All about shortages & weighments

Losses due to shortage, pilferage or thefts constitute a significant portion of cargo losses during transit. This can take different forms like theft from the truck, theft from the container, theft during the period when the cargo is awaiting stuffing at ports/yards and in many cases there could be unexplained shortages. If there is an identifiable recorded event during the transit or clear evidence establishing a theft, settlement of the claim becomes easier. However, if the shortage is discovered at the final destination, with no evidence of tampering or theft, then the claim usually runs into rough weather, with the insurer being apprehensive that it could be a case of short supply and the assured/intermediary pointing to all documentary evidence to show that the quantity loaded was ‘X’ and the quantity received was ‘ X minus..’.  Assureds/brokers, in case of containerized cargo insist on the Seal Intact clause or Sealed Container clause  in their policies, which insurers do offer. A sample wording of this clause will read as under:

“In respect of shipments in FCL (Full Container Load) containers, provided that documentary evidence is produced to substantiate the quantity loaded into the FCL container the fact that the container’s seal is intact at unloading point shall not invalidate claim for theft, pilferage, shortage and non-delivery. “

It must not be noted that this clause will not usually apply in case of LCL and further, even after settlement of shortage claims in case of FCL where the container seals are intact, insurers usually carry out detailed investigation ( depending on the quantum of loss) to see if recovery can be effected from any offending/negligent party involved in the transit.

Shortage, pilferage and theft being rampant, one would presume that weighment/count/measurement of containerized and non-containerized cargo happens at different points during the transit. Unfortunately this does not happen. Let me briefly touch upon 3 claims, two of which where I was directly involved as an insurer and the third a case decided before the National Consumer Disputes Redressal Commission.

Case 1:

The assured was a regular importer of steel coils at JNPT and the factory was in Taloja, some 35 kilometers away. When one steel coil reached the factory, it was noticed by a staff member that the coil though still in rolled condition appeared to have been sawn off at the end in an uneven manner. Suspecting something amiss, the coil was weighed at the factory and it was found that it weighed around half ton ( 500 kilograms) less than its stated weight as per the import documents. The assured informed the supplier and also lodged a potential claim under his marine cargo policy. The suppliers straightaway denied that there was anything wrong in the coil’s weight from their end. Now the assured decided to weigh all the other imported coils( around 25-30) in stock. Surprisingly, when closely observed, all coils showed signs of having been sawn off and when weighed, each showed a reduction in weight ranging between 400-600 kilograms. Point here is that, no weighment of the coils was done either at the discharge port( JNPT) or at the assured’s factory on arrival.

Now assured lodged claims for shortage in each of the coils. The insurer initially refused to even register the claims subsequently reported after considerable time lag. On the first claim, an investigation was arranged and the findings were shocking. It came to light that a well-organised crime network was in place. The trailer carrying the coils would leave the port at night, move over to the criminals’ place nearby, where there were all the machinery/equipment necessary to saw off  portions of the steel sheet forming the coil. All this happened in the dead of night and early in the morning the trailer would be at the assured’s factory.  Police cases were filed and some of the criminals were apprehended too. As for the claims, considering the delay in reporting but since the losses were genuine, a compromised settlement was effected.

Case 2:

This involved import of copper scrap from Dar-es-Salam, to JNPT and the assured was based in Hyderabad.  A sharp clearing agent and possibly the crane -operator figured out when the container was being lifted that it appeared lighter than normal. The insurer & the port authorities were informed and the appointed surveyors were present when the container seals were opened in the presence of the port officials. Half the container was empty, though all the original container seals were intact.. Weighment was done and a huge shortage was found when compared to the weight as per the import documents. Skilful pilferage was ruled out as the commodity was not light-weight and had considerable mass. It was felt that something must have gone wrong before being loaded on to the vessel itself. Point to be noted is that weighment was done, not as a part of routine but because a sharp clearing agent spotted the apparently lighter container.

Insurer sent an investigator to Dar-es-Salam and it came to light that the shipping line had handed over their container seals to certain clearing & handling agents for ease in operations. These agents had misused their authority and had stolen portions of the cargo even before the container reached the load-port by removing the container hinges. Again they had made sure that the documents showed the full original weight of the cargo only. Since no weighment was done at Dar-es-Salam port , the shortage was never figured out there. As the shipping line was negligent, they sought to settle the matter amicably.

Case 3:

This is a classic case which was decided by the National Consumer Disputes Redressal Forum ( Hindalco Industries Ltd vs New India Assurance Co. Ltd) in favour of the assured.

The assured had despatched a container containing 22 drums of anode slime ( weighing around 9 MT) in a container from their factory in Dahej to JNPT and thence to Montreal by sea. When the trailer reached the final destination and the container was opened , it was found that 12 of the 22 drums were missing. All the container seals were found intact at the time of opening. Again, no weighment was carried out either at Montreal port or at the consignee’s premises before opening the container.The consignee informed their insurer (as consignment was on FOB terms) and also kept Hindalco informed. Hindalco too lodged a claim on New India as it was not clear where the incident leading to the shortage had occurred. 

New India declined the claim citing the following reasons:

  1. The policy was on FOB terms only and there was no documentary evidence to substantiate that the loss occurred before loading on to the vessel at JNPT.
  2. The weight of the container as shown in the Bill Of Lading & Mate’s Receipt was identical. Further the BL and Mate’s Receipt are clean indicating that nothing untoward had happened before loading.
  3. The container moved from the buffer container yard to the CFS and then to the port and at every stage there was documentary evidence at every stage confirming that all the container seals were intact.

Critical point was that the container was neither weighed before entering the port or inside the port before loading on to the vessel.

Meanwhile, the overseas surveyors/investigators and forensic experts established beyond doubt that the seals used were fake . The bottle seal’s geometry, hardness of the steel used and the fonts used for engraving the numbers were different.Could not the seals have been changed at Montreal? No, said the forensic experts, considering the extent of corrosion noticed in the seal. Could the fake seal have been put in at Antwerp, the transshipment port? No again, because the interchange reports of surveyors mentioned that container seals were intact. Further in a busy port area, it would be next to impossible to break open the container seals, take out the heavy drums using fork-lifts and then put in the fake seals. They had engaged an investigator in India too who had opined that on the highway from the factory to the buffer yard, this theft could not have occurred, considering the busy traffic and police patrols. Even inside the buffer container yard and JNPT port, security is immense and such an operation cannot have taken place. The only possibility was to take the trailer to an isolated spot between the buffer container yard and the port and carry out the illegal operation in under an hour.

As the claim was declined by New India, the assured moved the National Forum with all the above evidence which was accepted by the Authority who ordered New India to pay the insured amount.

Had weighment been done at critical points, the possibility of discovering such cases of shortage could have been easier and localized.

 

Stone Town – Walking tour

It was 1 PM. Sought directions from my hotel reception to any nearby Indian restaurant.  Well-informed, I stepped out into the narrow lane of Stone Town and started walking in the said direction. There was a slight drizzle and lot of Europeans moving around in the narrow, winding labyrinthine lanes. As I walked staring at the scenes on both sides, soon I had lost all sense of direction and found myself in front of my hotel again. Resolutely, with the spirit of Robert Bruce, set out again and as I took a turn into a narrow lane, there was an Indian restaurant — Krishna Food House, fully vegetarian. Had a homely Gujarati thali washed down with Serengeti beer ( yes, they serve beer) and a hearty chat win Hindi with the proprietor whose family had settled in Stone Town, Zanzibar a few generations earlier.

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After the hearty meal walked back to my hotel which was just about five minutes away for a small nap. My guide for the walking tour was expected at 3 PM.

Baka (that was the guide’s name) arrived a little after 3. A short, stocky young man, I could sense he was not a native African, as he had a brownish hue with close curly hair. He spoke decent English and explained that his ancestors were from Oman, though he had lived all his life in Unguja. Where is Unguja, I asked, to which a counter-question was posed by Baka — “What do you know about Zanzibar?”. Though I had read up a little, I just shrugged my shoulders ( When I have a guide, why not hear from him?

Zanzibar is not a single island but an archipelago off the coast of Tanzania, began Baka. There are two major islands, Pemba and Unguja with the latter popularly called Zanzibar. Oh, so I am in Unguja, I thought as Baka traced the history of Zanzibar. It was the Portuguese who colonised the island first, but in the late 1600s the Omanese moved in and stayed on till 1890 when Zanzibar became a British protectorate though the Sultan stayed on in power. As the Sultan of Oman ruled Zanzibar for long and even shifted his capital here, the Arabic influence is evident, not only in the architecture and food but also in the religion — Zanzibar’s citizens  is more than 90% Muslim. In 1963, the British stated that Zanzibar was no longer a protectorate. Within a month, the Zanzibar Revolution took place & the Sultan was deposed. The People’s Republic of Zanzibar and Pemba was formed, but it did not last long. In April 1964, Zanzibar merged with mainland Tanganyika & the merged entity came to be known as the United Republic of Tanzania ( TAN from Tanganyika & ZAN from Zanzibar).

As we started walking through the narrow streets, Baka stopped at one place and asked ” Do you know what was the major trade in Zanzibar”, asked Baka. ‘ Spices’, I responded. He nodded and added ” Not only spices but also slavery and ivory”.

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Slaves carrying ivory
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Slaves & Ivory

We were in Stone town which is the old city of Unguja or Zanzibar with the other side being the new city. Stone Town is a UNESCO World Heritage site. All the buildings in those winding alleys and by-lanes are made of stone with the wooden doors & windows reflecting the Arab, Persian, European and even Indian influence. Any restoration or reconstruction is not permitted without the external facade being retained as it were originally.

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See the different window styles
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A mosque – Note the absence of towers or minarets & the elaborate wooden carvings on the door( Arabic style)
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Carved door in a building ( Indian style)

We were now in front of the St.Joseph’s Cathedral. Baka explained that originally this site was a Slave market.

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Note the European influence in the architecture
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Stone Town skyline
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A touristy street in Stone Town

As we walked along, we found the Freddy Mercury Museum. The legendary singer, a Parsi by name Farokh Balsara, who attained dizzy heights as Freddy Mercury was born in Zanzibar. Baka pointed out that many state that the house where he was born had been converted to a museum– This is not true. We also passed by the Jaws Corner, where during the days of the Revolution, political parties used to conduct meetings, I was told. Maybe the Jaws was a reference to the fact that all politicians would swallow the common man.

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We crossed the Shangani Post Office and soon reached a shaded square surrounded by star hotels and very close to the seashore. A very quiet and peaceful place but Baka threw a surprise –” This is Kelele Square & Kelele in Swahili means noisy”. Why the hell was my reaction. Baka explained that in the days gone by when slave trade was at its peak, slaves were brought here to be sent abroad on vessels to their masters. When the parents were separated from their children, the wails of the little ones would fill this place so much noise. Hence the name Kelele Square. How inhuman! I shuddered at the very thought.

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Shangani Post Office
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Kelele Square 

Continuing our walk with swigs of water in between, we reached the seafront. First stop was the Forodhani Gardens, a garden along the sea. Greenery, steel and cement benches and the main attraction….. a whole lot of stalls, carts selling traditional cuisine — A Food Street. People were there in good numbers, both locals and tourists enjoying the food, a siesta or the sea breeze. Did not see many walking, jogging or exercising.

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Food stalls in Forodhani Gardens

‘What is that big building on the opposite side of the road,’ I quizzed Baka. That’s the House of Wonders, began Baka.

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House of Wonders

This was one of the six palaces in a row built overlooking the sea. This building called Beit-al-Ajaib was built in 1883 and was called by many as the House of Wonders because 1) It was and is the tallest building in Stone Town 2) It was the first building in the whole of East Africa to have electricity. 3) The first building in East Africa to have an elevator.

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We walked along the seafront on Mizingani Road looking at the row of palaces the Sultans had built — some lying unoccupied, some converted to museums and hotels. Our next stop was the Old Fort. Not every portion is intact but the history certainly is.Built in the 17th century by the Omanis to protect themselves from attacks by European powers, it was later converted into a prison and barracks. The open courtyard inside houses small cafes and curio shops while the amphitheater is where dance and musical shows are held including the Zanzibar Film Festival.

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Inside the Old Fort
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Amphitheater 

Walked through The Spice Bazaar with its noise and smell overpowering the senses. lots of Indian shopkeepers and the bazaar scene could be straight out of any Indian town. As we walked at a leisurely pace along many streets, suddenly Baka announced that we had reached the hotel. This did not seem to be the street and even the door of the hotel looked different. Then realisation dawned on me. The hotel had two entrances as it opened up on two streets. I thanked Baka and walked through the corridors of the ancient hotel, up to my room, exhausted but enriched.

 

Brand, Control and Fear

A reading of the ‘Risks clause’ under the Institute Cargo clauses will reveal that the policy intends to cover ‘ loss of or damage to the subject matter insured…….’. The principle of Indemnity kicking in here no doubt, even if marine cargo is an ‘Agreed value’ policy. The value could include profit margin but the basic requirement for a tenable claim under the policy would be a ‘loss of or damage to the subject matter insured’.

As businesses develop, Brand values have assumed tremendous importance. Companies spend huge sums of money in brand-building activities (Logos, Brand recognition, Brand recall, Brand ambassadors, etc) and involve Brand specialists, a new breed of marketing professionals but ultimately the success or value of a brand is determined by the consumers. How do they recognize a brand as valuable or not? It is based on the quality of the product or service offered — in short the ‘value perceived’ by the buyer. In due course, buyers start associating a particular brand with quality which may manifest in the form of various attributes. So much so that a buyer will be willing to pay a higher price for a brand when cheaper options are available because he perceives  a value of using that branded product.

One may wonder what is the relevance of Brand value of a product which may run into billions of dollars with marine cargo insurance wherein the value insured represents the physical value/selling price of the product in question. Brand protection clauses are increasingly sought by assureds/intermediaries and insurers often grant these covers, unmindful of the wordings and their implications and whether these Brand protection covers have been appropriately priced or not. In case of claims, it often leads to conflicts as the assured, the intermediary and the insurer have different understanding and interpretation of these Brand protection clauses. Assureds seek these covers as they would not want a damaged/deficient product being sold in the market under their brand name. There could be huge liability claims lodged by aggrieved customers against the assured, apart from sharp erosion of their brand name/value.

As these Brand protection clauses are not Institute clauses, different versions abound. The clause most often sought by assureds/intermediaries is the Brand clause. One of the common wording of the Brand clause is as under:

“In case of damage to property bearing a Brand or Trademark, the sale of which carries or implies a guarantee, the salvage value of such damaged property shall be determined after removal of all Brands or Trademarks. The costs of removal of the Brand or Trademark shall form part of any valid claim hereunder. On containers from which the Brands or Trademarks cannot be removed, the contents shall be transferred to plain bulk containers. With respect to any merchandise and/or containers from which it is impractical to destroy all evidence of the Assured’s connection therewith, this policy shall cover the costs of disposal and/or destruction of the said merchandise and/or containers.”

A few points emerge from this wording of the Brand clause —-

  • There is a damage to the subject-matter insured (Risks clause fulfilled)
  • The claim is tenable under the terms and conditions of the policy
  • The damaged subject matter has salvage value
  • If the damaged subject matter is to be sold as salvage in the market, all references to the Brand/Trademark ought to be removed. The costs involved in removal are also payable as part of the claim
  • If it is impossible to remove references to the Brand, then the damaged subject matter shall be destructed to the satisfaction of the insurer. In practice, the assured at times, chooses to retain the same at a notional salvage value.

There are other versions of this clause with minor modifications, but the problem arises when it is styled as Brand clause but is intended to function as Control of Damaged goods clause.  A specimen wording will explain this.

“Brands and Trade Marked Cartons Clause:
Where any goods involved in a loss recoverable under this contract bear embossed or indented brands, labels, design or other permanent markings identifying the Assured or their Contracted Party, or the sale of which carries or implies a guarantee of the Supplier or of the Assured, or contain exclusive or secret formulae, then the Assured shall retain full rights of possession and control of all such goods.
Insurers are to pay a total loss on any and all goods and packaging that the Assured elects to either destroy or return to their premises, or recondition, Insurers being entitled to such salvage as may be obtained.
The Assured, shall be the sole judge as to whether the goods involved in any loss
hereunder are suitable for marketing and no goods deemed by the Assured to be unfit for marketing shall be sold or otherwise disposed of except by the Assured or with the Assured’s consent, but the Assured shall allow Insurers any salvage obtained on any sale or other disposal of such goods.”

So how does a Brand clause differ from Control of Damaged goods clause? Both these clauses come into play when the Branded subject matter is damaged and the claim is tenable under the policy. While in case of Brand clause, the salvage can be disposed off in the open market BUT after removing all references to the brand, in case the policy has Control of Damaged goods clause, the assured will have the sole right or control to decide if the damaged goods are to be sold as salvage at all or destructed or reconditioned. The insurer will however be entitled to the benefit of salvage, in case assured decides to dispose off the damaged subject matter.

Confusion sets in when assureds/intermediaries having the Brand clause wording stated first, believe that they can have total control of the salvage. This is often misinterpreted to such an extent that assureds say the insurer should pay a total loss with the damaged subject matter being retained by the assured at NIL salvage value.

The brand protection issue becomes more complex and a nightmare for insurers, if the Control of damaged goods clause is renamed as Control of goods clause or in other words, the intent is to obtain a Fear of Loss cover. Under Fear of Loss, there need not be any physical loss or damage to the subject matter, following the occurrence of an insured peril, but the assured fears that there could be internal damages, loss in quality/efficacy or deficiencies in the subject matter which could crop up later — all or any of which will affect their brand image/value and possibly invite liability claims at a later date. Fear of loss goes beyond the Risks clause of the Institute cargo clauses. Two sample wordings of the Control of goods clause would better illustrate the concept.

Wording 1

” In case of damage, or if the Insured reasonably suspects damage may exist, to goods and/or merchandise and/or property insured under this policy, the Insured is to retain full and absolute discretion and control over the disposition of all such goods and/or merchandise and/or property. It is understood that the Insured shall be the sole judge as to whether disposal or sale of such goods and/or merchandise and/or property is detrimental to its interest. Any goods and/or merchandise and/or property which the Insured deems unfit for sale or which it is unable to sell or dispose of under its agreement with any trade association or other entity, shall be treated as a constructive total loss, and the Insured shall dispose of the goods and/or merchandise and/or property to its best advantage with this Insurer being entitled to its share of the net proceeds resulting from such disposition, or the goods and./or merchandise and/or property shall be destroyed after notification to this Insurer and any expenses incurred in connection with such destruction shall be borne by this Insurer. This Insurer shall be given the opportunity to have a representative in attendance during such destruction.”

Wording 2

” It is agreed that should the Assured have reasonable grounds to suspect loss may have occurred to the subject matter insured following an incident due to a peril insured under this policy, or to the carrying conveyance, or at their place of store and the Assured has genuine reason to destroy the subject matter insured in the interests of safety or public confidence, then the subject matter insured shall be treated as a constructive total loss.
The Assured at their option shall dispose of the subject matter insured to best advantage with insurers being entitled to their share of the net proceeds resulting from such disposition, or the goods shall be destroyed and any expenses incurred in connection with such destruction shall be borne by insurers subject to insurers being advised prior to such disposal.”

If one looks at the issue from the assured’s point of view, request for Fear of Loss cover may well be justified, especially if the assured happens to be a major multinational brand. Insurers could look at providing this cover selectively, taking into account the track record of the assured, their standard operating procedures and risk management practices , adding suitable warranties, high levels of deductibles for losses claimed under this head and above all — a very high rate of premium. The assured may well take a call on the probability and severity of instances where they could seek refuge under this extended cover vis-a-vis the high rate of premium. At least this will serve to remove the uncertainties/misplaced assumptions/misrepresentations and ensure Contract Certainty.

 

 

 

 

Z for Zanzibar

After the high-octane safaris, Godson picked me up from my hotel in Arusha in the early morning after an hour’s drive, we were at Kilimanjaro International Airport. After profusely thanking Godson for the excellent arrangements, boarded the flight to Dar,. Highlight was that soon after take-off, the Captain announced that Mount Kilimanjaro could be seen to our left. Sure enough, even on this cloudy morning, I could make out Mount Kilimanjaro rising majestically above the clouds.

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Back in Dar. My friend Shan’s place again, same delicious South Indian breakfast and then accompanied my friend to his seat of power, his office. Spent some time there, got acquainted with the senior team, then off with Steve to buy some souvenirs— what else? Wild animals beautifully carved out of wood and nicely polished. The safari animals were now in my bag, so to say. Also booked the to-and-fro ferry tickets to Zanzibar. There are many ferries plying but the best-in-class is the Kilimanjaro group ferries. Tickets for a foreigner costs three times that for a local. Hmmm!

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Shan, CEO, Heritage Insurance Co.
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Steve, the reliable chauffeur
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Emmy, the efficient housekeeper

Evening was at the Coco Beach which had numerous small taverns and fabulous views of the Indian Ocean. Understand that as the sun goes down, the entire beach becomes a happening party-place. As Zanzibar awaited the next morning, did not party but had a quick dinner prepared by Emmy and it was time to crash.

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Early next morning found me at the ferry terminal– extremely crowded with people of all races congregating here, multiple languages heard, strange foodstuff being sold and a hot and sweaty atmosphere. Soon it was time to board Kilimanjaro-5 a large boat with different classes of seats. I had chosen Executive class but found my neighboring seats packed with school children who were crowding around the seat immediately next to mine , playing some game on the only mobile available. The journey across the clear blue Indian Ocean lasted around two hours and was anything but pleasant, thanks to my young friends. ‘Karibu Zanzibar’ or Welcome to Zanzibar read the signboard as we disembarked, had our baggage screened and soon I was out in the crowded street. The sun was beating down in all his glory.

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My Zanzibar adventure began the moment I stepped out of the ferry terminal. I had the address of my hotel but thought it prudent not to walk in the first instance ( it was stated to be at a walkable distance and indeed it was). I was looking around the crowded street for  a taxi or a Bajaji ( as they call the three-wheeled motorised rickshaws after their Indian manufacturer). None was in sight. There were two-wheeler motorcycle taxis and one of the guys accosted me. He did not speak English and I never spoke any of the local lingos. I slowly repeated the hotel name and address. He nodded as if he understood and said 5000 shillings. Negotiated to 3000 shillings and we were off. Soon realised that the guy did not know the way. We were going all over the place and he stopped to ask a couple of people who too appeared ignorant. I shouted at him in English, which of course he did not understand. Finally I called up the hotel and made him talk. Finally we reached the Dhow Palace Hotel, which in itself was a piece of history and worth seeing.

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Situated in the narrow Baghani Street in the heart of Stone Town, Dhow Place Hotel dates back to 1559 when it was a residential mansion of a rich merchant. It had changed many hands, been let out as residential accommodation, office space,etc. This lasted till the 1964 revolution when the Government nationalised this prime property and let it go to seed. It was in the late eighties that the Muzammil family acquired it from the Government and refurbished it using the same materials used initially and as close as possible to the plan of the original building. The hotel opened in 1993.

I was in Suite 300 which had an intricately carved door opening into a long passage having the living room first. All the furniture here are of wood with carvings in ancient Islamic style. In fact, the architecture of the building itself is Oriental in nature. The Living room has a big divan, chair, table and a modern amenity– refrigerator. Well-carpeted , the bedroom has a large wooden dressing table, chest-of-drawers and a massive four-poster bed with mosquito net made of lace. The bathrooom has a cute little tub in Turkish style. All the rooms have wooden rafters, ancient fans,windows of stained glass. To add to the grandeur was a small sit-out with two chairs and a table for having tea while looking at the courtyard below. There is a small spiral staircase outside which leads to a viewing gallery from where I could get a 360 degree view of Stone Town. A restaurant and swimming pool is available inside but no bar. It had started raining now as I walked down the winding corridors to the reception. The counter manager gave me directions to an Indian restaurant nearby and also organised a guide for a walking tour of Stone Town later in the afternoon.

I just sank into the luxurious bed in my room and imagined myself to be one of the sultans of old, as I waited for the rain to stop and move out for lunch. Was looking forward to the Stone Town walking tour later in the day.

Coronavirus & Cargo insurance

The 2019-nCoV or simply the Coronavirus, which originated in the city of Wuhan in China is spreading fast all over the world. The World Health Organisation has declared a global health emergency. Latest reports say there  are 14,380 confirmed cases of Coronavirus and there have been 304 deaths so far. Apart from China, confirmed cases have come in from at least 24 other countries across the world.

Corona virus and cargo insurance — is there any connection? Yes.

This starts with the impact on the global economy due to the Coronavirus outbreak. China, being a major exporter as well as consumer and the virus emanating there, this is quite obvious.Manufacturing activities in China have slowed down and where these form the inputs for manufacture of other goods elsewhere in the world, the snow-ball effect comes into play.

Even the already manufactured goods, raw material & finished goods imports into China would slow down as many shipping lines/ airlines reconsider their options of plying to and from China. As ships which touch Chinese ports and their crew are looked upon as potential carriers of this Coronavirus, ports in other countries would be extremely cautious.

  • Port operations in China and other Asian countries could slow down considerably as enhanced safety measures are put in place to prevent spread of the virus.
  • There could be possible quarantining of the crew as also the goods imported. This will result in delays and goods which are perishable could get spoilt and claims lodged under cargo policies. Unfortunately, they have to be declined.
  • Goods meant to be supplied  ‘Just-in-Time’ may fail to meet the timelines, leading to cancellation of contracts or invocation of penal clauses.
  • If the situation worsens, countries may look at the trading histories of ships, the last ports touched and also a thorough examination of the health of the crew members. There could be possible scenarios where a ship is not allowed entry into a particular country at all. What does the ship do? Will the goods be discharged at a port in another country? Can this be called a ‘port of distress’ and if the goods are to be sold there at lower rates, will the difference be admissible as claims?
  • Alternately, if the Government of a country does not allow a ship to touch any of its ports and if any of the cargo owners has a Rejection insurance, can a claim be lodged under the same? What if the ship-owner does not have the wherewithal to sail to a different country and declares General Average?
  • If port operations are completely shut down( if port is declared unsafe) and discharged cargo is found damaged (any reason), can timely inspections and loss assessments happen? There could be disputes on the extent of loss, aggravation, etc. at a later date.
  • If the sound discharged cargo at a port which shuts down subsequently, there could be issues on the Duration clause under ICC as the goods may not reach the final destination within 60 days after discharge at the port. Will the underwriters agree to provide for an extension?

While some of the possibilities may appear extremely remote at this juncture, they cannot be ruled out totally. It will all depend on how soon and how effectively the Coronavirus is contained. Am sure the fine-print in many business contracts and insurance policies will be looked at closely, different arguments advanced and new interpretations found.  Who would have thought that ransom paid to pirates could be considered under General Average? The General Average coverage had been there all along in the Cargo insurance policies but it took an enormous problem in the form of Somalian pirates capturing ships and demanding huge ransoms, for a new interpretation to emerge.

Pray that the Coronavirus threat fizzles out soon but ……… keep the insurance ‘powder’ dry.

 

Contingent duty & containers

My first Marine post of 2020 —— however it is not about Incoterms2020 or IMO 2020-Impact on cargo insurance. It is about a question which was raised in one of the Whatsapp groups- a question perhaps not articulated well enough, understood even less and consequently the suggested answers not well reasoned out.

The question was “kIf a container (the box alone) insured under the policy, becomes a Total Loss, will the contingent customs duty on the value of the container be paid as part of the claim?”

The questioner was an Indian Claims-handler and most of the answers came from practitioners/ loss assessors overseas. So the obvious reference / assumption was that the container was covered under Institute Container clauses CL 338 or 339 and conclusions were drawn accordingly. The questioner too did not persist and soon the discussions moved to other issues but it really set me thinking.

One needs to look at the situation in a totally Indian context. First of all I must concede that I am not aware if the Customs authorities seek recovery of customs duty on a container ( owned by an overseas shipping line or leasing company) coming into India, becoming a Total Loss and hence not capable of being sent out again. Since a claim had been lodged for the same as stated by the group member, let us assume it is indeed recoverable by the Customs authorities. Question is, will the marine insurer pay this duty as part of the claim for Total Loss of the container.

In order to answer this question one needs to understand the fully-loaded structure of a Sales TurnOver Policy in India. All possible Institute clauses, Non-Institute clauses, additional coverage conditions, explanations nullifying certain exclusions, without understanding their relevance or the full impact of their addition, are packed into the policy. Some clients and intermediaries feel that a Marine Cargo policy should pay for anything, including the death of the insured’s mother-in-law. On a serious note, let us limit ourselves to 1) Contingent Customs Duty 2) Containers as cargo.

When any dutiable cargo is imported into India, customs duty is levied on it. However, the Government in a bid to promote exports has made certain concessions. If a material is imported, which goes into the manufacture of a product which is meant for export, customs duty on the imported material is waived. Why? To make the finished product less costly and consequently more competitive in the international markets. This regulation comes with a rider — If the imported material on which duty is not charged on import gets damaged or destroyed or lost, as a result of which the export obligation of the finished product is not met, THEN the exempted customs duty is recoverable by the Customs authorities. Recognising this exposure contingent upon loss/ damage to the imported material, cargo insurers started adding Contingent Customs Duty cover to their Sales TurnOver policies. So far so good.

No value or sub – limit is assigned to the Contingent Customs duty. No limitation put in as to the category of materials on which this cover for Contingent duty would be applicable. This creates the problem.

Under subject-matter insured, apart from the customary raw materials, semi-finished good, finished goods, packing materials,etc incidental to the insured’s trade is ALSO added containers as cargo. I have discussed the concept of “ Insuring Shipping Containers” in the Indian context in an earlier post. The Indian importer/ exporter has a contractual liability to the owner of the container for safe-keeping of the container whilst in his possession. Again, recognising this need, cargo underwriters add a limited cover for containers as cargo under Sales TurnOver policies.

No doubt, a container coming in from abroad does not go into the manufacture of any product which is meant for export. However, if it becomes a Total Loss whilst in transit in India and the claim for the container loss is settled by the insurer to the importer/exporter/ container owner

AND

if the Customs raises a claim for contingent duty on the container owner/ importer/exporter

AND

if the policy carries coverage for Contingent customs duty as described earlier and containers as cargo, can the insurer escape liability? I think NO. Views welsome

 

 

African Safari – Day 5

Noah stood at the bow of his Ark happy that he had touched land after sailing through the deluge. ” Oh Lord, I have done it” said Noah. A voice sounded from the Heavens above ” Sail on Noah, this is not Mount Ararat where your are supposed to dock”. The Ark had touched some other mountain peak and some of the animals on board had already jumped out. They did not realise they had landed on an extinct volcano and soon tumbled into the crater below, landing on the soft grass growing inside. There was plenty of water too and the animals started staying inside the crater. Thus was born the legend of the Ngorongoro crater. Believe it? No, this was a figment of my imagination as I stood at the rim of the Ngorongoro crater early in the morning.

The previous night had been cold and uneventful in my tent except for some strange noises outside and when I stepped out to investigate, I almost bumped into a zebra which was grazing near my door.

My imagination aside, there are a number of popular notions/ beliefs/ hearsay about Ngorongoro;

  1. Ngorongoro refers to the crater only.
  2. The crater was formed millions of years ago when the mountain surrounding it, which was a volcano exploded.
  3. There is only one such crater in the world which supports a variety of wildlife.
  4. There is only one road to drive into the crater and out of it.
  5. The animals inside the crater never ever come out to the rim or surrounding areas.

Let us look at each of these points. Ngorongoro Conservation Area extends nearly 8000 sq km right upto the Serengeti area. Wildlife abounds in the entire area and Maasai tribesmen too live here. The Ngorongoro crater is a part, possibly the most famous part of the Ngorongoro Conservation Area. It is the world’s largest inactive unfilled caldera of a volcano, which imploded nearly two and a half million years ago i.e. it collapsed within itself. This caldera is listed as one of the Natural Wonders of the world. This is not the only crater or caldera in the region — there are two more smaller ones, Embakaai and Olmoti. Unlike Ngorongoro crater, the other two are not completely motorable and only hiking accompanied by armed rangers is possible. Though rich in natural beauty, the other two craters do not have the bountiful wildlife which the Ngorongoro crater has. All three craters together are part of the World Heritage sites. There are three routes to drive into/out of the Ngorongoro crater. One is the Descent Road ( one- way), Ascent Road ( one-way to climb out) and another small two-way Road not often used. Contrary to popular belief, animals at times do move in and out of the crater. However, as there is abundant food and water inside, the need to come out is not frequent.

Excited, we set off early in the cold morning, all luggage including tents packed as also lunch. The plan was to go down into the crater, complete our safari drive, have lunch and then go up the Ascent Road onwards to Arusha. The crater covers an area of around 260 sq km and has a very high density of wildlife, lions, zebras, wildebeest, buffalo, hippos and rhinos but no giraffes, said Godson.

View from inside the crater
View from inside the crater

View from inside the crater

Almost a 360 degree view of the surrounding mountain from within the caldera was an ‘ out of the world’ feeling. Herds of zebras, wildebeest, buffalo, Thomson gazelle, ostrich and a sleeping lion…. yet no sign of the rhino.

We went up an elevated wooded portion of the crater where the undergrowth was more dense, in search of the black rhino but no luck. Went down a little and were in an open area again. Godson peered at the distance and said ” Four rhinos”. My untrained eyes could see nothing. After a while, using the binoculars, I could see the four of them moving almost as if in formation. Too far away to get a click. Having sighted the last of the Big Five, I murmured ‘ Mission accomplished’. Having spotted them, now even without binoculars, I could make out the tiny specks moving.

Finally managed a long- distance shot of a rhino. The walkie-talkie had crackled about a rhino nearby but I was too busy invoking technology and showing live videos of zebras and wildebeest grazing to my three-year old grand-daughter in Chennai as she was having lunch. By the time we reached the spot, the rhino had moved on.

Happy grand-daughter and happy me! We continued along a muddy road, made dirtier by the recent rains and tracks of passing jeeps, when Godson said ” he could smell a kill”. A little further…. and what do we find? Two male lions lying as if dead on the muddy road and besides them a buffalo which they had killed, stomach slit open, partially eaten and the excreta inside the carcass clearly visible.

Even as we watched in awe, I could make out two more lions lying further ahead with bloated bellies, having clearly over-eaten and in need of a snooze. A fifth lion now walked slowly towards our jeep and as it was quite hot, like a domestic animal, went and lay down under the jeep next to us welcoming the shade. Spent nearly twenty minutes here watching the lions snooze, turn over belly-up and in general being happy after a hearty meal. Hyenas on both sides of the road were looking to partake in the remnants of the feast, but they dared not meddle with five big male lions. Nature at its very best!

Having seen so many lions at such close quarters, my heart swelled with pride ( pun intended), a story I can narrate in detail to my grand-daughter. We were not done yet. There were more lions in store.

Vultures hovering overhead and we sensed another kill nearby. Sure enough on the muddy road full of water puddles, we could see two female lions lying and two more approaching through the grass. Looked through the binoculars and could see in the distance another buffalo having been brought down and three female lions gorging on it. I could count eleven lions in all, males and females. What was interesting was that as the female lions were eating, a pack of hyenas kept coming closer and closer in a circle. The lions would chase them and come back to their meal, even as the hyenas made a comeback again. In between, a small jackal raced in and came out with a piece of flesh.

One female lion stood in the shade of the jeep next to ours and then decided to come over and drink water from the puddle just below my jeep window. So close, that I could hear her breathing and also clicked the number of flies on her back as she bowed before me ( what’s the harm in thinking so?)

Awesome sightings indeed! Time for a bio- break and some picture postcard photographs by the lake.

All the excitement had made me hungry. Time for lunch. Reached the picnic spot and I was clearly told ” No eating in the open, only inside the vehicle”. When asked why, the reply was that some big birds would swoop down for food or even attack us. A fine meal of spiced rice, green lentils, fresh fruits and juice….. and we were fully energised. Raindrops had started falling and it was time to shut down the roof of the jeep as we took the Ascent Road on our long drive back to Arusha. Just as we were leaving the crater, saw an amazing sight– a bleeding zebra which had been attacked, possibly by a lion and survived, walking confidently towards his herd. How’s that for courage, tenacity and will to survive?

By 5 PM, I was in my hotel room in Arusha. Back to civilisation and a proper bed to sleep on. Safari over! What an exciting five days of my life! Each moment will remain etched in my memory. A childhood dream realised.

The true meaning of Friend, Philosopher and Guide came to me in the form of Godson. He was all three to me during the safari. As for Nico, our cook, cannot than him enough for churning out and serving food with love, thoughtfulness and bang on time…. every time.

A big thank you to you guys!