Walker adds that ‘Throughput’ cargo insurance can cover goods processed in other countries as they are transported, being processed and stored/warehoused, both here and overseas. This cover also conveniently caters for the changes in value throughout the process – for example, a ‘finished’ handbag is worth more than the handbag without a shoulder strap or lining.
An exporter could base their choice of insurer on factors including:
• The policy content or depth: is it suitable and enough, and what restrictions are imposed?
• The cost.
• The claims service: is the insurer reliable, reputable and negotiable on claims resolution? 
But the option of having an overseas provider purchase cover on the exporter’s behalf can be fraught with dangers – language barrier, time zone differences and cover not being as promised, to name a few.
Dupker’s summation perhaps serves as a word of warning: “Sometimes insurance is a low priority till all hell breaks loose and [because it seems] claims take a month of Sundays.”

Context
This article has only discussed insurance for goods in transit.
As the Handbook explains, other risks such as harm, loss or damage caused by the export product need to be covered by ‘product liability’ insurance suitable for the consumer law requirements in markets where it is sold. Preventive or risk management measures such as accurate labeling and clear product use instructions may not be enough.
And trade credit insurance, typically for a large percentage of the value of the sales invoice, protects exporters from nonpayment or loss due to the insolvency of the debtors (customers).

Key Takeaways
Marine or cargo insurance covers cargo in transit internationally.
Even an ‘all risks’ cargo policy has exclusions; extra clauses can be added at extra charge.
Shop around for a policy that provides adequate cover.
Know relevant Incoterms to understand risk and responsibility. Visit www.iccwbo.org

True stories, harsh lessons
Trans-shipping breaks phytosanitary seal
A shipping line alleged the refrigerating machinery on a container of frozen goods was malfunctioning so unloaded the container from the vessel at a port en route to the intended destination, and trans-shipped the goods into an alternative refrigerated container.  Trans-shipping broke the original container seal, compromising the phytosanitary certificate. The goods were denied access at the final destination, shipped back to the country of origin and destroyed. As the goods were not physically damaged during the voyage, the cargo insurance policy did not pay out.
 
Seasonal demand missed
A container of seasonal goods was delayed when the vessel was stranded. Ninety days later the container was ultimately safely uplifted from the stranded vessel and placed on an alternate vessel. The goods arrived at their intended final destination in sound condition, but due to their seasonal nature their commercial value had been impaired. As the goods had not suffered any actual physical damage during the voyage, the cargo policy did not pay out.

Frozen doors distorted
A container load of cabinetry doors for a super yacht were veneered and laminated with wood from a special tree and had fire retardant aluminium cores, but swelled because they got wet from being frozen. The freight forwarder was liable for mistakenly putting them in a temperature-controlled container (causing moisture release) and the exporter received an insurance payout.

Abandoned ship
A box (container) ship 1000 miles offshore in the Atlantic was abandoned at time of writing after an explosion and fire that killed two crew members, with the cause unknown. The same salvors that worked on the Rena sent three fire-fighting tugs and would be licking their lips at the thought of the reward (general salvage costs from cargo owners) coming their way.

Securing cargo in transit
If your business involves exporting products that require proper securing while in transit, then a call to Secure A Load, a leading supplier to the transport, logistics and cargo handling industries, is recommended. Staff at Secure A Load have a unique blend of experience and skills in the transport, shipping and related industries – ensuring professional advice and internationally certified parts and equipment are supplied for the correct application, on time, every time. The company supplies a range of professional products from tie-downs through to superior load restraint systems – including a full range of specialised cargo care equipment for many different applications. It is fully equipped to provide solutions for shipping or container related issues.
“The commitment from management and staff at Secure A Load is to ensure your organisation receives the correct advice, world-class products and technology and our guarantee of total satisfaction every time,” says a company spokesperson.

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