Business development opportunities for brokers afforded by the Middle East
- Date: 10/04/2013
Andrew Kemp, EMEA Regional Director of freight transport insurer TT Club looks at the business development opportunities for brokers afforded by the Middle East and its increasingly important role as a global freight transport hub.This article will be published in the May issue of Middle East Insurance Review (MEIR)
The Middle East, and Dubai in particular, have for some years been a key staging post for freight journeys from Asia to Europe that combine both ocean and air transport. The concept of ‘Sea-Air’ was developed in the 1990’s combining the lower cost of sea freight and the speed of air freight. This enabled operators of Sea-Air services to deliver cargo to destinations on a timely basis and at a competitive price. Sea-Air transport achieves transit times of around 15 to 17 days from the Asian origin port to a European airport, compared with 25 to 28 days for transportation solely via ocean services, while offering cost savings of as much as 50% of pure airfreight.
Such cargo in transit, chiefly from Asia to Europe but also on other routes, uses the geographically well-placed ‘halfway house’ of transport hubs in the Middle East as the interchange point between the two modes. This is a growing practice, indeed the sea container terminal in Dubai’s Jebel Ali, with its two airports, handled 11% more Sea-Air cargo last year than in 2011*.
Insurance brokers should be aware that many freight forwarders, carriers and logistics operators in the Middle East are involved in Sea-Air arrangements, either as a provider of the service itself or as an agent acting on behalf of shipper clients. It is important that both insurance brokers and service providers are aware that different international conventions on the carriage of goods apply to air and sea movements and, as a result, operators are open to varying levels of liability should cargo be damaged or lost.
Generally cargo moving by sea does so under the terms of a bill of lading, which is produced as a receipt and evidence of contract by the forwarding agent or carrier to their customer when the goods are presented for shipment. This can in some cases be negotiable, allowing the ownership of the cargo carried under it to change. The airfreight equivalent is an air waybill which is never negotiable. Both documents are crucial to ensuring that the cargo is released to the correct recipient at its destination. Each of these legally binding documents has very different terms, as regards not only negotiability but also right to delivery and, in particular the levels to which the carrier can limit its liability.
Pioneers of Sea-Air services in Dubai in the nineties realised that should the two differing documents be employed, one for each leg of the two-stage journey, significant disagreements could ensue between carrier and cargo owner should a claim arise. Amongst these pioneers were TT Club’s Members based in both the Middle East and Asia looking to offer Sea-Air movements to their customers.
The coalescence of the bill of lading and the air waybill into a single document, if it is to be legally safe, requires quite a subtle balance between the characteristics of each constituent document. TT Club has met this challenge by producing a tailored Sea-Air waybill that ensures the operators liabilities are well-defined for the duration of the cargo’s journey whether it is at sea, in the air or being transferred between the two modes. This delivers the benefit of ensuring that there are no potential gaps and provides certainty for the parties in the event that the precise place of the loss or damage cannot be determined.
Middle-East brokers can take advantage of such specialist knowledge in advising any of their customers engaged in Sea-Air and moreover make use of the dedicated claims and advisory service provided in the region via TTMS (Gulf), a Dubai-based joint venture between TT Club and Gulf Agency Company, which was set up in 1995. This operation is also linked to the Club’s global network of claims handlers, correspondents and surveyors.
Business potential in the freight sector for regional insurance brokers abounds – and this is not just limited to the Sea-Air element. Substantial growth is planned at the region’s major container ports and leading airports. Dubai is the ninth biggest container port by throughput with 13.3 million TEU (a twenty-foot long container) in 2012. Including Sharjah (UAE), Salalah (Oman) and Abu Dhabi (UAE) another 7 million TEU per annum can be added to this total. DP World, Dubai’s container terminal operator at Jebel Ali and Mina Rashid, has increased its annual container throughput nearly three-fold over the last decade and has on-going plans to increase capacity by a further 5 million TEU. Meanwhile in Abu Dhabi, the newly opened Kalifa Port has a capacity to handle 2.5 million TEU.
In 2011 Dubai Airports launched cargo operations at Dubai World Central (DWC) part of the first phase of the new airport’s development. DWC handled 219,092 tonnes of air freight during 2012 – its second full calendar year of operations, an increase of 144% over 2011. Upon completion in the mid 2020s, DWC will become the world’s largest airport with an ultimate capacity of 160 million passengers and 12 million tonnes of cargo per annum.
The development is the region’s first integrated, multi-modal transportation platform connecting air, sea, and land and will include the Dubai Logistics City (DLC) which will provide warehousing, distribution and other logistics services. DWC’s location, in the vicinity of the Jebel Ali Port and Free Zone, will make Sea-Air connectivity even more fluid than it is now, with a standard transfer time of four hours.
Insurance brokers should take note of the Middle East region’s future, and Dubai’s in particular as one of the key hubs of global freight transport and logistics services. By catering for the needs of this burgeoning freight sector, including specialist expertise and underwriting knowledge, as well as global claims handling abilities, brokers can take advantage of significant growth potential.