Deliveries to exotic countries

16 March 2010
Marine Newsletter 2/2010. Business is done where business is, and to many of our customers that means remote places and exotic countries all around the globe. Transportation risks can however be covered just about anywhere in the world.

Nowadays, people travel to the most faraway places in the world so that they can escape the harrowing world of mass tourism. It sometimes feels that the more difficult the place is to reach and the more uncomfortable the living conditions are then the better it is.

Nordic industrial enterprises also find themselves more and more often in these exciting places and the risks and the measures they demand can sometimes create surprises. The following paragraphs contain a sample of the risks these companies may encounter and how we in If’s Cargo Insurance Department can help our clients recognise, manage and insure these risks.

The risks

When making a deal and, actually preferably before that, it is prudent to consider what types of risks maybe confronted when going to slightly more exotic countries. Often the largest investments in these faraway destinations are in areas, which have challenging weather conditions. It could for example be that the local roads only allow for the possibility of transportation outside the rainy season. Or transportation over large water areas is only possible during winter, i.e. along ice roads.

In addition to this, the general conditions which exist, starting with roads, bridges, harbours or in fact the lack of them can impose their own challenges regarding deliveries. All of these conditions have an effect on both the risk level of the transportation and the possibilities of keeping to timetables, especially after a cargo loss occurs.

In fact all operators tend to choose established transportation companies or other local sub-contractors, which through experience have proved to be reliable or have been recommended by others. When a company goes into new and special markets, there are normally no sub-contractors available, which are known either to the companies themselves or to other co-operation partners.

Even if it is possible to find more than one - e.g. transportation company – there is no guarantee that it is possible to find the required special equipment from more than one service provider. It is of vital importance that inspections are carried out both at the point of departure of the transportation as well as at the other end of the sea voyage.

Ensure the condition of the goods

In this way it is possible to ensure the condition of the goods before and after the transportation and to make sure that the loading and unloading operations are carried out correctly. In addition, the checking of the transportation equipment before, e.g. a demanding inland transportation is a prerequisite for ensuring that the goods arrive at their destination intact.

Even if the infrastructure is of a reasonable level it is possible that the destination is in a place of unrest or the transportation must pass through an unstable area. It need not necessarily be a question about conventional martial law or even about a conflict between rebels and the government: violent demonstrations and strikes can cause destruction, i.e. in the storage areas of ports. Moreover, political murder and other violence can act as a primer for more extensive unrest and in the worst case scenarios could send the entire country into a cycle of chaos or terror.

Insurance

Many developing countries have stringent insurance legislation, which states that only domestic insurance companies are allowed to insure risks in the countries concerned. In the same way reinsurance is primarily only given exclusively to domestic insurers. Only in cases in which domestic insurers and re-insurers are completely or partially unable to underwrite the risk or in fact do not want to underwrite the risk, is it possible to resort to foreign capacity. If P&C through its own branch offices and network partners has the possibility of arranging insurance in over one hundred countries around the world.

Therefore organising local insurance does not generally demand any deviations to the normal setting up of a transportation insurance programme. However, if the country of destination is in an area, in which If P&C does not normally provide insurance cover, then arranging local insurance can take some time, because as with our clients, we must assess e.g. the credit and contract risks extremely carefully.

The political risks associated with various countries are evaluated utilising various sources – for example the Ministry of Foreign Affairs. In the case of cargo insurance, underwriters follow the list, which is maintained by the Exclusive Analysis –company which is specialised in the evaluation of political risks. This list can also be found from our internet pages. If the transportation is going to or through a country which is ranked as a “severe” risk area, then the insurance must be separately agreed upon by If P&C’s Cargo Insurance Department.

For underwriting purposes, it is prudent to have available as extensive information as possible concerning the transportation: the nature and value of the goods, the transportation route, whether or not the transportation is part of a convoy and details about the security of the transportation.

Concerning convoys, five to ten vehicles is for example considered to be a good rule of thumb and the lower the sum insured per vehicle the better. The use of the military might of the dominant group in power for securing the transportation is not always a good idea because these groups can attract the attacks of rebels and terrorists just like a magnet.

Timing is everything

Matters concerning transportation insurance are not necessarily the first item on the agenda during trade negotiations. It does not matter whether or not it’s a question about the trading of textile products or even about a major investment project. It is extremely important to contact us in as early a phase as possible. This allows us adequate time to check whether the transportation is already covered by the global cargo insurance programme or whether local insurance is needed and if so which measures must be taken regarding the arranging of local insurance.

If the transportation goes through a severe risk area and the financiers of the investment demand their own clause as a part of the insurance and the cargo reinsurance, it is prudent to have available comprehensive basic information and to reserve enough time so that everything can be organised properly. In addition, we organise through our expert cargo risk management or through our comprehensive agent network, pre-shipment surveys and surveys in the port of destination as well as transportation equipment inspections. We help our clients to reflect on the transportation risks.

Even before the economic downfall, industrial enterprises operating in the Nordic countries had already extended their operational environment. Trading to South-America, the former CIS countries and Asia has been a part of their everyday routine. We willingly want to help our clients conquer new market areas by providing them with our comprehensive experience, through the surveying of risks and by organising insurance cover also to those slightly more faraway places in the world.

Finally I would still like to reiterate that the list of severe risk areas and the list of countries in which the insurance legislation creates restrictions for foreign insurance companies can be found from our internet pages. These could be of invaluable help when going out to conquer faraway markets.

Kari Koljonen