Paul March, MD, Horizon Underwriting Managers
As a marine underwriter, you are the ultimate jack of all trades: geography, ports of the world, ship construction, global trade, economics, freight and logistics trends, insurance law, international trade terms, and of course, the infamous Institute Cargo Clauses are just a few of the topics you know and understand.
In the last week of October 2021, a record breaking 100 vessels, including 70 container carrying vessels, were waiting offshore for entry into the Port of Los Angeles, on the west coast of America. Container traffic through this port is 25% up in 2020, a reflection of the recovery of the American economy after COVID.
To give you some perspective as to how unprecedented this situation is, in 2014 there were 12 vessels waiting to get into that same port. At the time it was considered newsworthy and a matter of extreme concern.
Suddenly the 16 vessels including 6 container carrying vessels, waiting outside Durban harbour today seem insignificant.
It’s estimated there is over USD24 Billion of containerised cargo waiting to dock at Los Angeles port. By comparison, there’s less than USD250,000,000 waiting off the Natal coastline.
A marine underwriter should know who owns the cargo, when does ownership transfers and who’s responsible for the insurance. That’s where knowledge of the International Chamber of Commerce rules of the trade or Incoterms becomes vital.
Incoterms sets out the rules for who is responsible for paying for the cargo, who’s arranging delivery and where the risk changes from the seller to the buyer. Any contract of sale should have these terms mentioned to safeguard the buyer and seller. They can be used for international and domestic transactions.
The rules are updated every 10 years to take into account the continuous changes in international trade, and you should be referring to Incoterms 2020.
There are 11 different Incoterms, two of the more well-known terms are: Ex Works and CIF.
Here is a short explanation:
EX WORKS – The seller of the goods has the least responsibility. The seller simply places the goods at a nominated place for collection by the buyer. The buyer arranges the transport, pays any taxes due and arranges insurance.
CIF – The seller delivers the goods to the buyer once the goods have been stowed and secured onboard. The seller is responsible for the cost of transport until the goods reach the port of the final destination.
It’s worth noting with a CIF transaction the final destination should be specified otherwise the seller’s responsibilities (and insurance coverage) end at the final destination port.
And finally, an underwriter’s bread and butter, the Institute Cargo Clauses which are accepted by marine insurers worldwide. Sounds like a credit card advert, only better!
The South African cargo market uses the Institute Cargo Clauses A, B and C for most cargo risks. These clauses were last updated in 2009, prior to that they were last amended in 1983.
The Institute Cargo Clauses (A), the widest cover, simply state “this insurance covers All Risks of loss or damage to the subject matter insured.” I’ll talk about the exclusions later.
The Institute Cargo Clauses (B) offer a limited list of perils such as fire, sinking, stranding, overturning, General Average, and ingress of water to name a few. The Institute Cargo Clauses (C) offers even more limited cover.
The Institute Cargo Clauses offer cover on a voyage not a time basis. This means cover incepts from when the cargo is first moved in the warehouse for commencement of the voyage, continues during the ordinary course of transit and can be completed in various ways. Two examples of when a marine cargo policy will terminate are:
On completion of unloading from the carrying vehicle in or at the final warehouse or, 60 days after discharge from the final destination port.
Exclusions under the Cargo Clauses A, B, or C are willful misconduct of the insured, unseaworthiness of the vessel, ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear, inherent vice, delay, insolvency or financial default of the owners, managers, charterers or operators of the vessel, insufficiency, or unsuitability of packing to name a few.
Loss or damage caused by nuclear events are also excluded.
The risks of war and strikes are also excluded but you can buy that cover back (it’s normally included at no charge) via the Institute War Clauses (Cargo) and the Institute Strikes Clauses (Cargo).
So that cargo waiting to get into Los Angeles, you could be on risk, right now!
Could you be a marine underwriter?