By Peter A. Buxbaum, AJOTThe current global economic climate has found many ocean shippers in a difficult situation. During the recent recession, with profit margins being squeezed, many cargo owners opted to ship their cargo without insurance. Perhaps not the wisest choice, but understandable. Now that the world economy is recovering, cargo volumes are up, as are claims for losses. Yet, many shippers still refuse to cover their cargoes. Some experts estimate that 60 percent of international ocean shipments transit the waves sans insurance. Most experts agree that failing to use cargo insurance is not the best idea. Some shippers believe they will be covered for losses even without insurance or that they are covered under the policies of their freight forwarders or NVOCCs. But unless they actually purchase the insurance they will find that their recoveries are severely limited in the case of a loss. “Many companies today are taking out less insurance,” said Michael Dart, operations manager at Advantex Express, an international freight forwarder in Mississauga, Ontario. “With profit margins becoming tighter and costs escalating, companies are cutting corners where they might have not prior.” “Insurance is a cost to the shippers,” noted Dan Gardner, CEO of Ocean World Lines, an NVOCC headquartered in Lake Success, N.Y. “From a risk and perspective, some shippers make believe that taking a chance is worth it.” Dart calls this attitude “rolling the dice” on whether their shipment will be damaged while in transit. “Companies are also cutting back on packaging, hoping that less money outlaid for packaging and few less pounds of weight will result in additional profit,” he observed. That kind of thinking is wrongheaded, according to Mike Brown, executive vice president of Avalon Risk Management, Inc. in Salem, Mass. He uses the mathematics of risk management to make his case. If profit margins are under pressure, it takes more successful shipments to make up for an uninsured loss if that should occur. “At a ten percent profit margin, you have to deliver ten shipments for free in order to make up for one uncovered loss,” Brown explained. “At five percent, you have to deliver 20 shipments if one of your containers washes overboard. As margins decrease, you have to work that much harder to make up for an uncovered loss.” To make matters worse for shippers, insurance claims are on the increase, according to Dart. “The transportation industry as a whole took a major hit during the recession which included lost jobs, less availability in equipment, and carriers provided fewer lanes of coverage,” he said. “Now with a rise in freight, more cargo is being damaged. Many transportation companies are running their companies like they are still in a recession to make up for lost revenue. This is putting more human error into place as carriers are trying to do more with less equipment and manpower.” Some shippers try to shift the burden of covering cargo by contract on third-party providers such as freight forwarders and NVOCCs. “Most of these shipper driven contracts are put forth by large publicly owned companies where there is a huge focus on keeping the balance sheets looking good to prop up stock prices,” said Rick Bridges, an account executive with Roanoke Trade, an international insurance broker based in Boston. “These are the 800-pound gorillas that create a unique opportunity for freight forwarders and NVOCCs. One of the ways they do this is to try and shift liability to their vendors, including transportation providers.” But contract alone cannot saddle a carrier or intermediary with liability for the full value of the cargo in the case of loss. “In doing so the shipper usually doesn’t get what they ultimately hoped for,” said Bridges. “Instead they could get a contractual liability that may not conform to United States and international transportation laws.” “Terms of carriage on a bill of lading, whether they are with a steamship line or an NVOCC, contain clear limit