Containers have Revolutionised World Trade: One Insurer has Kept Pace
The emergence of the freight container and its facilitation of the growth in world trade have challenged the entire transport industry over the last forty to fifty years. What is more this simple steel box has spawned much innovation that now delivers our 21st century lifestyle. Among the challenges has been the need to insure the changing risks and liabilities of supply chain operations for the cargo and the equipment used to carry and handle it. One specialist insurance company, TT Club has made sure that its service provision has kept in step with this revolution in freight transport.
In 1956, the first strengthened containers were loaded onto a spar deck of the converted tanker, ‘Ideal X’ at Port Newark, New Jersey. This marked the fulfilment of a dream for American trucker Malcom McLean who had, since 1937, been working on how to reduce the long waiting hours for dockers to load or unload his trucks with ocean cargo. McLean's innovation may have given birth to containerisation, but it was not until 1968 that the first purpose-built cellular container ship took to the high seas. In the same year, the TT Club was formed with the principle purpose of providing shipowners with asset and liability insurance protection for their containerised operations on land and at sea.
The onset of containerisation revolutionised international freight transport forever. Cargo could now be moved seamlessly from warehouse to warehouse in sealed steel containers that only needed to be opened once they had reached their final destination. The concept has been so successful that last year well over a 100 million laden container shipments were made around the world.
The creation of an industry
The risks arising through the use of containers were complex and changed the patterns of world trade significantly. Not only did shipowners assume interests in the boxes themselves, but also extended the scope of their contractual responsibilities from the traditional ‘ship’s rail’ to the new concept of ‘door to door’. Recognising the changing world, shipowners drove the creation of a new insurance vehicle that could provide all the benefits of the existing maritime P&I (Protection and Indemnity) mutual model beyond the maritime mode. The new insurance needed to respond to cargo liability and third party risks for containers whilst ashore, as well as covering the fabric of the containers themselves.
Containerisation redrew the scope of responsibilities for all parties in the supply chain, not only in terms of the activities related to packing cargo and loading ships, but also the nature of trade and contracts. TT Club responded to these emerging risks by expanding its offering to cover freight forwarders and NVOCs, who started contracting to carry goods both as agent and principal, in addition to marine and inland terminals. Again, it was found that there was a medley of liability and asset risks; the Club was able to respond to both. Almost two decades later, TT launched its port authority cover in recognition of the complementary nature of those risks to marine terminals. Port authorities generally act as ‘landlords’ rather than operators handling cargo and therefore need specific cover for non-operational risks.
The TT Club’s cover has continued to be honed over the decades, for example for transport and logistics operators, in response to the demands of ever more complex global supply chains and newly acquired liabilities. The array of insurance covers now available stretch from an e-enabled cargo insurance product, allowing freight forwarders to offer instant cover for their customers’ cargo, through liability coverage for any kind of supply chain operator, to handling equipment and property asset risks.
Geographically the TT Club, managed by Thomas Miller, has also ensured that it has appropriate reach to match the global supply chain industry. While its ‘lead’ regulator is in the UK, the Club is approved as a surplus lines insurer in the US and also set up as a regulated insurer in Hong Kong, Singapore and Australia. These locations are core to the Club’s service network, but extend, with partner offices in over 20 other locations worldwide, to cover key trading routes and nodes. The network continues to expand in response to customer demand and, particularly, to support the resolution of problems and claims, with the latest partner office established in Mumbai, India in 2013.
Using its 45 years experience of supply chain risks and its local presence around the globe, TT Club is able to assess the level of exposure in differing operations and contracts, providing practical support and advice beyond the pure insurance requirements. For example, contracting to provide involved logistics services such as inventory management, sub-assembly and packaging, whether sub-contracted or within their own operations, clearly exposes operators to increased liability. More product handling leads to more risk in terms of loss or damage to goods and more complex supply chain management means greater chances of errors occurring. TT Club continually advises its Members and their brokers that it is vital for those arranging insurance cover to understand the nature of the services that are being offered, who the customers are and under which contractual terms the services are being carried out for them.
Inevitably, the business opportunities presented by globalisation result in operators trading beyond their geographical and jurisdictional ‘comfort zone’, carrying customers’ goods to and from regions where they lack experience or established local contacts. The established network gives TT Club the ability to be on hand to respond to incidents arising for such operators and also those, such as ports and terminals, in the immediate locality. Even where the issue in hand is ‘local’, the nature of the supply chain will frequently result in multiple parties being involved from different jurisdictions, potentially leading to complex legal issues, where once more TT’s global reach is called into play.
The core of TT Club’s mutual ethos extends beyond the provision of insurance terms tailored to actual operational requirements and even the responsiveness in resolving and paying claims. TT Club’s mutuality means commitment to the ongoing development of risk management advice and information for its Members and their brokers with the aim of controlling risk and reducing exposure to potential claims. By way of example, the Club has drafted model contractual terms and assisted Members in negotiating changes in the ICC Uniform Customs and Practice for Documentary Credits (UCP) rules.
While supporting the TT Club's own assessment of risk for cover and pricing purposes, promoting good practice has led to interaction with a number of international trade bodies which act for various sectors of the transport industry. The Club has been intimately and actively involved in the international debates over a range of industry issues, including the International Ship and Port Facility Security (ISPS) Code and, more recently, the revision at IMO of regulations relating to container weighing and CTU packing. This industry involvement has also resulted in invitations to assist in developing good practice guidance, for example in the use of flexitanks.
After 45 years of innovation and growth, TT Club is now the leading provider of insurance and related risk management services for the international transport and logistics industry specialising in the insurance of liabilities, property and equipment for intermodal operators. It is estimated that the Club insures over 80% of all maritime containers, has an insurable interest in nearly half of the top 100 ports in the world, as well as insuring a many hundreds of freight forwarders and logistics businesses.
The TT Club remains committed to its role as the specialist insurance provider to the dynamic and ever-changing supply chain industry.
Article published in International Trade Magazine (ITM) – October 2013