WHAT COULD GO WRONG?
Why Shippers Need Cargo Insurance
A chemical fire on the cargo ship MV Express Pearl off Colombo, Sri Lanka in May 2021 reminds us all that valuable goods can be lost and damaged in transit; cargo can also be stolen while it’s on the move. This first article in our ‘Why shippers need cargo insurance’ series sets the scene, highlighting the need for a good cargo insurance policy.
In May 2021, we were reminded that cargo can suffer irretrievable loss and damage in transit. Hour-by-hour reports from Sri Lanka described the chemical fire raging on the cargo ship MV Express Pearl as the vessel floundered in waters off the capital city and major port of Colombo. All crew members were rescued by the Sri Lankan navy but the ship and its freight containers were catastrophically damaged.
Although rare, major maritime failures tend to be spectacular. One of the worst on record is the destruction of MOL Comfort, which broke in two in mid-2013 sending nearly 4,300 containers to the bottom of the Indian Ocean. Fortunately all crew members survived by abandoning ship swiftly and safely.
Statistically, the skies provide the safest way to travel but air freight can still suffer damage and loss from time to time. High-profile incidents include the 2010 Lufthansa cargo flight 8640 which touched down too hard in Riyadh, Saudi Arabia and broke up on the runway, with a fire destroying the midsection of the airplane. The captain and first officer on board were able to evacuate but sustained injuries.
Road accidents account for significant levels of freight loss each year. In addition cargo theft is a growing threat, occurring at truck stops, roadside parking, and even with burglaries from truck yards. Entire vehicles and trailers can be hijacked at gunpoint and, while a driver takes a break, their vehicle may be forcibly opened and the contents emptied. Food, beverages, alcohol, and tobacco are most commonly stolen as well as auto parts and electronics.
Rail disasters are relatively few and far between, but there was a cluster of derailments in March 2021, for example. More than 40 railcars carrying mixed freight including hazardous materials crashed into the sand of the Southern Californian desert. Another 20 carriages of a freight train derailed in Russia’s Siberian region, and more than 20 carriages derailed in Plymouth, MN, fortunately all without injuries. And just a couple of weeks later, two freight trains collided in the Czech Republic.
Freight loss also occurs with cargo during storage. The catastrophic 2020 warehouse explosion at the port of the city of Beirut resulted in an estimated $15 billion in property damage and tragically more than 200 deaths and 7,500 injuries.
How Much is Lost?
Container losses in any particular year can vary substantially In 2020, when overall maritime traffic was significantly lower due to the COVID-19 pandemic, almost 2,000 containers were lost in just a single incident in December – this “cargo carnage” was incurred by the ONE Apus container ship 1,600 nautical miles northwest of Hawaii.
Considering cargo theft, records estimate the cost to be tens of billions of dollars worldwide each year. Back in 2015, the British Standards Institute assessed global cargo crime cost $22.6 billion and, more recently, analysis suggests the US alone now has a $15-$30 billion dollar problem.
In EMEA cargo theft incidents doubled between 2018 and 2019 (rising from 3,981 to 8,548 incidents), with an average “major cargo crime” value of $641,200, according to the Transport Asset Protection Association. In two separate incidents, car parts worth more than $2,000,000 were stolen from trucks in Romania and in Germany. Most spectacular of all, jewelry and precious metals worth nearly $21 million were stolen from a facility in South Africa.
What Else Can Happen?
Alongside headline-making disasters and crimes at sea, in the air, and on land, there are a multitude of small and sometimes quite mundane loss events. While steps should always be taken to protect cargo, the chance of in-transit freight damage or loss is much higher than the chance of, say, a house fire.
If a container or some item of cargo is dropped or broken, this can cause physical freight damage. Another risk is wet damage, typically caused by moisture, condensation, rain, and seawater ingress. In addition, cargo can be damaged by contamination and infestation, and may suffer temperature related damage if the goods are perishable. And opportunistic threat is a constant danger.
Reasons for these loss events can include improper or insufficient packaging to protect the cargo, using the wrong container type, failing to maintain the correct temperature and humidity settings in a temperature-controlled container, overloading and improper weight distribution, and incorrect labelling – particularly for hazardous goods – causing incorrect stowage as well as security and oversight failures.
With all of these risks in mind, there’s a strong argument for securing a good cargo insurance policy rather than relying on international freight conventions for compensation.