Annual Report Reveals Dire Container Losses – Why is Cargo Insurance the Best Solution?

On the open sea cargo losses happen. Every year, 100s of millions of cargo containers carrying goods valued into the trillions of dollars crisscross the ocean on ships. Transporting these goods safely requires proper packing, stowage, container weight, and securing of containers, but even when all these measures are carried out to perfection, containers get lost at sea. Severe weather and rough seas along with rare events such as ship groundings, structural failures, and collisions can cause significant losses.

2021 World Shipping Council “Containers Lost at Sea” Report

The WSC in its report noted an usually high number of weather-related incidents responsible for the increase in losses. Large losses caused by heavy weather can lead the declaration of General Average, a maritime loss wherein all parties with interests in the voyage must contribute to the loss, including owners of cargo in transit. The ONE Apus loss in 2020 in which 1,800 containers were lost due to severe weather has not yet been declared a General Average loss, but the possibility remains, and in that case, the massive loss would be shared by not just those unfortunate enough to have their cargo lost to the sea, but by every cargo owner with goods on the ship.

 

The Call for Improved Safety & Cargo Insurance

So far in 2022, there have been few incidents, but the upward trend during 2020-2021 is of great concern to the maritime industry, which is calling for improved safety measures. Maritime stakeholders from all parts of the supply chain have launched the MARIN TopTier project to improve container safety, with the WSC and its members as founding partners. The three-year project will use a variety of data and scientific measurements to develop and publish specific, actionable recommendations to reduce the risk of containers being lost at sea.

In addition to the MARIN TopTier project, WSC and its members will actively contribute to and support revision of the International Maritime Organization’s (IMO) guidelines for cargo transport unit inspection programs. WSC also supports the establishment of a mandatory reporting framework for all containers lost at sea, an issue that will be on the agenda of the IMO in September. Furthermore, the “Containers Lost at Sea Report” will now be conducted annually rather than every three years.

However, there is no silver bullet solution for extreme weather events, rough seas, and collisions. Containers and the goods they carry will be lost. The industry’s best efforts to minimize those losses requires a financial solution to carry cargo owners and stakeholders in the value of cargo past the gaps that proper planning and stowage cannot overcome. All risk shipper’s interest cargo insurance exists to shore up this gap. Cargo insurance responds to the loss, even a General Average loss, to protect against the financial loss when best practices fail to protect the goods.

 

Cargo Insurance Pays When the Carrier Won’t

When cargo is lost at sea, it can result in substantial costs, including to the owners of the cargo on the ship. Cargo owners might reasonably expect a carrier or operator who has custody of the cargo to reimburse them for property damage losses to their goods, but this is not necessarily the case. Carriers are not typically liable for unforeseeable and out-of-control losses such as a hurricane or a vessel collision. And even if the carrier is liable for the loss, the burden of proof falls on the cargo owner, which entails a great deal of headache and expense in the form of investigations and legal fees. In order to be compensated by a carrier for the financial impact of a loss to cargo, the cargo owner must be able to prove negligence on the part of the carrier.

A shipper’s interest cargo insurance policy will respond regardless of whether the carrier was at fault for the loss or not. It is, therefore, prudent for logistics service providers (LSPs) to advise their clients of the need for shipper’s interest cargo insurance for each of their shipments and to work with an insurance provider to place that coverage when the cargo owner does not have their own policy. Cargo insurance provides coverage for physical loss or damage to your clients’ goods from an external cause that occurs while the goods are en route to their final destination. Coverage will respond for losses that occur outside the carrier’s control. It pays the cargo owner for up to the full invoice value of cargo lost or damaged plus freight and other costs. It will also pay for the costs to minimize losses that have occurred, costs such as salvage and debris removal or to relocate cargo that is in danger of further loss.

As a specialty cargo insurance broker, Roanoke can help you provide Cargo insurance to your clients and to explain the need for the coverage to them. Download our Cargo Insurance Essentials eBook or Contact Us to learn more.

Data provided by the World Shipping Council Container’s Lost at Sea Report 2022

Disclaimer: The descriptions of coverage described above are generalized and are subject to the specific policy’s terms, conditions and exclusions. For full coverage details, please refer to the actual policy forms. This content is not an offer of insurance nor does it provide insurance coverage to the reader.