50 Predictions: Marine, Energy & Transport
"Piracy continues to be one of the main threats to global shipping and the marine insurance market. Constant vigilance is required to manage volatile exposures."
Published 13 September 2016
When the board of Hanjin Shipping voted unanimously to file for receivership at the end of August, it precipitated the largest container line bankruptcy in history. The collapse of the company is partly due to the pressure on the shipping industry, which has been unrelenting since the 2008 financial crash. Much of this has to do with the increase in capacity in the industry – vessels built in the 1990s typically carried around 2,000 TEUs; by 2015 this had increased to 10,000. As a result, cargo rates have fallen and show no signs of recovering in the long term (charter rates for medium sized container ships were US$26,000 a day in 2010, now just $13,000). Any bounce from the Hanjin effect on supply is likely to be short lived – Hyundai Merchant is reported to be looking to purchase Hanjin's fleet.
Hanjin's demise is also due in part to its own shrinking share of a contracting market. The company had 5% of the market in 2000, but only 2.9% by the time of its collapse. The company booked a net loss of ₩473 billion ($428m) in the first half of this year.
Claims against Hanjin Shipping will be submitted to court between 20 September and 4 October, and the receiver's report is scheduled for 11 November 2016. In the meantime, ports from China to Spain have denied access to Hanjin's vessels following the announcement, sparking fears of the effects of delays in the peak Christmas shipping period. Other members of the CKYHE Alliance are also reported to be implementing contingency measures in response to the collapse. It is reported that Evergreen and Cosco have stopped loading cargo onto Hanjin vessels or allowing Hanjin cargo onto their own. Clearly this carries with it the risk of loss of or damage to cargo as it becomes caught up in the effects of the receivership.
As a matter of first principle, cargo lost or damaged at the hands of a carrier's insolvency will be a covered loss under an all risks policy. All risks means all risks, and that includes any fortuity by which the innocent cargo owner finds himself deprived of his cargo, or finds the cargo damaged or spoiled in the resultant confusion or delay. Unlike hull policies, insurance on cargo is not typically limited to named perils.
In practice, however, the standard market cargo clauses, whether the 1982 Institute clauses or the 2009, contain express exclusions intended to deal with insolvency situations. ICC(A) 1982 simply exclude all loss, damage or expense "arising from insolvency or financial default of the owners, managers, charterers or operators of the vessel". The 2009 clauses by contrast adopted the more restrictive form to be found in the Institute Commodity Trades Clauses, to the effect that the exclusion will only apply where, at the time of loading, the assured was aware "or in the ordinary course of business should be aware" that such an insolvency or financial default could prevent the normal prosecution of the voyage. Given that the financial woes of Hanjin Shipping have been a matter of notoriety for some time, this could produce some interesting debates about knowledge. It is also notable that the 2009 exclusion, again in common with that in the Commodity Trades Clauses, does not apply as against a bona fide assignee of the cargo under a CIP sale.
A further formulation, though one now rarely seen, is the JC93 Insolvency Exclusion, an endorsement designed to work alongside the 1982 ICC, and which excludes loss or damage from the carrier's financial default where the Assured is "unable to show that, prior to the loading of the subject-matter insured on board the vessel, all reasonable practicable and prudent measures were taken by the Assured, their servants and agents, to establish the financial reliability of the party in default." Again, this could lead to some interesting debate as to precisely what enquiries shippers should have made to satisfy themselves that Hanjin was not about to go under.
Inevitably, the collapse of Hanjin will bring about delays in the delivery of cargo to final destination. Delay, of itself, does not of course translate into a claim on a marine cargo policy, whatever may be the commercial cost of the delay to the consignee. Only cargo that has in fact been lost or damaged can give rise to such a claim. The delay, in other words, must have caused the cargo physically to deteriorate or otherwise to have become damaged. While both the 1982 and 2009 clauses exclude any such damage as may be caused by delay, in practice the modern approach is almost never to regard delay as the cause in itself, since delay can only ever exist as a result of some other peril. Looking upstream in the present case, the effective cause would appear to be the receivership of Hanjin, and hence it is the insolvency exclusion and not the delay exclusion that is likely to be of relevance.
i London and Provincial Leather v. Hudson  3 All ER 857
ii "proximately caused by" in the case of the 1982 clauses