Why Coronavirus is impacting cargo insurance

The Chinese economy and wider global trade is starting to see supply chains affects as a result of the current Coronavirus (Covid-19).

Although the Chinese economy recovered quickly after the 2000s SARS epidemic, current thinking and developments suggest that Covid-19 may have a greater impact on world trade with the down-turn in imports and exports to and from China.

China is Australia’s largest trading partner, suggesting that an impact to our economic standing is to be expected due to personnel shortages, mandatory quarantines and travel restrictions, and the continued spread of the virus.

The size of any economic impact to Australia (and the rest of the world) will be linked to the time it takes to fully neutralize the spread of infection and return to day to day activities.

While the full impact cannot yet be predicted, areas of impact may include:

Economic Activity

China is fully enmeshed in the global economy as a major manufacturing base and consumer of resources. The Chinese are increasing their appetite for overseas travel and education opportunities. Covid-19 has and will continue to effect international travel and trade.

China’s economic position is also compromised by the ongoing trade dispute with the US, which may limit their ability to develop an economic stimulus package to aid recovery.

Transport and Shipping

Major disruption and reduced trade activity in imports and exports is anticipated with causes including:

• Additional biosecurity measures at borders/ports/airports
• Cancelled transport services – road, rail, sea & air
• Deviated, restricted and/or delayed shipment
• Travel or entry bans
• Personnel shortages

Container congestion is also expected to rise as yards reach critical capacity as blank sailings increase.

Food Products

An ongoing slump in demand is expected as temperature controlled trade chains become increasingly disrupted.

Shipping and handling of temperature controlled goods is becoming increasingly difficult as inland transport connections in China remain disrupted. This is due to interim cold storage capacity and reefer container ‘plug-in’ facilities drying-up and import transportation methods being ceased or diverted.

Manufacturing & Industrial Production

Forced shut downs, travel bans, quarantine and shipment disruptions will cause widespread impacts to industrial production globally. This will impact the imports and exports of raw materials, processed and semi/fully manufactured goods.

Shipments of industrial and manufacturing exports from Australia to China, including ores, concentrates, petroleum products and bulk foodstuffs, may be delayed, postponed or have supply contracts cancelled.

Retailers are also beginning to re-examine their business models in an attempt to stray away from China as a single manufacturing source, instead diverting to India and Southeast Asia.

IMPORTANT NOTE

Insured Parties should check with their trade partners and transport and shipping providers that shipments to/from China can be undertaken without undue delay or disruption.

This is particularly important for temperature controlled or time sensitive goods.

Institute Cargo Clauses are designed to cover physical loss of, or damage to, the insured goods and certain risks are specifically excluded or do not fall within the cover parameters. These can include:

Delay

Delay is specifically excluded from virtually all Institute Cargo Clause wordings. Some temperature controlled clauses may include a delay provision.

Fear of Loss

Fear of loss is not covered within the Institute Cargo Clauses

Surcharges and Additional Shipping Costs

Additional charges applied to shipments due to Covid-19 diversions or delays are not covered by Institute Cargo Clauses, except in circumstances where they form costs associated with a claim for loss/damage to the cargo from a peril already covered by the policy.

Termination of Contract of Carriage and Change of Voyage

Most Institute Cargo Clauses will provide some form of continuity of cover in the current chaotic trade and shipment circumstances. For the sake of example, we detail some of the provisions of the Institute Cargo Clauses (A) 1.1.09:

Transit (Clause 8.3)

• Provides the maintenance of cover during delay, (beyond the control of the Assured), any deviation, forced discharge, reshipment or transhipment for shipments already departed and where this action is undertaken by the carrier (ship, airline, etc.) under a liberty granted to them in the contract of carriage.
• Usual transit and termination of cover provisions remain where the forced change is not part of the liberty granted to the carrier.
• Where the Carrier terminates the shipping contract at an intermediate port or place, in circumstances beyond the control of the Assured, Clause 9 (Termination of the Contract of Carriage) comes into force.

Termination of the Contract of Carriage (Clause 9)

• It is important to note that insurers require notice to continue cover in these circumstances (termination of the shipping contract (beyond Assured control) at a port/place of than the intended destination)
• NTI Cargo Protect will accept “notice” as having been given for all Non-Temperature Controlled shipments directly impacted by Covid-19 where Termination of Contract of Carriage has been activated.
• Furthermore, the time limits provided under Clause 9 for sale of goods (at intermediate port/place) or on-forwarding to another destination are increased for Non Temperature Controlled Goods from 60 to 120 days without additional premium. Further extensions of time may be provided at additional cost.

Change of Voyage (Clause 10)

• Similar to Clause 9 above, notice must be given to insurers to allow a review of the new exposure contemplated by a different voyage. NTI will again accept “notice” as having been given for all shipments directly impacted by Covid-19 where the Change of Voyage is activated.

The above detail has a general application to many Cargo Insurance contracts and insured party circumstances. We strongly recommend that specific inquiry and review is undertaken to ensure that a complete picture of insured party circumstances and requirements are identified and acted upon accordingly.

For more information, or to speak to a Marine Protect expert, head to our website to contact your nearest NTI office.