Earlier this month, a fire broke out on the Hapag-Lloyd vessel Yantian Express as it departed from the Canadian port of Halifax. Crews immediately began attempts to extinguish the fire, however, the weather hampered efforts and there was severe damage to the vessel and cargo onboard. Hapag-Lloyd has now formally declared General Average and has diverted the vessel to the Bahamas for salvage purposes. So what does this mean for companies with cargo onboard? Our global transportation and trade experts are here to explain the situation and help shippers understand how cargo insurance can protect them from General Average.
General Average is a principle of maritime law with ancient origins, requiring all parties with cargo on the vessel to proportionally contribute to the total loss based on the voluntary sacrificed cargo and vessel’s value. Shippers who did not purchase cargo insurance for their cargo would be held responsible for payment to the ocean carrier.
For example, if the vessel is valued at $100 million and the cargo is valued at $150 million, the total value of the voyage would be $250 million. If the cargo loss and vessel repairs cost $90 million (36 percent of the voyage value) and your cargo was valued at $10 million, you would have to contribute $3.6 million (36 percent of the value of your cargo).
This unexpected cost could be detrimental but there are three main ways you can protect your cargo:
Cargo insurance protects shippers’ financial investments during ocean, air, rail or truck transportation. It provides compensation for shippers in the case of natural disasters, fires, vessel collisions, cargo theft or mishandling by carriers.
If cargo is insured, the process to recover the cost of damaged cargo is straightforward. The insurance company will manage the claim process on the shipper’s behalf, dealing with the various transportation parties involved. The insurance provider does its best to resolve the loss as quickly and efficiently as possible, minimizing the direct involvement of the client with the carriers.
Insurance responsibility should always be outlined within the terms of sale between a buyer and seller. The terms of sale along with INCOTERMS will outline when and where responsibility is transferred between international buyers and sellers.
When securing marine insurance, always insure the value of the freight plus an additional 10 percent to cover incidental costs in the event of a loss. Choose ALL-RISK coverage, which provides complete coverage in the case of an event such as the Yantian Express ship fire, as well as loss, theft, and damage.
In the event of cargo damage, having a detailed contingency plan in place will help make the process easier. Documenting the breakpoint of when cargo should be salvaged or destroyed will help teams deal with damaged cargo. Additionally, these contingency plans should dictate where damaged cargo should be delivered to as well as who should be notified internally as well as externally with end customers.
Our team at Ascent Global Logistics is able to help you secure cargo insurance across all modes of transportation. We offer competitive rates, high-risk coverage and special quotes for large volume shippers. To learn more about our cargo insurance options, please contact us or speak directly with your Ascent Global Logistics representative.