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Insurance Aspects Of Steel Transportation (Iumi 2000)

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By Joe White

Before looking in more detail at some of the issues involved with the transportation of steel I want to spend a few minutes looking at the changing scene in the steel  world.

It is worth recording at this point  that after oil and grain cargoes - steel is one of the most widely traded global  commodities  - which makes it vitally important for Underwriters to understand as much as possible about the product and how it is handled around the world today.

In the ten years to 1998 ( the most recent full year for statistical purposes) global steel exports grew from 171.18 million tonnes to 270.81million annually. This trend is set to continue .

These figures do not  take into account those cargoes that are subsequently traded after they have left the country of origin. Like any other commodity steel can be traded more than once.

The number of major steel manufacturing nations has grown significantly over the past decade, and steel production is now a truly global concern.  

Despite recent economic recessions first in Europe and then in Asia  - Global crude steel production has actually grown in the past decade by about 2.37%. from around 764 million mt in 1990 * to over 783 million mt in  1999.

It might be useful if we consider a schedule of the current leading steel producing nations and comment upon some of the interesting developments of the past decade:  

STEEL PRODUCING REGIONS

                                                            1990               1999               % change        

                                                            ('000mt)            ('000mt)

EU                                                      148.41            155.45            + 4.7%

Asia                                                    61.78             90.57             +29.3%

Japan                                                 110.34            94.19             -14.60%

China                                                 66.35             123.64            +86.4%

CIS                                                     154.44            83.70             -45.8%

N.America                                         111.45            128.79            +15.6%  

It can be seen that over the past decade the production of the traditional steel manufacturing nations has remained little changed  - with the notable exception of  the CIS where production has fallen heavily. Other areas, particularly India and the rising industrialised nations of South east Asia and the Pacific Rim have seen huge investments in steel production facilities and consequently in steel production itself. 

As these nations seek to exploit the potential of steel as an export product  it is important that best practice for shipping and handling steel cargoes are adopted now, although the exporters may have limited experience. 

With the emergence of these new sources of  steel, it is becoming even more important for Underwriters to recognise and distinguish between the different steel products, what form they take how they should be handled and packed and what measures need to be taken to ensure that every steel shipment does not result in a claim. 

Against this background, I suspect there are few here today that are actually writing profitable steel cargo business. There is therefore a real incentive for Underwriters to look more closely at steel cargoes. 

First let us identify the main steel exporters as compared with the steel producers. We can readily see  marked  differences in what is happening to the manufactured steel between certain nations. 

STEEL EXPORTING REGIONS

                                                            1990               1998               % change        

EU                                                      79.74              97.90              +  23.9%

Asia                                                    30.82              63.52              +106.5%

Japan                                                 16.63              25.00              + 50.0%

China                                                 2.61               5.21                +100%

CIS                                                     8.48               45.31              +434.9%

N. America                                        9.57               17.61              +184.5% 

Whilst considering these figures it is also worth noting that most steel exporters are also steel importers. Virtually all of the major exporting nations are also some of the biggest importers of steel as the following table shows - confirming the scale of trade in steel as a commodity. 

STEEL IMPORTING REGIONS

                                                            1990               1999              

                                                            ('000mt)            ('000mt)

EU                                                      59.03              85.70            

Asia                                                    16.88              22.07             

Japan                                                   6.18              .4.74              

China                                                 *25.46            17.04             

CIS                                                     0                     0                    

N.America                                         9.57               17.61             

*1994 figure  

It can  be seen that whilst some nations are exporting roughly the same proportion of the steel have manufactured as they have done over the years  - others who have not increased production capacity have nevertheless increased exports substantially in an attempt to bring in much needed foreign currency. A third group is formed of those nations which have built up their industries in recent years - specifically the South East Asian countries, who now have a quality product , competitively priced for export . 

What this all means is overall there is a lot more steel cargo movement now when compared to ten years ago.  

It is against this background of increasing volumes of steel being shipped around the world that I want to now look at some of the problems facing Underwriters. None of them are particularly new - but now the impact is much greater not only because of the volume of steel in transit  but also the relative inexperience of those involved in its transportation at all levels.  

What do these trends tell underwriters? 

1           The traditional steel exporters  - particularly in the EU have increased exports by 20 % in ten years whist exports from Asia and the CIS have virtually doubled. Together the CIS and Asian exports now equal the total exports of the EU  

2          Where there is a reduction in investment in existing or new plants in the traditional steel producing areas, then it is fair to say that quality and standards may be squeezed because of a shortage of funds. If at the same time exports from those areas rise significantly  - there must be a question mark over the quality of the steel being produced for export  and equally the quality standards of those involved in handling and moving steel. 

3          On the other hand if steel producers are keen also to develop foreign markets they may now have the technical expertise to manufacture the product  but perhaps lack the expertise in how to pack and transport their products . 

Since virtually all of this "new business" is coming from areas that are not established and experienced steel exporters - it is vital that  Underwriters in particular understand as much about the products they insure – before shipment - and thereby reduce the number of potential claims. 

Before taking a risk  - think about :

What exactly is the product?

There is a huge range of different types and specifications for steel cargoes and it is impossible at this venue to go through each individually ( although I will be happy to take questions after this presentation). 

Where exactly does the product originate from ?

It is not always obvious but if you do know then it is very often an indicator as to the quality of both the product and the handling and packing. 

Where exactly is the product at this moment in time!

I have seen countless photographs of steel cargoes - beautifully packed  - ready for shipment  - but a thousand miles from the port of loading and taken three months earlier! 

What condition is it in ?

Nothing will adequately compensate for a personal inspection by a pre shipment surveyor or superintendent. Underwriters generally seem reluctant to go to the expense although it is interesting that most P&I Clubs require their members to have pre shipment surveys on all steel shipments. 

How is it packed?

For the purposes of cargo underwriting, steel cargoes can be split into two very basic categories: 

            Protected products  -  usually those which can be described as a "finished" product i.e. cold rolled coils or sheet steel,  galvanised or painted products, tinplate or electrical steel.
Unprotected products are usually those which may  not be seriously affected by the prevailing weather conditions and in particular atmospheric rust.  

Typically in this group we find "finished" construction type products including beams, sections, plates, rail  and  rods; or a semi-finished product i.e. hot rolled coil, merchant bar and tubes  - those products that usually undergo further heat treatment  processing before they end up as a finished product.           

Because a product is unwrapped do not assume that it is less susceptible to damage. It is a common mistake to believe that because a product is unprotected that it needs less care when handling or storing.  Some beams and sections are often pre formed to go straight into a structure and must be handled with care. Rails too are never wrapped but the metallurgical composition of a manufactured rail is very sophisticated and it should always be handled very carefully. 

What cover are you going to offer?

Full "All Risks" cover on unprotected steel is not wise. You do not want to be looking at claims for atmospheric rust which is virtually inevitable. Be sure the cover wording is modified.  

Additional Underwriting considerations

Aside from  these factors is there are a few  additional points  which you might care to remember. 

     1     Manufacturers  produce guidelines on how to pack, wrap and handle steel. Some have been in existence for years  - but whilst the manufacturers and shippers may change  - packing methods are only modified!  

2        Remember also that the buyer like the manufacturer, has the knowledge, he knows what the end product ought to be. He will have his own criteria  ( see "Acceptable" damage ).

3        Are you going to employ pre shipment superintendent/surveyor and are they going to have a real input There is no point in simply reporting a problem . They should be allowed to advise the shipper (and Master if possible!) if things are not going well. 

4          Know the Product

 Handling  Despite it's apparent robust outward appearance  - steel needs to be handled with some care.  A steel coil that is dropped and is even slightly distorted often cannot be fed through a mill and so the coil is  little more than scrap. There is specialist lifting gear available at most steel ports for coils, long sections and bars . Clamps for rails and pipes. They should be used . 

Stow  Condensation.  This is a major topic in it's own right and again time does not permit me to explain in any detail the problems that can be associated with condensation and steel cargoes – especially cold rolled, coated or galvanized  products. As with any other bulk cargo without adequate ventilation, when cargoes are moved through different climate zones - without  adequate ventilation and/or some form of dehumidification equipment in the hold at the very least - the cargo will almost certainly be affected to some degree by condensation and resultant claims for damage on cargo underwriters. 

Steel cargoes tend to be carried on older vessels that may not be  watertight. Securing properly within the hold is also vital to maintain the integrity of both ship and cargo.

Look at post shipment storage facilities especially if cover is extended to "final destination"  I have seen steel cargoes discharged at a recognised steel berth - but left outside the sheds to save on storage charges! 

Additional claims considerations

Too many cargo claims are settled by underwriters when really, a bit more investigation by the cargo surveyor might reveal some clues as to the ultimate use which in turn will help to properly value a subsequent  claim as well as evaluate future risk. 

Consider in particular what is an acceptable condition and what is no Underwriters claims departments often read too much into an endorsed Bill of Lading. Typical clauses on Bills of Lading may read: 

"Rusted outer wrapping"  - may give a clue as to the contents but remember  few steel makers would use prime material for wrapping. 

"Rusted bands"  - are always contentious  - but they are on the outside of the wrapping. The steel within is not necessarily affected! 

Or on unprotected cargoes  

" All beams covered in rust". The implication sometimes is that this type of cargo is damaged which of course is not necessarily true. Steel as it comes off the mill is generally a blue colour - how many here have actually seen "blue" steel  at a load port?  Atmospheric rust will always form on any unprotected surface. 

            "Acceptable damage"  or at least damage which was caused at the Mill and not as a result of an insured peril. As with handling guidelines there are in many instances manufacturers guidelines covering mill "defects" which go into some detail on tolerances and allowances. I have seen many instances where claims have been settled by insurers where the "damage" would in normal circumstances be acceptable because it is so minor - or which should have been referred back to the Mill because of fault in the manufacturing process.  

For example - unprotected beams - although sold in " x"  metre lengths are invariably over sized by a few centimetres and are cropped by the customer - so a "damaged" end may not be damage at all. 

Similarly  very long sections may be slightly bowed - again, there are prescribed tolerances which are acceptable so bending may not necessarily be damage. If it is too bad - and handling damage is not obvious - it may be a Mill defect and should be referred back to the shipper. 

Piling with minor edge damage - remember that it's end use will involve the piles being hammered into the ground! 

            Cold rolled coils sheet steel in bulks  can sometimes be affected by water damage on the outer edges - but is the steel to be used for producing blanks  (i.e cans, bottle tops) where the sheet is put onto a press - the outer edges are unlikely to be used so there may be no financial loss. 

            Remember Damaged steel cargoes are difficult to dispose of. Invariably the salvage is retained by the consignee – often at a price well below its real worth – and it is still used!  Until now there were few disposal options open to underwriters. Today with advances in web site communications there are alternatives  - something that we at MTD have been actively involved in. We see the future of salvage disposals changing to the benefit of Underwriters. 

Final thoughts!

As I said at the beginning  - the general feeling from the industry itself is that steel production will continue to increase in  the foreseeable future. It follows therefore  that steel exports are likely to continue to rise also. 

That increase will probably continue to come from the new producing areas. Countries such as Mexico where crude steel output  has increased from just under 8.0 million tons in 1991, now turns out in excess of 15.3 million tons per annum. China in the same period saw crude steel output rise from 71 million to almost 124 million tons per annum. Whilst  much of that is for internal construction - China still imports over 17m tonnes and at  the same time exports over 5m tonnes annually. 

Many of these new sources of steel are producing very high quality products - particularly in South East Asia and it is in these areas in particular where Underwriters have a real  opportunity to have a say in the carriage, handling and storage methods  - at the outset , instead of after an event! 

Internet business is expanding rapidly – but little attention is being paid to the value to insurers on claims handling and salvage sales in particular. We see a huge potential here for better claims management and thereby reduced claims costs 

Steel cargoes will continue to be a major source of cargo underwriting business and will probably increase - how profitable that business will be is to a large extent  in your hands.  

I have attempted to focus on a few of the most common problem areas which you as underwriters have the ability  to tackle, if you want to. All of the recommendations can be applied,  and if they are, will result in an improvement of the current overall claims experience. 

Jcw/mtd/iumi sept.2000