of the AUGUST 2011 independent No.002 have a dramatic impact on shippers, even if their cargo is undamaged. General Average is unfortunately a relatively common event. And for many freight forwarders whose clients do not purchase cargo insurance, this often leads to fraught, and possibly ruined, commercial relationships. Cargo owners often expect freight forwarders to pick up the bill for salvage or General Average, not understanding how General Average works, nor to what extent adequate cargo insurance would have protected them. Angus Galbraith, Associate Director at marine insurance broker FP Marine Risks says: “We always encourage our freight forwarding clients to promote cargo insurance to their customers. It protects their relationships and avoids conflict down the line, particularly when something such as General Average crops up that the cargo customer wasn’t expecting.” Galbraith explains: “General Average is best understood as a team event. Think of the entire ship and its cargo as a single team, where all parties are united to achieve their common goal – the port of destination. If the ship’s journey is seriously hampered in some way, perhaps by grounding, fire or a collision, the cost to free or recover the vessel is shared by SERVING THE INDEPENDENT FREIGHT FORWARDING COMMUNITY The real risks your customers face A spate of recent incidents have brought to the attention of the industry that cargo insurance is about more than protecting cargo against loss or damage whilst in transit. Often, accidents at sea may not result in any lost or damaged cargo whatsoever, yet cargo insurance plays a crucial role in protecting cargo owners against salvage and General Average costs. On 21 June 2011 two container carriers, the CCNI Rimac and the CSAV Petorca, collided whilst navigating the Yangshan River in China. The CCNI Rimac lost 26 containers overboard and many others were damaged. Its crew had to be evacuated due to the risk of explosion after smoke was detected from three containers of chemicals. Professional salvors were appointed under what is known as an LOF Salvage Contract. This meant that all cargo owners had to provide their share of security before the salvors would release their cargo. Whilst attempts were made to retrieve the cargo lost overboard, efforts to remove the remaining containers on board continued whilst many of those on deck were discharged for further assessment due to the force of the collision. As General Average was declared cargo owners had to provide the necessary share of the GA security, as well as the salvage security, if they wanted their cargo returned. These demands for security, both for salvage and General Average, are made to all cargo interests, whether or not their cargo is lost or damaged, and must be paid before the cargo is released. Salvage and General Average costs are not always clearly understood but can The July collision in China highlighted the need for shippers to understand the General Average processes the entire team – the cargo owners included – even if their cargo is unaffected.” Once a shipowner declares General Average, cargo owners must provide their share of security to cover the necessary costs associated with saving the vessel’s journey, known as the “common venture”. The share is divided equally, based on the value of the cargo (not the weight or volume). If the cargo owner has adequate marine insurance, the insurer guarantees their share of the security and the cargo is released relatively quickly. Without the necessary insurance, the cargo is held until the General Average Adjuster calculates what each party owes and the required money is paid by the cargo owner (or until a full cash guarantee is provided). Galbraith adds: “The calculation the adjuster makes is laborious and can lead to cargo being held for many months or years.” Unfortunately accidents at sea are common – in a typical year 200 ships are lost, 3,000 marine casualties are reported and US$1.5bn of marine salvage operations take place. “The risks are very real and often underestimated” concludes Galbraith, “which is why we always recommend that freight forwarders speak to specialist marine insurance brokers to arrange adequate insurance for themselves and their clients. It’s often quicker and easier than they think.” 3 Global economy We look at the impact on the logistics industry 4 Container packing Poor packing of containers is becoming a real issue 5 End of an era Domestic airfreight in the US loses a major player 8 Airline sales GSSAs are courting independent forwarders