December 11, 2024
In the run up to the festive period, like Santa’s workshop, the global logistics and supply chain steps up a gear.
Although cargo losses are a year-round, 24/7 issue, the increased activity ahead of Christmas serves as a useful reminder of the risks cargo faces as well as helping illustrate effective management strategies amongst insurers and freight forwarders.
Here, Development Underwriter Mike Hall has taken the familiar carol ‘The Twelve Days of Christmas’ to chart the hypothetical progress of a shipment of a pair of trainers from a leading global brand on their journey from the factory in the Far East to their final destinations throughout the UK.
These goods were manufactured in Vietnam and loaded onto a container vessel in the terminal of Vung Tau before starting their journey west.
This is the case with most goods as according to the International Maritime Organisation, 90 per cent of the world’s trade is conducted through maritime transport.
The journey from Vung Tau to Rotterdam took four weeks, with multiple perils throughout the voyage.
Throughout its journey, the cargo faces a multitude of risks. Some are environmental and others are from humans encountered along the route.
Freak weather and natural catastrophe events such as earthquakes, volcanic eruptions, windstorms, wild fires and tsunamis can damage, destroy and/or delay cargoes.
Over the last decade or so climate change appears to be making these events more frequent and severe.
These include:
Having arranged the import to Rotterdam, the freight forwarder must now get the goods to its UK customer’s premises.
It is estimated that there are about 65 million intermodal shipping containers currently in active use worldwide.
Transporting these is a global container vessel fleet of 5,855 ships as of July 2024, up from 4,966 in 2011.
This shines a light on the sheer scale of the global maritime trade, but it also highlights that although incidents resulting in losses do occur, they are relatively uncommon, demonstrating the need for appropriate cover from specialised providers.
It is estimated that more than 20,000 containers have been lost overboard in the last decade. Some incidents include a CMA CGM vessel which recently lost 99 containers in a storm. This came during a period of storms across the South African coast which impacted shipping and cargo.
Although rare, an example of significant losses in a single incident was in July 2023 near Taiwan when the 1,262 TEU (twenty-foot equivalent unit) container vessel Angel sank, resulting in the loss of 600 containers.
Another significant risk faced by cargo is loss or damage from fires or explosions in ports or at sea.
In 2023, we saw on average one container cargo fire every nine days, according to statistics from the Cargo Incident Notification System (CINS). This is an increase compared with 2020, when the number was approximately one container fire every two weeks.
A reason behind why this has become a greater issue is the transportation of lithium batteries. Many people might ordinarily associate this risk with cars and the growing number of electric vehicles being transported.
While this poses a risk for dedicated car transportation and haulage, lithium battery fires can also impact mainstream cargo. This is particularly acute with cheaply made lithium-ion batteries and common culprits include cheap children’s toys such as hoverboards and non-manufacturer-approved replacement laptop batteries.
These batteries are more volatile and prone to combusting and are an example of a hidden hazard at risk of being undetected or being mis-declared in shipments, putting other cargoes and the carrying conveyance at risk.
Fire risks also highlight accumulation issues faced by marine cargo where loss exposure around one event spreads to multiple cargoes.
The average capacity across the container vessel fleet is 4,600 TEU, but the size of ships is growing with 121 in use which can carry 20,000 TEU or more.
This is particularly pertinent given accumulation risks. So, for example a fire in one container can spread very quickly to dozens, if not hundreds, of others, resulting in significant losses for other cargo owners.
For cargo managers, ensuring that they are not transporting dangerous materials to address accumulation risks relies on the honesty and full disclosure from cargo owners and represents a significant challenge to enforce.
In the case of significant incidents putting cargo at risk, General Average might be declared. This is a long-established principle in maritime law which requires a contribution from all cargo owners where goods were saved to cover the losses of those whose goods were sacrificed in an incident.
Cargo jettisoned to prevent a vessel from becoming a total loss, or cargo damaged by water used in extinguishing a fire on board ship provide examples of General Average sacrifices. A recent case was with the Maersk Frankfurt container vessel following a fire in July 2024 off the coast of India.
Accumulation risks and General Average illustrate the importance of ensuring appropriate cover is in place in the event of an incident.
The ferry docked in the early hours, the drivers were all able to rest whilst onboard and reset their legal driving hours limit during the crossing.
Despite cargo facing real threats from fire, rough weather, geopolitical tensions and natural catastrophes whilst onboard vessels, they are viewed as being pretty safe in the eyes of the underwriters.
However, once cargoes come into close proximity with humans, the risk of loss is arguably heightened. For example, we drop things and some of us may be tempted to steal things.
Whether it is organised, highly enterprising gangs or opportunistic thieves, crime is a major issue. According to the latest Annual Cargo Theft Report, road transportation accounts for the most common mode of cargo crime with 71 per cent of incidents.
Road cargo theft highlights the importance of Standard Operating Procedures (SOP) being agreed and documented as a collaboration between goods owners, underwriters and logistics partners. These can include specific references to route(s) hauliers can take to avoid known accident blackspots, narrow roads, low bridges and other overhead obstructions such as road signs, street furniture and trees.
The SOP may also stipulate where to stop for rest breaks, the ability or otherwise to sub-contract out deliveries and how the goods handover process should be conducted to ensure that the goods are delivered to the rightful recipient.
Although they are easier and quicker to load and unload, curtain sided lorries do pose a bigger risk of cargo theft compared to hard-sided trailers with double rear doors.
An L-shaped scar on a curtain reveals an opportunistic cargo theft. A sharp knife can slash the curtain in seconds to expose the contents and for the thief to quickly establish if the contents are worth stealing or not.
To address this, some policies may stipulate the use of hard-sided trailers to reduce the risk of losses occurring this way.
A hard sided trailer can be reversed up against a wall or building to afford better protection for the contents when parked up. This is an example of behavioural risk management which costs nothing but a little forethought.
Furthermore, with these types of vehicles, it is common practice for hauliers to load more valuable items closer to the cab in more inaccessible locations. This means cheaper goods are placed closer to the rear doors, resulting in fewer losses if an opportunistic thief targets the vehicle.
A common risk which can leave cargo owners vulnerable is the abuse of freight exchanges. These are online platforms which connect companies who need goods to be delivered with hauliers looking for work or a “back load”.
A rogue haulier can register with a freight exchange and perform several perfect deliveries to earn good reviews. When the rogue haulier gets a more valuable load to deliver that’s when they strike and disappear with their stolen load.
Addressing this is Standard Operating Procedures within policies and a ‘no subcontracting’ clause. This will ensure the same hauliers and their drivers are responsible for the cargo throughout its journey.
The theft included stealing a loaded van which was due to carry out a delivery run that morning. The incident has been reported to the police and insurers.
A loss of this scale could have been down to an “inside job” where a dishonest employee was working in partnership with organised criminal gangs.
This employee provided detailed insights to the gang including site layout, security measures and what products are being stored and where.
This demonstrates the importance of robust physical security and operating practices amongst hauliers to limit the potential of rogue operators and criminal gangs.
Steps to address this risk include behavioural risk management measures such as robust employee monitoring and checks alongside educating all colleagues about deceptive practices to encourage vigilance.
At this point, the cargo cover ceases as the trainers have been delivered to the retail site.
In their journey from the Far East to Rotterdam, across the North Sea to the UK and then throughout the logistics network of distribution centres, the trainers have faced significant risk of losses before arriving in the shops.
Goods like high-end trainers are lucrative items for thieves as they are in high demand from consumers and they can be easily sold on by criminal gangs in areas such as online marketplaces, car boot sales or dubious public houses.
This means that there will always be a market for thieves, driving them to target cargo networks.
With the police resources stretched and focused elsewhere, this can further incentivise criminal gangs to target cargo.
This means that the focus for cargo owners, freight forwarders, insurers and underwriters to prevent thefts from taking place is critical as well as ensuring adequate cover is in place if incidents occur.
The global logistics and supply chain is a fundamental driver of our economy, and operators in these sectors provide a vital service which is often overlooked by the general public.
Although we’ve highlighted the risks faced by cargo as it journeys on both sea and land, its’ important to remember that operators are also vulnerable and deserve our recognition, especially during the festive season.
Our Cargo underwriting facilities include policies for Marine Cargo, Freight Liability and Combined Liabilities. These are supported by experienced and knowledgeable underwriters who can provide competitive policies with price and cover levels with market-leading service.
To find out more and discuss your cargo cover requirements or risk management needs, contact our Underwriters
