Cargo Insurance and ISFs: Implications West Coast Shippers Should Consider


Cargo Insurance and ISFs: Implications West Coast Shippers Should Consider

Negotiations between the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) continue as the current contract expired on June 30^th. Presently, according to a statement by the PMA, while there will be no contract extension, “cargo will keep moving, and normal operations will continue at the ports until an agreement can be reached between the two organizations. Both sides understand the strategic importance of the ports to the local, regional and U.S. economies, and are mindful of the need to finalize a new coast-wide contract as soon as possible to ensure continuing confidence in the West Coast ports and avoid any disruption to the jobs and commerce they support.”

However, without a new contract, members of the International Longshore and Warehouse Union may choose to strike and go against leadership’s pledge that cargo will indeed keep moving. Moreover, in addition to a potential kink in the supply chain, U.S. West Coast shippers should also be aware of the impact a disruption may have on their Cargo insurance and Importer Security Filings (ISF). Issues such as delay, accumulation, deviation, rejection, demurrage and congestion as well as potential liquidated damages for ISF discrepancies should be considered.

Issues of Concern Regarding Cargo Insurance Delay:

Cargo insurance policies exclude costs related to delay. Exclusions include but are not limited to: loss of market or loss, damage, expense or deterioration arising from delay. Physical loss or damage caused during a strike is covered per the terms of the Strikes, Riots, and Civil Commotions endorsement to the Cargo policy.

Accumulation:

Import shipments may begin to accumulate at foreign, U.S. Gulf and Atlantic ports and export shipments may begin to accumulate at warehouses or container freight stations. Consequently, there is the potential for accumulated cargo values to exceed Cargo policy limits and could result in cargo being underinsured.

Deviation:

Although unlikely, the steamship lines could declare “force majeure” (common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term act of God), which would terminate the contract of carriage for the shipment and relieve them from being liable for the cargo. It would also allow them to discharge the cargo at another port of convenience, which could include ports outside of the U.S., such as Mexico and Canada. Insurance coverage could be jeopardized particularly if the cargo is being trucked into the U.S. via Mexico as some policies may exclude or limit these types of shipments.

Rejection:


In the event that cargo is rejected by the consignee/buyer as a result of a delay (or otherwise), most Cargo insurance policies include provisions to extend coverage while alternate arrangements are made, i.e., re-sale, re-routing, return to origin etc.; however, underwriters must be advised of the rejection and corrective action. Additional premium and amended insuring conditions may be assigned to maintain coverage.

Congestion and Demurrage:


Additional costs such as congestion surcharges, demurrage and additional freight costs are not recoverable under a Cargo policy.

ISFs:

If cargo is diverted to a port outside the U.S. and transported into the U.S. by means other than ocean, then the ISF would need to be amended by filing a withdrawal. Failure to update the ISF with more accurate information may be considered a breach of the regulations (the Accuracy component) and lead to the imposition of liquidated damages. Customs and Border Protection (CBP) is not that focused on accuracy right now, but their enforcement stance is “discretionary”. If cargo is diverted to another U.S. port, no action is necessary.

The labor dispute comes at the worst time for merchandisers as the summer months typically have a high quantity of goods sold at stores that come through Western ports. When negotiations broke down in 2002 and there was a 10-day lockout with a halt in the movement of cargo out of West Coast ports, an estimated $1 billion in economic losses resulted.

If you have any questions about the impact of a potential disruption on Cargo insurance coverage and ISFs, please contact your Roanoke Trade representative at 1.800.ROANOKE.