Very interesting Risk Insight for Marine Business 2011

1. insights
marine risk
june 2011
Protecting your
assets in transit
Also in this issue:
• World trade: The only way is up
• Doing the right thing (compliance)
• Learning from claims
• Declaring general average
• Salvage

2. Contents
03 Welcome 18 Obligations in international trade
03 introduction 20 Transport your goods safely, on time and
without losses
04 World trade: the only way is up
22 ensuring safety in the packaging of containers
07 Doing the right thing
24 risk engineering: Greater peace of mind
10 Learning from claims
28 Projects: the way ahead
14 Declaring general average
31 Piracy: not going away
15 Case study 1: where is my cargo?
36 Zurich international research and Development
16 salvage – posting security
Centre of shipping and Finance
17 Case study 2: there’s a hole in my container!
38 Contributors
2

3. insights 11
Welcome Introduction
Welcome to this edition of insights on Marine. is there light at the end of the tunnel?
Are we through the recession? The latest figures from
In this insights, we look at how world trade is recovering, the lessons
the World Trade Organization (WTO) certainly suggest
that can be learned from claims, and the benefits of risk engineering.
that things are improving rapidly, with the fastest growth
Above all, we look at how you can benefit from integrated teams, with
in the volume of exports ever seen since records began.
underwriting, claims and risk engineering all working together
The WTO believes the longer-term trend will be for more
for the benefit of our customers.
modest growth, but it is growth nevertheless.
We also bring you the latest information on buyer and seller
However, it is not all good news. There are many more
obligations in international merchandise trade, the moves towards a
General Average claims being declared, cargo theft
consensus on what needs to be done about the issue of safety in the
has increasingly become the domain of large organized
packing of containers, the current focus on compliance around the
criminal gangs, and piracy remains a potent threat.
world, and the latest picture of the Somalian piracy threat.
The infrastructure in some developing regions continues
Kind regards, to be a concern, and the handling of cargo is a problem
in some areas as a result of a lack of training.
Lee meyrick, Chief underwriting Officer Marine, Zurich
But all of these various concerns are being addressed by
industry, insurers and governments, with varying degrees
of success. Insurance, of course, has an important role to
play, and Zurich is determined to help its customers find
solutions, through insurance protection, through risk
engineering, and through sharing of best practice.
3

4. World trade:
the only way is
up
It has been a tough two or three years for companies
in the import/export business or transportation sector.
World trade saw a major dip in 2009 – The united nations
Conference on Trade and Development (unCTAD)
described it as an unprecedented trade contraction,
revealing that merchandise exports dropped about seven
times more rapidly than global gross domestic product.
4

5. insights 11
insights 11
• International seaborne trade contracted by 4.5% in 2009 line with forecasts from unCTAD that the shipping
and fell below 2007 levels from the all-time high attained industry and seaborne trade are recovering, but it
in 20081. will take beyond 2011 to return to 2009 levels.1
• estimates put total seaborne trade during 2009 at
Asia: the engine room for world
7.84 billion tons, according to the unCTAD Review.1
trade growth
• The World Trade Organization (WTO) said that the global Despite the economic downturn, Asia is still driving
economic crisis in 2009 caused a 12.2% contraction in global trade. Asia exhibited the fastest real export
the volume of global trade — the largest decline since growth of any region in 2010 with an increase of 23.1%.
World War II.2 This was led by China and japan, whose shipments to
the rest of the world each rose roughly 28%.
• The value of world merchandise exports fell 23% to
uSD 12.15 trillion in 2009, while world commercial In 2010, China overtook Germany as the world’s leading
services exports declined 13% to uSD 3.31 trillion.2 merchandise exporter, accounting for almost 10% of
world exports, and is now second to the uS on the
Recovery in 2010 import side, accounting for 8% of world merchandise
But there was a good recovery in 2010. According to WTO imports according to WTO figures.2 The growth is
figures, the volume of exports in 2010 rose by a record- particularly in infrastructure projects – Indonesia,
breaking 14.5% (the fastest growth since records began in Thailand, and China are all ploughing billions of dollars
1950), enabling world trade to recover to its pre-crisis level into their infrastructures – building power stations,
but not its long-term trend. Developed economies recorded bridges, and roads. And naturally, it has an impact on
export growth of nearly 13% in 2010, compared to a 16.5% cargo transportation.
average increase in the rest of the world.3
Announcing the figures in April 2011, the Director-General 1 The UNCTAD Review of Maritime Transport 2010, December 20, 2010:
of the WTO, Pascal Lamy, said: “The figures show how http://www.unctad.org/en/docs/rmt2010_en.pdf
trade has helped the world escape recession in 2010. 2 WTO News Release March 26, 2010: http://www.wto.org/english/
However, the hangover from the financial crisis is still with news_e/pres10_e/pr598_e.pdf
us.” WTO economists forecast that world trade growth 3 WTO News Release April 7, 2011: http://www.wto.org/english/
should settle to a more modest 6.5% expansion in 2011.4 news_e/pres11_e/pr628_e.htm
4 WTO News Release March 14, 2011: http://www.wto.org/english/
Cautious optimism for the future news_e/news11_e/rese_14mar11_e.htm
While there is no tangible ‘feel good factor’ in the import/
export trades, since 1 january 2011 we have seen cautious
optimism in europe in terms of turnovers – customers are
talking about modest increases, but they are still very small
and certainly not yet back to the levels pre-crisis. This is in >
5

6. > effects of the downturn
The economic downturn has had a major
effect on companies in the import/export
business or transportation sector, not least
the decline in demand for goods which saw
trade levels fall globally. But the downturn
has also resulted in cost-cutting across the
sector. This has impacted crewing levels and
quality of crews, and resulted in reduced
investment, if any at all, in training, vessel
maintenance, logistics quality and risk
engineering. As the recovery proceeds, all
of these areas will require additional
investment to ensure that losses and delays
are kept to a minimum.
new challenges
Despite the temporary impact of the
economic downturn, globalization continues
apace. More and more companies find
Commodities and themselves looking to overseas markets,
hi-tech products either to sell their products or to import
As well as infrastructure projects, there is goods or commodities. This creates new
also a focus on commodities. There are challenges for companies in terms of
huge amounts of hard commodities – unfamiliar territories, changes in where
iron ore, steel, coal – moving into the the suppliers and markets are, and of
Asian region from Australia, India, and course logistics.
South America.
One of the biggest challenges is ensuring the
And then there are a lot of finished efficiency and strength of the supply chain.
products being produced by China, Taiwan, Breaks in the supply chain can be costly and
Korea and japan and exported outwards, impact on profits. There is a much greater
such as hi-tech products like smart phones, risk of this where global trade results in an
portable media players and 3D TVs. The extended supply chain. As a result, active
entire Asian region is continuing to see supply chain management is increasingly
high levels of trade, both import and necessary to ensure that weak spots are
export: the raw materials being imported identified, alternatives prepared, and
and the finished products being exported. business interruptions minimized.
6

7. insights 11
Doing the
right thing
Companies that trade internationally face Regulatory restrictions
many challenges, not least of which is the Many countries around the globe have some form of
regulatory restrictions, which are designed to protect the
issue of insurance protection. local market. These include:
• local policy taxes (admitted insurance)
Globalization and the steady growth in world trade have
• restrictions on non-admitted insurance
meant a growing demand for global insurance programs,
and in particular for marine insurance. At the same time, the • compulsory insurances
economic downturn has resulted in a fundamental change
• reinsurance restrictions
in the area of compliance, and this has had a major effect
on the purchasing of marine insurance. • exchange controls
• national pools. >
7

8. >
A report last year, “G-20 existing regulations are being strictly Greater protectionism
Protection in the Wake of enforced more than ever before as countries It is all part of a wider move towards greater
face increasing fiscal pressure. protectionism around the world. A report
the Great Recession, last year, “G-20 Protection in the Wake of
”commissioned by the The aim is simple: to keep premiums within
the Great Recession,” 5 commissioned by the
the country, and to raise revenue by taxing
International Chamber of those premiums. As a result of the downturn,
International Chamber of Commerce’s (ICC)
Research Foundation found that all G-20
Commerce’s (ICC) Research many countries are looking to have their own
countries have implemented protectionist
Foundation found that all internal insurance industries, even if it is just
trade measures over the last two years.
for tax revenue purposes, and this is driving
G-20 countries have
a lot of the regulatory issues. By September 2009, the G-20 were
implemented protectionist responsible for 172 such measures being
trade measures over the Consumer protection laws implemented, with hundreds more in the
last two years. Increases in consumer protection laws have pipeline. The report said that “the sweep
been driving the need for locally admitted of protectionist policies in the wake of
policies. Countries are increasingly looking to the Great Recession is alarming.”
protect consumers in their territory by only
allowing insurance with insurers that are ensuring compliance
regulated by the country. Governments For the trade and shipping sectors, alignment
want to ensure that there is recourse to with insurance regulations is becoming a
a local insurer in the event of something crucial factor. This is not only because there
going wrong. may be problems with recovery, or with the
ability to have a claim paid to the company
use of non-admitted insurance is simply not
where it is not locally represented, but also
an option in many countries. Countries may
because of the issue
insist on an admitted insurer for all
of fines. This is a topic that affects the
insurances or for compulsory insurances.
insurer, the broker and the insured, all of
There may be compulsory cessions to
whom can be hit by fines, which in some
national pools related to terrorism,
cases can be substantial.
environmental insurance or taxation of non-
admitted insurance. Therefore, when choosing a carrier,
international companies should be
increasingly focused on the carriers’ global
capability. As companies look to expand into
new territories, with new suppliers, or new
5http://www.iccwbo.org/uploadedFiles/ICC/iccrf/G20_ markets, they need to know that they are
Protection_in_the_Wake_of_the_Great_Recession.pdf fully compliant.
8

9. insights 11
If these products are damaged in transit,
that company is unlikely to have any
representatives in Kenya to take care of
the problem
Local representation Where goods are being stored in a country
Take, for example, a uK company in which a company has no representation, Customer checklist:
representative who visits a Kenyan trade and where there is inland transit within that Insurance compliance
show and sells products, which are later country, from the warehouse distribution Is non-admitted insurance allowed?
shipped to Kenya. If these products are to the retailer, it may be vital to have local
Are there financial penalties
damaged in transit, that company is unlikely policies that will respond in the event of
associated with non-admitted
to have any representatives in Kenya to take a loss.
insurance?
care of the problem. Compliance goes
beyond just making sure the paperwork Added value What are the local premium taxes?
ties up – it is also about coming up with This is why a multinational insurer who can
What other taxes may be
a bottom end solution when things do provide locally compliant solutions can add
applied (excise tax, stamp duty,
go wrong. value. Due to their reach, multinational
withholding tax)?
insurers have qualifications to identify and
Marine is one of the few areas where this
understand the regulations of a particular What are the compulsory insurances?
can happen, where you can have a claim in
local jurisdiction, and work within the
a territory where you may not have any sort What compulsory cessions are required
confines of those regulations as well as
of base or representation. Many claimants (national pools, reinsurance, etc)?
regional and global sanctions, all within a
are outside of the country where the policy
centrally controlled overall program. How can premium be fairly allocated
is produced, and so global delivery becomes
across subsidiaries?
a crucial element. Multinational insurers can offer, through
their local resources, the ability to conduct Can claims be paid to the
With the globalization of trade, there is a
the requisite local vetting that is needed for local subsidiary?
particular issue for compliance when goods
claim-related activities, to ensure compliance
go into storage and distribution.
with the regulations.
9

10. Learning from claims
In an economic downturn, there is typically an increase in the frequency and severity of marine
claims. This may be the result of cost-cutting affecting crewing levels and expertise, a lack of
regular maintenance, or vessels being laid up for an extended period.
10

11. insights 11
insights 11
Today, with fewer consolidated loads and
improved container security, pilferage has
largely gone away. For example, doors can
be locked in such a way that they cannot be
broken into without it being obvious.
Additionally, security at ports has increased
as a result of the threat of terrorism, so it is
now almost impossible to get past the gates
without significant security clearance.
Cargo theft claims There has been a noteable shift in the area
Although largely unrelated to the economic of marine theft claims globally, from low
now: Organized criminal gangs
Theft is now on a much bigger scale and
downturn, theft and hijacking of cargo is an value pilferage claims to an increase in the
involves organized crime due to a lucrative
increasing problem. There is still a very high hijacking and theft of full container loads.
black market. With the expansion of the
frequency of the targeting and successful They are fewer in number but much bigger
global economy, goods can be ordered easily
theft of consumer retail goods, particularly in value. Rather than the uSD 5,000 or uSD
and quickly on the internet from anywhere in
consumer electronics, pharmaceuticals and 10,000 pilferage claims that Zurich used to
the world, with the consumer having no idea
high-value commodities that are easily sold see in the 1990s, we are now seeing uSD
of the source of those goods and whether
on the black market, especially in South-east 500,000 or uSD 1 million theft claims.
that source is legitimate.
Asia and Latin America.
In the past: Pilferage The opportunities created by significant
In the uS, perhaps surprisingly, it is food and
Cargo security within containers was a values concentrated in a container, as well
beverages that are most commonly stolen.
challenge in the past. The industry tended to as the lack of traceability and the ease with
According to FreightWatch International’s
consolidate smaller loads into one container, which goods can be sold in a market where
Bi-Annual Cargo Theft Report (july 2010),
which meant containers had to be opened it cannot be tracked, has made cargo theft
food and beverages (notably meat products,
and closed a number of times during the much more attractive. Organized criminal
canned beverages and raw products such as
transportation process, resulting in high gangs are now sophisticated. Specific goods
sugar and coffee) are the most commonly
levels of pilferage. Pilferage happened largely can be targeted for theft and stolen or sold
stolen cargo products in the uS, accounting
in the ports where the stevedores would to order based on the demand of the
for 22% of all theft incidents. This is followed
help themselves to the goods being shipped. black market.
>
by electronics, which account for 19%.
11

12. >
warned them to prepare for a significant
increase in theft. Zurich is working with them
now to mitigate this increased exposure.
Sophisticated criminals
tracking cargo
Criminal gangs are stealing containers,
attacking warehouses where the products
>
are stored, and taking products that are in
strong demand. The sophistication of these
criminal gangs is highlighted by their ability
to exploit online freight exchange websites
by hacking into those sites and ‘stealing’ the
The increase in major hijacking and violent information. Additionally, the ease of access
crime is also due to the fact that the and user-friendliness of cargo tracking
distribution network is changing. In the uS, facilities offered by large forwarders and
for example, many of the high-value goods transport providers also represents a new
that enter the country come in via Mexico potential security threat to shippers of
where criminal gangs are much more active. valuable or high-target goods.
The industry has become much better at
Is your product in demand?
securing container shipping information from
An example of how organized the criminal
the days when terminals would post
gangs now are, and how they steal to order,
information about the shipper and container
was highlighted during an analysis of a
number for all to see. There is, however, still
customer’s loss portfolio. The customer had
enough criminal reconnaissance conducted
seen the number of thefts of one of its
by gangs that allows them to literally ‘shop’
products, a mobile phone, fall significantly,
for what they want to steal. This is a problem
to virtually none in the previous 12 months.
as much in northern europe and the uS as it
is in Mexico, Argentina or Brazil.
The reason was not an improvement in
security or re-routing – it turned out that It is clearly important for companies to assess
no-one wanted their outdated product as it the security around their own website, or the
had been replaced by demand for newer website that they are using to track their
technology in the form of their competitor’s cargo. This should, however, only be one
smart phones. That customer was preparing to part of an overall integrated network of
launch a smart phone of their own, and Zurich security and loss prevention measures.
12

13. insights 11
insights 11
Vulnerabilities: The final leg of Claim protocols
the journey Claim protocols are documents issued
The majority of cargo theft or accidental after the inception of a marine policy that
damage losses occur during the final two or establish the people and process involved
three days of the transportation, rather than in mitigating a loss after it occurs. It is
at sea. When cargo is onboard a ship it is vital to have them in place for the
easier to protect, but after it has been following reasons:
unloaded at the port, and the final
• Claim protocols identify all personnel
distribution by road or rail begins, it becomes
from the insured, insurer and the
much more vulnerable. Of course, there can
producer who should be involved in the
be damage to cargo at sea, or there can be
loss, and the process by which the claim
a vessel casualty, but once it gets onto the
will move from first notice of loss
roads or rail, the cargo is more susceptible to
through settlement and recovery.
loss and / or damage from theft or damage
incidents during transportation.
Customer checklist: • They allow the insured and the insurer
Helping protect cargo on to discuss potential claim situations
Infrastructure deficiencies the road before they arise and determine how
The nature of the infrastructure in some • Ensure that secure parking they will be handled and who will be
territories is a major concern when it comes is used where available. notified. In this way, when a loss occurs,
to inland transit. Inland transit in Mexico, everyone involved is familiar with the
• Install tracking devices and process and can quickly react to mitigate
China and especially India can sometimes be
have a plan to intervene, the loss.
problematic, particularly away from ports
if necessary.
and large cities. In some territories, the
• Claim protocols also serve as an outline
quality of warehousing is poor, secure • Improve container security. for the insurer’s global team to recognize,
parking for trucks is non-existent, road
• Secure online cargo and appropriately respond to, the losses
quality is inferior, intermediate storage
tracking facilities. of an insured that might occur in another
conditions are weak and there can be
country or region of the world.
banditry in remote areas. • Check routes in advance
and identify alternatives.
In India, the infrastructure is not up to speed,
and the quality of roads, bridges and tunnels • Train employees in handling
The majority of cargo theft or
is questionable. China is investing heavily in and packing of cargo. accidental damage losses occur
infrastructure, so improvements away from
• Know your logistics provider during the final two or three
large ports and in the south of the country
will help the transportation of cargo as
and review freight contracts days of the transportation,
regularly. rather than at sea.
growth continues.
13

14. Declaring
general average
General average
General average is a global maritime industry loss mitigation convention whereby ship owners and cargo interests
proportionately contribute to fully reimburse those in the venture who sustained loss or damage in preventing
the total loss of a vessel, crew and its cargo. undamaged interests must confirm their contribution by way of a
financial guarantee before their cargo or interest is released while their final contribution is calculated,
Sometimes years later.
General average losses require the coordination of both local and global marine claim professionals. Marine
claim experts locally must manage the loss and interact with local authorities while global resources
assist in arranging the financial guarantee security and communicating with the various interests
involved in the venture.
Increase in general averages
A noticeable trend at the moment is the declaration of many more general average claims.
The majority of these events are the result of engine failures and mechanical breakdown of
the vessel. This is, in part, directly attributable to the lay-up of the world fleet during the
economic downturn.
Of course, this depends on the carrier, and some are much better at maintaining their
fleets than others. But the laying-up of the world fleet has been a big contributor to
the number of general averages that have exploded onto the marine cargo market in
the last two years, in comparison to the number of general averages that were
declared in the previous five-to-seven years. General average was more rare in the
mid-2000s, because with robust freight rates it made more sense to keep the vessels
running and properly maintained.
However, when they are laid up, vessels are often poorly maintained, or not maintained
at all. When the economy starts to recover, these vessels are brought back into service
without any major refits or significant maintenance having been carried out, resulting
in an increase in breakdowns and fires.
14

15. insights 11
insights 11
CaSe Where
STuDy is my cargo? A common problem can be securing the timely
release of cargo, especially where the goods are perishable. A classic scenario would be
an insured purchasing an entire ship load of perishable goods. During departure, the
vessel is grounded by heavy weather. The insured would be notified that their cargo
had been delayed by the event and would not be delivered on schedule. In order to
have their cargo released for delivery to the final destination on board on another
vessel, they would have to agree to pay significant additional money to the vessel
owners for their contribution toward the damage sustained in the incident to the vessel
and cargo under General Average.
General Average Guarantee
In such a situation, Zurich marine claims teams would co-ordinate their activity in its
various offices worldwide to engage the vessel owners, and agree to post a General
Average guarantee for the sum required to allow the goods to be released. Zurich’s
claims teams could assist in arranging for the trans-shipment of the cargo from the
damaged vessel to a new vessel.
The cargo could be delivered with no damage sustained. The goods could then
subsequently be sold in the local market and the insured would be able to continue
conducting business with no out-of-pocket expenses. The insured would see minimal
disruption to their operations and would have met their obligations to their customers.
Global experience
In such a case, little could have been done to avoid the situation and in the end, there
may be no damage sustained to the insured cargo. By selecting a global insurer with
local marine claim expertise, the financial obligations of the insured can be met and the
cargo delivered, with Zurich managing the claim to the advantage of both companies.
15

16. Salvage – posting security
Salvage guarantees
Salvage security posted by cargo owners is driven by an
arbitration board in London under the Lloyd’s open form
salvage contract. In that arbitration process, only certain
underwriters’ guarantees are recognized, primarily
underwriters in London with strong financials. A local insurer
in Malaysia might have difficulty being able to post its own
security, and may have to buy a bond or other financial
instrument to post security for salvage, which would be
charged back, and become part of the cargo claim.
Recognized guarantees mean
fewer delays
The financial security and salvage guarantees issued by
multinational insurers are recognized by the salvage arbitration
group in London directly. It can be issued quickly, is accepted
immediately, and the cargo can be released much faster for
delivery on to its final destination. until an acceptable
guarantee is posted, whether it is for general average or for
salvage security, the cargo will not be released. A centralized
global process for the review and vetting of salvage security
affords insureds the opportunity to have guarantees issued
promptly on their behalf for the quick release of their cargo.
indirect costs for customers due to delays in the release of cargo
• Cancellation of the customer’s contract or purchase order for failure to meet the delivery schedule.
• Cancellation of future orders from the customer and adverse selection to an alternative supplier resulting in future
revenue declines.
• Cancellation or reduction in orders from other customers arising from industry knowledge of the delays experienced.
• Interruption of the manufacturing flow to replace the goods if there is an extended delay.
16

17. insights 11
CaSe
STuDy
There’s a hole Risk mitigation
in my container!
Such a problem can be avoided by a simple loss
prevention measure. Having a container inspection
program put in place by the supplier, the hole in the
Another example of the sort of problems encountered
container could be identified before the container is
by insureds concerns issues with containers and
loaded with the cargo for shipment to europe, and
packaging. A typical scenario could involve retail industry.
the entire loss could be avoided.
A line of clothing that is manufactured in Asia needs to
be shipped directly to a european buyer just in time for Inspection programs of containers and packaging is
its seasonal release. a simple yet vital risk mitigation measure that may
remove or reduce potentially devastating, and yet
However, it would only take a fresh water leak from a
avoidable, losses.
hole in one of the sea containers carrying a part of the
shipment of clothing during the course of transit, to
The solution
cause a humidity condition within the container. While
In such a situation, the Zurich Marine claims team,
the clothing would not directly be damaged by the
in conjunction with local appointed experts, would
water, the moisture would allow a mildew odor to affect
implement an action plan that utilized a cutting edge
that part of the shipment.
ozone treatment process to eliminate the mildew odor
and recondition the clothing, making it once again
Shipment rendered un-saleable
saleable by the european buyer or distributor.
When delivered to the distribution centre, the clothes,
while physically undamaged, would have a smell that This solution would not only have reclaimed the affected
would deter any would-be buyer, also affecting the other clothing, but also prevented a larger issue for the
clothes on the store shelves. It might be that not all the insured. The entire order could have been cancelled due
clothes would be affected, perhaps only particular sizes, to damage to a portion of it, and may have jeopardized
but the clothes would be rendered un-saleable. The the overall relationship between the designer and retailer
result would be that the entire clothing line, and its had the clothing line not been available for sale at the
launch, could be threatened. outset of the new season.
17

18. Obligations in
international
trade
18

19. insights 11
Since 1936, the International Chamber of Commerce (ICC) in Paris has published the
Incoterms® or an international, uniform regulation of essential buyer and seller obligations.
They are used in offers, contracts, order confirmations, orders, conditions of purchase and
sale, and Letters of Credit.
until recently, the latest version of the terms Incoterms 2010 It is also important to remember that the
was from 2000. However, a new version has As a result of the new Incoterms, customers Incoterms do not regulate:
been released, as of january 1, 2011, known should be aware that:
• transfer of ownership, notification
as Incoterms 2010.
• the Incoterms must be explicitly agreed of defects
upon between buyer and seller with
What are Incoterms? • inability to deliver
reference to Incoterms 2010
The Incoterms are delivery terms for the
• handling of payments
national and international merchandise trade. • they may not contradict themselves in
the purchase contract • legal venue
They are obligations of a national and
international purchase contract between • they can now also be used for • and applicable law.
buyer and seller and, amongst other things, domestic business
The Incoterms are neither common law nor
clarify the questions:
• the destination location, destination port commercial usage.
• Who pays the transport cost to where? and destination terminal must be specified
more precisely than in Incoterms 2000.
• Where is the risk transfer, i.e. who For more information
assumes the risk, and when, in the event The ICC stresses that all contracts made on incoterms 2010 visit:
of damage or loss? under Incoterms 2000 remain valid after http://www.iccwbo.org/incoterms
2011. The ICC says that it recommends using
• Who must take out transport insurance
Incoterms 2010 after 2011, but parties to a
to where?
contract for the sale of goods can agree to
• Who is responsible for export and choose any version of the Incoterms rules
import clearance? after 2011. However, it is important to clearly
specify the chosen version.
19

20. Transport your goods
safely, on time and Cargo handling has always been an
without losses issue, but in recent years it has
become a major concern. It is easy
to see why – according to research
by the Swiss Federal Institute of
Technology*, a third of all deliveries
are damaged or delayed.
And it is estimated by the International union
of Marine Insurance (IuMI) that 60% of marine
claims losses during transit are caused by
inappropriate handling, packaging and/or
securing of goods.*
Frequency losses from
rough handling
Zurich became aware that something needed to
be done about the issue of correct handling of
goods in transit as a result of its work with a
major customer a couple of years ago.
In the course of a claims analysis study, Zurich
discovered that the main problem was not major
damage to cargo but more a question of
frequency losses. And the majority of these losses
20

21. insights 11
ZuRICH CARGO risk aCaDemY
were caused by rough or inappropriate handling, The solution: an e-learning platform / blended learning
problems with packaging and securing of goods, wrong Zurich’s answer is to launch the Zurich Cargo Risk Academy,** a simple online
handling of commodities, or the wrong choice of tool offering employees training on cargo handling, organized into different
container. Although the average loss was only around modules. For example, there is a module on handling dangerous goods,
uSD 22,000, frequency was the problem. another on packaging, as well as international trade regulations and terms.
Zurich customers can benefit from these complimentary courses, which are
Lack of training accessible anywhere in the world.
Further analysis revealed that many of the workers
Where more detailed or specialized knowledge is required, a blended
lacked basic knowledge about the correct handling of
learning system is being developed which also involves face-to-face training.
goods and had very little or no training. Zurich found
that in the transport sector generally there was very The training focuses on:
little attention paid to training and tuition of employees.
• employee and asset protection
Training opportunities in the open market were either
unavailable, unsatisfactory or too expensive. • compliance with legal and regulatory requirements
Zurich saw that the training issue needed to be addressed • how to reduce frequency losses
and created a multi-lingual tool for Zurich customers to
• how to maintain business continuity
provide online training on correct cargo handling, from
choosing the right packaging and the right container to • how to manage costs of risks
loss prevention advice for cargo handlers.
• balance sheet protection
An industry problem • sharing of knowledge and best practice.
It soon became clear when Zurich looked at other
Overall, the Zurich Cargo Risk Academy aims to help global corporations
customers that rough handling was a major problem for
reduce their frequency losses in this area, and to comply with their duty of
the sector as a whole, largely driven by cost factors and
employee education in a cost-effective, geographically independent way.
a lack of training options. Zurich saw an opportunity to
help customers by providing a global tool to share best To learn more about the Zurich Cargo Risk academy visit
practices in cargo handling. www.zurichcargoriskacademy.com
*Swiss Federal Institute of Technology Zurich, university of St. Gallen, 2010.
**Planned launch in selected european countries is August 1, 2011.
21

22. ensuring safety in the
rs
kaging of containe
pac
Points of consensus
The Forum adopted a set of ‘Poi
nts of Consensus’,
which included the following:
earlier this year, 83 government, employer and
• Many accidents and problem
s in the transpor t sector
worker representatives met at the Global Dialogue are attributed to poor prac tice
s in relation to
Forum on Safety in the Supply Chain in Relation packing of containers, including
overloading or
to Packing of Containers2, organized by the misdeclaration of contents.
International Labour Organization. • Lack of training and knowle
dge of available
standards is a significant reason
amongst others
The purpose of the Forum is ‘to reach a better understanding of the for poor prac tices in the packing
of containers.
reasons that lead to the application of poor practices in packing of
• Inadequate dissemination of
containers that result in industrial accidents as well as to reach existing standards and
guidance, and lack of awarene
consensus on a common approach throughout the supply chain ss of this information,
not only among workers and thei
for the correct application and enforcement of the appropriate r employers, but
other stakeholders and authorit
standards for packing containers.’ ies, such as police,
occupational safety and health
(OSH) inspectors, OSH
doc tors, etc.
• In many cases, there is a lack
of development of
appropriate plans for the consolid
ation, distribution,
segregation and securing of carg
o in containers.
6 http://www.ilo.org/public/english/dialogue/sector/techmeet/gdfpc11/
gdfpc-consensus.pdf
22

23. insights 11
• Suitable risk assessments are
not always carried • Awareness of and training on
out in the supply chain so that consistent
the levels of risks standards for the whole supply
would be identified, and particula chain
r problems are necessar y.
would be targeted.
• It is important to ensure that
• Those responsible for packing training is more
containers are not focused and simple.
reached by the existing guidance
on good prac tices
for packing containers. • Once the code of prac tice ema
nating from
• There is a need for a system the revised IMO –ILO –UNECE guid
for the inspection of elines for
packing CTUs is adopted, it will
containers for proper packing be important
at the point of origin. to ensure it is followed up with
user-friendly
• Misdeclaration and the lack publications (training material,
of adequate tool kits, etc.)
information on container content and that the code, and the acco
s and weight. mpanying
• Different consignments are publications, are made free and
packed in the same easily
accessible and are widely dissemi
container and unpacked without nated.
the appropriate
planning and coordination. • There is a need to improve
the collection
• It is agreed that safety in the and publication of data on acci
supply chain can dents related
to the improper packing of con
be improved by implementing tainers. In this
good prac tice regard, consideration should be
through international standard given to
s on the packing reviewing the standard classifi
of containers. cation of
accidents in order to identify road
and
• It is agreed that an IMO –ILO other accidents that are related
–UNECE* code of to improper
prac tice on the packing of carg packing of containers.
o transpor t units
(CTUs) is necessar y. The three orga
nizations are
requested to proceed with the
revision of the *International Maritime organizatio
existing guidelines for packing n (IMO)
of CTUs which International Labour Organization
(ILO)
would form the code of prac tice. united nations economic Commissi
on for europe (uneCe)
23

24. Risk engineering:
greater peace of mind
Everyone knows that prevention is better
than cure, or indeed, that risk mitigation
is better than having a claim.
24

25. insights 11
But this is even more true in a world where Re-routing to avoid delay
just-in-time delivery and time-sensitive For example, a Zurich customer required information
projects have dramatically increased the about the transport of automotive products to
cost of business interruption or delay. In a Russia. With just-in-time processes, any delay would
time of cost-cutting and belt-tightening, have been very expensive for the company. Risk
risk engineering can often be seen as an engineers were able to offer four alternative routes,
additional expense, but the value of reducing with a risk grading for each route, allowing the
losses and interruptions can far outweigh client to balance the various alternatives with the
the cost. customer’s transport cost estimates.
now is the time for
risk engineering
It can be argued that a period of economic Customer risk engineering checklist
downturn is exactly the time that companies Has a risk analysis been carried out?
should be investing in loss mitigation. In
Where are losses occurring?
difficult times, companies simply cannot
afford losses and the delays they can entail, Why are losses occurring?
and when margins are tight, they may not Is the bigger picture being looked at, especially with
have the financial strength to cope with regard to supply chain interruption? Have interdependencies
losses and lost customers. Risk prioritization been mapped?
is essential in order to optimize the value
Is there a mitigation plan in place?
from the risk management budget.
Is the mitigation plan being effectively communicated to
Risk engineering can be particularly
all employees?
important for companies that are starting
to expand and to export their products. Is there regular monitoring of the effectiveness of loss
As companies enter new markets, such as prevention measures?
Brazil, Russia, India and China, it is vital that Is the data relating to loss prevention being collected?
they have access to as much information as
Is there an effective system of risk reporting?
possible beforehand so they are aware of
the risks they may face. Are costs of risks and cost benefit analyses being
carried out?
Is the human element being taken into account?
...the value of reducing
Is there a global risk management program in place,
losses and interruptions can including an effective multinational insurance program?
far outweigh the cost...
>
25

26. Loss trends and patterns Case study: Water damage to goods
>
Claims professionals see the loss trends and An insured had a loss trend of water damage to their products originating out
developments: of Indonesia. The trend was identified by the marine claims adjuster who handled
• How thefts are being carried out. the losses as they were discovered upon delivery of the product in the uS.
The underwriter was advised of the loss trend, and contacted the marine risk
• Which transportation routes are engineering department who then arranged for an inspection of cargo loading
higher risk. and shipping procedures at the insured’s supplier in Indonesia.
• Which transportation companies The risk engineer determined that the supplier did not conduct an inspection
are security minded. of the containers when they were received for the loading of the insured’s
• Which companies have a higher cargo. Such an inspection would have identified deficiencies in the container.
theft incident record. By implementing a container quality check before loading the insured’s goods
for transit to the uS, future similar losses could be prevented or reduced.
Further, the claims and underwriting team were able to advise the insured on
improving its freight contracts with the carrier and increasing the carrier’s liability
if damage occurred to the insured’s cargo as a result of the carrier’s negligence.
This information on local loss development
patterns can be collected and passed to the
risk engineering teams who can then share
them with customers to help develop
economically viable, tailor-made solutions.
These might include:
• alternative transportation providers
or routes
• the implementation of dedicated routing
• the use of pre-planned and secure
rest stops.
26

27. insights 11
Common-sense loss prevention damage to the clothing. Human error is a
There are many areas where risk engineering major loss factor that can be mitigated
can make a difference, including security, through proper training and monitoring.
employee training, routing options, packing
improvements and cargo handling. Some risk The human element
engineering measures can be simple and It is important to remember that the human
inexpensive, but can make a huge difference. element is crucial to risk engineering systems
And while some may be technical or and devices are useful, but it is often the
innovative, others may be more about human element that can have the biggest
common sense. impact on mitigating risk. Training is
invaluable for increasing employee
A claim paid by Zurich involved a turbine
awareness, so that they become involved
being transported from Berne, Switzerland to
and part of the solution.
Chicago, Illinois. The first part of the trip was
managed with the help of a special flat-bed Risk engineering is not just about preventing
trailer. However, the route had not been and mitigating losses and reducing potential
checked before the shipment, and at the disruptions to operations, but is increasingly
entrance to a tunnel, the driver of the about providing the correct risk analysis
4.20 meter high rig failed to notice the methods. These can then enable the
sign saying the maximum vehicle height is understanding and reduction of the total
3.80 meters. needless to say, the turbine cost of risk, as well as prioritizing risk
was heavily damaged as the truck crashed improvements and enabling informed
into the tunnel. Checking routes is an decisions around optimizing future capital
essential and basic part of loss mitigation. expenditures and tracking and measuring
risk improvements.
A claim paid by Zurich involved a shipment
of clothing that was on its way by road
from Rotterdam, netherlands, to Zurich,
Switzerland. A storm broke out with ...systems and devices are useful,
torrential rain, and because the truck driver
but it is often the human
had forgotten to properly tie down the
tarpaulin, the cardboard boxes were soaked
element that can have the
by rain and road spray, causing water biggest impact on mitigating risk.
27

28. Projects:
the way ahead
infrastructure projects are beginning Infrastructure projects are becoming attractive again to
to see growth again after a quiet investors as people look to get some sort of return for
their money, with the recent focus on power plants and
period. From the middle of last year, refineries, both oil and chemical.
there has been a noticeable increase in
The project challenge:
such projects, especially in the Middle On time and on schedule
east, north Africa, the uS and Asia. The big challenge associated with large-scale infrastructure,
power plant and industrial projects is bringing assets online
and on schedule, and so the management of the marine
and transit risks becomes crucial. Moving oversize,
expensive, ‘one off’ or bespoke shipments into extremely
complex settings, markets and jurisdictions is a challenge.
It is even more of a challenge to ensure that this is done
on schedule.
28

29. insights 11
insights 11
Moving oversize,
expensive, ‘one off’ or
bespoke shipments into
extremely complex
settings, markets and
jurisdictions is a challenge.
Delay in start-up For large projects like this, it makes sense to
Many infrastructure projects involve the have a global insurer involved that can provide
transportation of key components, and any coverage running across different insurance The benefits of integrated
delay in their arrival can have major cost lines, such as DSu, marine and construction. teams for customers
implications. Insurance plays a key role here,
ensuring that if there is a problem, claims Integrated teams A single point of contact for
can be resolved quickly and efficiently, thus The insurer’s job is, of course, to provide risk the customer.
minimizing delays. Marine Delay in Start-up transfer, to identify and manage risks, and to Claims are dealt with quickly and
(DSu) cover, a form of business interruption, provide global claims services. This requires efficiently so that supply chains
is increasingly in demand from project not only an insurer with a global presence, aren’t interrupted and projects
owners/investors, and is also a requirement but also one where underwriters, risk aren’t delayed.
from many lenders where the project relies engineers and claims specialists all work
on finance. together as an integrated team. Only a The ability to share information:
handful of insurers in the marine sector have claims information is vital for risk
Seamless cover dedicated marine risk engineering personnel engineering to identify where
Large infrastructure projects often involve – most of them use surveyors. problems lie and how mitigation
a range of insurable risks. There may be a measures can be best applied.
Marine underwriting, claims and risk
supply element, a property element, a Ensure that claims protocols are
engineering teams cannot operate in isolation
marine transit element, business interruption, in place from the start.
and should work closely together as a unit, not
construction all risks cover, and then initial
separate entities. This can lead to an efficient Underwriting can reflect the risk
start-up and operation. Increasingly
workflow and relevant risk improvements. engineering efforts of the customer.
companies are looking for seamless cover,
The value of such integrated teams is
providing protection from the earliest stages Improved policy terms and
particularly important when the insurance
of the project through completion. recovery prospects.
requirements of a project involve a range of
risks in different geographic locations. >
29

30. the way ahead
Projects:
>
The Sasol-Huntsman project
One of the leading chemical maleic anhydride producers in Delivering a key component
europe, sasol-Huntsman, expanded their production capacity in The challenge was not only to ensure that
order to meet growing demand for their products. there was no damage to the reactor, but that
it arrived at the plant on time. The reactor
was a key component and without it the
new capacity would be unable to begin
production, representing a major business
interruption and putting Sasol-Huntsman’s
significant investment at risk.
Considerable risks
The risks were considerable – the loading
and unloading procedures were particularly
critical due to the enormous weight of the
reactor. Risks during the transportation
included possible damage to the reactor, or
even a total loss. Time delays during the trip
would cause the customer to suffer potential
production losses and if the reactor were
A key component was a new chemical totally destroyed, the production of another
reactor that was manufactured by MAn reactor would take another two years. Zurich
DWe in Germany, also a Zurich customer. provided erection All Risk, Marine Transit,
The reactor had been built at MAn DWe’s and Delay in Start up cover for the project,
factory in Deggendorf, Germany, and was to as well as risk engineering advice for the
be transported 600 kilometers, by water and transportation of the reactor.
road, to the Sasol Solvents Site in Moers also
in Germany. The two-week trip was not a Successful transportation
typical, everyday transportation of goods. The transportation comprised a 600-kilometer
The reactor had a diameter of nine meters, a trip via various rivers including the Danube,
height of eight meters, and weighed 570 tons the Main-Danube Canal, the Main, the Rhine,
– which is equivalent to 350 saloon cars! and then, after a two-week trip, it was loaded
onto a truck to be taken to the Moers plant
The risks were considerable – with a police escort. The reactor arrived safely,
the loading and unloading undamaged and on time, and the new
capacity remained on schedule to start
procedures were particularly
production on time.
critical due to the enormous
weight of the reactor. See the video and full story on
http://www.zurich.com/globalmarine/
30

31. insights 11
insights 11
Piracy:
not going
away
Despite increased attention from governments,
global organizations and the maritime sector,
piracy continues to be a major problem.
The un Secretary General Ban Ki-moon, spoke earlier this year
at the launch of the World Maritime Day, where the theme for
2011 was: ‘Piracy: Orchestrating the Response’1. Ki-moon said:
“Piracy seems to be outpacing the efforts of the
international community to stem it… Despite the
deployment of significant naval assets to the region,
the number of hijackings and victims has risen
significantly. more needs to be done.” >
7http://www.un.org/news/Press/docs/2011/sgsm13386.doc.htm
31

32. > The nature of the problem
The statistics reveal the scale of the problem. More people were
taken hostage at sea in 2010 than in any year on record, according
to the latest global piracy report from the International Chamber
of Commerce (ICC) International Maritime Bureau (IMB). Pirates
captured 1,181 seafarers and killed eight. A total of 53 ships
were hijacked.
The number of pirate attacks against ships has risen every year for
the last four years, the IMB revealed. Ships reported 445 attacks in
2010, up 10% from 2009. While 188 crew members were taken
hostage in 2006, 1,050 were taken in 2009 and 1,181 in 2010.
According to the IMB, hijackings off the coast of Somalia accounted
for 92% of all ship seizures last year with 49 vessels hijacked and
1,016 crew members taken hostage. A total of 28 vessels and 638
hostages were still being held for ransom by Somali pirates as of
31 December 2010.
32

33. insights 11
insights 11
Of the 18 ships hijacked worldwide in the
first three months of the year, 15 were
captured off the east coast of Somalia...
Somalia – no signs of improvement
According to specialist intelligence company exclusive
Analysis, there has been no improvement in the number of
hijacked vessels being taken by Somali pirates: ‘The shore
situation in Somalia has made little difference to the ability
of pirates to carry out their work with impunity. The
number of ships held has increased dramatically in the last
year – they are also being kept for longer before ransoms
are paid.’
Piracy hits all-time high
Piracy at sea hit an all-time high in the first three months of 2011, The company said that the last year has seen attacks
with 142 attacks worldwide, according to the International Chamber across the whole Somali Basin and Arabian Sea but
of Commerce (ICC) International Maritime Bureau’s (IMB) global concentrating in the Arabian Sea for the last three months.
piracy report. The increase was driven by a surge in piracy off the “We expect to see more attacks and hijacks off Tanzania
coast of Somalia, where 97 attacks were recorded in the first quarter and Kenya in the coming months with some activity into
of 2011, up from 35 in the same period last year. the Mozambique Channel,” it adds.
Worldwide in the first quarter of 2011, 18 vessels were hijacked, Method of attack
344 crew members were taken hostage, and six were kidnapped. There has been little change in the method of piracy
A further 45 vessels were boarded, and 45 more reported being attack, using a mother ship as a base and then sending
fired upon. In the first three months of 2011, pirates killed seven out fast skiffs with five or six pirates armed with AK-47,
crew members and injured 34. rocket propelled grenades and long ladders for scaling the
Of the 18 ships hijacked worldwide in the first three months of the ship’s side.
year, 15 were captured off the east coast of Somalia, in and around According to exclusive Analysis, the use of mother ships is
the Arabian Sea and one in the Gulf of Aden. IMB figures showed not new, but the size and quantity has increased – they
that Somali pirates were holding captive 596 crew members on give range and sustainability to the pirates for some weeks
28 ships as at the end of March 2011. and the ability to carry many pirates in order to carry out
multiple attacks. exclusive Analysis has seen up to 60 on
nine incidents were reported off Malaysia in the first quarter of >
2011, with five incidents recorded for nigeria. one mother ship.
33

34. >
Ships held for longer
The average length of time that ships are held for has been steadily
increasing over the last year – around 120 days at the moment, some
longer, some shorter – depending on the owner’s response to the
ransom demands, says exclusive Analysis. On the issue of the pirates’
attitude to cargo, exclusive Analysis says they have seen little
evidence of cargo being used, looted or transshipped in any
significant quantities: ‘The bulker, tankers and container vessels
cannot have their cargo removed. The pirates have no ports or
capability to do so. normally the cargo will be part of the deal –
in most instances it can’t be moved anyway, although perishable
goods will be lost.’
Defensive measures
What are the most successful, cost-effective defensive measures that
can be taken by ship owners to deter attacks? exclusive Analysis lists
them in order of success:
• Armed guards
• A ship that can do more than 20 knots
• Razor wire
• An alert crew
34