Before going into details as to how to take measures to prevent or reduce various damages and losses sustained to cargo while same is in transit by air, ocean,barge,rail,truck or while in storage, we should first of all, look into the various type of damages and losses generally experienced to cargo. There are, of course, numerous examples of losses; however, they can generally be placed in the following groups:
Water damages
Due to climatic conditions such as rain, snow, hail or salt-water contact (breaking seas) or due to atmospheric conditions such as condensation/sweat or, additionally, due to the internet condition of the cargo and/or its packaging, such as the use of green or waterlogged limber in packaging, high moisture content of the product or the non-or insufficient ventilation of agricultural products such as onions, flowers bulbs etc.
Rust and/or corrosion damages
As a result of the aforementioned various types of water damages sustained to cargoes such as steel, tin plate, canned goods, aluminum, etc.
Mold, decay, rot, staining
Due to any of the aforementioned types of water damages sustained to such cargoes as textiles, paper, wood products or agricultural products.
Physical damages
Breakage, bending, twisting, cracking, denting, scraping, impact/shock, etc., are various forms of physical damages, which can be sustained to all types of cargo.
Shortages
Various types of shortages experienced are non-delivery, due to pilferage or theft, or lost at warehouses, container freight stations, etc.
Regardless of who hires the surveyor, all these parties, such as cargo underwriters, insurance brokers, cargo interests (shippers and/or consigness) and carriers have the same three questions for this surveyor which are:
What is the nature of the loss
What is the extent of the loss
What is the cause of loss
CAUSE OF LOSS
It can be seen that there are various possible causes of losses, and it is obvious that cargo underwriters, carriers, shippers and receivers are very interested in learning the cause of a loss. To illustrate this, a carrier such as a steamship line, would have no liability, if it can be shown that the cause of loss was due to an event that occurred prior or subsequent to the time period that the shipment was in their care and custody. Of course, for a cargo underwriter, it is important to learn if the cause of loss was due to an insured event, which occurred during the “policy period”. Where as, shipper and a receiver of cargo would like to know the cause, delivery of damaged cargo, or incomplete shipments can adversely affect scheduled production, sales, customer relations, etc.
One has to assume that shippers and receivers would like to take preventive measures to reduce cargo damages and losses in order to avoid down time in production and to retain a good customer relationship, as well as to reduce insurance cost. Whereas, carriers and underwriters would like to prevent having to pay claims they are liable for under the terms and conditions of the freight bill or policy of insurance.
To illustrate the liability of the ocean carrier: If cargo delivered to the vessel’s loading dock was already damaged at the time of delivery, it is obvious that the ocean carrier is not liable for these damages. However, a cargo underwriter could be liable under the terms and conditions of the insurance policy if this policy is, for instance, a so-called warehouse-to-warehouse policy and damages sustained to the shipment occurred while in transit from the shipper’s warehouse to the vessel’s loading dock or from the discharge dock to consignees.
Another example is of cargo already is damaged at the time of preparation for shipment; the cargo underwriter would have no liability under the terms and conditions of his cargo policy. The matter of liability will become more complicated for all parties involved, if the surveyor determines that the cause of loss may be due to improper packaging material used (example: use of green or waterlogged lumber in packaging) or improper stowage , blocking, bracing and securing of cargo into a ocean container.
While a surveyor may have extensive experience in handling “special” cargoes, such as machinery, high-tech or electronic equipment, it is obvious that he is a cargo surveyor and not an expert in the various cargoes being surveyed. An experienced cargo surveyor, who knows his limitations, should at all times when justified, employ the services of experts to assist him in determining the nature, extent and cause of damages. These experts can be various types of Laboratories, Engineers, art Appraisers, Metallurgists, Entomologist, Electronic Engineers, etc.
A cargo surveyor is also actively involved in determining the extent of damages. While it may, on the surface appear to be a simple task, this is not always the case. If a dozen eggs are broken, it is very obvious that this is a total loss and verifying the market value of one dozen eggs should not be a tremendous task. One should, however, remember that the assured or consignee often would see his monetary loss as much larger than it actually is. Please bear in mind that some assured do not necessarily view their loss in this manner. Their concern is not just the product itself, but also their customer relationships, product liability, downtime, warranties, etc., which all play a role. A surveyor should be sensitive to these concerns, but should know and understand that many of these factors are not an issue within the terms to practical and acceptable conclusion of the loss, ergo “how can we minimize the extent of loss?”
While an assured may initially think that a piece of equipment is a total loss, further examination and testing of the equipment may reveal that same can be repaired and brought back to a ‘new’ condition, or alternatively the damaged equipment can be retained or sold at a depreciated value (salvage sale). The assured should at all times act as if he is not insured and an experienced surveyor will be able to convey this understanding to the assured without upsetting him. While I do not profess this understanding to the assured without upsetting him. While I do not profess that a surveyor should be a diplomat, it is obvious that diplomacy will assist the surveyor in concluding his task successfully.
Establishing the nature of loss is generally not difficult, as this in most instances, pertains to verifying the obvious condition, such as rust, wetting, mildew breakage, etc. However, the natures of some damages are not that obvious and are often found to be concealed. Examples of these types of damages are;
Shock or impact damages, which are especially detrimental to such sensitive items as hard drives, laser-guided equipment, etc.
Moisture damages, such as staining and corrosion, which can only be noted microscopically.
Contamination damages-
The high-tech and computer industry is a relatively new industry, which has paid minimal to no attention to the handling of cargo claims, and losses, or the prevention of it. We will illustrate some of the problems experienced in these industries.
During the days of conventional cargo vessels, shipments often could not be delivered to consigness as marks and numbers had disappeared from packaging exteriors or were not legible. Due to containerization, this problem of non- deliverable cargo has been tremendously reduced and now occurs only occasionally in consolidated shipments.
As containerization became the norm, the volume of air shipments also shipped by air and, while the loss of unidentifiable shipments has decreased in ocean shipments, it has dramatically increased in air shipments. Marks and numbers, as well as names and addresses of shippers and/or consignees, are often not legible, or have been lost while in transit.
Many of these “lost” shipments are found to be high-valued shipments packaged in one or two packages, which have lost their identifying marks and numbers. In other instances, an aircraft is filled to capacity and larger shipments are being split, which again can result in loss of cargo.
Considering the fact that no value is declared for the majority of the air shipments, the liability of the air carrier is limited to a few dollars per pound. We are of the opinion that, as a result of this limited liability, not much effort is displayed by many of the air carriers in attempting to locate a missing shipment.
It has been experienced that missing shipments recovered were often found by other the airlines personnel. In many of these instances, it was found that marks and numbers were clearly displayed on the exterior of packaging and we can only assume that human error caused the temporary loss. In other instances, however, marks and numbers were either illegible or lost due to damage to packaging. The majority of lost shipments appear, however, to be shipments which have been placed/packaged in cartons, whereas shipments packaged in more rigid materials, such as wooden cases or metal containers, seem to have a better chance of arriving free of damages at their destination, which, in our opinion, is also partly due to fact that marks and numbers are either stenciled or painted on this type of packaging.
In addition to the aforementioned problems, it has also been found that some high-tech shippers have a tendency to re-use packing for a second or third shipment. Often this type of packaging carriers more than one set of identifying marks and numbers, as well as air waybill numbers, etc., which compounds the problem of identifying a shipment.
In reference to the packaging used in the high tech industry, it often is described as “normal and customary for this type of merchandise.” While this packaging may be normal and customary in the trade, it remains questionable packaging may be normal and customary in the trade, it remains questionable if such packaging should be considered proper and/or sufficient.
We are of the opinion that, especially in the electronic and computer actually insufficient and we would like ti illustrate this with some examples. Shipment “A” consisted of eight (8) corrugated master value of $306,000.00. Consignees alleged a shortage (pilferage) of 500 chips valued at $34,000.00. While it was eventually established that these 500 missing pieces (chips) were short-shipped, the disturbing fact is that a shipment valued at $306,000.00 was placed in eight (8) corrugated master cartons, which packaging may have cost the shipper as much as $40.00.
Shipment “B” consisted of four (4) master cartons, containing 15,737 pieces memory chips, with a total value of $553,942.40. Consignees of this shipment alleged a shortage of 2,400 pieces, with a total value of $84,480.00. The flaps on all four (4) corrugated master cartons were closed with gummed tape. It was found that all all four (4) cartons had been tampered with and 2,400 pieces memory chips were confirmed to be missing. Again, the disturbing fact is that a shipment valued in excess of half a million dollars was placed in four (4) cartons, which packaging may have cost this shipper as much as $20.00.
We have addressed here shipping problems in the high-tech industry. Please note. However, many of the problems described also occur in other industries. Improvement of packaging of shipments may not stop pilferage, theft or damages. Improvement of the packaging, however, will be a deterrent. More importantly, shipments, as described previously, are also exposed to water damages (rain and/or condensation), or physical damages (rough and/or improper handling) and it is obvious that corrugated cardboard boxes will not provide much protection from such exposures while in transit.
Better packaging will, of course, increase packaging costs and freight costs, However, shippers and consignees should realize that by not improving on packaging, their future insurance costs and/or loss of business due to these damages would by far outweigh the increased cost of improving packaging.
During the last decade a large percentage of marine cargo policies written were so-called: warehouse lo warehouse” policies, which policies increased underwriters’ exposure significantly.
Loss control, or damage prevention, is a normal activity in such areas as property, casualty, business interruption, health, aircraft and vessel underwriting. However, it is not widely used in cargo underwriting. While some marine cargo underwriters do have a loss control department, many other underwriters base their rates or premiums on “loss experience” only.
Historically, preparation of shipments were always performed by the: maritime industry”, such as steamship companies, long shore labor, freight stations and other port facilities.
For various reasons, including the development of containerization, preparation of shipments, as well as packaging and stowing of cargo in containers, is now often performed by shippers and/or their representatives. Many of these shippers and/or their representatives however are not familiar with the exposure to the various rigors of transit, such as ocean, rail, air, truck and barge and some cargo damages are already experienced prior to loading the shipment abroad the ocean vessel, plane, truck or barge.
In addition to the aforementioned changes, industries also have adopted the Japanese operational method of not having any supplies in sock unless needed (just-in-time delivery). This also resulted in wood products used for packaging and/or blocking and bracing of cargo in ocean containers and, of course, invites sweat damages to cargo during the transit period, which is specifically detrimental to electronic goods.
While there is still some apprehension within the industry towards loss control, we should realize that, in other areas of underwriting, this is an adopted and common practice. One could compare loss control to an annual medical checkup. If an adverse medical condition is noted, preventive steps are taken which improves the life expectancy of the patient.
Of course, practicing or providing loss control services does not guarantee that shipments cannot be damaged or lost in transit. However, the odds are much better that a shipment will arrive at destination in a sound condition.
It has been our experience that the higher the value of the shipment, or the more complicated the design of the shipment is, the less attention is paid towards damage prevention. Often, the responsibility for a shipment is given to a design or technical engineer, who considers the preparation and packaging of the shipment to be only a secondary function or responsibility. Some illustrations of common errors made in packaging/preparation of shipments are:
Improper and/or insufficient packaging material used (example: green lumber)
Insufficient or non-existent protection against moisture damages such as the use of waterproof lining, plastic sheeting, desiccant, etc.
Insufficient or non-use of shock-absorbing materials in packaging
Insufficient or non-use of international warning labels and signs
Improper or non-use of shock watches, G-meters and Tip and Tells or similar devices
Insufficient or non-existence of blocking, bracing and securing of cargo within ocean containers or trailers
Also, due to the development of containerization, the proper and safe handling of special cargoes, such as heavy lifts and/or voluminous equipment, is often inadequate, due to the lack of experience in handling such cargoes aboard ocean vessels and can result in transit-related damages, as well as due to improper handling and/or insufficient blocking, bracing and/or securing of cargo in stow.
High-value cargoes often experience losses due to theft or pilferage. Again, losses can be minimized with the use of loss control service.
Surveyors or Cargo Consultants providing loss control services should, of course, not only be familiar with the commodity being shipped, but should also be familiar with the trade route involved, such as ocean, air and inland transport, as well as the environmental and climatic exposures during the transit.
A dialogue between design engineers, insurance experts, shipping managers, logistics managers and cargo consultant can, in our opinion, result in minimizing transit-related cargo losses.
In many industries, design engineers, insurance experts and consultants work closely together in order to minimize losses resulting from major catastrophes such as fires, floods, etc. Good examples are architects, involved in the design of homes, warehouses and offices and engineers designing bridges, roadways, tunnels, aircraft, oil equipment, mining equipment, heavy machinery, etc. Often, designs are changed or altered by architects and engineers, in order to prevent damages due to major catastrophes, and/or to facilitate safe and easy transportation.
While many industries work closely with the cargo transportation industries, such as ocean, air, rail and truck and design changes are made in order to facilitate safe transport, in other industries; measures taken to assure safe transport are often non-existent.
Engineers designing heavy equipment, machinery, rolling equipment, mining equipment, aircraft, etc., will design this equipment in such a manner that a machine can be disassembled (knocked down) in order to facilitate safer transport. Furthermore, sensitive components with in the equipment often may be redesigned or shipped separately. Additionally, the equipment itself is sometimes redesigned to facilitate safe transportation. In other industries, however, equipment is often designed for the intended function only, while no thought is given to protecting this equipment from exposure to the normal rigors of transport and/or the environmental exposures during the transport and/or at customer’s sites.
Again, one example is the high-tech, electronic and computer industry who often fail in this area. While some of these companies within this industry pay careful attention to proper packaging, for many others, proper packaging, for many others, proper packaging appears to be alow-priority item. When it comes to design of this high-tech equipment, it is often found that little or to no thought is given in the design as to how to protect this equipment from transportation rogors, climatic and/or environmental exposures one the equipment experiences structural damages structural failures, shock or impact-related damages and damages from moisture or humidity while in transit.
It is apparent that communications between experts within the high-tech, electronic, computer industries and the experts within the insurance and transportation industry are limited or, in many instances, non-existent. However, engineers designing heavy equipment, machinery, mining equipment, oil industry equipment, etc., very often rely on information provided to them by experts in the insurance and transportation industries and at customer’s sites before the design of the equipment is finalized. This practice does not appear to be used very extensively in the high-tech, electronic and computer industries. These industries seem to have limited this practice only to the various military applications/contracts and the aerospace industry, which is however, not by choice but rather the contractual requirement of the military and aerospace industry.
It is our opinion that better communication between the industries involved would result in better loss experience, which of course, benefit not only the high-tech, electronic and computer industries, but also the transportation and insurance industries.
Cargo damages/losses sustained to shipments while in transit often are attributable to improper the transit period. The following four examples however will illustrate that improper preparation of a shipment can be the cause of a loss and it should be noted that none of these examples are high-tech shipments:
Case No. 1
An importer of containerized reels of printing paper experienced water damages on the majority of his shipments. In most instances, damages were restricted to a couple of reels in ten to twenty containers of a shipment, totaling forty to sixty containers each. The attending surveyor had established that these water damages were due to fresh-water contact only. As the shipments had been devanned prior to the request for survey and all containers were returned and placed in service by the steamship line, the surveyor did not have the opportunity to examine any of the containers.
The surveyor recommended to both underwriters’ and consigness that it may be advantageous to have the surveyor in attendance during the devanning. On a subsequent survey attendance, again the surveyor was requested to conduct a survey the opportunity to examine two container loads. During his examination, it was established that the reels of paper in both containers had been blocked and braced with timbers. The timbers were, however, found to be black stained and covered with heavy mold. In addition, much sweat was in evidence within the containers.
The containers were found to be in a sound condition. Samples of the timber were removed and tested for moisture content, when it was discovered that the timbers contained 24% moisture. It was very apparent that the use of this “waterlogged” or “green” lumber was the cause of the sweat condition the resulting wetting of the reels of the newsprint.
Shippers elected not to use timber blocking and bracing materials on subsequent shipments and no further water damages due to sweat have been experienced.
Case No. 2
A tank container of bourbon was delivered to a container terminal in Oakland, California, and, at the time of delivery, liquid was found to be oozing from the container. The surveyor in attendance confirmed the tank container to be an old insulated container of which the outer skin was found to be holed and punctured in several areas. Ni visual evidence of leakage was noted, and the container was found free of any odors.
It was concluded by the attending surveyor that sweat and/or rainwater collected between the skins of the tank container escaped through holes in the outer skin when the container was manipulated during the delivery at the vessel’s loading dock.
No loss or damages were sustained to the shipment; however, the steamship line incurred additional labor charges for extra handling of the container.
Case No. 3
Two separate shipments of structural steel were delivered in a CY/CY container to a container terminal in Oakland, California. In both instances, the front container wall was holed, where as the container doors were found to be badly cut, bent and torn.
Upon opening of the container doors, it was confirmed that the shipment of structural steel had shifted in stow during the overland rail transit, but had not sustained any apparent damages. In both containers there was void of approximately 3” to 4” between cargo, container doors and/or container wall. It was apparent that, if shippers had used blocking materials to fill these voids, delay in transit could have been avoided and containers would have been free of damages. The non-use of blocking and bracing materials resulted in delay and service damages and serves damages to the ocean containers.
Case No.4
A yacht placed on a shipper’s cradle was loaded aboard a container vessel on the U.S. East Coast, the whole being secured on a CY/CY flat-rack container. In order to facilities the loading operation at Oakland, California, the flat-rack container with the yacht was being moved aboard the vessel, when it was discovered that all four vertical legs of the shipper’s steel cradle were bent outward, thereby allowing free movement of the yacht within these legs. An additional wooden cradle was thereon built undermeath the yatch to prevent any damages in further transit.
While no apparent damages were sustained to the yacht, much delay in transit, material and labor expenses were sustained to the yacht, much delay in transit, material and labor expenses were incurred, as shippers had used a storage cradle, which type of cradle is not strong enough to withstand the normal rogors of ocean transit.