Thai cargo gets greater global insurance
Source: Editorial Staff
Cargo insurance contracted by Thai importers/exporters in 2007 increased by 25.6% compared to 2006. In 2008, total insurance cover for Jan-Sept increased by 7.79%, year-on-year.
By eliminating risks and liabilities arising from damage to, or loss of, cargo being transported, cargo insurance enables the efficient flow of commerce. While all parties agree that increased use of local insurance companies could conserve foreign currencies, reduce premium rates and simplify claim procedures, Thai exporters/importers prefer to trade using Incoterms (excluding insurance). Efficient logistics/ supply chain management also helps to minimize risks and lower premium rates, assuming that the most suitable coverage is selected.
Responding to the Multi-modal Act B.E. 2548, the Office of Insurance Commission has introduced a new form of insurance to cover multi-modal transport service providers. As well as making a distinction between the benefits and costs of service providers and cargo owners, the scope of coverage has also been extended to include transshipment by air or trucks as well as other modes of domestic transportation.
Noting that loss or damage can occur at any stage of the supply chain, Asst. Prof. Dr. Taweesak Theppitak Director Logistics & Management Research Centre Faculty of Logistics, Burapha University, explained that damage caused by accidents usually exceeded the value of damaged goods in terms of opportunity costs, delayed delivery and had other additional expenses. Better understanding of the benefits of shipping and transportation insurance will encourage local traders to buy cargo insurance.
Shipping/transportation insurance policies vary in terms of conditions and premium rates, depending on the type of goods and transportation routes. Modeled on the UK system, shipping and transportation insurance in Thailand is classified as follows:
The Institute Cargo Clause (C) or FPA, covers loss/damage of goods during transportation due to fire, explosions, ships scuttled or goods being washed ashore, ships colliding or overturning, trucks overturning, vehicles colliding, derailed trains, general liability, cargo being thrown overboard distressed ships, expenses incurred protecting cargo damage, and the cost of unloading cargo at shelter ports.
The Institute Cargo Clause (B) WA includes coverage under Clause (C) and is extended to include damage caused by earthquakes, volcanic eruptions, lightning, thunder, goods washed away by waves, total damage to cargo and/or packaging during loading/unloading or transshipment, goods damaged by sea/river water flowing into the storage area or container.
The Institute Cargo Clause (A) or All Risk provides additional coverage over and above Clauses (B) and (C), including damage to goods caused by water/rain, piracy, theft, or accidental damage, packaging damage that causes the product to leak, as well as other causes not specified in the exemption clause.
Shipping terms are classified as FOB (Free on Board), CIF (Cost Insurance and Freight), C&F (Cost and Freight) and EXW (Ex Works). Most Thai importers/exporters prefer to use FOB or C&F, leaving overseas sellers/ buyers to arrange their own insurance coverage. However, in cases of long-standing supplier-client relationship and efficient logistics management, local traders can change to CIF terms.
Covering risks in the logistics system
In line with the policy to accelerate cargo insurance as part and parcel of the national logistics strategy, the Office of Insurance Commission is working with the Association of Fire Insurance to improve policies to cover risks that may occur at every stage of the supply chain, from production through to delivery of goods.
Recent product innovations include a multi-modal insurance policy which covers service providers’ liability due to damage or delivery delay. The new policy for loss, damage or delays of general cargo (previously covered by domestic transportation insurance) will improve cross-border logistics as well as domestic transportation system.
In addition to organizing seminars and PR activities to enhance public awareness, www.oic.or.th provides data on insurance products, links up with various insurance companies, and in the near future, will have the Export Promotion Department’s Single Window Entry.
Working closely with public-private sector organizations, the Commission is urging the government to issue rules requiring businesses with BOI privileges as well as public sector organizations to use local insurers for importation and exportation of goods.
Disinterest in cargo insurance is blamed on local traders’ lack of bargaining power, knowledgeable personnel and confidence in domestic insurers. Tax incentives will be proposed and the schooling curriculum revised to include insurance. Local insurers have upgraded their capabilities and customer services, and new technology has been installed to provide the best options for Thai importers and exporters.
“We believe local insurance companies are ready to develop new products to accommodate all kinds of risks facing upstream and downstream businesses,” said Komkai Thusaranon Deputy Secretary General Supervision, Office of Insurance Commission. The Commission is legally responsible for the supervision and promotion of insurance businesses as well as protecting insured parties’ rights and benefits.
In addition to accidents and natural disasters, cargo ships are vulnerable to piracy on international waters. Shipping companies will soon announce a joint declaration requiring all related parties to contribute to ransom payments. Local importers/exporters are urged to buy cargo insurance from local companies capable of providing such compensation.
Krieng Yoknam-ngern Senior Vice President, Trade Credit & Marine Technical Solutions, Axa Insurance Public Company Limited, also urged Thai traders to consider trade credit insurance to safeguard against the growing risk of default on payments for goods or services during the global economic crisis. Axa Insurance is one of Thailand’s Top-10 shipping and cargo insurance companies, with a 20% share of gross premium receipts.
Disadvantage for GMS traders
Chutchavarn Sriwachirawat Government Relation Director, Globalization Economic and Promotion Network Co., Ltd., noted that international cargo transported via the North-South Economic Corridor (R3E) cannot be insured for the entire trip as local insurance policies are required by each member of the Greater Mekong Sub-region. Importers/exporters may incur liabilities due to a break in coverage for cross-border cargo while different work standards applied by each GMS country could also delay claims.
Other constraints include trade negotiations, transportation and customs laws. As existing systems for collecting various commissions remain hazy, transport companies can’t calculate operating costs based on actual logistics costs. Nonetheless, public sector organizations in GMS countries are urged to expedite negotiations and early implementation of trade and logistics regulations. The first step is to nominate a host organization to coordinate Thai public sector efforts to promote GMS trade and investments.
China’s ‘Go West’ drive could help Thai firms
Thai investors could use Jinghong Industrial Estate in Southern China as a production base for textiles, jewelry, agro-products, food/ pharmaceutical and other labor-intensive products. Under China’s ‘Go West’ policy, Yunnan province has been declared as an industrial/ logistics/ tourism Hub. By 2012 Jinhong will be equipped with comprehensive transportation infrastructures linking up with other provinces in China, ASEAN and India.