Some people think marine insurance relates to ocean only; it does not. Marine insurance also encompasses rail, train and air.
“Within that terminology, you can purchase a number of various coverages, depending on the route your shipment travels to reach the final destination,” says Jose Bello, an account executive with Royal Marine Insurance Group (RMIG).
Smart Business spoke with Bello about the risks associated with the transportation of cargo domestically and internationally and how you can make sure your company’s product is protected.
What factors influence insurance rates in today’s cargo market?
Factors that influence today’s rates include types of commodities being shipped, duration of transit, modes of travel, loss record and security measures. In short, the rate is affected by the amount of risk involved in the overall shipment.
Normally, when you insure from one port to another the rate is lower than if you have to include the transit portion inside a country. In some instances, depending on the country you are shipping to and the type of commodity being transported, it can be difficult to obtain coverage. If you are shipping to a restricted territory, there will be a rate surcharge.
For example, a carrier such as Lloyd’s of London may underwrite the inland portion of the transit within the African continent, depending on the country, but only if they’re provided with specific security details and receive higher rates. Africa tends to be more susceptible to theft and most insurers will only want to cover until the goods arrive at the port or airport.
What are the most common risks associated with transporting goods in South Florida?
Your product faces many risks from the moment it leaves your company. In South Florida, one of the main exposures is warehouse theft. The most common companies that are affected are those with facilities that house target goods, such as computers, cellular telephones and consumer electronics, which are highly valuable and very attractive to thieves.
These losses can have a negative impact on South Florida’s economy, through the threat of the loss of major shippers who are relocating to ‘safer’ ports and taking hundreds of jobs and millions of dollars with them, not to mention the negative media exposure that follows when shippers leave the area.
The concern over cargo theft has impacted the community in such a way to warrant the creation of a task force. The Federal Bureau of Investigation (FBI), U.S. Customs and Border Protection, Florida Department of Law Enforcement (FDLE), Florida Highway Patrol (FHP) and the Florida Department of Transportation (FDOT) formed a South Florida cargo theft task force called the Tactical Operations Multi-Agency Cargo Anti-Theft Squad (TOMCATS).
The TOMCATS is housed within the offices of the Robbery Bureau, Cargo Crimes Section. This facility is used as the central clearinghouse for dissemination of all cargo theft information in the South Florida area. The TOMCATS conduct target-orientated investigations into organized groups, individuals, businesses and other enterprises engaged in continuing criminal conspiracies pertaining to the theft, distribution and exportation of stolen cargo. According to recent reports, the TOMCATS recovers approximately $30 million in stolen property each year.
What can companies do to mitigate these factors to obtain favorable insurance terms?
Investing in hiring a professional cargo inspector or surveyor to asses the overall operation may permit a rate reduction, as will taking advantage of extra security measures such as motion sensors, cameras, guards and lighting.
A good loss record is another key factor in negotiating favorable terms, conditions and rates. Regardless of the size of your company, a poor loss record will make it difficult to obtain rates and may even affect the conditions of coverage. We are currently in a ‘soft cargo market,’ meaning that carriers who want to expand their businesses are creating more competition within the market place.
What should business owners do to tailor a policy that meets their needs?
There are many variations of goods shipped; thus a standard cargo policy may not cover those exposures unique to your product. Businesses involved in the shipping of goods such as automobiles, refrigerated goods or livestock would each have specific policies which would be different than a company exporting heavy equipment.
When importing or exporting any type of refrigerated cargo, consider rejection insurance. Most importers assume this is included in a cargo insurance policy, but it’s not. When the product arrives at its destination and customs deems the shipment is not of proper quality, they will reject it and prohibit entry into the country. There is no cargo insurance coverage for when this occurs, therefore you need rejection insurance.
For example, a recent $2 million shipment of frozen chickens from Brazil to Egypt was rejected in Egypt. The client had to then sell the goods to someone in a nearby country at a reduced price, significantly cutting into the profits.
Bottom line, work in conjunction with your insurance broker to assess your exposures, commodities and the geographic areas where your goods are being shipped in order to tailor a policy to ensure proper coverage.
Jose Bello is an account executive with Royal Marine Insurance Group (RMIG). Reach him at (305) 477-3755.
