Our world is deeply connected through technology, communication, and commerce. Using ships in particular has been a method of connecting our world economy for centuries. However, in the open ocean, there are many forces that can work against a well run and efficient cargo shipping business, for example, piracy.
At ITC Diligence, Inc. we know pirates have been a reality of the cargo shipping industry since its inception and the pirates today are just as dangerous, if not more, than the pirates we read about or watch on TV. These days the ransom requests of pirates are frequently in the millions of dollars. Every year 16 thousand ships cross through the Gulf of Aden, transporting goods and oil from all over the planet, through one of the most important trade routes in the world.
When a voluntary sacrifice is made to save either the vessel or the crew of a cargo ship, a ship is capsized or lost at sea, the costs of these burdens get spread equally between all entities who have cargo on that ship. When a ship is hijacked by pirates and a ransom is paid, the companies that have shipped cargo on this vessel must all share in the financial burden, equally. This is called the General Average.
The General Average is a complex clause that has been incorporated into ocean bills of lading to address the very real problem of who bears the financial responsibility in a catastrophic scenario. As an example of the General Average in play, assume a cargo ship has been hijacked in the Gulf of Aden, and the pirates are demanding 25 million dollars for its release and to allow the ship to continue. In our scenario the vessel is worth 75 million dollars and the value of all the cargo on board is 100 million dollars, bringing the total value of these goods to 175 million dollars. Should the ransom be paid, the loss would equate to about 14% of the total ships value. Now, each company with cargo on that ship will need to aid in the financial burden and pay 14% of the value of their own cargo before the ship can continue. If one company had 10 million dollars worth of goods on that ship, they would have to pay 1.4 million to these pirates. Additionally, in this scenario, the cargo will be held until the shipper posts the guarantee. This could lead to serious delays, even higher costs, supply line problems, and overall congestion in our ports.
So how do you prepare for an unexpected cost like the General Average? Along with piracy; sinking, capsizing, collision and many other treacherous forces can make the General Average kick in during a cargo transport. To protect against this variable cost, insurance companies like Avalon Risk Management, have provided our clients the peace of mind they need when shipping cargo across the globe.
ITC Diligence, Inc. has been one of the leading customs broker, utilizing Foreign Trade Zones for users, operators, grantees, local governments and trade organizations. ITC Diligence understands the risks associated with cargo transport and has identified Avalon Risk Management as the premier insurance provider for cargo shipping companies. There are coverages provided by the Carriage of Goods by Sea Act, but they are limited to 500 dollars per freight unit. This is hardly enough to cover the cost of cargo goods and depending on the scenario, there may be nothing offered. Cargo Insurance provided by our partner offers “All-Risk” protection which covers heavy weather, Acts of God, theft, pilferage, and non delivery as well.
The complex systems and interconnected channels of business on our planet means plenty of opportunity for nefarious entities and dangerous pirates to expose weaknesses and disrupt our ability to deliver on time. These reasons are why at ITC Diligence Inc. we believe in the importance of having All-Risk Cargo Insurance on every container that you ship.
Risk is a reality that every business owner needs to account for these days, so we aimed to solve the biggest challenges that our clients face when sending their goods around the world. Foreign Trade Zones give our clients the flexibility and control they need over the costs of importing and exporting, and when you combine our efficient and highly effective methods of reducing custom border costs with the All-Risk protection that is needed in our fast paced world, you can ship to your clients and suppliers with peace of mind knowing that you are protected.
ITC Diligence, Inc. is one of the leading US customs brokers with ports of entry all over our country, founded and headquartered in Los Angeles, California. ITC Diligence has been connecting the world of commerce since 1971 through all methods of transportation including boat, plane, truck and rail. We remain humble in our approach to helping solve the problems that the cargo transport industry faces, and feel privileged to be such an important and pivotal piece of our global economy.
Our expert staff is ready to help consult you on which FTZ would be best for your import or export business and also what type of coverages you would need for your trade routes and cargo. Reach out to us today to learn more!
