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Are you really covering your cargo – or just covering your back?


All shippers are effectively risk managers. Most are familiar with insuring against the risks of damage or loss of cargo. It is an accepted way of doing business, although not always done properly. Covering the risks to the business from sudden and regular spikes in freight rates is another matter altogether, and a new mechanism to do so leaves me wondering if it really is something to welcome. The collision between the MSC Chitra and the Khalija III


in Mumbai on 7 August will no doubt have raised awareness of the importance of adequate cargo insurance and the need to look more closely at those terms and conditions and hidden clauses on the contract or bills of lading. It is often said by shippers


that, rather than read the terms and conditions on the back of a bill of lading, it is better to just assume that the carrier clauses will deny any liability. Unless you want a long fight


in the courts, it is simpler to take out insurance, they advise. Furthermore, some shippers often take out additional insurance in case their general insurance is insufficient or they find that it does not actually cover them at all. For some whose cargo was


on the MSC vessel, it will be too late to get proper cargo insurance. Such incidents always reveal shortcomings in shippers’ practices when it comes to protecting their interests. It is


often forgotten that claims will depend on evidence of loading and proper filing of documents. In the event of an accident like that at Mumbai, the fact that the MSC ship had barely left its moorings before the collision, will have meant much of the document processing would have still been ongoing when the ship left the berth but then suspended on news of the collision. How do you then prove you had cargo on board and that it was of the value you claimed


it to be? And so the arguments will begin. Many shippers will find


that they either do not have insurance cover or if they do, hidden within the small print are exclusion clauses which limit or nullify their claim. Some will be surprised at just how little they can claim for, despite the value of the consignment; and those expecting compensation for the indirect costs of delayed or lost cargo will be greatly disappointed and frustrated.


Dr. Andrew Traill


There may also be wrangling between the salvers and original cargo owners; the salvers will expect recompense from someone. Shippers who took out additional insurance will be pleased they did so.


Is the future in futures? Seeing sense on security


One area which is harder to provide any form of ‘insurance’ against is rate volatility. At least that has been the case up until now. But the launch of the Shanghai Containerised Freight Index (SCFI) by the Shanghai Shipping in October 2009 appears to present shippers - and indeed carriers - with just such an opportunity. There has been much derision,


or at best skepticism about this initiative from carriers and shippers alike. However, despite at first being one of those skeptics, having heard some of the arguments I am coming slowly to the conclusion that futures contracts can be useful as a means of protection from sudden and frequent changes in the freight rates. After all, people will be familiar with them in hedging other risks such as fuel prices, or


exchange rate fluctuations, and of course in the bulk shipping sector. So why the opposition to this particular form of hedging? The main reason for my


continued hesitancy lies in the nature of these instruments: they thrive on volatility; without it there is no reason for them to be. Price volatility in the liner markets is mostly driven by the way the sector is managed, with carriers opportunistically raising rates at the first sign of a market turnaround, irrespective of any longer term deals and contracts they might have with their customers. And in the interests of balance, and as many carrier representatives will tell you, shippers also are not averse to demanding rate renegotiations when the market turns in their favour.


I am an advocate of greater rate stability through improved customer focus, better forecasts of demand provided by the shippers, improved knowledge and understanding of the customers’ business needs and trends, leading to trust and more stable shipper-carrier relationships. I therefore worry that the fact that this new way of protecting shippers and carriers from the consequences of their actions may deter any significant progress being made in making rates more stable and the liner shipping sector more responsive to customers’ needs. They may not bother trying to stabilize the rates at all, which I think would be a mistake. Perhaps this is an irrational viewpoint, but one I feel needs to be voiced, as I know I am not alone in this.


The US plan to screen every freight consignment coming into the country might have been popular with the general public but it was never going to work in practice – nor, arguably, would it be any better at detecting bombs and weapons than an intelligence-led approach. People see screening of airport passengers in action and assume that it is possible to do the same with freight – forgetting that freight is often stuffed into the inaccessible innards of 40-foot containers; nor can it walk in and and out of the scanner under its own steam, or lift its hands up and remove its shoes if asked to do so. Shippers and all those involved in the industry


will doubtless then welcome the news that the Commercial Operations Advisory Committee has advised the US Government that it should go


Getting to grips with the hard cases


The Shippers’ Voice has added a legal section to its portfolio. ‘Legal Eagle’ considers recent case law in shipping and freight including the small print and inconsistencies that can cause problems in liability


for a multi-tiered risk-based approach to freight security. Trying to scan everything was a flawed approach, it said. “Politicians and others might consider that


100% scanning must be safer, somehow,” says Dr Traill, “but that makes a big assumption that you can physically do it and also that scanning will in fact detect everything. Now let’s hope that the politicians actually listen to the committee.” Security isn’t just one country’s problem of course


and Dr Traill does detect a willingness among the public sector authorities in North America, Europe and elsewhere to work together on security policies including the EU’s Authorised Economic Operator concept. “Among the civil servants there is an eagerness to align but unfortunately sometimes the politicians get in the way.”


disputes. It has teamed up with specialist lawyers’ network Forwarderlaw.com, which specialises in freight forwarders and logistics companies. Dr Andrew Traill says a good grasp of the law


is vital for everyone involved in shipping goods as failure to comply can cost millions.


Shipper’s Voice calls for wider, deeper Cargo 2000


The Shipper’s Voice would like the Cargo 2000 airfreight quality measurement programme to cover the whole door to door supply chain and for more data to be measured. It also wants more information about how the results are arrived at, especially in those cases where they are below


par. Dr Traill said: “We would like to see the whole process covered, from pick up at origin to delivery to end-customer. Some airlines are progressing with a phase 2 version of Cargo 2000, but progress to the outsider appears slow.”


Credit where credit is due,


though. The airfreight industry has at least made an effort to adopt and adapt a series of industry-wide KPIs originally devised by the European Shippers’ Council (a project in which Dr Traill played a central role), and he suggests that it is an example that could usefully


be copied by other modes, especially container shipping, rail and, in some cases, road haulage. As for the latest Cargo 2000 performance figures, for July, Dr Traill noted that the actual performance figures were disappointing, with only an


average 88% of consignments flown as planned. Top performers were Korean and Swiss with a 96% flown as planned, followed by Cathay Pacific with 95%; Air France propped up the table at 77% (for a more complete assessment of the latest results visit www.shippersvoice.com).


It may well be that there are good reasons why flown as booked performance was poor, but the way the report is currently drawn up leaves the reader none the wiser, and this goes to the nub of the present problem with the entire Cargo 2000 process, he believes.


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