While the shipping container was stuck for six days it blocked the path of almost 400 ships and prevented nearly US$10bn of trade. In response to the potential claims from affected businesses the vessel’s owner, Shoei Kisen Kaisha, declared general average (GA) – a means of damage sharing under maritime law by which all parties in a maritime venture proportionally share any losses, in the common interest.
When a general average is declared or salvage services received, the shipowner or salvor have lien over the cargo unless the cargo owner provides a security or a guarantee, or they will insist on a cash deposit.
The GA costs are estimated to be about $16m. The consequences for shippers/cargo owners with uninsured cargo is that it leaves them vulnerable to losing their cargo and suffering financial loss. In contrast, shippers with insured goods will have those deposits covered by their insurers.
Salvage also requires a guarantee provided by the owners, making GA and salvage alone good reasons why cargo owners/shippers should not opt for self-insurance. It’s unlikely high value goods would ever be shipped without insurance or that a bank would lend money to finance a sale without the collateral security of an insurance policy.
Responsiblity for cargo insurance
The terms of an international sale between a seller and an overseas buyer dictate who should arrange marine cargo insurance.
Incoterms 2000 defines the respective rights and obligations of both parties to an international contract of sale, including the definition of the ‘critical point’ during transportation of goods when the risk of loss or damage is transferred from the seller to the buyer. The critical point determines whose responsibility it is to arrange marine cargo insurance.
In current insurance market conditions and in areas of such complexity it’s more important than ever to obtain the input of a marine specialist when arranging cargo insurance.
Let our Marine, Cargo and Logistics insurance experts help you navigate the changing tides while you focus on the horizon.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective.