The Importance of
marine insurance
Almost
every importer and exporter has asked themselves and their freight forwarders
if marine insurance is necessary. The
below article written by Andrew Tulloch a maritime Lawyer and who’s practice
focus on trade and transport law, supply chain & logistics will explain
just how important marine insurance is
to a business.
Published 25 February 2015
Marine
insurance: do I really need it on my imports and exports?
By
Andrew Tulloch
In brief - Importing and exporting businesses'
success and survival may depend on marine insurance
When considering the terms of sale or purchase for imports and exports,
think about the best terms to allow control over the insurance risk and cost.
Failure to do so could bring about the demise of your business.
Going without marine insurance carries major risk
Many small business owners have asked their insurance brokers if they
need marine insurance and have received the inevitable answer: "Of course
you do". But have they been really convinced that it is money well spent?
As a maritime lawyer, I believe that it is foolish to do without it and I've
sketched a typical scenario to show why.
You are the producer of leading edge widgets. A falling Australian
dollar means that you are now able to match the price of your leading foreign
competitor with a superior product. The Australian market is too small for the
potential of your widget, so you investigate marketing overseas. You find an
agent in Germany who wants to sell your widgets into Europe. You agree to send
the first container load of widgets to this agent as a test shipment to see how
the initial sales interest goes.
The loaded container of widgets (valued at $100,000) is dispatched from
Melbourne aboard the ship "Good Luck", owned and operated by
Wishmeluck Shipping. This shipment was arranged for you by Fast Freight
Forwarding, which issues you with shipping documents.
One week after dispatch, you hear from Fast Freight Forwarding that
"Good Luck" struck very bad weather on its voyage to Hamburg and your
container was lost overboard. It is suggested that you contact your marine
insurer. But you don't have one! You had decided that the cost of marine
insurance was a bit high and, as this was a trial shipment, it was something
you would look at again once you had established whether exporting was a "goer"
for your business.
Freight forwarder and carrier deny liability
You send an email to Fast Freight Forwarding demanding compensation for
the loss of your container. Fast Freight Forwarding denies all liability and
says you need to address your claim to Wishmeluck Shipping. You do that.
Wishmeluck Shipping denies liability, saying the vessel encountered extreme
weather conditions and that, under the Hague-Visby Rules, they have no
liability for loss caused by a "peril of the sea".
You are left to carry a loss of $100,000 and your export plans are in
tatters. Your agent in Germany loses interest in marketing your widgets. The
loss ultimately leads to the winding up of your company.
Marine insurer settles claim, maritime lawyer seeks
compensation from carrier
If you'd had marine insurance, your insurer would have been immediately
notified by your broker and, once satisfied that the loss had occurred as
advised, would settle your claim for the full value of the goods, plus freight
and insurance costs, plus a further 10% (if agreed).
Your marine insurer would then instruct a maritime lawyer to deal with
the freight forwarder or shipping company and to seek compensation, with a view
to minimising its loss on your account.
The likelihood is that any recovery from the shipping company or
forwarder would be severely limited, by the argument regarding the "perils
of the sea" defence and by the monetary limitations that apply.
Limitation is generally based upon either the weight of the cargo or the
number of packages set out on the shipping documents. The limit for shipments
from Australia is currently the higher of approximately AU$3.50 per kilo of the
gross weight of goods lost or damaged or AU$1,170 per package or unit.
Accordingly, if you have either a very light cargo or very few packages in your
consignment, the limitation will seriously affect your potential recovery of
compensation.
Carriers exclude liability under applicable
international conventions
There are numerous other defences available to carriers under the
applicable international conventions that exclude their liability. You no doubt
assume that if a carrier's Master runs the vessel aground or collides with
another ship, you will be fully compensated for your loss. Wrong. Error in the
navigation or management of the ship will normally provide a complete defence
to the claim, even though it would seem that these are precisely the
circumstances in which the carrier should be liable.
You are far better to claim on your marine insurance and leave your insurer
to worry about seeking compensation from the carrier.
The same applies for both imports and exports. If you sell CIF (cost,
insurance and freight) and buy CFR (cost and freight) or FOB (free onboard) and
arrange your own marine insurance for the purchased goods, you have control
over the insurance arrangements. You can deal directly with an Australian
marine insurer. This is often easier than dealing with an overseas marine
insurer in, for example, China, India or South America. Your marine insurance broker
will be keen to assist you.
Protect your import or export business with marine
insurance
So, the next time you consider the terms of sale or purchase for imports
and exports, you should also think about the best terms to allow you to control
the insurance risk and cost. After all, you wouldn't risk not insuring your
home. Why wouldn't you take the same care to protect your business?
Take it from a maritime lawyer who deals with these situations for a
living. Marine insurance is an essential element in the success and survival of
a business involved with imports or exports.
For further
information and advice on per shipment or annual marine insurance please
contact your ICE representative or call us on 1300CARGO1 (1300 227 461).
Disclaimer- All information / contents are for general
information only. ICE does not make any guarantee on completeness, reliability
and accuracy of this information. We strongly suggest you seek further advice
before acting on any content / information
