Mr. Ko purchased insurance under Institute Cargo Clauses A (ICC (A)) for a shipment of shirts. The shipment was delivered by sea from Hong Kong to the USA, and Mr. Ko appointed a forwarder to load the goods into the container for shipping. However, when the goods arrived in the USA, he found that some of the shirts had been damaged by water.

According to the surveyor’s report, an obvious old crack was found in the door of the container and the inner part of the door was rusted. In this case, can the insurance company decline Mr. Ko’s claim based on Clause 5 “Unseaworthiness and Unfitness Exclusion Clause” in ICC (A)?

The “Unseaworthiness and Unfitness Exclusion Clause”:

“In no case shall this insurance cover loss, damage or expense arising from … … unfitness of … … conveyance container or liftvan for the safe carriage of the subject-matter insured … … where the Assured or their servants are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein.”

As the goods were loaded by a forwarder, not by Mr. Ko nor his staff, the insurance company probably cannot decline his claim on the basis of the “Unseaworthiness and Unfitness Exclusion Clause”, unless they can prove that Mr. Ko or his employees were aware of the old crack when the goods were loaded. Therefore, Mr. Ko’s damaged goods can be recovered from his cargo insurer.

If customers appoint forwarders to load goods for them, they should choose a reputable and experienced forwarder as they are normally more reliable. If customers prefer to load the goods by themselves, they should check carefully if the container is in sound condition in order to minimise loss and to fulfil the policy terms.

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With China’s booming economy and prosperous manufacturing sector, trade in large-scale machinery is becoming more common.

Because of the sheer size of large-scale machines for factories and oil fields such as knitting machines and drilling rigs, they are often not transported as ordinary cargo and may require special handling commonly known as break bulk cargo. Customers are advised to appoint forwarders with professional knowledge of break bulk cargo who offer a full range of services to handle these more complex transportation requirements.

The reason for choosing this type of forwarder is that they are experienced and reliable operators who not only provide a one-stop solution but are also more capable in handling, loading and unloading. They can also minimise risks of transit damage and loss by using carriers well-versed in transporting large-scale machines.

In addition, if a customer’s machinery is damaged and a claim arises, after receiving settlement from their cargo insurer, the insurance company will subrogate the cargo owner’s right to pursue recovery from the liable parties who are usually the forwarders and carriers. Reliable forwarders and carriers with a good reputation usually take out appropriate insurance such as forwarder’s on hull liabilities insurance to cover subrogated claims from the cargo insurers. If the cargo insurers’ claim can be recovered from third parties, it can improve a customer’s loss ratio, thereby giving an advantage in future reviews of insurance premium rates.

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With an increasing number of factories moving to China, importation of cargoes into China is becoming more common. What follows are some useful tips for China’s importation requirements for wooden packaging materials.

In order to fulfil the requirements for importing into China, Mr. Chan has sent his cargo packed in wooden crates for fumigation and has obtained a fumigation certificate from the fumigation company. After that, Mr. Chan sent all relevant documents together with the fumigation certificate to the corresponding department of the Chinese government for approval of importation. Quite beyond Mr. Chan’s expectations, it took 3 months for him to get the approval needed to import his cargo into China as the International Plant Protection Convention (IPPC) stamps were incorrectly applied to the wooden packaging materials by the fumigation company.

What can Mr. Chan do to prevent this from happening again?

The Chinese government will check the details of the fumigation certificate for each importation. According to Notice No. 84 issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) of China on 1st January 2006, the importation requirements for wooden packaging materials include:

• All wooden materials which make up a shipping package must be fumigated/treated according to the IPPC by the agents whom are certified by the government of the country from which the goods were exported
• IPPC stamps should be placed on the wooden materials/packaging materials by the abovementioned agents
• The treatment and the stamps should also conform to AQSIQ requirements
  (Please refer to the link for details of requirements: http://asqiq.gov.cn)

In order to smoothen the inspection process by the Chinese government, customers are advised to prepare the fumigation certificate and IPPC stamps properly. This will not only ensure that the cargo arrives at the destination on time, it will also help shorten storage time in Hong Kong and, as a result, reduce the storage cost and cargo insurance premium. If, unfortunately, customers need to extend the storage period during transshipment, they are advised to inform their cargo insurer immediately so that their cargo insurance cover can be extended.

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Most of you may know that cargoes are usually covered under Institute Cargo Clauses (A), (B) and (C), with Clause A providing the most comprehensive coverage and Clause C covering the least. However, some of you may not be aware that extra insurance cover, such as a hoisting extension, should be added when transporting large-scale machines for more comprehensive protection.

Mr. Chan bought a knitting machine which needed to be transported to his factory in Shenzhen. His machine was covered under Institute Cargo Clauses (A). As the machine was too large to be transported into Mr. Chan’s factory by lift, Mr. Chan needed to employ a hoisting company to lift his knitting machine from the truck to the second floor of the factory.

Unluckily, part of the knitting machine was broken during this procedure. Can Mr. Chan successfully claim for this loss from his cargo insurer?

As the coverage of a cargo insurance policy usually ends when the goods are transported to the consignee’s warehouse/factory, any damage arising in the course of hoisting is not covered by the cargo insurance. As Mr. Chan only took out Institute Cargo Clauses (A) without an extra hoisting extension, his loss was not covered by his cargo insurance.

If customers would like to have hoisting extension coverage, they can liaise with their insurance company to extend the cover. They can also take out public liability insurance which can provide cover against third party property damage or bodily injury. In addition, in order to make sure that their cargoes are comprehensively protected by cargo insurance, customers are advised to disclose all details of their cargoes to their insurance company.

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The seizure of the giant super tanker, "Sirius Star", owned by a Saudi Arabia oil company and thought to be carrying two million barrels of oil worth around US$200 million, proved that pirate boats are well-armed. Instead of hijacking cargoes, modern pirates tend to ask for ransom.

Most of you are well aware that as Institute Cargo Clause A (ICCA) provides all risks cover, it also provides coverage of piracy. It should be noted, however, that piracy is not listed in the area of coverage of Institute Cargo Clauses B and C (ICCB/ ICCC), and customers may not be protected by cargo insurance if their cargoes are hijacked. However, this may not be the case if the pirates are not hijacking the goods but instead holding the ship, its cargo and its crew as hostages for ransom. Shipping companies may call for reimbursement of the ransom from all parties concerned, including cargo owners. Ship owners may claim these extra expenses from cargo insurers, in accordance with the General Average Rules.

As pirates become more heavily-armed and rampant, as well as avoiding the use of dangerous shipping routes, customers are advised to choose a reliable shipping company in addition to insuring with ICCA for more comprehensive protection.

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With the global recession and the fear of a financial tsunami, companies are going out of business every day. And as trade slows down, many companies are moving closer to commercial crisis. In this economic climate, how can you avoid a trading loss with regard to cargo insurance?

If your buyer closes down, it almost certainly means there will be no consignee to collect the cargo at the discharge port. In these circumstances, you should inform your cargo insurer immediately if you decide to return or re-route your cargo to another destination. The cargo insurer will usually agree to extend the original cargo insurance to cover the additional voyage, allowing you to save time and save on the premium by not having to arrange new insurance cover.

What happens if your carrier goes out of business? In situations like this, it could be difficult to locate your cargo and, in extreme cases, the vessel may even be detained by local authorities against debt repayment, especially if the carrier had serious financial problems. You could end up spending a long time claiming back your cargo and, at worst, your cargo could disappear altogether. It is for these reasons that you are advised to contact your cargo insurer with immediate effect. A responsible cargo insurer will offer you advice and assistance to expedite the process of claiming back your cargo as well as minimising any loss.

Although “insolvency” is excluded by Institute Cargo Clauses, you are still advised to inform your cargo insurer immediately if you encounter any of the situations described above in order to minimise any loss.

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You may still remember the cargo ship “New Star” which sank off Russia’s eastern port of Nakhodka in waters close to Japan. The ship was owned by a Hong Kong-based company and had tried to deliver a cargo of rice, but a Russian buyer refused to accept the rice because of quality concerns. For fear of legal action, the Hong Kong company ordered the captain to flee Russia without legal permission. The Russian Coast Guard fired at least 500 rounds at the ship, causing it to eventually sink.

As the cause of this tragedy seems to be the bad quality of the rice, what do we need to take note of for transporting/insuring grain and corn or other similar cargoes, such as wheat and beans?

Apart from the importance of a Sales Contract, which both parties should observe with regard to their buying and selling, there is something additional that the buyer needs to take care of. In order to avoid any argument over the quality and quantity of the grain - something which commonly happens - the buyer usually employs a cargo surveyor to inspect the cargo before it is loaded on board or put into containers.

The duty of a surveyor includes, but is not limited to, the following main tasks:

1. Provide professional advice on the hired vessel to ensure it is seaworthy and safe;
2. Provide advice on the packing, if the grain is packed. It is common to pack the grain into linen or nylon bags of around 25 to 50kg per pack for big bulk shipment;
3. Inspecting the shipping history and the condition of the vessel hatch is also important because a vessel hatch in good condition can provide a better environment for the grain. If cargoes other than grain were transported in the previous shipment, even if the vessel hatch was cleaned, there is still a chance of contamination and it may affect the quality of the grain;
4. Inspect the contents of the grain to ensure the quantity is correct according to the buyer’s requirement as stated in the Sales Contract;

If the above precautions are observed and the reliable surveyor’s professional advice is taken, this will help minimise any risk of loss or damage to the grain being transported.

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High value cargo, such as electronic cargo, is a common target of robberies/thefts.

It reveals the importance of taking out cargo insurance which can provide adequate protection against electronic cargo robberies/ thefts. Even if customers are simply transporting cargoes locally within Hong Kong, they are strongly advised to take out comprehensive cargo insurance, such as Institute Cargo Clause A which provides all-risks cover, to protect their cargoes.

In addition to taking out comprehensive cargo insurance, choosing a reliable cargo carrier is also very important. Reliable cargo carriers usually take their responsibilities more seriously, ensuring that all cargo is properly handled and not left unattended.

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During a pandemic infectious diseases outbreak, some countries may even forbid the import of all cargoes from the infected areas. To overcome this and in order to honour the contract by delivering cargoes to their destinations, some cargoes owners from infected areas may re-route their voyage by firstly delivering to countries which will allow the import of their cargoes and then ship the cargo on to their final destinations. Does marine cargo policy provide cover for such practice?

According to the Marine Insurance Ordinance Chapter 329, if the cargo owners deviate from the voyage contemplated by the policy, as the risk exposures may be increased, any loss or damage arising out of the deviation of voyage will not be covered by the marine cargo insurance policy. As mentioned in previous cargo tips, cargo owners need to inform their insurance company in writing about changes of voyage immediately so as to obtain the consent of the insurance company.

To avoid losing marine cargo insurance cover, customers are advised to keep an eye on the news and inform their cargo insurers immediately if they need to change their voyage in order to enjoy marine cargo insurance cover.

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We invited an expert on oil and petrochemicals to share his knowledge and experience with us. Through this sharing, we hope that we can have a better understanding of transporting oil and petrochemical products.

Many of you already understand that oil is a precious natural resource that can be refined into various kinds of petrochemical products at different temperatures. The lower the refining temperature, the higher the value of the products. The chart below explains this in more detail:

With so many products containing oil, when we transport oil and petrochemical products, we firstly should take note that the price of these petrochemical products will be directly affected by the price of oil. As such, customers are advised to check if the sum insured for their products is a realistic reflection of the market price. Secondly, as oil can be transformed into different products depending on the refining temperature, the chance of a total loss is smaller because even if the oil cannot be refined into products of the highest value, such as liquefied petroleum gas, there is still an opportunity to refine the oil to create products of a lower value such as bitumen for roads.

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