Piracy can delay goods being shipped to your customers. Make sure you read the fine print to ensure delivery delay costs are mitigated for.
The Gulf of Aden and the coasts off Somalia have overtaken the Straits of Malacca as a hive of pirate activities. While exporters not shipping via these routes may not have to yet pay a higher price for the cost of insuring against piracy, they need to be vigilant about additional costs tied to longer-shipment periods due to rerouting of carriers.
According to media reports, insurance companies have raised premiums for sending a cargo through the Gulf of Aden. There is still a high risk associated with cargoes travelling through the above areas.
Willum Richards, group claims manager / regional manager, Associated Marine Insurers Agents says that cover for loss due to piracy is included in most insurance policies. “It is possible for exporters to buy a piracy clause, but most are automatically covered. Piracy insurance has not become more expensive – its bundled in with basic insurance. There’s no increase in rates, no special references.”
Piracy is an age old problem – in fact the insurance industry’s roots are in trying to lessen the losses caused by this crime. According to Kevin Allen, chief executive officer of Tasman Insurance Consultants: “In the early days shipping used to deal with the perils of the sea by creating shore load – 10 ships would leave Portsmouth with 10 per cent of cargo on each vessel. If seven managed to arrive at the destination – that would mean 70 per cent of the cargo was saved. This was the advent of insurance – it’s about sharing the load.”
FACE OF A PIRATE
John McKelvie of Vero Marine Services says that in recent years, piracy has become a curious mixture of sophistication and simplicity.
“Sophisticated because of the modern technology involved by Somali ‘fishermen’ in identifying and tracking their prey, but simple enough in the actual execution with AK47s threatened from small skiffs.”
He says that what has changed is the nautical range and the scale of the ransoms demanded.
“In 2008, the International Maritime Bureau recorded 111 pirate attacks, with 815 crew and 42 vessels taken, some vessels as far away as the Seychelles. For the first six months of 2009, 240 attacks have been recorded worldwide, more than half of these off the coast of Somalia and in the Gulf of Aden. This region has now overtaken the Straits of Malacca in terms of the number of attacks, becoming the most dangerous waters in the world today. On average, ships and crew are held between three and six months,” he says.
CARGO REROUTING
But what does this all mean to New Zealand exporters? McKelvie says: “Our cargo passes through the Straits of Malacca. Containerships carrying our cargo do not go so close to Somalia as to be seriously threatened. The main effect has been re-routing, meaning longer times at sea as vessels avoid the Suez Canal and navigate instead around South Africa.”
Richards says that exporters who are importing or exporting from Europe can be concerned about piracy. “In the shipping lanes near Somalia, container vessels have been subjected to attack – and since major exporters tend to use containers, being affected is a possibility.”
The thing to note, though, is goods can be detained for a few months on average – loss of orders as a result of delivery delays are not covered by standard policies.
“People would be insured for physical loss or damage, consequential loss would not be covered.”
If you are exporting perishable goods, Richards suggests making sure there is a clause in your policy covering that. “There are a variety of ways of insuring things like fruit or meat – anybody concerned about the loss caused by delays of weeks should check that their policy covers them.”
ANTICPATING WHAT CAN GO WRONG
Richards says all exporters should look at their policies and anticipate what could go wrong and whether they are covered for it. “Too often something happens with a shipment and a person find that they’re not covered for that event. It’s better to know exactly what cover you need before.”
Richards suggests that brokers should be used to help look at what could possibly go wrong, and what should be insured. “They will help you look at the extra costs of additional cover and you can decide whether it’s worthwhile for you to go ahead.”
One thing that exporters don’t often consider, Richards says, is covering their goods for trade shows. “What if you show up but your goods for your stand get waylaid? You’ve paid for the costs of the exhibition, your plane fairs, accommodation and more – that can be very hard on smaller exporters. However, you can buy insurance for wasted expenses.
“This type of insurance is not standard, but you can arrange it through your broker. For smaller operations, this could be vital.”
Richards makes the point that most things can be covered. “Basically, exporters need to be sure that everything they think is covered is indeed covered. They need clarity. There’s nothing worse than finding something isn’t covered, such as delays as a result of piracy, when you need to claim.”
Richards points out that piracy can happen anywhere. “Previously the hotspots were Singapore and Indonesia, and hence cover is part of standard policy wording. In fact, it’s more difficult to exclude piracy cover than include it. But it’s good to confirm what you’ve got the cover with a broker.
“Every client’s needs are different. Brokers are there to advise their clients and do a specific risk assessment. What unusual exposure do you have? What cover is there for that? It’s hard to be generic.”