Malcolm Hartwell, director and head of Transport and Master Mariner and Andrew Robinson, director and CEO of NRFSA
Has there ever been a time when global trade has not been under pressure of one sort or another? Probably not, but chaos often spawns opportunities as well as dangers. In roughly equal measures.
We have seen a continuing soft premium market, accelerating globalisation, consolidation of carriers, traders and insurers, insurers providing a number of bespoke insurance products, an increase in hijackings and theft of high value goods, far greater integration in the logistics chain and a rapid rise in cybercrime which is now the highest value global category of crime. All of these create additional risks and options to cover them and challenges along with opportunities for marine insurers and their brokers.
The South African marine insurance market consists mainly of insurance of goods moved to, from and through South Africa and all of the liabilities of trade and transport that attach to everybody in the logistics chain. We have seen an increase in stock throughput policies to cater for the development of logistics hubs, where goods are stored for distribution. This has created problems as the distinction between transport and static risks (at marine rates) are increasingly blurred. Bespoke policies are written covering specific geographic transport risks (from warehouse to warehouse within South Africa only) and bailee insurance policies that provide transport operators to insure goods whilst in their possession. The experiment of providing carrier’s liability insurance on standard GIT “all risks” terms appears to have created more confusion in the market and no longer seems that popular.
The ongoing confusion amongst transport operators and their brokers regarding the difference between goods in transit insurance and carrier’s liability insurance remains a constant – which is quite remarkable given the obvious distinction between what these two types of insurance offer. Similarly, the incorrect use of Incoterms and the impact this has on when risk passes for insurance purposes continues to make the issue of “insurable interest” a popular one.
There is also a relatively small hull and machinery market, which tends to be limited to leisure craft and commercial fishing boats.
The growth of multi-nationals has meant firstly, greater volumes, which tends to lead to premium pressure and the consolidation of those companies’ insurance requirements under a master policy in their parent companies’ countries. We have certainly seen an increase in various “in house” arrangements where the bigger groups largely self-insure their own goods. That said, for trading purposes the standard “all risks” cargo terms prevail with the 2009 Institute Clauses now being standard. Interestingly, the same cannot be said for the frozen/chilled clauses where there has been a much slower uptake on the 2017 Institute Clauses – the 1986 Frozen Food clauses still seem to be preferred.
At the recent Comite Maritime International conference, the CMI announced certain welcome amendments to the York Antwerp rules. This will see changes to the wording of the standard bonds and guarantees put up by the insured and its underwriters following a declaration of general average. The wordings will incorporate changes, which we have been asking GA Adjustors to make for some time now, and will provide greater certainty with regard to the obligations of cargo interests and the insurer.
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The African Economic Free Trade Agreement is back on the agenda for Sub-Saharan Africa in particular and with it the potential for massive increases in intra-African trade which in turn will create opportunities for underwriters and brokers involved in that trade. Road transport remains the most popular method of transporting goods within Africa. We have been advocating for some time that Africa should harmonise its carriage of goods by road regimes along the lines of the CMR Convention that operates so well in Europe – this would create much greater certainty regarding a transporter’s obligations and liability, and would make the insuring of goods and liabilities and subrogated recoveries that much easier.
The recognition of opportunities for trade to, from and within Africa is driving the development of significant east-west and north-south logistics corridors to improve the flow of goods to and from the various states. These corridors should create greater efficiency but have also led to a significant change in the movement of certain types of goods through countries and ports that they never used to transit. Those countries and ports may have particular risks that underwriters and brokers need to be aware of. A simple example of this is that much of the Zambian and DRC copper and cobalt that used to travel by road or rail to Durban or East London, often as break bulk, is now being exported in containers by road and rail via Namibia, Mozambique and Tanzania.
This is exacerbated by the growing use of hubs by the giant shipping lines such as Maersk, CMA CGM and MSC. The use of these hubs means that a container bound from Singapore to East London which used to take three weeks on one ship, may now find itself being routed via a hub in East Africa to a smaller hub in Durban and then to East London on different ships and through more terminals. The increased traveling and storage times and number of times it is handled obviously increases the risk to underwriters.
The growth in ship size has led, amongst other things, to containership fires almost inevitably leading to the loss of the entire ship and its cargo. This is simply because the fixed firefighting systems cannot deal with these fires, the on-deck cargo is inaccessible due to the height of the stacks and the number of crew carried is reducing all the time. Fortunately, a container ship casualty has not hit the South African market in the last few years, but it is an issue of huge concern to IUMI and the shipowners’ liability insurers. Until the regulations change, cargo underwriters need to be aware that these behemoths create an additional risk of the total loss of up to 25 000 containers at once.
The internet of things, development of artificial intelligence and massive growth in the use of electronic documents and portals, has simplified many aspects of international trade and its insurance. Those involved in trade can now buy, sell, insure, clear and transport cargoes through a single portal taking out many of the service providers, such as brokers, freight forwarders and clearing agents in the process. It has also however created far more opportunities for cybercrime, which include simply stealing cargoes by hacking into the port system to see what containers have been discharged and what truck with what registration is supposed to fetch them; to insuring cargoes that never exist, but are subsequently lost at sea; and diverting payments for cargoes.
Anecdotally the fastest growing industry in the world, cybercrime requires underwriters and brokers to have sophisticated IT systems and policies, which are rigorously enforced and continuous training for staff and the recognition that no one is immune from an attack. This obviously affects not only the marine insurance aspects of the business, but underwriters need to be careful that their open marine policy does not have a long forgotten cyber add on for a nominal premium.
This growth in cybercrime has already hit the local logistics service providers and their liability insurers who are now facing much bigger risks than in the past. For example, in South Africa, liability for import duty and VAT is imposed on almost everybody in the logistics chain. This means that if a few containers of electronics are removed from a terminal using fake electronic documentation, the terminal becomes liable for payment of that duty and VAT. We cannot over emphasise how important it is for underwriters and brokers to continuously assess the liability risks their insureds are facing because in addition to cybercrime, the business of logistics is changing rapidly.