insightsmarine riskjune 2011              Protecting	your	                assets in transit                      Also in t...
Contents    03 Welcome                                         18 Obligations in international trade    03 introduction   ...
insights 11Welcome                                                                   IntroductionWelcome to this edition o...
World	trade:	    the	only	way	is                                   up    It has been a tough two or three years for compan...
insights 11                                                                                                               ...
>                                                  effects of the downturn                                                ...
insights 11Doing the	                           right	thingCompanies that trade internationally face                      ...
>A report last year, “G-20   existing regulations are being strictly               Greater protectionismProtection in the ...
insights 11   If these products are damaged in transit,   that company is unlikely to have any   representatives in Kenya ...
Learning	from claims	     In an economic downturn, there is typically an increase in the frequency and severity of marine ...
insights 11                                                                                                               ...
>                                                     warned them to prepare for a significant                            ...
insights 11                                                                                                               ...
Declaring     general	average     General average     General average is a global maritime industry loss mitigation conven...
insights 11                                                                                                    insights 11...
Salvage                                                     	–	posting	security     Salvage guarantees     Salvage securit...
insights 11CaSe	STuDyThere’s	a	hole	                                                Risk mitigationin	my	container!	      ...
Obligations in	     international     trade18
insights 11Since 1936, the International Chamber of Commerce (ICC) in Paris has published theIncoterms® or an internationa...
Transport	your	goods	     safely,	on	time	and	    Cargo handling has always been an     without	losses          issue, but...
insights 11                                                              ZuRICH CARGO risk aCaDemYwere caused by rough or ...
ensuring	safety	in	the	                         rs            kaging	of	containe         pac                              ...
insights 11  • Suitable risk assessments are                                  not always carried                 • Awarene...
Risk	engineering:	     greater	peace	of	mind         Everyone knows that prevention is better         than cure, or indeed...
insights 11But this is even more true in a world where         Re-routing to avoid delayjust-in-time delivery and time-sen...
Loss trends and patterns                       Case	study:	Water	damage	to	goods>     Claims professionals see the loss tr...
insights 11Common-sense loss prevention                        damage to the clothing. Human error is aThere are many area...
Projects:	                            the	way	ahead     infrastructure projects are beginning     Infrastructure projects ...
insights 11                                                                                                               ...
the	way	ahead     Projects:>     The Sasol-Huntsman project     One of the leading chemical maleic anhydride producers in ...
insights 11                                                                 insights 11    Piracy:	not	going		awayDespite ...
>    The nature of the problem     The statistics reveal the scale of the problem. More people were     taken hostage at s...
insights 11                                                                                                               ...
>     Ships held for longer     The average length of time that ships are held for has been steadily     increasing over t...
Zurich Marine Risk Insight 2011
Zurich Marine Risk Insight 2011
Zurich Marine Risk Insight 2011
Zurich Marine Risk Insight 2011
Zurich Marine Risk Insight 2011
Zurich Marine Risk Insight 2011
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Zurich Marine Risk Insight 2011


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Zurich Marine Risk Insight 2011

  1. 1. insightsmarine riskjune 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. 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 Contributors2
  3. 3. insights 11Welcome IntroductionWelcome to this edition of insights on Marine. is there light at the end of the tunnel? Are we through the recession? The latest figures fromIn this insights, we look at how world trade is recovering, the lessons the World Trade Organization (WTO) certainly suggestthat can be learned from claims, and the benefits of risk engineering. that things are improving rapidly, with the fastest growthAbove 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 morefor 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 moreobligations in international merchandise trade, the moves towards a General Average claims being declared, cargo theftconsensus on what needs to be done about the issue of safety in the has increasingly become the domain of large organizedpacking of containers, the current focus on compliance around the criminal gangs, and piracy remains a potent, and the latest picture of the Somalian piracy threat. The infrastructure in some developing regions continuesKind 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. 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. 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 theRecovery in 2010 import side, accounting for 8% of world merchandiseBut there was a good recovery in 2010. According to WTO imports according to WTO figures.2 The growth isfigures, 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 dollars1950), 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 onexport growth of nearly 13% in 2010, compared to a 16.5% cargo transportation.average increase in the rest of the world.3Announcing 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 has helped the world escape recession in 2010. 2 WTO News Release March 26, 2010:, the hangover from the financial crisis is still with news_e/pres10_e/pr598_e.pdfus.” WTO economists forecast that world trade growth 3 WTO News Release April 7, 2011: 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: optimism for the future news_e/news11_e/rese_14mar11_e.htmWhile there is no tangible ‘feel good factor’ in the import/export trades, since 1 january 2011 we have seen cautiousoptimism in europe in terms of turnovers – customers aretalking about modest increases, but they are still very smalland certainly not yet back to the levels pre-crisis. This is in > 5
  6. 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. 7. insights 11Doing the right thingCompanies that trade internationally face Regulatory restrictionsmany challenges, not least of which is the Many countries around the globe have some form of regulatory restrictions, which are designed to protect theissue 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 insurancemeant a growing demand for global insurance programs,and in particular for marine insurance. At the same time, the • compulsory insuranceseconomic downturn has resulted in a fundamental change • reinsurance restrictionsin the area of compliance, and this has had a major effecton the purchasing of marine insurance. • exchange controls • national pools. > 7
  8. 8. >A report last year, “G-20 existing regulations are being strictly Greater protectionismProtection 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 reportthe 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 taxingInternational Chamber of those premiums. As a result of the downturn, International Chamber of Commerce’s (ICC) Research Foundation found that all G-20Commerce’s (ICC) Research many countries are looking to have their own countries have implemented protectionistFoundation 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 drivingG-20 countries have a lot of the regulatory issues. By September 2009, the G-20 wereimplemented protectionist responsible for 172 such measures beingtrade measures over the Consumer protection laws implemented, with hundreds more in thelast 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 5 markets, they need to know that they are Protection_in_the_Wake_of_the_Great_Recession.pdf fully compliant.8
  9. 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 problemLocal representation Where goods are being stored in a countryTake, 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 complianceshow 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 penaltiesdamaged in transit, that company is unlikely policies that will respond in the event of associated with non-admittedto have any representatives in Kenya to take a loss. insurance?care of the problem. Compliance goesbeyond 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 bea 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 andMarine 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 thea territory where you may not have any sort What compulsory cessions are required confines of those regulations as well asof base or representation. Many claimants (national pools, reinsurance, etc)? regional and global sanctions, all within aare outside of the country where the policy centrally controlled overall program. How can premium be fairly allocatedis 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 theWith 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 compliancego into storage and distribution. with the regulations. 9
  10. 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. 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 areaAlthough largely unrelated to the economic of marine theft claims globally, from low now: Organized criminal gangs Theft is now on a much bigger scale anddownturn, theft and hijacking of cargo is an value pilferage claims to an increase in the involves organized crime due to a lucrativeincreasing problem. There is still a very high hijacking and theft of full container loads. black market. With the expansion of thefrequency of the targeting and successful They are fewer in number but much bigger global economy, goods can be ordered easilytheft of consumer retail goods, particularly in value. Rather than the uSD 5,000 or uSD and quickly on the internet from anywhere inconsumer electronics, pharmaceuticals and 10,000 pilferage claims that Zurich used to the world, with the consumer having no ideahigh-value commodities that are easily sold see in the 1990s, we are now seeing uSD of the source of those goods and whetheron 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 significantIn the uS, perhaps surprisingly, it is food and Cargo security within containers was a values concentrated in a container, as wellbeverages that are most commonly stolen. challenge in the past. The industry tended to as the lack of traceability and the ease withAccording to FreightWatch International’s consolidate smaller loads into one container, which goods can be sold in a market whereBi-Annual Cargo Theft Report (july 2010), which meant containers had to be opened it cannot be tracked, has made cargo theftfood and beverages (notably meat products, and closed a number of times during the much more attractive. Organized criminalcanned beverages and raw products such as transportation process, resulting in high gangs are now sophisticated. Specific goodssugar and coffee) are the most commonly levels of pilferage. Pilferage happened largely can be targeted for theft and stolen or soldstolen cargo products in the uS, accounting in the ports where the stevedores would to order based on the demand of thefor 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. 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. 13. insights 11 insights 11Vulnerabilities: The final leg of Claim protocolsthe journey Claim protocols are documents issuedThe majority of cargo theft or accidental after the inception of a marine policy thatdamage losses occur during the final two or establish the people and process involvedthree days of the transportation, rather than in mitigating a loss after it occurs. It isat sea. When cargo is onboard a ship it is vital to have them in place for theeasier to protect, but after it has been following reasons:unloaded at the port, and the final • Claim protocols identify all personneldistribution by road or rail begins, it becomes from the insured, insurer and themuch more vulnerable. Of course, there can producer who should be involved in thebe damage to cargo at sea, or there can be loss, and the process by which the claima vessel casualty, but once it gets onto the will move from first notice of lossroads or rail, the cargo is more susceptible to through settlement and recovery.loss and / or damage from theft or damageincidents during transportation. Customer checklist: • They allow the insured and the insurer Helping protect cargo on to discuss potential claim situationsInfrastructure deficiencies the road before they arise and determine howThe nature of the infrastructure in some • Ensure that secure parking they will be handled and who will beterritories 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 mitigateChina 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 outlinequality 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 lossesquality is inferior, intermediate storage tracking facilities. of an insured that might occur in anotherconditions 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 oris questionable. China is investing heavily in and packing of cargo. accidental damage losses occurinfrastructure, so improvements away from • Know your logistics provider during the final two or threelarge ports and in the south of the countrywill help the transportation of cargo as and review freight contracts days of the transportation, regularly. rather than at sea.growth continues. 13
  14. 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. 15. insights 11 insights 11CaSe 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. 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. 17. insights 11CaSe STuDyThere’s a hole Risk mitigationin 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 theAnother example of the sort of problems encountered container could be identified before the container isby insureds concerns issues with containers and loaded with the cargo for shipment to europe, andpackaging. A typical scenario could involve retail industry. the entire loss could be avoided.A line of clothing that is manufactured in Asia needs tobe shipped directly to a european buyer just in time for Inspection programs of containers and packaging isits seasonal release. a simple yet vital risk mitigation measure that may remove or reduce potentially devastating, and yetHowever, it would only take a fresh water leak from a avoidable, losses.hole in one of the sea containers carrying a part of theshipment of clothing during the course of transit, to The solutioncause 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, wouldwater, the moisture would allow a mildew odor to affect implement an action plan that utilized a cutting edgethat part of the shipment. ozone treatment process to eliminate the mildew odor and recondition the clothing, making it once againShipment 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 affectedwould deter any would-be buyer, also affecting the other clothing, but also prevented a larger issue for theclothes on the store shelves. It might be that not all the insured. The entire order could have been cancelled dueclothes would be affected, perhaps only particular sizes, to damage to a portion of it, and may have jeopardizedbut the clothes would be rendered un-saleable. The the overall relationship between the designer and retailerresult would be that the entire clothing line, and its had the clothing line not been available for sale at thelaunch, could be threatened. outset of the new season. 17
  18. 18. Obligations in international trade18
  19. 19. insights 11Since 1936, the International Chamber of Commerce (ICC) in Paris has published theIncoterms® or an international, uniform regulation of essential buyer and seller obligations.They are used in offers, contracts, order confirmations, orders, conditions of purchase andsale, and Letters of Credit.until recently, the latest version of the terms Incoterms 2010 It is also important to remember that thewas 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, notificationas Incoterms 2010. • the Incoterms must be explicitly agreed of defects upon between buyer and seller withWhat are Incoterms? • inability to deliver reference to Incoterms 2010The Incoterms are delivery terms for the • handling of paymentsnational and international merchandise trade. • they may not contradict themselves in the purchase contract • legal venueThey are obligations of a national andinternational 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 norclarify 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 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. 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 losses20
  21. 21. insights 11 ZuRICH CARGO risk aCaDemYwere caused by rough or inappropriate handling, The solution: an e-learning platform / blended learningproblems with packaging and securing of goods, wrong Zurich’s answer is to launch the Zurich Cargo Risk Academy,** a simple onlinehandling of commodities, or the wrong choice of tool offering employees training on cargo handling, organized into differentcontainer. 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 areLack of training accessible anywhere in the world.Further analysis revealed that many of the workers Where more detailed or specialized knowledge is required, a blendedlacked 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 foundthat in the transport sector generally there was very The training focuses on:little attention paid to training and tuition of employees. • employee and asset protectionTraining opportunities in the open market were eitherunavailable, unsatisfactory or too expensive. • compliance with legal and regulatory requirementsZurich saw that the training issue needed to be addressed • how to reduce frequency lossesand created a multi-lingual tool for Zurich customers to • how to maintain business continuityprovide online training on correct cargo handling, fromchoosing the right packaging and the right container to • how to manage costs of risksloss prevention advice for cargo handlers. • balance sheet protectionAn 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 corporationscustomers that rough handling was a major problem for reduce their frequency losses in this area, and to comply with their duty ofthe 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 tohelp customers by providing a global tool to share best To learn more about the Zurich Cargo Risk academy visit practices in cargo handling. *Swiss Federal Institute of Technology Zurich, university of St. Gallen, 2010. **Planned launch in selected european countries is August 1, 2011. 21
  22. 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 gdfpc-consensus.pdf22
  23. 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. 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. 25. insights 11But this is even more true in a world where Re-routing to avoid delayjust-in-time delivery and time-sensitive For example, a Zurich customer required informationprojects have dramatically increased the about the transport of automotive products tocost of business interruption or delay. In a Russia. With just-in-time processes, any delay wouldtime of cost-cutting and belt-tightening, have been very expensive for the company. Riskrisk 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 thelosses and interruptions can far outweigh client to balance the various alternatives with thethe cost. customer’s transport cost is the time forrisk engineeringIt can be argued that a period of economic Customer risk engineering checklistdownturn 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 cannotafford 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 withhave the financial strength to cope with regard to supply chain interruption? Have interdependencieslosses 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 toRisk engineering can be particularly all employees?important for companies that are startingto expand and to export their products. Is there regular monitoring of the effectiveness of lossAs 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 ofthe 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. 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. 27. insights 11Common-sense loss prevention damage to the clothing. Human error is aThere are many areas where risk engineering major loss factor that can be mitigatedcan make a difference, including security, through proper training and monitoring.employee training, routing options, packingimprovements and cargo handling. Some risk The human elementengineering measures can be simple and It is important to remember that the humaninexpensive, but can make a huge difference. element is crucial to risk engineering systemsAnd while some may be technical or and devices are useful, but it is often theinnovative, others may be more about human element that can have the biggestcommon sense. impact on mitigating risk. Training is invaluable for increasing employeeA claim paid by Zurich involved a turbine awareness, so that they become involvedbeing transported from Berne, Switzerland to and part of the solution.Chicago, Illinois. The first part of the trip wasmanaged with the help of a special flat-bed Risk engineering is not just about preventingtrailer. However, the route had not been and mitigating losses and reducing potentialchecked before the shipment, and at the disruptions to operations, but is increasinglyentrance to a tunnel, the driver of the about providing the correct risk analysis4.20 meter high rig failed to notice the methods. These can then enable thesign saying the maximum vehicle height is understanding and reduction of the total3.80 meters. needless to say, the turbine cost of risk, as well as prioritizing riskwas heavily damaged as the truck crashed improvements and enabling informedinto the tunnel. Checking routes is an decisions around optimizing future capitalessential and basic part of loss mitigation. expenditures and tracking and measuring risk improvements.A claim paid by Zurich involved a shipmentof clothing that was on its way by roadfrom Rotterdam, netherlands, to Zurich,Switzerland. A storm broke out with and devices are useful,torrential rain, and because the truck driver but it is often the humanhad forgotten to properly tie down thetarpaulin, the cardboard boxes were soaked element that can have theby rain and road spray, causing water biggest impact on mitigating risk. 27
  28. 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. 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 toMany infrastructure projects involve the have a global insurer involved that can providetransportation of key components, and any coverage running across different insurance The benefits of integrateddelay in their arrival can have major cost lines, such as DSu, marine and construction. teams for customersimplications. Insurance plays a key role here,ensuring that if there is a problem, claims Integrated teams A single point of contact forcan 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 chainsis increasingly in demand from project not only an insurer with a global presence, aren’t interrupted and projectsowners/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 workon 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 riskSeamless cover dedicated marine risk engineering personnel engineering to identify whereLarge infrastructure projects often involve – most of them use surveyors. problems lie and how mitigationa range of insurable risks. There may be a measures can be best applied. Marine underwriting, claims and risksupply element, a property element, a Ensure that claims protocols are engineering teams cannot operate in isolationmarine transit element, business interruption, in place from the start. and should work closely together as a unit, notconstruction all risks cover, and then initial separate entities. This can lead to an efficient Underwriting can reflect the riskstart-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 isproviding protection from the earliest stages Improved policy terms and particularly important when the insuranceof the project through completion. recovery prospects. requirements of a project involve a range of risks in different geographic locations. > 29
  30. 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
  31. 31. insights 11 insights 11 Piracy: not going awayDespite 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 yearat the launch of the World Maritime Day, where the theme for2011 was: ‘Piracy: Orchestrating the Response’1. Ki-moon said:“Piracy seems to be outpacing the efforts of theinternational community to stem it… Despite thedeployment of significant naval assets to the region,the number of hijackings and victims has risensignificantly. more needs to be done.” >7 31
  32. 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. 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 highPiracy at sea hit an all-time high in the first three months of 2011, The company said that the last year has seen attackswith 142 attacks worldwide, according to the International Chamber across the whole Somali Basin and Arabian Sea butof 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 Tanzaniacoast of Somalia, where 97 attacks were recorded in the first quarter and Kenya in the coming months with some activity intoof 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 attack344 crew members were taken hostage, and six were kidnapped. There has been little change in the method of piracyA further 45 vessels were boarded, and 45 more reported being attack, using a mother ship as a base and then sendingfired 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 theOf 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 isthe Arabian Sea and one in the Gulf of Aden. IMB figures showed not new, but the size and quantity has increased – theythat Somali pirates were holding captive 596 crew members on give range and sustainability to the pirates for some weeks28 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 onnine incidents were reported off Malaysia in the first quarter of >2011, with five incidents recorded for nigeria. one mother ship. 33
  34. 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 crew34