GrECo Specialty has appointed a new Group Practice Leader for its Transportation and Logistics Specialty.
Gediminas Dauksa will work with all GrECo Group countries to combine and expand the expertise we currently have in the Group. He will lead new projects and engage individually with countries and various teams to grow our presence in this vital industry sector.
Tell us something about your career path? I have been a logistics insurance broker for nearly two decades. I had the privilege of launching risk management programs for automotive logistics, project cargoes, very thief attractive commodities, and niche markets like oversized cargoes during that time. I also focused on managing and preventing claims. Logistics insurance, for me, is being the first when it comes to innovations, as every case needs a unique approach. It’s being the last to call a day because you never know when you will get the next challenging cargo. It’s about chasing premiums and profits equally and respecting the risk because a simple freight is never simple enough.
What are your plans as the new Group Practice Leader Transportation & Logistics at GrECo? I believe that the GrECo Group provides knowledge from the center of excellence to all group employees, allowing the development of stronger client relationships across the region by developing specialties and practices on the group level. The Transportation and Logistics practice will aim to grow business in the logistics industry. We will achieve that by developing specialty know-how across the GrECo offices, identifying new business opportunities, and aligning the group resources to realize these goals best.
Who is Gediminas Dauksa in private? When I’m not trying to figure out puzzles of logistics insurance, you can find me sailing. The moment when you leave the harbor, turn off the engine, raise the sail and feel the movement of the boat powered only by nature is magical. Nothing beats a good game of chess during the winter when the sea is harsh. Besides that, I am a long-time supporter of FC Arsenal and McLaren F1 teams.
Companies working to rectify shipping supply chain issues that began during the COVID-19 pandemic face continuing challenges as problems have been amplified by recent events, including slowdowns at US West Coast ports related to labor negotiations, the Shanghai pandemic shutdown, and the Russian-Ukrainian war.
Whether it’s the changing of market rates, the situation in Ukraine (and elsewhere), the widespread acceptance of data and analytics, or the emergence of ESG as a market priority, it’s clear that the only constant for the foreseeable future is going to be changed.
The growing climate emergency, the war in Europe, the rise of protectionism affecting international trade and the emergence of data and technology as a driver of huge change in all sectors have different ramifications for the world, international trade and by extension for the marine insurance sector as a whole and in particular for cargo risks and associated insurances.
Russia-Ukraine conflict increasing shipping risks
The Lloyd’s Wording Repository lists around 900 versions of war (exclusions) clauses. From an insurance point of view, there are various definitions of war across the property, marine, cargo and cyber etc insurance lines, covering the UK, mainland Europe or the US.
Considering the nature of many political and military conflicts, the boundaries are often blurred ie is this war or not yet? However, the current conflict would indeed be considered as ‘war’ by the insurance industry and therefore, absent any specific policy definitions, falls within policy language referencing ‘war’ in each relevant jurisdiction, regardless of any statements to the contrary made by President Putin or the lack of a formal declaration of war by Russia.
The International Monetary Fund has warned that the war in Ukraine will exacerbate already high shipping costs and could keep them – and their inflationary effects – higher for longer. The conflict is also having a knock-on effect on shipping outside the conflict zone. US and EU sanctions, in particular, pose a significant compliance challenge for shipping companies and the insurance industry. Anyone involved in international trade should regularly review the lists of parties to whom sanctions apply in light of the 2020 BIMCO Sanction Clause provisions.
Ukrainian – Russian war is creating an added burden on a shipping industry already dealing with ongoing supply chain disruption, port congestion and a crew crisis caused by the pandemic.
The war has further ramifications for a global maritime workforce already facing shortages. Russian seafarers account for just over 10% of the world’s 1.89 million, while around 4% come from Ukraine. Seafarers from these countries may struggle to return home or rejoin ships.
Marine insurance losses are currently limited. Insurers are likely to see several claims under special marine war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in the Black Sea and the Sea of Azov. Insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.
Various security agencies have also warned of heightened cyber risk due to the Ukraine conflict, warning vessels in the Black Sea of threats from GPS jamming, automatic identification system spoofing, communications jamming and electronic interference.
The impacts of Russia’s War in Ukraine have been significant in the cargo market, and for affected cargo clients, starting with the inevitable cancellation and write-back were available of War/SRCC cover under cargo contracts for immediately affected areas in the Black Sea / Sea of Azov and to/from or within Ukraine and Russia themselves, through to sanction implications, supply chain disruption and consequential major changes to insured global trade and the consequential macro-economic factors, including global inflation considerations (driven in part by higher global commodity prices) and a slowdown in global economic growth.
With no immediate end to the conflict in sight and escalations on the Russian side, it is expected that the sanctions picture will continue to expand and become ever more complex into 2023 and beyond. Whilst over 200 shipments of grain have now left Ukrainian ports since 01 Aug 2022 to transit the Black Sea Corridor to the Mediterranean. the latest data from the Joint Coordination Centre (JCC) in Istanbul, which oversees the current export deal, shows that this equates to only approx. 2 million tonnes versus the approx. 6m tonnes of grain per month shipped before the war began on February 24th, which continues to demonstrate the issues affecting global food supply chains.
The current focus is understandably on grain exports, but cargo interests and their insurers remain in the dark on the significant volumes of other commodities that remain at ports and in-store in Ukraine i.e. part of the continued block.
At the outbreak of the war, Ukrainian President Zelensky granted unprecedented levels of power to the military and government agencies, including the ability to seize or expropriate property as well as prohibit or restrain exports of designated commodities, including agricultural products, oil and gas.
It is commonplace for the peril of seizure by foreign governments/militaries to be excluded from cover by the Institute Cargo Clauses (A) wording which is prevalent in the London Market/mainland Europe. However, those cargo interests which may have bespoke covers responding to the seizure of goods, or the threat of the same, are an enduring concern in the London Market/mainland Europe. Plus, there are rumours that the safe grain shipping corridor from Odessa will be closed starting in November 2022.
Supply chain woes alter risk profiles, add exposures
Companies working to rectify supply chain issues that began during the COVID-19 pandemic face continuing challenges as problems have been amplified by recent events, including slowdowns at US West Coast ports related to labour negotiations, the Shanghai pandemic shutdown, and the Russian-Ukrainian war.
Strategies such as holding extra inventory or sourcing alternate suppliers create resilience in a company’s operations and are good risk management. They may have unintended consequences and increase risks, however, if you increase your surface area and there are more things to go wrong. Companies should look to find the right balance – to work out where you need to be redundant and where it’s not so important.
Inflation is compounding supply chain risks. The cost of shipping one container from China to the U.S. has increased 4-5 times during the last few years, which pushes up costs for everything. Higher freight rates and a shortage of container ship capacity are tempting some operators to use non-container vessels to transport containers, which will create new risks around stability, firefighting capabilities and securing cargo.
Russian-Ukrainian war or port slowdown in Shanghai, is causing a global impact that is effectively rewiring the way trade flows. Any further supply chain shocks will continue to push up prices and slow down economic recovery, but real-time data, AI and other new software solutions may and can help clients and insurers understand and manage their risks better.
For Erne Fittings, the world’s leading supplier of butt-weld fittings, “the safe connection” is more than just a slogan: Passion and perfectionism are put into its safe pipe fittings for permanent welds. Every safe connection is also a strong pillar of success in risk and supply chain management and a solid foundation that Erne relies on during today’s multiple crises.
What did we learn from supply chains? Single sourcing is dangerous because being heavily dependent on only one supplier does not enable companies to spread the supply risk. The Covid-19 pandemic has also demonstrated that the single-sourcing effect on supply chains can also be caused by a dependency on several suppliers from only one country.
In China, President Xi Jinping’s Zero-Covid approach brought a sudden halt to entire regions of this huge country. Nothing works anymore, no one leaves their home, nobody works or produces things, and no one exports or imports.
We’re all in the same boat
Container ship crews – mostly Asian – were no longer allowed to board or leave a vessel. Container ports came to a standstill, and the entire cycle of transporting and shipping goods was bogged down – until today. Lockdowns which blocked the global economy ensued. As the restart did not take place simultaneously, the world economy struggled to restore its rhythm. Add to that the war, following Russia’s invasion of Ukraine. While Ukraine has become the main supplier of raw materials and intermediate goods for many industry sectors, the Western world saw itself forced to act by imposing sanctions on Russia.
Sanctions, not only harm Russia’s economy in the medium and long term but which negatively impact the energy supply chains of the Western world in the short term.
The day when Erne’s world stood still
In March 2020, the world woke up to a pandemic. A scenario that caught virtually every country and every business unprepared and unaware – Erne Fittings was no exception.
Our customers supply products and services to pipeline engineering and construction companies, so-called EPC companies that are active in the energy industry all over the world, providing products needed to plan and erect ready-to-use plants. They focus on power plants in the oil, gas, nuclear, and district heating sector as well as on hydrogen plants, given the agenda for decarbonisation.
With the onset of the energy crisis and the plunging oil price almost all our clients brought their projects to a sudden halt. New projects in the pipeline were stopped as well or no longer pursued. Our suppliers were forced to either reduce their production or cease it altogether. The market came to a standstill overnight. The pandemic, however, also demonstrated that costs alone were not the only decision-making criteria for management. While laying off staff may have reduced staff costs in the short term, this decision would have been toxic as soon as operations were resumed. The same applies to supply chain management.
Even though today, three years later, multiple crises – a seemingly never-ending pandemic, a geopolitical apocalypse, the energy transition against the backdrop of the climate crisis – present an array of new challenges, Erne Fittings is on track and fit for the future with its strategic and enterprise risk management:
Erne is fit for the future
Our supply chain and procurement management is based on long-term and trustworthy partnerships. What matters most are sustainability aspects, quality, and delivery capabilities, not prices. The safe connection is an essential technical and an equally important human factor for our success.
Procurement difficulties and the increasing cost pressure forced us to streamline our product portfolio. We optimised our entire supply chain and grasped new opportunities as we strongly believe that in the midst of every crisis lies great opportunity. We knew that the world would once again need pipe fittings and that we needed to be ready for this day, being leaner, more efficient, and more productive. Our plan worked. At Erne, we optimally positioned ourselves for our clients’ changed needs and behaviour patterns in turbulent times. Today, more than ever, we are both customer and supplier of choice.
We realised quickly that the high volatility in prices in our business sector changed the behaviour of our customers. While the quantities ordered are smaller, the order intervals have become shorter and more frequent. We adjusted our supply chain accordingly and optimised our production processes. Our state-of-the-art high-bay storage now plays an even bigger role. It enables us to ensure faster deliveries to our customers, despite all the adversities in procurement markets.
Today’s turbulent times have shown us once again just how important trust and sound relationships are for a well-oiled supply chain. In many cases, it was not the availability of materials that caused problems. Rising costs for both raw materials and energy led to higher purchase prices and in turn to higher levels of receivables while quantities either remained unchanged or were lowered. Credit insurances, however, could no longer provide adequate cover. It came down to a matter of trust – trust that all the goods that were ordered could be paid as well, even though the insurance only provided partial cover. Erne has built up this trust with suppliers and banking partners over the past 120 years. The sold trust basis paid off time and again during the crisis.
Our strategy to pursue a close proximity to customers in Eastern Saudi Arabia served Erne Fittings Middle East Co. Ltd as an effective instrument to manage the supply chain in this important market – reshoring from our customers’ point of view, if you like. Erne Fittings Middle East now manufactures and provides local customers with the entire product portfolio of carbon steel elbows. Aramco, the world’s largest oil producing company, honoured our colleagues’ efforts with the “LOCAL MANUFACTURERS QUALITY EXCELLENCE AWARD 2021“ – a wonderful acknowledgement bestowed upon Erne Fittings Middle East in February 2022.
Erne is more than ready to tackle the energy transition. We are the first company to have received a TÜV Süd certification for our hydrogen-compatible fittings. The 100 percent hydrogen compatibility allows us to be a first mover in this sector as well and a reliable partner for our customers.
A lot still needs to be done to make the energy transition work. The current crisis forces Western economies to rethink and reposition their energy policies. To be independent of oil and gas, we must quickly build new facilities, such as LNG terminals or gas pipelines. Our biggest risk, however, is the required interim supply of gas which we need to manufacture the products that will ensure our energy supply of the future.
Turbulent times require thorough planning and a carefully thought-out course of action. Securing raw materials and energy on the supply side for the long term, although customer demand indicates smaller volumes delivered faster in shorter cycles, is a business risk and a challenge for the entire supply chain. A mere mathematical calculation of the risk is in this case not good enough as all players in our market rely and depend on each other like never before. Longstanding, personal and trustworthy relationships have become an essential element of our risk management. The same applies to our customers, our suppliers as well as our partners, such as banks and insurance. What we cannot influence is the geopolitical risk and with it the level of uncertainty that we feel in the global economy. This has drastically increased over the last five years.
About Erne Fittings GmbH
Erne Fittings, founded in 1920 in Vorarlberg, Austria’s most Western province, is the world’s leading manufacturer of top-notch butt-weld fittings for the approved market, focusing on the energy industry. Erne Fittings employs about 350 people at its production facilities in Schlins, Mürzzuschlag (Austria) and Jubail (Saudi Arabia) and achieves an annual turnover of about EUR 70 million.
Member of the Executive Board and CFO Erne Fittings GmbH
Not only are all the companies whose goods were in the 18,000 containers of the EVER GIVEN affected, but also those whose goods were transported by the 400 cargo ships that reached their destination only after a considerable delay due to the traffic jam.
The container ship MS EVER GIVEN ran aground in the Suez Canal a year ago. The delays in delivery caused by the accident are still noticeable today – and are also shaking up the insurance market.
This picture went around the world on 23 March 2021: The stranded giant freighter MS EVER GIVEN – with a length of almost 400 metres and a width of 60 metres, one of the largest container ships in the world – lies transversely in the Suez Canal, blocking one of the most important trade routes. Fully packed cargo ships are jammed in front of the canal entrance and forced to wait seven days to continue their journey.
The shipping accident in the Suez Canal has far-reaching consequences for supply chains. Not only are all the companies whose goods were in the 18,000 containers of the EVER GIVEN affected, but also those whose goods were transported by the 400 cargo ships that reached their destination only after a considerable delay due to the traffic jam. Ultimately, this also pushes transport insurance to its limits.
On the busy sea route between Asia and Europe, cargo ships are usually loaded to their maximum capacity, which poses a safety risk for the crew and the cargo, especially in bad weather. For example, crosswinds can cause very large container ships like the EVER GIVEN to run aground on a sandbank in a narrow waterway. The ever-increasing size of cargo ships also increases the risk and makes salvage operations more difficult in the event of an accident.
Supply chain mess
Even before the blockade of the Suez Canal, industries were struggling with supply bottlenecks. Incidents like that of the EVER GIVEN are the last straw. There are dramatic interruptions in the supply chain or even a production standstill but any case delays. In Europe, the automotive, chemical and pharmaceutical industries were particularly affected by the Suez Canal disaster, as were large discount retailers that source their goods from Asia.
Transport insurance and its limits
In the area of classic goods transport insurance, damage, as well as additional costs incurred for goods that are directly on the affected means of transport, can be insured to a large extent. This also includes the so-called general average, which exists when the captain arranges for extraordinary expenses to be incurred to rescue the vessel from an immediate and common peril, such as the sea throwing of goods, the flooding of holds in the event of a fire, or tugging and dredging operations, as in the case of EVER GIVEN.
Especially in the case of general average, the insurance cover enables the goods on the damaged vessel to be released. Those who are not insured have to pay themselves – a not inconsiderable cost risk. In the case of the EVER GIVEN, claims payments in the high three-digit millions were made by the insurers and reinsurers.
The situation is different for goods on ships that are only indirectly affected by the time delay. The mere delay of the voyage does not trigger a claim under conventional transport insurance policies, and this is precisely what is now bringing a new insurance company onto the scene.
New insurance for trade disruption and its limits
To provide a solution for indirect risks such as travel delays, a so-called “Trade Disruption Insurance” (TDI) has been developed on the London market. Unlike traditional business interruption insurance, this parametric solution covers those costs, expenses and lost profits that result from events that do not cause physical damage.
To stay with the specific case of the shipping accident, the blockage of waterways can be chosen as the coverage trigger. If the insured event occurs, payment of the agreed limit (less the deductible taken) is made. In this way, losses caused by delays or non-arrival of goods can also be covered.
The new TDI insurance is designed for major loss scenarios and can be customised. It can also be extended, for example, to cover loss of earnings, contractual penalties, liquidated damages or other costs and expenses such as additional financing costs. It thus offers a comprehensive solution for a complex risk that is becoming ever higher due to global development.
This article is a part of our latest Spotlight publication focusing on supply chain issues. Read the publication and learn more about how you can protect your business from changes and unpredictable supply chain disruptions.
The EVER GIVEN shipping disaster at the Suez Canal has affected the entire world economy. An analysis by Prof. Sebastian Kummer illustrates the damage in its entirety, sheds light on the effects on the supply chains and spans the arc to the war in Ukraine.
On 23 March 2021, the container ship EVER GIVEN rammed its bow into the eastern bank of the Suez Canal, blocking it until 29 March 2021. At 20,000 TEU (Twenty-foot Equivalent), the EVER GIVEN, which sails for the Taiwanese shipping company Evergreen, is almost as large as the largest container ships currently in service (24,000 TEU).
There were contradictory statements about the rescue for a long time. Egypt said that the ship would be freed quickly, other sources indicated that it could take longer. This contradiction is caused because one passage costs about 300,000 USD. The uncertain duration of the rescue led to more and more shipping companies diverting ships from Asia towards the Cape of Good Hope from 25 March 2021
How high are the losses caused by the blockade?
Allianz estimated the losses triggered by the blockade of the Suez Canal at up to 10 billion USD per week. This value seems too high, due to the relatively short blockage. The Suez Canal Authority, on the other hand, has estimated the direct costs for the parties involved at just over 1 billion USD. This amount seems too low, as it does not take into account the follow-up costs of the supply chains.
It is almost impossible to put an exact figure on the costs. However, a rough estimate shows the dimension of the problem as well as the diversity of costs.
The Suez Canal, and subsequently Egypt, have suffered high revenue losses due to the ships diverted because of the accident. In addition, the salvage of the EVER GIVEN also caused damage to the canal. The shipping company declared a general average in April 2021. The amount of compensation was not published but is estimated at around 500 million USD.
The delay also meant that intermediate products for production were missing, and other products could no longer be sold or could only be sold at a discount. These costs amount to between 250 and 400 million EUR. In total, the direct costs amount to at least 1 billion EUR.
The Direct Costs – 1 billion EUR
All shipping companies whose ships had to wait due to the disaster have incurred considerable additional costs. The charter costs of the largest container ships are currently around 100,000 USD per day – and even if the shipping companies own the ships, there are immense costs like bunker costs as well as loss of income. Furthermore, for a ship with 20,000 TEU, the rental costs of the containers per day amount to approx. 100,000 USD.
Roughly estimated, about 400 ships were affected by the accident, so the total costs per day due to waiting for time or diversions costs were about 50 to 100 million EUR. Furthermore, the traffic jams caused additional waiting times in the handling ports as well as delayed onward transport, for example, due to limited rail capacities in Europe. The costs listed above roughly add up to around 1 billion EUR
Major damage occurred mainly in the supply chains
Considering that 30% of the world’s container traffic was delayed, one can imagine the enormous economic impact. The International Chamber of Shipping (ICS) estimates that freight worth 3 billion USD passes through the waterways every day; other sources even speak of 9 billion USD. In seven days, that would be 21 to 63 billion USD.
Due to the wide variety of goods transported, it is difficult to estimate the actual damage. Delays for items such as wastepaper from Europe to Asia are rather unproblematic. It is a different story for electrical goods or even seasonal items that arrive late in shops or online sales. If individual supplier parts are missing, bicycles, washing machines or other consumer goods cannot be assembled. The automotive industry has stopped the production because of the chip shortage.
In a National Bureau of Economic Research working paper (2012), economists David Hummels and Georg Schaur estimated that each day of delay costs between 0.6% and 2.3% of the value of goods on board a given ship. Assuming this estimate for the EVER GIVEN, the cost is 18 to 69 million USD per day, which would be 126 to 483 million USD for seven days.
The 6.5-day blockade of the Suez Canal caused damages to the entire global economy of 2 to 2.5 billion EUR.
What environmental damage was caused by the blockade?
Maritime transport accounts for about 3% of global greenhouse gas emissions, and this figure is rising. The blockade of the Suez Canal and the resulting circumnavigation of the African Cape resulted in a much longer route with higher speed and consumption. In addition, the shipping companies tried to make up for the backlog in the following weeks and months by increasing the speed of their ships.
A 20,000 TEU container ship consumes 250 to 300 tonnes of heavy fuel oil, i. e. 200,000 litres per day. With seven additional days of sailing time and about 160 (of the 400 affected) ships that decided to take the diversions, a total of about 224 million litres of additional heavy fuel oil were consumed. Taking into account the additional consumption for increased speeds in the following months, this resulted in an additional consumption of 550 million litres of heavy fuel oil. The formula 3.16/litre heavy fuel oil thus results in additional emissions amounting to 1,738 million kg CO2.
Unfortunately, the accident hit maritime transport at a time of strained transport chains. In the short term, one could have tried to switch to container trains traveling from China to Europe via the Eurasian Land Bridge. But their capacities were limited.
In the course of the war in Ukraine, oil and gas deliveries from Russia are often discussed. It is forgotten that the existing railway connections of the Eurasian land bridge run through Russia. The Chinese have recognised the strategic dependence and are trying to develop a route south of Russia via Iran and Turkey as part of the Belt and Road Initiative.
Air freight – certainly an alternative for high-value goods – is also very busy. Even before the EVER GIVEN disaster, there were significant delays. Due to the current sanctions against Russia, the country has closed its airspace to airlines from the EU and many other countries. This shows how vulnerable individual modes of transport are and how important it is for international supply chains to have alternatives.
Shortage of delivery capacities with high delivery costs at the same time. Why? International supply chains were already strained before the Suez Canal disaster due to the lack of containers and air freight capacity. If the closure had lasted longer than seven days, the effects would have been truly catastrophic. After all, around 12% of global trade or 30% of international containers pass through the Suez Canal.
The impact on freight costs was particularly great. Even before the accident, international container rates were at an unprecedented high. The succession of crisis lockdowns and/or production cuts – first in China and then in Europe and the USA – has led to a shortage of containers. Combined with unexpectedly high demand in the US and Europe, freight rates were three times higher than in normal times, and in the aftermath of the disaster, they even rose to 6 times the pre-Covid-19 level.
The price drivers continue to be a persistent container shortage, rising demand, Chinese terminal closures due to Covid-19, lower capacity at US ports, delayed handling at these ports and waiting times at US West Coast ports and Singapore, as well as problems in US hinterland traffic.
One of the “lessons learned” from the Covid-19 crisis is that we need to strengthen the supply chain resilience and reduce the dependence on global suppliers. Even before EVER GIVEN, regionalisation of supply chains or at least “nearshoring”, i.e. sourcing from nearby countries, was discussed.
A huge problem is a shortage of and dependence on microchips from Asia, especially from Taiwan. In this context, the EU’s promotion of new chip factories in Europe is very welcome. Austria can consider itself lucky to have a lighthouse project with the Infineon factory in Villach, even though many chips are also flown here to Asia for final production.
Due to the short distance, the good skilled labour and the low wages, Ukraine was/is an excellent nearshoring country. There are some automotive suppliers there. But here too, the war is causing supply chains to break down. BMW in Steyr and Volkswagen already had to stop their production at the beginning of March 2022 due to a lack of cables from Ukraine.
In shipping, bottlenecks like the Suez and Panama Canal will not be eliminated so easily. In the case of the Panama Canal, the second set of locks has already been built to allow larger ships to pass through. Furthermore, there are various considerations to building parallel routes (e.g. through Nicaragua). However, the costs and the negative environmental impact are gigantic. Therefore, one is not aware of any consideration of parallel canals for the Suez Canal.
Director of the Institute of Transport Economics and Logistics, WU Vienna and Endowed Chair Professor, Jilin University, Changchun since 2001. Previously he worked at the TU Dresden (1996-2001) and WHU, Vallendar (1987-1996). Together with his team, he has carried out numerous successful research and practical projects for industrial and trading companies as well as for transport and logistics service providers. He has supported numerous transport and logistics tenders. His publication list comprises more than 200 publications, including leading textbooks. He became known to a wider public when he was stranded with his sailboat in the Aegean Sea due to Covid 19 restrictions.
Independently from new regulations Transport & Logistics companies are liable for the cargo
After a long-lasting debate in EU the so-called Macron law was put in force after several local implementations were applied on national level. Firstly, Belgium and France followed by other countries banned the opportunity for truck drivers to sleep in the truck cabin, although all manufacturers applied all necessary conditions for a comfortable rest in the vehicle.
The law is seen in the majority of CEE countries as a discriminating enforcement by Western European governments who made their best to decrease the aggressive competition of Eastern European transport companies dominating the transport and logistics market in the last decades especially after the EU expansion in Poland, Baltics, Romania and Bulgaria. Besides it brings many problems for the insurance industry, due to compulsory absence of drivers out of the vehicles in certain cases especially when regulating their resting slots.
This article focuses on the special hot topic directly or indirectly connected with the new regulations on the market – robbery of cargoes or total theft of vehicles increased in numbers as a logical tendency to above legislation changes!
From theoretically good intentions to chaos in practice
A problem with many unforeseeable aspects as a ticking time bomb was initiated on May 31, 2017, when the EU Commission published a large “Mobility Package” that aims, among other things, to make a number of changes to Regulation (EC) 561/2006 with regard to travel and rest times. For example, a change was proposed to the effect that the weekly 45-hour rest period or any other longer rest period must be spent in appropriate accommodation with adequate sleeping and sanitary facilities. So, sleeping in driver’s cabs should therefore be impossible across the EU for the longer compulsory resting time.
After many months of discussions, disputes, strikes by transport and logistics business also directly in Brussels regarding the above changes and other restrictions mainly on more frequent trips back to and from homeland, the law was practically put in force. One of the major consequence of this is that drivers will either spend their weekly rest periods in accommodation provided by or paid for by the employer or – if it can be arranged – at home and the trucks will therefore have to be left alone. And here it comes to the major point for the insurance industry: What if a truck and its goods are stolen from a trailer during this period?
But let us firstly look at the major insurance problem: It is not a secret that theft and robbery have been major risks in the transport and logistics industry for many years already (more than 15.000 theft/robbery cases p.a. in Europe!). In addition, the illegal immigrants are also an issue! Based on data from Transported Asset Protection Association (TAPA) we see a significant increase of cases within last years – a special focus is given on the fact that more than 65% of cases of theft happen on unsecured parking (TAPA latest report December 2020).
We should also not forget that nevertheless of EU efforts to work on providing more and more secure parking lots their number is still insufficient to the increased traffic and the demand on industry side to use such facilities especially after new regulations are being implemented. A critical issue is that even if a transport company makes its best to plan, choose and try to use secured/guarded parking lot, the number of all fully compliant to the insurer`s requirements locations is very limited and often fully booked and impossible to make use of. And who does and how actually define what a secured/guarded parking lot means? There is no exact and common definition for this!
A Pandora box opened for unforeseeable increased risk cases!
The above then clearly describes the challenging development of the industry on one side and the dilemma of how to protect against the theft/robbery risk while at the same time a transport/logistics company is liable (also unlimited in case of gross negligence equal to willful misconduct of its drivers – Art. 29 CMR!) for damages and theft of the cargo and when at the same time drivers are not allowed to stay with their vehicles in certain cases for a longer period of time. However, an important question arises out of above: Where is the role of the respective insurance cover – a carrier`s and freight forwarder`s liability insurance should be enough, shouldn`t it?!
The answer is very tricky from Insurance industry’s point of view as in many of the cases, especially in CEE insurers simply apply restrictive coverages for keeping up the loss ratios low without taking into consideration that long term relationships with customers cannot be built by only increasing exclusions in wordings. Many CMR insurance policies contain provisions that can be extremely sensitive for carriers; the conditions vary from insurer to insurer and can include, for example, the following clauses:
Theft is generally excluded;
The theft of goods that are transported with a truck that is not parked in a guarded parking lot and / or does not have two independently functioning anti-theft devices is excluded;
The theft of vehicles including their loads or loads from vehicles that are manned by only one driver, although a crew of two would have been appropriate / necessary;
Thefts due to poor route planning are excluded;
The theft of high-quality goods that are not transported by trucks with box bodies fitted with security locks is excluded;
Theft from parked vehicles that are not guarded by certified personnel is exclude10
As you can see, there is no limit to the imagination of insurers when it comes to exclusions. Some policies also provide for deductibles, sometimes in the event of theft of up to 25% of the total value of the goods. Of course, a Cargo policy could partially solve the problem, but the general practice shows that normally transport and freight forwarding companies do not have as prerogative the responsibility for insuring the cargoes on first party principle as they are simply not owner of the good.
Check your policies – we can help!
Thus, having above situation, a professional transport and logistics company should make its choice for appropriate provider of insurance solution with broadest possible covers incl. coverage of Willful misconduct (in regards to the critical Art. 29 of CMR) as well as highest possible sums insured depending on the types of cargoes. But not only the wording is critical! The customers must choose out of the several insurance service providers, if possible, a respective so called Assekuradeur like W DROEGE or LUTZ, who are well known for their extensive and profound specialization in Transport & Logistics LoI.
These organisations do not only underwrite the business up to certain limits authorised by risk carriers, they also manage risks and claims to the benefit of the client by involving their loss adjusting partners, lawyer networks and other specialists. A risk carrier is only involved in very high claim and critical cases. They provide trainings and instructions for a better and optimized planning of transport schemes and advise on most critical potential risks.
Be aware and rely on your Transport & Logistics Specialty team!
The tendency of implementing steadily critical regulations is by far not yet over and for this, the industry is rather to be concentrated on actively fitting to new legislation and not passively waiting for insurers to protect them. The transport and logistics companies will further be “squeezed” between new and harder legislation on one side and the creativity of thieves and fraudulent acts within continuous market openness. Together with increased pressure of the ordering parties on our customers this means that we as broker must also act more energetic and steadily improve our offering finding the right insurance and risk solution.
The text is prepared with the special support of former General Manager Otmar Tuma from LUTZ Assekuranz team with excerpts from the Article in „blickpunkt lkw + bus“ Edition 51.