NEW YORK — There is no shortage of opportunity for goods to get lost or damaged in their journey from the factory floor to store shelves.
Ships sink, and containers leak, slide overboard in storms, fall off truck beds and get broken into at port facilities. Insurance has kept lawsuits for damage recovery down. However, with larger ships scheduled to hit the seas in the coming years, accidents may put more at stake for shippers and insurers.
Getting an idea of how many goods are currently lost or damaged in transit is difficult to pin down because ocean freight shipping lines, ports, rail lines and trucking companies are not eager to advertise such statistics. Transit industry sources pointed out that the rate of loss or damage is low considering the numerous times goods change hands and forms of transportation along the way.
“The entire logistics industry has become more sophisticated in areas like how they handle hazardous cargo,” said Lee Sandler, a founding partner of international trade law firm Sandler, Travis & Rosenberg. “We don’t see as many claims where cargo wasn’t secured properly or where cargo that was supposed to be stored below deck wasn’t.”
Steve Ferreira, founder of Ocean Freight Refunds, which audits freight records to reclaim improper charges, said he also has seen improvements in how ocean carriers handle and arrange cargo.
“The general public thinks it’s only our stereos and TVs being shipped,” said Ferreira. “But there’s fireworks and highly corrosive chemicals. Those things can really wreak havoc on a closed hatch containership.”
Ferreira said several years ago a container filled with fireworks was loaded in the middle of a ship and exploded during the voyage, resulting in loss of life and the destruction of containers within 100 feet. Those sorts of problems have been greatly reduced.
“I think in fairness to the steamship lines, they’re probably doing a better job about looking at the types of cargo that could cause havoc on a ship.”
However, damage claims occur at a fairly consistent rate, according to Ferreira.
“What I see, based on my experience working with the big-box retailers, is that for every 100 containers, I would expect to have one claim,” said Ferreira. “The claim could be for a loss, damage, shortage or pilferage, or even a hole in the container that causes damage to part of the shipment.”
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Container losses in the Pacific Ocean pick up each year between June and December as a result of hurricanes, according to Ferreira.
“There’s at least several hundred containers per hurricane season that are lost during that time period and that’s a conservative number,” said Ferreira. “That’s going to be huge claims against the insurance agencies.”
With larger ships going to sea, those loses also will get a bump.
China’s dominant manufacturing position has made the Pacific Ocean the crucial artery for nearly all major ship lines. For APL Lines, trans-Pacific shipping accounts for nearly 36 percent of its annual container volume. The company’s second-largest trade area comes from trade between Asian countries, accounting for 31 percent of its container volume.
APL is anticipating significant growth in container volume in its trans-Pacific route over the next four years, as well. Container volume is forecasted to reach 17 million 20-foot equivalent units — the standard maritime industry measurement used to count cargo containers — by 2009, up from about 12 million TEUs in 2005. Ships capable of carrying up to 12,000 TEUs are also on the horizon.
LeRoy Lambert, a partner with maritime law firm Healy & Baillie, concedes that larger ships have the potential for larger losses, but doesn’t feel that makes those ships more or less prone to risk.
“The technology is keeping pace and they’re getting more and more sophisticated,” said Lambert.
The shipper of the goods has one year to file a lawsuit for lost or damaged goods, according to Lambert. Most issues are resolved between the insurance agents of both the shipper and the carrier. Lawsuits are generally filed only as a measure of protection.
“As the year runs out, a protective suit will get filed,” said Lambert. “People aren’t just going to walk away.”
Still, Lambert doesn’t anticipate a rise in the number of lawsuits filed over the coming years.
“Most companies will have first-party insurance,” said Lambert. “You insure the goods that you own for shipment so if you have a loss, you first go to your insurance carrier. It’s like collision coverage for a car….The carrier in turn has bought liability insurance to protect itself for damage to cargo.”
Ferreira, however, has noticed his customers opting to pay for more protection.
“I’m noticing that a lot of my customers, more so than ever, are purchasing marine insurance to protect themselves,” said Ferreira.
The explanation for the trend has little to do with any increase in the number of goods getting lost or damaged. Instead, Ferreira believes it has more to do with price protection in the rare event something does go wrong.
“There’s a tremendous shortage of raw materials in China, so that if a customer does experience a loss, they want to be able to re-create the order. Without the insurance, there’s no guarantee they’ll get the same pricing from their vendor,” said Ferreira, who added that such insurance wasn’t cheap.
Sandler points out that shippers may file suits if they have no insurance or are underinsured.
“In that case, they typically sue the carrier and everyone in the supply chain looking for someone who could be deemed responsible, someone with the deepest pocket,” said Sandler.