Perils of the Sea

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General

Perils of the Sea could be defined as fortuitous accidents or casualties, peculiar to transportation on a navigable water, such as stranding, sinking, collision of the vessel, striking a submerged object or encountering heavy weather or other unusual forces of nature. A shipment by ocean is subject to a large number of risks, most of which are only vaguely familiar to a land-based exporter accustomed to shipping by truck or rail to its domestic customers.Most losses covered by a marine insurance policy come within the comprehensive expression "perils of the sea," which refers to damage caused by heavy weather, strandings, strikings on rocks or on bottom, collision with other vessels, contacts with floating objects, etc. The Table 1. below gives a summary of main and acceptable for an insurancs coverage perils of the sea.

The Vernacular of the Insurance Industry[1]

The insurance industry, and in particular the marine insurance industry, speaks an obscure language. Nevertheless, it may be useful to discuss perils in the vernacular. A peril is the nature or kind of loss. It is that which causes a loss, that is, fire, collision, pirate attacks, war, or the like. Firms insure against perils. The word “average” in insurance terms, refers to the extent of coverage. A “particular average” loss is one that affects specific interests only. A “general average” is one that affects all interests in a voyage including that of the vessel itself. Ancient convention has established that all parties to a voyage, shippers and owners alike, share in the benefits of the voyage and should therefore also share in the perils thereto. Thus, should a vessel sink, all interests (that is, persons having an interest) share in that loss. Both “general average insurance” and “particular average insurance" cover against total loss resulting from perils of the sea (that is, the action of the wind and sea). “FPA” coverage (that is, free of particular average) covers only for total (general) loss or partial losses resulting from certain named perils (for example, stranding or fire). That is to say, in the event of a partial loss due to these perils, only a partial amount is recoverable. The “with average insurance ” or “WA” insurance covers the full amount of the loss. FPA is a more restrictive and narrower insurance than WA coverage. Basically, FPA will cover only in the event of a total loss while WA will allow for recoveries on partial losses.The so-called “all risk” coverage is most commonly used by traders of general commodities. All risk insurance does not, as the name implies, cover against all risks. Certain risks are specifically excluded, such as those arising from war and losses attributable to delays in transit.

Table 1. Summary on Perils of the Sea[2]

KIND OF PERILS DEFINITION/EXPLICATION/JUDGEMENT COMMENTS/EXAMPLES/DECISIONS
FIRE Fire is a fairly significant peril of shipping by ocean cargo containers. All dangerous cargo can only legally travel internationally by ocean—and not by air — such cargo is often present on board; fireworks, explosives, compressed gases, ammunition, and chemicals of all sorts are crowded on deck. If these items happen to be poorly stowed, or are damaged in a storm, they can leak and mix with one another, resulting in fires or explosions.
CARGO MOVEMENTS A shipment by waiving/storming ocean is subjected to numerous cargo movements, many more than during a strictly land-based domestic shipment. A ship at sea may move in six different direction. Ship motions can reach 30 degrees from side to side (roll) and 10 degrees front to back (pitch). These regular movements are accompanied by drops (heave) that can reach 10 meters, as well as brief movements forward (surge) or sideways (sway) that end in a violent shock when the ship hits another wave. When a sea voyage lasts two to three weeks, and the motions are repeated every 30 seconds or so, the cargo is subjected to more than 100,000 movements, and it better be well packaged to endure this very long “roller coaster” ride. In the case of containerized cargo, the goods are placed in the container at the exporter's facility and loaded onto a truck. Generally, this is done carefully as the employees of the exporter are aware of the contents and of their value. However, once it has left the exporter's shipping dock, the goods are in the care of less scrupulous hands. The goods are unloaded in the port, placed in a holding area, handled a couple of times, then loaded onto the ship by a stevedore in a hurry, handled again several times in the same manner in the port of arrival, then loaded onto a truck for final delivery. A typical container will be handled four to six times in each of the ports of departure and destination. In some cases, the goods are loaded onto another ocean shipment as the container is transited though a port before being sent, by ocean, to its final destination. In some cases, the container is damaged in these multiple handlings and the cargo can be damaged.
WATER DAMAGE[3] Water damage starts slowly, mostly unnoticed by the ship crew. Even a small amount of water can cause great damage if it is consistently present in an area that needs to be dry. Due to storms there is also a strong possibility of mechanichal water damage to the cargo on ships unless the cargo is very well packed and protected. In some instances, the pounding of the waves is such that it deforms the container walls and crushes the cargo inside. Another possibility is that the storm will cause cargo to shift on board and to damage the ship to the point where water seeps in the hull. Finally, cargo can be damaged by container “sweat.” As the ship tosses and shakes in a stormy sea, waves wash overboard and can slowly infiltrate the cargo containers or the break-bulk cargo on board. While it is traditional for a shipper of higher-value merchandise to request that the cargo be stored “under deck” (i.e., inside the ship) rather than “on deck” (outside, exposed to the elements), the way a container or cargo is actually stowed is mostly out of the control of the shipper. In addition, on very modern containerships equipped with stack bars, the concept of deck has disappeared, making the distinction moot and increasing the possibility that a cargo will be exposed to serious quantities of sea- and rainwater. Most containers are pretty tightly closed, and no air circulation takes place. If some of the cargo inside the container has a high moisture content (agricultural or forestry products, for example), or if the cargo was loaded in a hot and humid area, then the humidity can condense on the inside walls of the container and damage the remainder of the cargo. A similar problem can happen for break-bulk merchandise placed in a tight cargo hold, as the ship “sweats” as well. These humidity problems can be solved by proper packaging and the use of desiccants.
OVERBOARD LOSSES The very common problem for cargo is the fact that it can be lost overboard in a storm or during badly done loading/unloading operations. It happens that ships lose containers overboard — actually, worldwide, it is a daily occurrence.[4] The containers placed on top of the ship's deck are lashed down with bars holding them to the deck and to each other. However, the cargo inside a container can shift, causing the container's balance to change. The container can also be improperly tied down, or the cleats holding the container can be damaged, and therefore the lash bars break or become loose, allowing some containers to fall overboard. The remainder of the container stack usually collapses as well, a situation that is called a deck stow collapse and leads to crushed and damaged cargo.
JETTISON The act of intentionally throwing cargo overboard e.g. with the objective of lightening a vessel, which has run aground, such for the common good of all interests: vessel, crew and remaining cargo. Sometimes a container lost overboard can be not an accident. The captain of a ship, — who thinks that this action will save the ship and the remainder of the cargo, — is allowed to toss containers or cargo overboard to lighten the ship, to remove a container that may have become dangerous because it became loose, or to throw overboard some cargo to free a stranded ship. Such acts are also called "jettisoning" and they are a fairly common occurrence. When this is the case, an old maritime tradition, called “general average,” dictates how the owners of the jettisoned cargo are compensated. Namely, all parties on board pay for this loss.
SINKING The ship's sinking can be one of the most serious consequences of bad stormy weather. The possibility of sinking is always present. While most of the ships lost every year to sinking are older bulk ships, even the most modern ships can fall prey to a rogue wave and be lost or seriously damaged at sea. The International Union of Marine Insurance reports on the number of ships lost at sea, as well as the human casualties. In 2010, there were 70 ships lost at sea, practically equal to the 75 casualties of 2008 and sufficientle less than 175 vessels lost in 1994.[5]
STRANDING Mechanical breakdown, stormy weather, and sometimes incompetent crews are responsible for ship's stranding and, as a result, a significant number of grounded ships takes place every year. The improvements made on navigational technologies, such as the Global Positioning System, have improved the precision with which ships operate. However, they cannot rely on precise maps: Only about 35% of the world's oceans have been accurately mapped and many charts rely on data that were collected—somewhat inaccurately — some fifty to 100 years ago. Also, currents, coastal rivers, and strong storms modify the relief of coastal areas frequently; this is why many ports employ pilots to guide ships in their approach to port. Direct damage to the cargo is not very likely when a ship is stranded. Nevertheless, because stranded vessels can take days or weeks to be freed, the cargo on board can be damaged while it waits; it is obviously the case for refrigerated or produce cargo. When the ship is freed, cargo is often "lightered" onto another ship, with all the perils associated with a transfer of cargo in less-than-ideal conditions. If the ship's hull is damaged, there can also be significant water infiltration and the cargo can be flooded. Besides, part of the cargo is simply jettisoned to lighten the ship. This is more often the case with bulk cargo of low value rather than with cargo of higher value or containerized cargo. Where a marine policy excepts a loss unless a ship is “stranded”, the insurer is liable for any excepted loss, whether or not the loss is attributable to the stranding, if the risk has attached before the stranding and, in the case of a marine policy on goods, the damaged goods are on board the ship.[6]
GENERAL AVERAGE General average is a general indemnity made by all interested parties concerned for a maritime loss incurred voluntarily but necessarily for the safety of the remaining property when in peril.[7] Average adjuster is one who investigates and apportions general average losses on behalf of ship owners.[8] The concept of General Average is exclusively used in marine insurance. It predates the concept of insurance, and was the idea that, when there is an "Average", — a term derived from the French word avarie, which means "damage to a ship or its cargo", — or a major loss on a ship, all cargo owners and the ship owner share in the loss. When a portion of the cargo is lost in bad weather, or when there is a major fire on board, or when a portion of the cargo is jettisoned to save the ship, all of the owners of the cargo and the owner of the ship (or their insurers) pay for the lost cargo if a "General Average" is declared by the ship owner. For at least a portion of the owners of cargo on board, General Average means that the owners of the goods that arrive safely have a liability toward the owners of the goods that did not arrive. Companies that had sufficient insurance have only their goods to worry about; companies with no insurance will have to place a cash deposit with the adjuster of roughly one-third of the value of the goods on the ship.
THEFT (See Table 2 herein) Cargo theft, whicn kinds are described in the Table 2, is of great interest for companies shipping by ocean. Cargo is any commercial shipment moving via trucks, planes, rail cars, ships, etc., from point of origin to final destination. If merchandise is stolen at any point in between—highway, truck stop, storage facility, warehouse, terminal, wharf, etc.—then it’s considered cargo theft.[9] The total value of cargo thefts is difficult to pinpoint, as the police often tally these data together with other types of thefts, but it is estimated to be at least U.S. $10 billion per year in the United States and U.S. $30 billion worldwide. Because cargo theft statistics have never, until recently, been a separate reportable category in the Uniform Crime Report (UCR) and because many companies don’t report cargo crimes (to avoid bad publicity, higher insurance rates, damage to reputation, embarrassment, etc.), the exact dollar losses aren’t known. Industry experts estimate all cargo thefts ring up as much as $30 billion in losses each year. While the risks are much greater on shore, or specifically in transit to the port of departure and from the port of arrival, it is becoming a major concern of exporters and importers of cargo that is easy to resell, such as athletic shoes, cellular telephones, or computer equipment.
PIRACY In the context of international logistics, piracy is the act of violence or depredation on the high seas. Generally, the definition of pirates meant rogue operators at sea—independent criminals who hijacked ships, stole their cargo, or committed violence against their crew.[10] But standards in all areas under the law changed in response to judicial rulings and to historical incidents, forming by the mid-1800s what became the basis for contemporary law. Today, the primary source of antipiracy law is title 18, chapter 81, of the United States Code, although numerous other antipiracy provisions are scattered throughout the code. Additionally, international cooperation has shaped a unique form of jurisdictional agreement among nations. Significant in bringing about this cooperation was the geneva convention on the High Seas (1958)[11] and the United Nations Convention on the Law of the Sea (1982).[12] The primary effect of such agreements is to allow pirates to be apprehended on the high seas—meaning outside of territorial limits—by the authorities of any nation and punished under its own law. This standard is unique because nations are generally forbidden by International Law from interfering with the vessels of another nation on the high seas. It arose because piracy itself has never vanished; in fact, since the 1970s, it has appeared to have undergone a resurgence.
OTHER RISKS The risk of collision at sea [13] Collision is, in marine insurance, a term to describe the coming together, or contact, of a moving vessel with another moving vessel or other moving object. In the early development of marine insuring terms, 'collision' was intended to only refer to contact between moving vessels, not other objects or any stationary object or vessel.[14] This peril is not substantial, but is still present. One of the possible reasons for the collision is the poor training of the crews. Collisions usually happen in crowded shipping lanes, such as the Channel or the Strait of Gibraltar. Thanks to radar equipment, this risk has been minimized, but it still happens.
OTHER RISKS The risk of collision with non-vessels. Collision is, in marine insurance, a term to describe the coming together, or contact, of a moving vessel with another moving vessel or other moving object. In the early development of marine insuring terms, 'collision' was intended to only refer to contact between moving vessels, not other objects or any stationary object or vessel.[14] Floating or sunk containers, - as a result of overboard losses or jettisons, - or debris are present in shipping lanes as well, and represent some degree of risk for ships, but little for cargo. Oddly enough, there is still the possibility of collision with icebergs, including very large ones from Antarctica.
OTHER RISKS • The risk of having a cargo contaminated or infected by other cargo. Contamination refers to transit damage occasioned when cargo has been tainted by contact with a foreign substance or by absorption of odors (See “Noxious Odors”) from adjacent cargo, fuel or other source material, including industrial and atmospheric pollutants It is almost always possible for a cargo to be contaminated by residues of the cargo that was previously in the same container or in the same ship, particularly foodstuffs contaminated by chemical products. The contamination could bу also presented by noxious odors which refer to any number of scents that could damage other commodities within the same cargo space. This occurs when the affected cargo is prone to absorbing odors.[14].
OTHER RISKS The risk of stowaways. Stowaway is a person who hides aboard a vehicle, ship, or aircraft in order to gain free passage or, ia a bit another words, a person who secretly boards a vehicle to travel without paying and without being detected.The consequences for the cargo beyond the delay are many; most of the time, the cargo is damaged by the stowaways while they are living with the merchandise from a few days to a few weeks. The standard insurance covers the member’s extra costs incurred as a result of stowaways, refugees and shipwrecked persons coming on board. This includes costs of re-directing the ship, such as extra bunker charges, insurance, wages, stores, provisions and port dues.[15] Stowaways are becoming an increasing problem in many areas such as Africa, South America and the Caribbean Islands. They often involve the shipowners, charterers and the P&I (Protection and Indemnity) club in costly and time-consuming effort.Before leaving ports where stowaways are known to be a problem,make a systematic search of the whole ship. In many ports, it is possible to hire security companies which will undertake such searches on a “no cure, no pay” basis. This has proved to be very effective.[15] Sometimes, the stowaways hide in cargo holds that are closed and where the cargo is often laden with toxic chemicals or fumigated with insecticides. The stowaways die and the cargo is then considered unfit for consumption and destroyed in the country of destination.
OTHER RISKS • The risk to arrest a ship (i.e., keep it in port rather than let it sail away). The arrest of ships is a recognised feature of international maritime commerce and international maritime jurisdiction. Very often legitimate claims will go unsatisfied unless there is recourse to an effective and efficient system of maritime arrest. Ships, their owners and insurers are expected, in the ordinary course of their businesses, to be ready to deal with in rem claims arising in connection with the use or deployment of the ship or the business of the owner or charterer.[16]
OTHER RISKS The risk of improper behavior of ship’s owners: the owners of a ship declare bankruptcy while the ship is away, or they just decide to abandon the ship and its crew for economic reasons. A major pitfall in any personal injury case occurs when a defendant files for bankruptcy during the pendency of your lawsuit. Meaning, the party who is responsible for your injuries decides to file for bankruptcy after you sue them, protecting their assets from you. If you are what is called an "unsecured" creditor, you will most likely never be able to obtain a single cent of recovery against this Defendant even if you get a valid judgment in court.[17]
OTHER RISKS The risk of inadequate unloading: In ports where the equipment is inadequate, or in ports where equipment is in short supply, some of the cargo may be unloaded from the ship by taking apart the crates and the merchandise, and reconstructing the goods and the crate on the quay. This can be quite damaging to the cargo. International Logistics Centres for Western NIS and the Caucasus had made a study and revealed : inadequate unloading equipment for grain at some ports of Turkey demanding to include installation of quayside conveyors in port privatization contracts.[18]
OTHER RISKS The risk of unstable political environment: Some ports have a history of social unrest, and are shut down for several days by strikes or other civil disturbances. Time-sensitive cargo could be delayed, and transportation costs increased. When shippers have time sensitive cargo they should not focus only on the rate but on service, as when capacity is tight reliable service can be more important. Some forwarders offer their services concerning time sensitive cargo has to be delivere to or from politically hot sea ports[19].

Table 2. Categories of Cargo Theft

Pilferage Organized Theft System’s Theft
Such crimes are more frequent for cargo that can be identified by its marking or packaging, because it makes a more tempting target.Containerization has reduced pilferage because it makes the cargo much more difficult to identify and more difficult to steal in small quantity. Such crimes usually targets high value cargo and often includes a group of individuals, some of whom can be "insiders" in the supply chain and provide information about the content of the container. Such crimes use the information system of the supply chain to change paperwork, substitute paperwork, or delete files so that cargo can be removed without immediate detection and require either inside accomplices or the ability to gain access to a company's computer system.

References

  1. Wood, D.F., Barone, A.P., Paul R. Murphy, P.R., Wardlow, D.L. International Logistics, Amacom, New York, etc., 2002 – p.329
  2. MAINLY: David, P., Stewart, R. International Logistics: The Management of International Trade Operations - Thomson: Mason, Ohio. 2007. – http://www.atomicdogpublishing.com/home.asp
  3. The Perils Of Water Damage - http://www.articlesbase.com/home-improvement-articles/the-perils-of-water-damage-1906171.html
  4. Containers overboard - American Shipper - http://www.americanshipper.com/ecc/ECC_story.asp?news=150438
  5. Graham, Ph., Casualty and World Fleet Statistics as of 31.12.2010,” International Union of Marine Insurance, http://www.ingenierosnavales.com/uploaded/2010%20%20CasualtyandWorldFleetStatistics.pdf
  6. Marine Insurance Act, SC 1993 - http://www.canlii.org/en/ca/laws/stat/sc-1993-c-22/latest/sc-1993-c-22.html
  7. http://www.m-i-link.com/dictionarydefault.asp?term=general+average
  8. Trade Facilitation Terms: An English - Russian Glossary, United Nations, New York, Geneva, 2011 - http://www.ipaeurasec.org/docsdown/conference_0711/glossary_ed2_rev2.pdf
  9. Inside Cargo Theft: A Growing, Multi-Billion-Dollar Problem - http://www.fbi.gov/news/stories/2010/november/cargo_111210/cargo_111210
  10. http://legal-dictionary.thefreedictionary.com/Piracy
  11. Convention on the High Seas - United Nations, Treaty Series, vol. 45, Geneva, 1958 - http://untreaty.un.org/ilc/texts/instruments/english/conventions/8_1_1958_high_seas.pdf
  12. United Nations Convention on the Law of the Sea - http://www.un.org/Depts/los/convention_agreements/texts/unclos/unclos_e.pdf
  13. International Regulations For Preventing Collisions at Sea, 1972 - http://www.reach.net/~stormy/marine/colregs/
  14. 14.0 14.1 14.2 Ocean Cargo Insurance: Glossary of Terms - http://www.chubb.com/businesses/cci/chubb5810.pdf
  15. 15.0 15.1 An Introduction to P&I Insurance for Mariners - http://www.skuld.com/upload/News%20and%20Publications/Publications/Introduction%20to%20PandI/Introduction%20to%20PandI.pdf
  16. Nell, G. A Commentary on Some Recent Issues Concerning the Arrest of Ships, Seven Wentworth Chamber, Sydney, 2009 - http://www.sevenwentworth.com.au/publicationsA%20commentary%20on%20Arrest%20of%20Ships.pdf
  17. Defendant Vessel Owner Bankruptcy and Your Jones Act Maritime Injury Case - http://www.articlesbase.com/personal-injury-articles/defendant-vessel-owner-bankruptcy-and-your-jones-act-maritime-injury-case-4939802.html
  18. International Logistics Centres for Western NIS and the Caucasu in Armenia, Azerbaijan, Georgia, Moldova, Ukrain - Progress Report I, July, 2009 - http://www.traceca-org.org/fileadmin/fm-dam/TAREP/63ram/63ram3.pdf
  19. e.g., http://rsusa.us/projectservices.html

See also Piracy

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