Liability of Damage cargo

Cargo insurance is a type of insurance that covers/compensates a

buyer or seller of goods against cargo damage or loss of cargo..
 

Despite insurance having been around for centuries, there is still a

feeling that any form of insurance is a “grudge purchase”.. By its
nature, insurance is an intangible benefit, one that can only be tested
under adverse circumstances and there is nothing more adverse
than cargo damage..
From a

Local (Street to Street, City to City, Town to Town) shipment;

 to Provincial shipment within the same province/state;
 to National shipment within the country;

 to Regional trade within regional trade blocs like EU, BRICS;

 to Global trade between countries

there are several modes and types of trade/shipments around the

world..
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And where there is a shipment, there is a possibility of cargo damage

or cargo theftor cargo being abandoned..
How does cargo damage occur
In every cargo shipment, a CARRIER is contracted to carry the goods
from point A to point B by rail, road, sea, inland waterway or a
combination of these modes.. A carrier maybe a Road hauler
(trucker), Rail operator or a Shipping line..
A carrier uses a CTU (Cargo Transporting Unit) which may be a freight
container, a swap body, a normal vehicle, railway wagon(s) or any
other similar unit used in intermodal transport for the transportation
of these goods..
The cargo packed inside a CTU goes through various motions while it
is in transit – whether it is by road, rail or sea.. Let us see some of these
movements as it is important to understand these before we talk
about cargo insurance..

Movement by Road
If you consider the movement of cargo by road, there are several
forces acting on the cargo during transport caused by the movement
of the truck, the gradient of the road, the camber of the vehicle, the
speed of movement, unexpected stops etc..

Your cargo can experience

 Gravitational force
 Frictional force
 Random Deceleration
 Random Acceleration
 Centrifugal force
 Vibratory force
 
 

These forces may cause the sliding, tipping and wandering of cargo
which could seriously damage the cargo and/or other assets or human
beings..

Needless to say, the cargo must be secured sufficiently to withstand all

these forces en route..

Movement by Rail
If you consider the movement of cargo by rail, there are several
forces acting on the cargo during transport caused by the movement
of the rail wagon, vibration of the rails, the speed of movement,
unexpected stops etc..

Your cargo can experience

 Longitudinal and horizontal forces

 During braking

 Acceleration
 Transverse horizontal forces
  Wagon oscillation (yaw) during transport
 Gravitational force
 Frictional force
 Random Deceleration
 Random Acceleration
 Centrifugal force
 Vibratory force
 

These forces may cause the sliding, tipping and wandering of cargo
which could seriously damage the cargo and/or other assets or human
beings..

Needless to say, the cargo must be secured sufficiently to withstand all

these forces en route..

Movement by Sea
Even if you are in shipping or in the business of exporting and
importing it would be good for you to understand a bit about the laws
of physics, the connection between shipping and physics, concepts
like velocity, inertia and how it applies to the movement of the ocean,
and the movement of cargo inside containers while it is in transit..
As I wrote above, cargoes packed inside a CTU can experience intense
longitudinal and transverse forces during road, rail and these forces
could cause physical damage..

The worst movement a cargo undergoes maybe while it is at sea..

Unlike road and rail transport, while at sea, a ship can move in 6
different ways as shown here..

Each of these movements causes a different kind of stress on the

cargo packed inside the container and if there is movement of cargo
inside the container, there is a greater chance of it damaging the
container and even coming out of the container..
Let me give you an example that a lot of us can relate to.. You are in
the back seat of a car and you are not wearing your seat belt and the
driver hits a speed bump at 80 km an hour..

Most likely you will be thrown up from your seat and hit the roof of
the car causing possible injury/damage and definite pain..

Now imagine steel coils or granite blocks, moving inside the container
when the ship is undergoing a heaving motion (similar to hitting a
speed bump in a fast car) on the rough seas..

In terms of rolling, ships have been recorded with rolling movements

of up to 40 degrees, so you can visualise those coils and granite blocks
moving inside the container 40 degrees from side to side hitting the
side walls with force.. Some of those coils and blocks could be 5 tons
and upwards each..
When you visualize these movements, you can imagine the stresses
that the cargo inside the container goes through especially if it is not
packed and secured properly and allowed to move around inside the
container..

Reality of cargo damage and requirement of cargo insurance

So why am I talking about cargo damage instead of whether you need
cargo insurance..?? Because as per UK P&I Club’s claim statistics cargo
damage is the leading cause of cargo claims.. The main types of
cargo claims is shown below..
Let’s face it, when was the last time, you as a shipper thought about all
of the above mentioned facts of how cargo gets damaged.. These
facts may not be at the top of your agenda points because more often
than not, your focus is on the business, the focus is on getting the
goods to the buyer in time and getting your money..

The business of packing, securing and transportation of the goods is

left to someone else (usually a 3rd party) to handle..

In the minds of some of the shippers, they may feel that since the
distances for some of the shipments are short, say in a City to City
shipment or a Provincial shipment they may not feel the need to
insure the goods.. Or they may feel that they should not be liable for
insurance as they may have interpreted the terms of sale incorrectly..

Whatever the circumstances, the fact is that, ANYTHING can happen

to your cargo while it is in transit including being damaged or
stolen whether you like it or not, whether you are able to control it or
not..
As discussed in a previous article in this blog, In USA, cargo theft is
highly concentrated in six states and in certain cities and truck stops..
Thefts are more frequent on weekends and spike during holidays.. And
internationally, Brazil, Mexico and South Africa are three of the worst
countries for cargo theft according to FreightWatch International..
In Mexico alone, more than 6000 cargo theft incidents were reported
in one year, most of them being truck hijackings.. In the U.S., most
commonly stolen products are food and beverages, followed closely
by metals and electronics..

In a lot of the cases, while there may be every intention by the buyer
or seller to insure the goods, incorrect interpretation of the terms of
sale or Incoterms chosen could lull you into thinking that the other
person has insured the goods or it is the other person’s responsibility
to insure the goods..
You may also have faced a situation wherein you might have been
misguided by your service provider(s)..

If your cargo is not covered sufficiently by insurance and cargo

damage or total loss happens due to any of the above movements,
you as the buyer or seller will be sitting with the loss..

Therefore, the answer to the question “Do I need cargo insurance for
my shipment” is YES, MOST CERTAINLY.. In your own interest and
the interest of your business, you need to ensure that your cargo is
sufficiently covered by cargo insurance..
In this very useful article by NAU, Muthu Jagannath says that while
insured cargo interests are able to deal with both Salvage and General
Average expeditiously through their insurers, uninsured cargo interests
generally face difficulties as they would not only have to make various
arrangements but also provide securities as may be demanded for
Salvage and General Average..
These securities can run into thousands or millions of $$$ which clients
may not have..

Types of cargo insurance

There are different types of cargo insurance but for your cargo to be
sufficiently covered by cargo insurance, you need any of the A,B, or C
clauses published by the Lloyd’s Market Association (LMA) and
International Underwriting Association of London (IUA)..

C Clauses – Risks covered

1.1        loss of or damage to the subject-matter insured reasonably
attributable to
1.1.1     fire or explosion
1.1.2     vessel or craft being stranded grounded sunk or capsized
1.1.3     overturning or derailment of land conveyance
1.1.4     collision or contact of vessel craft or conveyance with any
external object other than water
1.1.5     discharge of cargo at a port of distress
1.2        loss of or damage to the subject-matter insured caused by
1.2.1     general average sacrifice

1.2.2     jettison
 
B Clauses – Risks covered
All the above plus:

1.2        loss of or damage to the subject-matter insured caused by

1.2.1     general average sacrifice
1.2.2     jettison or washing overboard
1.2.3     entry of sea lake or river water into vessel craft hold
conveyance container or place of storage
1.3        total loss of any package lost overboard or dropped whilst
loading on to, or unloading from, vessel or craft.

A Clauses – Risks covered

All risks are covered.. If the goods are damaged in transit and it could
not be proven that the carrier caused the damage, the shipper would
not be able to recover the loss.. “All Risks” insurance provides
protection without having to prove carrier liability..

Just remember that “All risks” are not “All Risks” in that there has to
have been a happening..  Something has to have happened that was
NOT EXPECTED..
All the clauses covers general average plus “Both to Blame” collisions
in case where containers are lost at sea due to collision of two ships
like in the case of CHONGLUNJ3010 and NEW SAILING 2..
But also watch out for exclusions which are clearly spelt out in clauses
4, 5, 6 and 7..

But is my cargo not covered by the carrier’s insurance..??

Yes, sure, you could argue that the carrier (transporter, rail operator,
shipping line) also may have their own insurance cover and you can
claim for the damages from the carrier for any damage that happened
while the cargo was in their care..

The Carrier’s Cargo Liability insurance covers a carrier against their

liability for loss to their customer’s goods during transit.. But
this Goods In Transit (GIT) insurance is specifically structured
to insure the carrier’s liability rather than the goods itself..
These policies usually limit the carrier’s liability and these liability limits
may usually be found in the terms and conditions advised to you by
the carrier or their GIT cover.. In the case of a shipping line you can
find these liability clauses on Page 1 of the bill of lading..
So unless you are covered sufficiently by cargo insurance as above,
you may have a situation wherein you sold the goods to the buyer,
they may have paid you for it or may not have paid for it yet, but you
didn’t take insurance on the goods and the goods are damaged..

Eventually you may end up paying the buyer back, lose money on your
stock and also stand to risk future businesses..

Conclusion
So, the point I am making is that, your cargo could get damaged,
stolen or lost at any time during its journey from the supplier’s
warehouse to the final receiver :

 while cargo is in the possession of the seller,

 while cargo is being packed into a container,

 while cargo is being loaded onto a truck,

 cargo is in transit by sea, road or rail,

 while cargo is being offloaded at delivery,

 while cargo is in the possession of the buyer

 etc etc etc

These damages could be caused by

 bad weather which could lead to catastrophic events like

breaking up of a ship or containers falling off a ship
 misdeclaration of the cargo weight
 incorrect declaration of hazardous cargo

Even if you have done everything correctly, if others didn’t follow the
processes, your cargo could end up getting caught in situations
like General Average..
 

MORAL OF THE STORY : INSURE YOUR CARGO