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Exporters – Changing Goods, Changing Needs
Dave Riley of a&b insurance brokers takes a closer look at key insurance issues facing three groups operating with the cargo industry, exporters, importers and freight forwarders….
 Historically, many UK exporters tended to specialise in one particular goods area, whether this be foods-stuffs or furniture. These days exporters are far more likely to switch the goods they trade on a frequent basis, largely to remain competitive in an expanded market place but also in response to matters such as Carousel fraud, which has seen trade within certain high-value goods markets grind to a virtual halt.
But the main problem with diversification from an insurance perspective is that many exporters fail to recognise that changing products may require changes to policy construction. For example, many believe that if the actual value of the goods they are shipping remains the same, the nature of the goods themselves is irrelevant. Not so. An alteration in manifest, without the proper notification, would not necessarily be covered, particularly if goods vary dramatically in terms of the risks they entail.
A good example of this is the current trend for trading in pharmaceuticals. Many exporters have recently entered into this particular trade area with no previous experience. For some this has proved a costly mistake. Changing requirements, from transportation conditions (e.g. room ambience, humidity) to security provisions (pharmaceuticals clearly pose a higher security risk than say kitchen furniture), will need to be fulfilled not only form the point of view of keeping the customer happy but also in terms of meeting likely insurance policy stipulations.
An exporter that naively neglects these points could find themselves facing a hefty payout should anything go wrong.
Importers – Buy British?
One debate currently raging within importing circles is whether to ‘buy British’ when it comes to insurance, or opt for a CIF (Cost, Insurance and Freight) deal with an oversees supplier i.e. an ‘all-inclusive package’ where the supplier organises and takes responsibility for insurance provision.
The ‘inconvenience’ factor, paired (in most cases) with a reluctance to delve too deeply into the realms of insurance, prompts many companies importing from abroad to decide on the latter. But this decision could be costing importers money.
Firstly, CIF deals are often presented in such a way as to suggest that the insurance element is an added bonus, a bargain thrown in. This is not so as insurance costs are simply built into the total shipment price quoted, along with a hefty margin in many cases. It could well be that buying insurance separately from a UK provider could therefore be cheaper.
But cost is just one issue, level of cover is equally if not more important.
Whereas an importer who buys in their own insurance has complete control over the cover provided, CIF policies may contain important omissions. For example, while policies arranged via an overseas supplier could relate to product damage caused by inappropriate packaging or shipping containers, they may not cover retail packaging damage that affects saleability.
Similarly, CIF policies may only protect goods up to their UK point of entry i.e. not for their subsequent UK inland transit. This presents a large security and financial risk as most incidents of freight crime occur during this period.
Freight Forwarders – Deregulation
One group that both importers and exporters have traditionally relied upon when it comes to insurance is freight forwarders. The problem is, however, that many assume their forwarder will automatically deal with insurance requirements on their behalf – after all, the goods are in their care. Once again, however, this may well be a false assumption largely due to one particular issue currently affecting this group – FSA regulation.
Since the implementation of the Insurance Mediation Directive (IMD) in January 2005, which said that freight forwarders had to conform to stringent FSA regulations before they could provide marine cargo insurance, many providers have ceased insurance provision altogether due to the financial and resource implications of achieving FSA compliance.
But this situation is evolving. Legislation is likely to come into force later this year, which removes freight forwarders from FSA regulation, enabling them to offer insurance once again. Forwarders now just need to decide whether they want to.
This may sound ridiculous; of course forwarders will want to offer insurance again, after all it offers perceived added value as well as additional revenue. But it also costs time and money.
True there are no longer the financial implications of obtaining official FSA recognition but making sure policies offered are still of the appropriate industry standards takes time and money. The consequences of not committing this resource could result in complaints of mis-selling, a scenario for which many providers will not be insured for.
Many freight forwarders are therefore investigating the option of working alongside specialist cargo insurance brokers to provide an insurance package for their customers – maintaining the benefit of added value but relinquishing responsibility of guaranteed standard levels to a reliable third party.
Ultimately, however, the choices that forwarders make now with regards to insurance position could dictate market position in several months time.
Freight Crime – An Issue For All
With an average of £60 million worth of goods stolen every year, freight crime is an issue which affects everyone within the cargo industry. Taking out protection against its effects is essential. From an insurance point of view, this largely entails careful policy construction.
In addition to those policy construction points already discussed, such as checking that cover extends to the entire journey (including any warehouse storage or lorry stops) etc, a key consideration is the security provisions in place.
Insurance policies will almost always contain stipulations relating to security measures used, in transit and in storage. Failure to comply could result in claime rejection. Most reputable freight forwarders will be aware of these but it is certainly an item that importers/exporters should confirm, particularly if establishing a relationship with a new forwarder.
Another major stumbling block that importers and exporters face relates to cases perceived as ‘fraud’ rather than ‘theft’. It is estimated that around ninety per cent of all freight crime incidents involve some kind of insider collaboration. In such circumstances, most straightforward theft policies will not pay out.
As well as screening there own staff therefore, importers/exporters need to ensure that the forwarder they use has an active background check policy in place to prevent any potential threats from infiltrating the supply chain.
Awareness Is The Key
In this article I have highlighted a few of the important insurance issues affecting different groups within the cargo industry – but an article can only relay so much when it comes to specifics.
The key tool that businesses have when it comes to maximising cargo protection is awareness. Simply by being more aware of the intricacies involved with insurance, cargo professionals can more easily recognise potential threats work with their insurance provider to overcome them.
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