What shippers need to know about the port strike and cargo insurance
Article credit: Stuart Chirls
Photo credit: Stuart Chirls/FreightWaves
Underwriter advises checking your policy’s fine print
Importers may be out of luck if they try to make insurance claims for goods delayed or damaged during the strike by union dockworkers at U.S. ports.
The International Longshoremen’s Association walked off the job at midnight Tuesday at ports throughout the East and Gulf coasts after failing to come to an agreement on a new contract with terminal operators and ocean lines represented by the United States Maritime Alliance.
The job action shuts down container and vehicle imports just as the holiday retail selling season gets underway. Among other goods, it halts shipments of vital medicines, clothing, and fresh fruits and vegetables coming in from foreign markets. Any containers left at ports will remain there for the duration of the strike.
“Most cargo policies do not include coverage for delay,” said Jeffery Kaufmann, executive vice president and head of marine business for insurer MSIG USA, in an email interview.
Most cargo policies include a clause for what is termed Strikes, Riots & Civil Commotion (SRCC), to cover damage from vandalism, sabotage or malicious acts, among other things, caused by strikers, Kaufmann said, but shippers should check the fine print. “Exclusions in this clause often include damage due to temperature, humidity, withholding of power, fuel or labor during the strike, as well as loss of market (economic changes that occur due to competition or customer tastes) or damage due to any delay(s).”
So it’s likely that a refrigerated container of bananas sitting unmonitored during the strike could spoil, a potential total loss for the shipper.
There is a vast ecosystem of businesses that could potentially be impacted by the strike, including ocean cargo, property, casualty, and various other inland marine and ocean marine lines for companies supporting the ports. Supporting businesses will be idled or have reduced revenue. These include stevedores, railroads, providers of truck chassis and trucking services, as well as tug and barge operations.
The length of the strike does not impact insurance coverage subject to the terms and conditions of the policy. “However, underwriters become concerned when cargo accumulates in striking ports,” said Kaufmann. “The standard marine cargo policy includes an Accumulation Clause, which may double the limit of liability if and when these situations occur.”
Higher-volume shippers are more likely to be able to find alternative routes for their cargo, Kaufmann said, while smaller players are at the mercy of freight forwarders to find alternative methods of shipping.
In the case where small shipments from various shippers are consolidated in one container, Kaufmann said claims adjusters sort through those containers based on bills of lading and other shipping documents.
A significant portion of MSIG’s initial underwriting process is to evaluate disaster plans, said Kaufmann, including actions taken in the event of an impending strike, and work with the broker and insured to ensure maximum utilization of risk safety.
He said there are additional considerations concerning the impact on West Coast ports that may not be directly affected by a strike on the East and Gulf coasts.
“Since this potential port strike is for East and Gulf Coast ports, we will see increased volumes to the West Coast and other open ports,” said Kaufmann. “They will ship containers to the West and rail/truck shipments to the East and Gulf, which can increase per conveyance exposures both internationally and domestically.
“When the West Coast ports had its strike [in 2002], we saw significant volume increases to East and Gulf Coast ports, so that goods could be trucked/railed out West. Some insureds’ per conveyance limits doubled because they no longer shipped to both East and West Coast ports, they were only shipping to the East, so volumes for both ports are now on one vessel.”
This also led to other issues, including significant delays caused by a shortage of chassis, which meant additional time for goods to sit in containers and truck yards. “There also were not enough truckers to handle the volume, necessitating the increased usage of truck brokers, creating an environment of less security and oversight on shipments,” Kaufmann recalled.
Furthermore, when the ports begin recovering from a strike, overseas factories tend to load more on each vessel, as they have held off on shipping due to the strike. Said Kaufmann, “Once the ports re-open, shippers will mass load the vessels with goods produced during the strike. Because of this, MSIG USA and other players will get requests from insureds for increased conveyance limits.”
