Cargo insurance and moving your cargo through a country at war.

I recently had a customer ask me for a cargo insurance rate for cargo traveling from Qingdao, China, to Germany.  What is interesting about that? It was for ground rail transit that would have the conveyance moving through both Russia and Ukraine, that’s what.  My customer explained that getting cargo cover was possible because he knew other shippers using the same route.

The subject rail route through Russia and Ukraine costs much less than the cargo moving containerized by the ocean route. By its nature, container ocean shipping is more expensive operationally, and container volume is still healthy, translating to no give-away ocean container rates. I would venture the rail operator selling space on the Russia / Ukraine route to the EU countries is having difficulty selling space, making rates attractive.

Added to that, rail freight can travel in a more direct land route, and ocean cargo would have to sail south through the South China Sea, the Malacca Straight, west through the Indian Ocean, and then to the Suez Canal, adding many miles and time to the transit. Transit days can typically run anywhere from 30 to 48 days by ocean.  So yes, the rail route is much less costly. Is it worth it? To quote Clint Eastwood when he played Dirty Harry Callahan in the movie ‘Dirty Harry,’ “Do you feel lucky?” If you do, take the rail route. If you don’t feel overly lucky, pay for the ocean transit.

Is it possible to go by the rail route? Yes, but there are things the cargo insurance providers for the shipments being moved need to be telling their shippers, or the shippers need to listen. It is possible in some cases because neither country is the origin nor the destination, but it isn’t an excellent idea for marine cargo insurance purposes.  Not only does the following apply to Ukraine and Russia, but some things may also apply to Israel and the Palestinian Authority region as well. While the latter areas are seldom ‘pass through’ countries, they are destinations or origins.

When the world is a crazy place, insurers reduce their risk by excluding perils caused by things you shouldn’t be doing considering the uncertain circumstances. So, if you must ask yourself if shipping through, to, or from certain areas is a good idea due to unrest, it is likely insurers have already considered it and said it was not a good idea and backed it up with an exclusion or coverage modification to reduce their own risk.

One tidbit of information the insurance providers may be leaving out is good luck getting Institute War and Strikes Clauses for cargo for countries at war because they are, well, at war. Beneficial freight owners can’t take for granted War & Strikes is covered in many unstable countries, never mind countries with an active conflict going on. As a broad description, War & Strikes cover damage or loss of subject matter insured caused by war, civil war, revolution, insurrection, or civil strife by or against a belligerent power.  It is reasonable that insurers will not offer War & Strikes in such troubled countries because some of the risks that would be covered are already happening in the troubled countries.

Once you get used to the idea you would not have War & Strikes covered for your shipments, you may as well consider if authorities seize your cargo; even if not related to war, there will be no cover either.  In short, if the authorities seize your cargo, it is gone with no insurance recourse for you. The wording in your policy may look something like this: “According to Institute Cargo Clauses (A), any loss arising from “capture, seizure, arrest, restraint, or detainment (piracy excepted) and the consequences thereof or any attempt thereat” is excluded from the cargo insurance policy.” In troubled countries, authorities are strained to the limit, and depending on the situation, it may not even be clear who the authorities are. The risk of authorities seizing cargo during these trying times upticks as it may not always be clear to the authorities what your cargo is, what it is used for, who shipped it, and where it is going.  In countries in conflict, authorities are more apt to go by ‘If in doubt, seize it.’

Okay, you are willing to take War & Strikes and seizer risks off the table and only cover your cargo for more traditional risks covered by cargo insurance; there is one more risk you must consider. No matter what covered peril your cargo falls victim to, will you be able to collect a claim? 

To process a claim, certain things must happen in the event of a shipping loss.  One of those things is the insurer or their claims agent must be able to safely get to the freight to survey the damages/loss. If the insurer cannot ensure their surveyor’s safety and legal ability, they won’t send them. Without a surveyor, a claim would have a difficult time moving forward. Marine cargo insurers maintain the right of survey to consider a claim.  There may be insurers doing workarounds on surveys in dangerous places, but I am not asking ours to take the risk. My life is complicated enough, and trying to cobble together workarounds for countries in conflict has complicated written all over it.

Long story short (I know, too late on the short thing), there may be shipping and business opportunities in the world’s more dangerous regions. If sanctions and embargoes allow, you are welcome to seize the opportunities.  But remember that your cargo insurance, as you know it, may not be able to go with your business plans in some regions. My opinions are not and should not be considered legal advice. When planning your shipments, you should speak with your insurance provider or maritime attorney to assess if all your coverage wants and needs for cargo insurance are met.