Wednesday 24th Apr 2019 - Logistics & Supply Chain

Minimising the risk of cargo loss

The grounding, in January, of the container ship MSC Napoli in Lyme Bay, made headline news. A hundred or so containers were lost in the incident, some of which washed up on the beach: several thousand remain on board and may not be recovered for another five or six months. Many or most of the consequential supply chain losses are not insured, or may not be insurable.

Remarkably, the International Maritime Organisation says that there is no body that collates reliable data on the number of sea containers that are lost overboard each year – the usually quoted figure is ‘up to 10,000 or less than one per cent’ but this guesstimate has been current for a decade, during which container traffic has increased considerably.

Despite tightening of operational codes, the risk will always be there. What can buyers and consignees do to mitigate impact on their business? First, and most obviously, don’t put all your eggs in one basket – although with capacity constraints on many lines out of Asia, and the increasing prevalence of ULCS (Ultra Large Container Ships, carrying upwards of 10,000 teus) this may be easier said than done. Use (or insist that your supplier or his freight forwarder uses) only established and reputable vessels and operators; although the Napoli was under entirely respectable management.

It may also be time to review your terms of trade. Most will be familiar with terms like cif or fob (cost, insurance, freight and free on board respectively) but may not realise that there are a dozen other international standard arrangements, collectively known as IncoTerms, one of which may be more appropriate to the situation. In fact, cif and fob are not really appropriate for most containerised cargo: responsibilities change ‘at the ship’s rail’ which isn’t really relevant when the cargo is already sealed in its box.

It’s important also to stipulate ‘IncoTerms 2000’. IncoTerms will define who is responsible for insurance against loss or damage to the cargo, but insuring against consequential or supply chain loss is in practice difficult. Brendan Flood of brokers Hiscox explains that few firms ask for it and therefore few insurers are prepared to quote, and their quotes tend to be expensive. ‘Insurers find these risks difficult to price because the risks are unknown, and it would be easier to price if there were a multitude of people buying’. There is a small market in insuring fresh produce against delay but premiums are ‘horrendously expensive’. There is however a market in infrastructure projects, where the effects of, for example, delay to opening a power station because the turbine is lost in transit, can be insured on the basis of the (known) value of the megawatt-hours of production lost, but this is very much the exception.

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