Insuring Perishable Cargo
Alan Jervis B.A. Hons., F.C.I.I., M.A.E., Chartered Insurers
Member of the Academy of Experts
Established and reputable airlines have sophisticated processes and facilities in place for handling the safe transportation and storage of perishable cargo.
However, there are many complications that could arise from shipping perishables by air.
Most shippers have a legendary experience to tell!
Top New York restaurants boast fresh prime Scottish salmon on their menus, but the fish is sitting in a fog-induced backlog at the Glasgow Prestwick airport. Tulips are loaded onto a passenger aircraft in Amsterdam—but then, due to a technical problem, the plane is forced to divert by making an unscheduled landing at Lisbon airport.
For the purposes of air transportation, perishable goods may be categorised as follows:
- Pharmaceuticals, medicines, vaccines, biological materials
- Fresh items such as plants, flowers, fruit and meat (e.g. lamb from New Zealand and chrysanthemums from Alaska)
- Frozen food items
- Non-refrigerated food items but with a short shelf life
The carriage of vaccines, in particular, is currently a major freight undertaking. IATA has suggested that the equivalent of 8,000 B747s (each capable of carrying 100 tonnes) would be needed for the global distribution of vaccines. This not only calls for an efficient logistics chain to be in place but, more specifically, requires diligent risk management processes and properly trained staff to ensure safe arrival.
Risk Management Considerations for Carriage of Perishable Cargo
Whilst airlines and logistics professionals have a duty to ensure safe transportation and proper handling of perishable cargo that is entrusted into their hands, the onus is generally on the shipper – the cargo owner – to ensure that the perishable item in question is properly prepared, packed and shipped at the proper temperature, that proper instructions are communicated to the airline for handling and temperature control, that there is proper labelling to identify the cargo as perishable, that there is 24 hour contact information in place and that all regulations have been complied with.
Shippers need to familiarise themselves with best practices for packing and transportation. Proper temperature control packing should be used that best matches the type of cargo bearing in mind its susceptibility to ambient heat, cold and light. Examples of packaging solutions include: gel ice packs, thermal pallet covers, foil container lines and the classical polystyrene box.
Insurance Conditions: Perishable Cargo by Air
Generally speaking, within the context of the London Market insuring conditions, shipments of cargo by air – including perishable cargo – are insured under the following clauses:
Institute Cargo Clauses (Air) 01/01/2009 CL387
Institute War Clauses (Air Cargo) 01/01/2009 CL388
Institute Strikes Clauses (Air Cargo) 01/01/2009 CL389.
The Institute Cargo Clauses (Air) 01/01/2009 CL387 offer an ‘all-risk’ cover similar to (but with some modifications such as the period of the insured transit, for example) that offered by the comparative clauses used for ocean shipments. However, whilst there are specific clauses that are employed for reefer (refrigerated) cargo by ocean, there are no commonly employed standard insuring clauses that specifically address perishable shipments by air.
Hence, when it comes to ensuring perishables by air, in some cases additional terms or conditions, exclusions or even warranties may apply, depending of course on the risk factors that are in place.
Risk factors may include:
- The experience and track record of the shipper in relation to the perishable cargo in question
- Claims experience.
- Nature of the cargo
- Value of the cargo
- Susceptibility of the cargo to temperature change
- Origin and destination country
- Whether the shipment in question involves a significant inland transit either prior to arrival at the airport of departure and / or following discharge at the final airport of destination.
- In the case of an inland transit referred to above, whether the master airway bill issued by the airline carrier is a through airwaybill that covers the inland segments.
- Whether there is a transshipment (transplanement) that may involve one or more stopping points
- Weight of the cargo (for the purposes of potential recovery against the air carrier)
- If a freight forwarder is involved, the degree of experience and knowledge of the freight forwarder in handling certain types of perishable cargo.
- The experience and knowledge of the airline in question
Depending on these risk management factors, it is possible that one or more of the following additional insuring terms and conditions may apply:
Excluding loss or damage from any variation in temperature and or from climatic conditions
Warranted direct flight!
Warranties relating to the way cargo is packed or prepared.
Cover may be limited to the air only part of the transit.
In other cases, where there are serious concerns with regard to risk management, insurers may restrict the cover to ‘named perils’ as per Institute Cargo Clauses (C) 01/01/2009 CL384.
Montreal Convention Limitations of Liability
Both cargo shippers and their insurers alike should consider the limitation regimes applicable to air carriers for loss or damage to cargo particularly in respect to valuable cargo. Under the latest limitation revisions of the Montreal Convention, an international air carrier is normally able to limit its liability to 22 SDRs a kilo which is the equivalent of about US $ 30. A recovery from the air carrier under these circumstances would represent only a small fraction of the value of a cargo of vaccines or pharmaceuticals.
Air carriers do not routinely offer declared value liability and even in cases where it is available, it would be expensive to purchase.
Limitations for domestic carriage liability may be even lower.
Alan Jervis is an insurance consultant, expert witness and offers contentious claims, audit and peer review services