Cargo Damage, Types and Impact
February 20, 2023
Insurers are dealing with cargo claims on a regular basis, the main contributory cause being bad stowage. With millions of containers in global circulation, this can be a serious issue for carriers. While bad stowage is a major cause, there are plenty of other reasons for cargo claims.
Reasons for Damage
About 11 percent of containers get lost overboard, 14 percent of damages occur due to incorrect temperature, and 25 percent are physical. Also, 8 percent is a shortage and 9 percent is theft-related, respectively.
Common reasons for damage include a poor condition or wrong choice of container, inadequate carriage instructions and container interchange inspection, and bad sealing arrangements. Mixed, worn, and damaged equipment also puts cargo at risk of damage and so does overloading onboard. For temperature-sensitive cargo, claims are made for incorrect use of temperature controls, poor monitoring, and wrong settings. Other reasons include:
- Fragile cargo placed in high-motion areas
- Stack weights exceeded
- Heavier containers stowed on top of lighter ones
- Lack of reefer points
- Incorrect airflow settings
- Condensation and poor ventilation
- Use of inadequate retail packaging or lack of packaging
- Wrongly declared containers
- Unachievable or misleading B/L temperature notations
- Taint or contaminated floors
- Ineffective cleaning
- Infestation
- Organized crime
Rough seas and severe weather also cause cargo damage, as well as collisions, structural failures, and ship groundings. Natural catastrophes such as hurricanes, storm surges, and tsunamis contribute to cargo loss and damage.
Additionally, reports show that up to 70 percent of rail and road vehicles, swap bodies, and packed containers have shortcomings when it comes to securing and packing, which increases the risk of damage. Errors in execution and planning due to inadequate skills and knowledge result in losses when combining intermodal transportation services.
Types of Damages
The main types of claims cover loss, shortage, and visible and concealed damage. Loss is an obvious one, resulting in failed delivery while shortage means that a part of the cargo was not received. Visible damages are ones that are apparent while concealed claims refer to losses due to shifting or moving of cargo in packaging, temperature changes, etc.
Amount of Damages and Claims
In 2021, 6,300 vessels have been reported shipping cargo every day, with an annual volume of 241 million containers. Some 1,382 containers get lost on an annual basis accounting for 0.001 percent of all containers. While losses might seem insignificant at first, insurance claims are not just limited to cargo loss. They cover damages to cargo and containers onboard, recover costs for accidents that occur in environmentally sensitive areas, as well as diversions to unload damaged containers. Claims can also cover the costs incurred to minimize damages, including reconditioning, repair, and appraisal costs to restore value.
Country-specific, there can be certain exemptions from liability for cargo damage or loss. These can include defects in equipment not discoverable by due diligence, civil commotions and strikes, labour restraint, lockouts, strikes, and an act of war.
