Insurance Aspects Of Steel Transportation (Iumi 2000)
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.
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 .
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.
number of major steel manufacturing nations has grown significantly over the
past decade, and steel production is now a truly global concern.
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.
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
STEEL PRODUCING REGIONS
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
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.
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.
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.
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
STEEL EXPORTING REGIONS
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
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 .
this all means is overall there is a lot more steel cargo movement now when
compared to ten years ago.
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
What do these trends tell underwriters?
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
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.
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
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.
taking a risk - think about :
exactly is the
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).
exactly does the product originate from ?
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.
exactly is the product at this moment in time!
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!
condition is it in ?
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.
is it packed?
purposes of cargo underwriting, steel cargoes can be split into two very basic
- 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.
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.
cover are you going to offer?
"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
from these factors is there are a
few additional points
which you might care to remember.
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!
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 ).
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.
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
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
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.
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!
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:
outer wrapping" - may give a clue as to the contents but remember
few steel makers would use prime material for wrapping.
bands" - are always contentious
- but they are on the outside of the wrapping. The steel within is not
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.
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
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.
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
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
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.
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.
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.
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!
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
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.
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