“Port Strike Survival Tips - How Cargo Insurance Responds to Disruption and Delay”

The recent strike by 45,000 members of the International Longshoremen’s Association (ILA) that closed down major ports on the East and Gulf Coasts was suspended after three days, but it may not be over. A tentative agreement was reached with the United States Maritime Alliance (USMX) on wage increases, extending the members’ current contract until January 15. The members agreed to return to work and negotiate the remaining outstanding issues. Ports impacted by the first strike included New York/New Jersey, Baltimore, Charleston, Savannah, Miami, New Orleans, and Houston, and, if a master contract is not officially renewed by the 01/15/2025 deadline, the union could go on strike again.

The shutdown of the ports due to the strike, with the possibility of another strike on the horizon, raises questions about cargo risks associated with supply chain breakdown and how cargo insurance responds in cases like these. Understandably, freight forwarders and logistics service providers seek answers to address their shippers’ concerns.

A Different Type of Risk

The type of cargo risk that might keep shippers up at night is usually the clear-cut causes of loss that plague cargo, such as natural disasters, theft, and accidents in transit or in packing. However, the recent strike and labor dispute demonstrate how port disruption can wreak havoc on the global supply chain and cause significant financial losses. This has turned the attention of cargo owners and other stakeholders to a different type of risk.

During a port strike, cargo is delayed, and carriers are often forced to reroute shipments. Cargo owners may be subject to unplanned expenses such as demurrage, detention fees, chassis costs, storage fees, and other transit costs. Additionally, strikes often cause delays in loading, unloading, and transporting cargo, which increases the risk of perishable goods deteriorating. These delays can also lead to financial losses due to loss of market as with seasonal goods or other time-sensitive products. Cargo insurance, which is primarily intended to cover physical loss or damage that occurs in transit, is not usually the remedy for these risks.

Not All Cargo Policies Are the Same

Each cargo insurance policy is unique. All terms and conditions must be considered when determining how the coverage responds to physical loss or damage. Many Cargo policies also include a “Strikes, Riots, and Civil Commotion” (SRCC) clause or endorsement, which generally provides coverage for physical loss or damage (vandalism, sabotage, or malicious acts) caused by strikes, labor disturbances, riots, or other forms of civil unrest. For example, if the cargo is damaged while waiting at the port or during extended storage due to the strike, the policy would likely respond if the damage is covered under the policy terms. Again, it is important to note that each claim for physical loss or damage, including those stemming from a port strike, is assessed individually based on the specific circumstances before a coverage decision is made.

However, cargo policies generally do not cover financial losses due solely to delays. If goods are delayed because they are sitting at the port, and the cargo owner loses a sale or accrues storage costs, a cargo policy will not pay for the financial loss unless the goods were physically lost or damaged as per policy terms and conditions. Economic losses, such as loss of market, congestion surcharges, demurrage, or extra freight costs due to delays caused by port strikes, are usually not covered. Losses due to deterioration or spoilage of perishable goods due to delay may be covered under a cargo policy, but typically this type of coverage would need to be added via a specific endorsement.

What Happens If Cargo Is Diverted to Another Port Because of a Strike?

Cargo policies are non-standard, and it's important to note that the duration of coverage can vary between policies. Generally, a cargo policy is designed to cover goods throughout the entire transit process. This coverage typically begins when the goods depart from the warehouse at the initial shipment point and continues during normal transit, including standard transshipment or any delays or deviations outside the control of the policy holder. It remains in effect until the goods are unloaded from the overseas vessel at the final port and delivered to the policy's specified destination.

Never assume coverage continues when cargo is rerouted. It is crucial to inform Underwriters if the cargo is diverted from the usual transit route to ensure that coverage remains valid. Additionally, any extra costs incurred due to such a diversion, such as rerouting, storage, or transport to the final destination, may not be covered under a standard policy. To protect against these risks, additional coverage or policy endorsements may be required.

Mitigating the Impact of Disruption from Port Strikes, Other Diversions

Review the Cargo Policy Terms

A review of the cargo policy is necessary to understand the specific terms, limitations, and exclusions related to delays, port strikes, and other diversions. There may be endorsements and specific policies available that provide extended coverage for strikes, delays, and additional costs associated with diversions. Policyholders are encouraged to discuss these options with their broker.

Maintain Open Communication with Insurer, Logistics Providers

During a strike or other operational disruption, freight forwarders and cargo owners are encouraged to communicate openly with their insurance broker. Work in tandem to coordinate rerouting efforts and document any additional costs incurred for potential claims or negotiations and to help avoid coverage gaps, and in the case that a loss occurs, report your claim immediately. The insurance company and their claims team need to be aware of any changes to the original destination and will help to advise the correct next step to take following a loss.

Key Takeaways for Cargo Owners and Freight Forwarders

Strikes that result in delays, financial losses, and operational interruptions pose a substantial commercial risk for cargo owners. While the typical cargo policy does not cover strike-related financial losses such as loss of market due to delay or costs associated with storage or detention, Strikes, Riots, and Civil Commotion Endorsement/Extension coverage is available as are other tailored coverages that can provide financial protection.

Communication is key. In the event of a strike, the lines must be open among the cargo owner, all logistics providers and forwarders involved in the transit, and the insurance broker. Ensure that underwriters are appraised of any rerouting that is scheduled, and make sure, in the event of a loss, to report your claim immediately. Strikes present risks outside the norm for cargo in transit, and keeping the whole team connected is the best way to stay on top in unpredictable circumstances.

Disclaimer: This information is provided as a public service and for discussion of the subject in general. It is not to be construed as legal advice. Readers are urged to seek professional guidance from appropriate parties on all matters mentioned herein.

About Roanoke:

Roanoke Insurance Group Inc. is a specialty insurance broker focused on surety bond and insurance solutions for logistics service providers, customs brokers, and companies managing supply chains. Founded in 1935, Roanoke was the first provider of customs import bonds and the first appointed ATA Carnet provider in the United States. Roanoke has decades of partnership with the trade community as a trusted provider of insurance, surety bonds, ATA Carnet products, and specialty services.