Tag Archives: insurance

Here is an excellent example of customer segmentation.

In the last year or so there have been several ship explosions and fires causing ships to be laid up and cargo to be delayed or lost. Chemicals are probably the most important reason for ship fires which start in the cargo. What better way to reduce the risk than refusing the cargo.

There are two additional things you should know to understand this situation properly.

First, you might think insurance covers such accidents. It does not entirely, and it leads to endeless haggling and lawsuits. And accidents on ships can be declared ‘general average’ by the shipowner. That means that every cargo shipper must pay their share of the accident cost. The General Average clause goes back to the days of sailing ship voyages, which often were funded by an investor, or a group of investors. Often the captain had a share of the investment. The captain was in full charge of the business side during the voyage, choosing cargo and managing the voyage, hopefully safely. If the voyage succeeded, profits were lagrge for the investors. many New England fortunes were made that way. If the ship had a problem, general average meant all the cargo owners had to pay the costs. that meant the investors were on the hook, since they usually had shares in the cargo. Insurance coverage for cargo was limited.

On today’s container ships, the situation is quite different. The cargo is owned by the shippers, not investors. Ships are separate companies, so if a ship is lost the actual owners are shielded from the loss by simply declaring the ship bankrupt. And most cargo is covered by insurance, usually individual insurance policies. ships themselves have some liability insurance. When general average is declared, all the container cargo owners have to pay their share of the losses. You can see how huge fights can develop over who pays how much. Also, if some containers are not damaged, the cargo owners cannot pick up their cargo until they have paid the general average share of the loss. So accidents at sea are a general nightmare for all concerned.

Second, cargo in containers is fairly often mislabeled. The bill of lading does not contain correct information aboutwhat is in the container, eg. chemicals or lithium batteries. That’s done to get a lower rate, and/or to avoid customs duties. Or it’s just a mistake. So dangerous chemicals can be in containers unknown to the ship. When the cargo shifts or some container is damaged, a fire starts, and the ship has a real problem. It may not be able to continue the trip, or it may succeed in putting outthe fire, but some of the cargo is damaged, whether by burning or by smoke or fumes, or the fire retardant. Losses!

So you can see why when a ship is already easy to fill with benign cargo, a carrier might not want to accept chemicals. But as a common carrier (in the US) a ship must accept any cargo offered. Plenty of demand lets carriers cherry pick what they want to carry.

Sam Chambers September 6, 2021

FMC looks at accusations carriers are refusing chemical shipments – Splash247