The recent collapse of South Korea’s largest shipping firm, one of the top ten largest globally in terms of container capacity, threw global trade into disarray with some US$14 billion worth of cargo left at sea.
Recent developments have seen ships taken into port this week but still only a fraction of global cargo has been unloaded.
Andrew Brooker, founding partner of Latitude Brokers, told Insurance Business
that the collapse of the global giant highlights a major marine insurance concern.
“The marine insurance market has been increasingly concerned about failures of their Assureds for some time now,” Brooker said.
“The market, generally, wants to avoid bad debts sitting on the books for any period of time and will take steps to cancel a policy up to the time premium was paid, rather than maintain cover and try to obtain premium later on.
“However, the Hanjin failure won’t have a substantial financial effect on the market or the policies in place for either the owners, or cargo on board.”
Brooker said that insurers and brokers are “acutely aware of credit control” as the Hanjin collapse is unlikely to increase focus in this area.
With debts of US$5.5 billion sinking the business, Brooker said that current premiums will continue to be paid as creditors look to avoid uninsured incidents due to non-payment.
“The risk of a hull or indeed liability claims arising and having to be paid from Hanjin’s own depleted funds would be unacceptable, so the courts and administrators usually allow those costs to be incurred whilst the financial issues are resolved,” Brooker explained.
In the event of a sale of the vessels, current underwriters of the hull and P&I policies would lose their premiums as the contracts would return to market.
“Ultimately, the hull and P&I market won’t suffer a reduction in the premium income; it will simply come in from other sources post-sale.”
On the cargo side, Brooker said that most losses will not be covered by the cargo market as policies exclude losses arising from financial default or delay.
Similarly, costs of off-loading and on-forwarding will be uninsured for the same exclusion and, with freight now being directed to port in some parts of the world, Brooker said that the cargo costs may be shared.
“It is clear from discussions with our freight forwarding clients that commercial pressures in a difficult market are likely to mean the parties will seek to share those costs among the various parties involved.”
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