16


NEWS / INSURANcE


FBJ’s airfreight correspondent Phil Hastings gets out his crystal ball for the year to come.


Following a strong recovery in European and global air cargo volumes last year, the pace of growth is expected to slow during 2011 to more a more normal 5-6%. Rates are therefore likely to remain under pressure. Within that overall picture, though, the key Asia-Europe trade will continue to close its traditionally large imbalance in favour of westbound traffic as European export volumes grow faster than traffic coming in from Asia. Those, at least, are three of


the anticipated major air cargo market trends spotlighted by industry observers and executives when asked to assess business prospects for this year. The projected slower rise


in air cargo volumes is in part because the strong growth seen in 2010, particularly during the first seven months of the year when double-digit increases were common, was a recovery from the particularly depressed market performance 12 months earlier. However, there are also fears that other factors will combine to dampen demand this year. On the import side, for example, there is concern that recent European government austerity measures may cause


consumers to cut back their spending on goods from overseas, which would hit the key Asia-Europe westbound trade in particular. There are also suggestions that in the light of tougher economic times, some shippers and importers might revamp their supply chains and permanently switch additional cargo from air to ocean freight or sea-air. In fact, recent traffic figures


published by the International Air Transport Association (IATA) suggest a slowdown was already becoming apparent in both European and global air cargo traffic towards the end of 2010. The European scheduled


airline sector, for example, saw an increase of just 6.6% in its FTK (freight tonne kilometre) figure for November, versus November 2009, compared with an overall January-November 2010 figure of 11.6%. The slowdown was even more apparent in IATA’s comparable global FTK growth figures, which were 5.4% and 22%, respectively. There was also a 1.1% drop in the worldwide FTK total between October (which was up 14.5% on October 2009) and November 2010. “This slower growth does not


necessarily signal a negative trend,” suggested IATA. “The


industry is shifting gears in the recovery cycle. Growth is slowing towards normal historical levels in the 5-6% range.” Similar trends were apparent


in the most recent 2010 figures published by the Association of European Airlines (AEA). The FTK growth figure for the individual month of November was just under 5%, versus close on 9% for the January-November period as a whole. The growth in that market last year actually peaked in May, when the figure hit 17.5%. That was followed by two more months of double- digit growth before the rate dropped back into single figures in August. The potential impact of slowing worldwide market


growth rates on air cargo carriers was highlighted by Niall van de Wouw, vice president of Seabury Aviation & Aerospace, when he spoke at the 25th International Air Cargo Forum & Exhibition in Amsterdam late last year. “We expect load factors to drop further as the market upturn levels off and more capacity is brought back into the market,” he warned. He pointed out that cargo yields generally were still below 2008 fourth quarter levels. Van de Wouw also suggested


that the global economic recession and subsequent surge in airfreight rates as markets recovered in late 2009 and early 2010 might prompt more manufacturers and their customers to plan a permanent switch of some former air cargo volumes to ocean transport. “The Q4 2009 peak season


Niall van de Wouw: Expects load factors to fall further


and the volcanic ash incident in Europe (when the erupting Icelandic volcano closed European air space for five days in April 2010) really pushed shippers into scrutinising their supply chains to a level they hadn’t done before,” he commented. “We would not be surprised if the next few years see a shift from air to ocean which originated from that period of extreme high volatility and uncertainty.”


What are you insured against?


Peter Lole & Co’s Rodd Bankier takes a look at some of the detail contained in a typical insurance policy


time to outline the extent of cover you could expect to receive for the trouble you have taken in arranging the insurance and the premium you’ve paid. Firstly, perhaps I should explain


In the last issue of FBJ I gave reasons why every owner of cargo should insure his goods against loss or damage during the course of transit between his premises and those of his customer, if exporting, or, if importing, between his supplier’s premises and his own. I thought this might be an appropriate


that all marine insurance in this country - cargo, hull, freight, or whatever - is regulated by the Marine Insurance Act (1906). Why, you may ask, should modern business be governed by legislation that is over a hundred years old and surely out of date by now? The answer is simple. It was an exceptionally well drafted bill and applies, in the main, just as much to today’s maritime trade and practice as it did in 1906, although it did not envisage the myriad developments that have occurred in cargo transportation during the past century -


airfreight and the international carriage of goods by road and rail but, perhaps, most of all the drafters could not have foreseen the coming of the container revolution, which transformed the carriage of most cargo by sea. Nevertheless, this legislation is still highly relevant to modern trade and remains a basic reference. The Form of Policy, the


First Schedule to the Act, was used, with appropriate clauses attached, until 1982 when the first Institute Cargo Clauses (A) were published and a new policy form called MAR91 was adopted. During 2008, these clauses were reviewed and revised resulting in the publication in January 2009 of the current Institute Cargo Clauses. So, for what are you covered?


The Institute Cargo Clauses (A) begin: “This insurance covers all risks of loss or damage to the subject matter insured except . . .” Please note, firstly, that


the coverage is restricted to physical loss or damage: it does not cover consequential loss, loss of profit or similar unknowable consequences of cargo lost or damaged in transit. Secondly, you must be aware of the exceptions. Briefly, these exceptions fall within four categories: 1) Losses to which your cargo is


prone - either through ordinary loss in weight or volume, inherent vice, or because you haven’t packed or stowed it properly in the container. (‘Inherent vice’ means something that is present in the cargo that may, in certain circumstances, lead to its destruction, or render it unfit for purpose. For instance, peanuts generally are afflicted by aflatoxin which may develop naturally during the voyage but rejection of the cargo because of excess aflatoxin is not recoverable under a standard policy.) 2) Whether or not you have


insured your cargo, it is your responsibility and you must


ISSUE 1 2011 Air cargo rates set to stay under pressure However, Roland Bischoff,


head of global airfreight at international forwarder Kuehne + Nagel, said it was “probably still a bit early to tell” whether recession would bring about permanent changes in that context. “Short-term,


some less


expensive products were moved to seafreight to save on cost. However, it remains to be seen if that trend is sustainable as it does entail significant changes to well established supply chains.” On the subject of the


Asia-Europe air cargo sector, projections made public by Lufthansa Cargo during a recent press briefing in Frankfurt, Germany, suggested that in the period 2012-15, the annual rate of growth in eastbound air cargo volumes carried on its network would in fact exceed those westbound, with the former running at around 7% and the latter at 6%. Longer-term (2012-


look after it to the best of your ability including selecting an appropriate vessel on which to transport it. 3) Delay - if your cargo is


rotting on a quayside somewhere short of destination or your production line must be closed down because a vital part has not been received, underwriters will only entertain a claim for delay where this additional risk has been specially accepted. 4) Nuclear attack or radioactive contamination. There are further exceptions


relating to war, civil war, civil commotion and damage done by strikers but we need not consider them here since they are almost always written back in by way of the Institute War and Strikes Clauses, unless your cargo is going to a destination ravaged by war or unrest. So much for the extent of


cover provided. The other thing you need to know about is when the insurance begins and finishes. This is one area in which the 2009 clauses extend the cover previously offered in that the insurance commences from the moment that the goods are first moved in the


26), suggested the German carrier, the differential would become more marked, with the figures being 7% and 4%, respectively, as wealthier Asian consumers bought more goods from Europe. However, pointed out Nils


Haupt, Lufthansa Cargo’s communications director, while those projected annual growth figures suggested the Asia- Europe trade imbalance would narrow, the actual volumes being flown westbound would continue to substantially exceed eastbound movements. In a press statement, Lufthansa


Cargo said revenue cargo tonne-kilometres in the 2010 financial year rose to a record 8.9 billion with cargo and mail volumes climbing 18.2% to 1.79 million tonnes. The carrier’s new chairman and CEO, Karl Ulrich Garnadt, said the airline had recovered well from the 2009 financial crisis.


warehouse from which they are being shipped and continues during the ordinary course of transit until unloading from the carrying vehicle at the final warehouse or place of storage. There are exceptions to this, though, if the course of transit is interrupted - either by accident or design. For instance, if you decide to use an intermediate warehouse for distribution or storage, the insurance ends as the goods are unloaded there. In any event, the insurance ends 60 days after discharge from the oversea vessel. This has been a brief trot through some of the main provisions of the most frequently used clauses for the insurance of cargo but there are separate clauses for air freight and most bulk cargo is insured under more restricted conditions. If you have goods to insure, and I recommend that you do so, you should consult a specialist broker.


Rodd Bankier is a director of specialist insurance broker Peter Lole & Co Ltd


www.peter-lole.co.uk


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