Logistics Rewired: Understanding Cargo Insurance

Julie Zimmer: Hello everyone, and thank you for attending today's webinar, Logistics Rewired: Understanding Cargo Insurance. This is part of Flexport's continuing efforts to keep you informed in the midst of this global challenge.

So let's begin. I'm Julie Zimmer. I'm the Head of Insurance for Flexport. And I've been with Flexport going on a year and a half to two years, and prior to that I've been in the insurance space for I stopped counting it 30 years. So this is a topic that's very near and dear to my heart, I thank you for joining in.

Yasuko Kudo: And my name is Yasuko Kudo, I'm a Corporate Risk Manager with Flexport and I'm excited to be here.

Julie Zimmer: So today, we're going to have an overview of cargo insurance in today's environment. We're gonna talk about vessel incidents, everything that's been in the news and that you guys have been dealing with. We're also going to discuss the claims impact of the current environment. And lastly, we're gonna talk about how that all impacts your insurance placements. And then we'll open it up to Q&A.

But first, we'd like to ask you a poll question. So one of the things that we want to talk about is who in your organization makes the cargo insurance buying decision? So if you go ahead and vote, we'll tie this together as we move through the presentation.

Okay, it looks like we're seeing finance or operations and logistics coordinators. Give you another few minutes to or another few seconds to vote.

All right. So when we look at logistics and everything that's been happening in the world, I think if there's one word I could use to describe what's been happening over the past few years, it's uncertainty. What we used to rely on became one big question mark. Will I get space to ship my goods? Will my goods arrive on time? Or at all? Will I have merchandise on the shelves when I need to meet customer demand?

As we deal with this uncertainty, it's really important for us to ask the what if questions. What if a container goes overboard? What if my goods aren't damaged, but I can't get to them because somebody else's goods are damaged. Insurance doesn't solve all of those questions. But if you're a savvy insurance buyer, it can go a long way to making sure that those questions are answered.

Now insurance isn't a sexy topic, but it is a very important topic. Global trade doesn't happen without insurance. We help take the risk out of everything we do and making the right decisions about it helps you not only protect the cargo you're moving, but actually the profitability and the viability of your business. And that's why we asked the poll question. Because so often, in Flexport we see a disconnect between the people at the front line and actual insurance purchasers.

And now more than ever, it's really important that everybody in your organization is on the same page about how you handle your insurance purchase. You know, if the right hand doesn't know what the left hand is doing, or if he didn't take the time to make a strategy and just click the button, then you're not making decisions based on a defined criteria. You're just just basically hoping that the decisions you're making are right.

So I encourage you, if you're not the person who makes a buying decision, take the knowledge you got in this webinar, go connect with that person, that person in your organization and make sure that you're coordinating ( Audio Issue ) the day.

This conversation isn't about how to insure my cargo, it's about how much in sales are you going to have to make up to cover the losses of cargo and stock that doesn't come into your organization. So we go to the next slide.

And just to illustrate how big of a problem this is, global impact of cargo losses is somewhere in the area of $50 billion. Now, that's a lot of cost to pass on to your customers. 11% of units arriving at distribution centers have some form of package damage. And we know package damage leads to product damage.

And lastly, over 80% of shipments are underinsured or uninsured every year. Now, underinsured is the bigger problem, because if you're just ensuring your CI value, you're way underestimating your potential loss and loss to your business. And those are some of the things that we're going to talk about. But before we dive into that, I'm gonna turn it over to talk about the vessel losses and all the things that have impacted our insurance environment over the past 18 to 24 months.

Yasuko Kudo: Thank you, Julie. Next slide please. So let's start with a poll. Got your question and you can, go ahead and choose one answer here.

Okay, give it a few more seconds. Okay, good. So most of you voted for 3000 and a few thousand, 500. The answer is 3000. So in 2020 and on, it is estimated that 3000 containers are lost overboard. With a furthest 1000 containers lost so far in 2021. Okay, next slide, please.

Yasuko Kudo: So let's talk about the container overboard incident. The number of containers falling overboard has dramatically increased recently, in just three months between November 2020 to January 2021. More than 2800 containers were lost across six separate incidents at sea. As you can see here, this is almost double the annual average of 1382 containers. This was between 2008 to 2019.

So in 2020 is just the incidents just increased. You can see ONE Apus happened in November 2020 . Catastrophic loss events such as the ONE Apus, heavy weather disaster highlight the importance of securing cargo insurance for every shipment.

Cargo Insurance is designed to respond to claims for damaged or lost cargo and expenses for general average contribution. And the right policy facilitates the process of releasing the shipper's cargo from the steamship line. Without insurance cargo owners will suffer unexpected expenses, delays and unlimited financial recovery. Next slide please.

Growing Risk - General Average

Yasuko Kudo: So now I mentioned the general average. A little bit I'm just going to talk about it here. General average is a growing risk and concern for many cargo owners. In recent times, there has been a rise in the frequency and severity of extreme weather events that have led many vessels to become grounded, causing container loss and the vessel damages.

In additions, fire on container vessels are more common now than the past. Most recent example was in Ibiza, as I'm showing here. Ever Given in March 2021 and the Zim Kingston. This is very recent event happened in October 2021.

These two incidents highlighted different risks. First example, I'm using here Zim Kingston caught fire alongside a loss of overboard over 109 containers. In the extreme weather off the coast of Vancouver, Canada. On November 1st, the vessel owner declared a general average. At present time, the unfortunate incident in Zim Kingston. There is no timeline as to when the vessel will berth and discharge the remaining sounder containers from the vessel. Next slide please.

Timelines

Yasuko Kudo: And I'm gonna talk about Ever Given. As most of you probably remember, Ever Given on March 23rd 2021, it was famously grounded in Suez Canal for six days. Many people probably forgot about Ever Given after that. But what happened after six days in Suez Canal was more interesting for us in this cargo insurance industry. On March, I'm sorry, April 1st, the vessel owner declared the general average. Then it was held under arrest by the Egyptian Code from April 13 to June 25th. The vessel finally departed Egyptian water on July 11. Next slide please.

General Average is Based Upon The Maritime Principle

So, you probably wonder what is the general average? I normally spend one hour explaining the general average. So here, I want to respect everybody's time. So just a brief sentence. So just bear with me.

General average is a principal maritime law that says, if a ship or its cargo sustains loss or damage as a result of voluntary sacrifice in emergency, the vessel owner and the cargo owners will share the cost of those loses.

The law would be in, this law would it be invoked? For example, if a ship was caught in a major storm or run aground and some of the cargo was did send to about imminent peril. What does that mean?

So the general average basically saying when general average is decorated, all cargo owners with freight demand on the vessel are required to share in a cost before goods are released. Next slide, please.

Paths to Cargo Release

I'm sure everybody has a question. So please feel free to put another Q&A. We will try to answer many questions, but I just want to highlight here, once general average is declared, cargo will not be released to the cargo owner until the general average guarantee has been provided.

If cargo is not insured, and the shipment I'm sorry, the shippers must deposit a security to the average adjuster, the cash deposit amount can vary and at the discretion of average adjuster.

I'm using example here that this picture is Maersk Honam fire which happened in 2018. For this incident, the service security over 42.5% of CIF value, and additional 11.5% for GA security were required. So if you are not insured, those are cash deposit amount required by average adjuster.

Cargo Insurance is designed to respond to claims for damaged or lost cargo and expenses for the general average contribution required to release cargo. With that, I'm going to put back Julie. Thank you.

Julie Zimmer: Thank you. You know and while the vessel incidents and the general average and all that stuff was a really, caught the media attention it has been the buzz around the industry. We look at what's actually happening with claims, if you can go to the next slide, please.

Number of Claims

We see that when we talk about the number of claims, it's still focused in on the day to day business of moving cargo. While all the big catastrophes are certainly impacting what we do, we still see that 28% of our claims numbers are coming from air, and 72% are coming from ocean. And that when we look at the loss numbers by category, we see that shortage and rough handling and crushing damage is still the leading cause of claims in what we do.

So while the anomalies are important to understand and consider, we have to realize a very real impact, that just the day to day business of moving goods and all the hands that touch those goods to get them from point A to point B, can generate loss.

Now, when we talk about, I'm gonna talk a little bit later about mold and wet damage, because that's another interesting one, that we've seen increase significantly over the past 12 months or so. And obviously, the overboard claims, you know, that is a trend that we don't like to see increasing and is a direct result of the best lenses. So if we can go to the next slide.

Amount of Loss By Cause

When we talk about the actual cost of loss, then you know, that's where all the vessel incidents really do impact the industry. So we saw 44% of our losses from overboard containers. But again, we still are seeing significant impact from the day to day transaction, which is shortage and rough handling.

Now, when we look at it according to Bloomberg, 2021 generated almost $54 million in cargo losses. But, it's not the largest year we've ever seen it certainly in 2020 was the largest year we'd seen in seven years. I mean, you can go back even to 2013, where we saw the MOL comfort in the Indian Ocean, off the coast of Yemen and, you know, so history is fraught with large cargo losses. And we see blips that impact the marketplace periodically. And as we'll talk about 2021, in 2021, where in our estimation, you know, what, some of those anomaly years? So can we go to the next slide?

The Why?

So why, right? Why is this happening? One of the things that is really interesting is that we've seen a 1500% increase in the size of vessels over the past 10 years. So as vessels get bigger, you get much more amount of value concentration on those vessels. So if something does happen, it's way bigger than it used to be.

So larger ships equal larger value concentrations and greater exposure to incidents. And that has a direct impact on the freight buyer. Because you know that probability as you're loading onto these larger ships, is not in your favor as compared to having a lot of small vessels moving smaller quantities.

COVID-19 obviously, we're all in the midst of knee deep in that. So, you know, so how much did COVID-19 really impact us since you know, COVID-19 isn't a covered insurance loss per se. But the reality is that, 75% of loss is caused by human error. And so if COVID-19 has ports, because ships caused manufacturing facilities, all kinds of staff to be cut down, people to be working longer hours, people to be working harder to fill the gaps, more mistakes are made.

So while we can't say that COVID-19 caused the losses, we can say that it was an indirect environmental situation that led to the perfect storm for these losses to increase.

We also talked about crew fatigue, you know worker shortage and pile that on with increased demand for goods and the increased flow, you have kind of a perfect storm. I read a statistic where, as of, I think, March of 2021, there are over 200,000 crew members, who were stranded at sea beyond their contract periods. And those people want to go home to their families, and they don't want to hop on another boat tomorrow. So all those things have indirectly impact are those loss experience.

The other thing that's interesting is misclassification of commodities. An estimated two and a half percent of goods or you can do the math, it's 135,000 containers a year should have been classified dangerous goods, and they're not. So when those goods get loaded onto ships that have bigger value concentrations, and a lot more cargo, it's a recipe for a loss. So those are just some of the things that are impacting what's happening today. Can we go to the next slide.

Port Delay Impacts

And then the port delays. Port delays are a loss driver but not necessarily a covered loss. I'm sure you're all dealing with this, we're dealing with it every day, it's responsible for some of these gray hairs. But at the end of the day, the port delays are generally not a covered loss unless the delay is caused by some kind of risk. Covered risk of fire, collapsed containers, something that is a covered peril under the policy. But delay and of itself is not a covered loss.

Now, what's happening because of delay, we are in I mentioned the mold and wet damage claims. The longer these containers stay on ships, off the coast waiting to be unloaded, the greater your propensity for these kinds of damages. So we're seeing an increase in claims because of mold, wet damage that's allowed to grow because these goods are sitting in containers for longer than they intended.

You also have to look at things like revenue loss, excess port cost, higher propensity for rough handling, because of all the factors that we just discussed on the prior slide. And all that coming together, means a port delays are causing increased claims. Next slide, please.

Other Real Costs of Loss

So what's the real cost of loss? So often, when we think about the cost of our loss, we're thinking of our CI value plus freight duties. But the real cost of loss is, all kinds of things that go into making sure that your business isn't adversely impacted because of a cargo loss.

It's the cost of managing your claims, it's the cost of moving the data to prove your claims, it's the cost of the additional sales calls your people have to make to resell the goods and to make up for the loss. It's lost revenue from canceled deliveries, and all kinds of things that just go into the whole picture. So we encourage you to think through your real cost of loss. Next slide, please.

So let's talk about the actual insurance policy. Next slide. So let's go into a poll. And our question on this poll, is how do you currently protect your cargo? Do you use per shipment insurance? Do you purchase an annual policy? Do you rely on your package policy to provide coverage for transit? Or do you just basically say, it's the carrier liability I rely on, if the cargo is damage, I'll go after them.

Hey, it looks like we have kind of an even split between per shipment and annual cargo. And then we have a handful of people who are going to rely on the carrier liability. Well, let's talk about that. Let's go to the next slide.

How Do You Insure Your Cargo?

So there's several ways to insure your cargo, you can go with a per shipment policy. It's a great alternative. You can use it only when you need it. So you're just ensuring those shipments that you put in place so it can adjust up or down as you need it to an on demand product.

It's easier to allocate your costs on a per shipment policy. And per shipment policies in some instances have lower out dollar deductibles than are available on annual policies. And what's the drawback of a per shipment policy? Well, when you buy per shipment policy, if you're using multiple forwarders, that means you're buying policies that have different terms and conditions and deductibles and costs from each of your forwarders.

So these different terms and conditions make it really a lot harder for you to make sure that you're appropriately covering your business according to the strategy you put in place that we talked about at the beginning of this presentation.

There's also the possibilities of mistakes if the process is not automated. So depending on who you're purchasing your insurance with, or your per shipment insurance, you have to be really diligent about making sure that every shipment is covered.

The other alternative is annual policy. So the great part about an annual policy is that it will give you single annual policy set of coverage terms and conditions across all your shipments, regardless of who the forwarder is. You set it and forget it. And there's a lot of convenience associated with that.

Now, some annual policies are adjustable. So you may get an additional premium at the end of the year. Or, if you don't use as much as you declared at the inception of the policy, you may not get a return premium on what you paid for. So we really like the fact that annual policies do provide that level of coverage, but they come with some drawbacks.

You have a single annual upfront premium, if you have any loss cost, you know, your loss cost may increase if you have losses under the policy. And again, as I said you generally don't get that refund if you don't use as much as you declared on the inception of policy.

And then there's the other option of relying on carrier liability, I'll discuss the BOP in a moment. Carrier liability, you really have to prove that they were responsible for the damage. And they also are only responsible for percent as a percentage of fraction of your total cost. And if you realize that your real expense is not just the CI value of what you're shipping, your expenses not being able to sell those goods, your expenses that cost to settle that claim and to adjust it, your downtime, and your salespeople, all kinds of things. Carrier liability does not come anywhere near what you need to appropriately protect your assets and your business's bottom line. Next slide, please.

Impact on Rate - Expect Increases

So we've talked about a lot of things. And we've talked about the vessel incidences and the claims. So what can we expect to see that manifests itself in market conditions for the coming year? So you have to realize that over the past, we have been from an insurance standpoint, in a soft market cycle for the past 25 years. So prices for cargo insurance have been increasing slightly since 2018.

2020 and 2021 incidents have accelerated that trend. And quite frankly, they're a good window of opportunity for insurers to bring the line back to profitability. And they're going to take advantage of that. So if you have favorable loss experience, coverage should be easy, should still be easy to obtain but you can expect some increases.

We're looking at 10 to 20%. These are just just general guidelines, you may experience more or less, depending on your individual risk. But generally if you are a good risk, or clean risk, as we say, that 10 to 20% should should be a good number for you to budget.

If you're a tougher risk, if you've seen a lot of claims, if you're an organization that makes a lot of small claims, you're going to get hit with a taut with more of an increase. We're estimating 15 to 30% based on what's been happening so far.

Coverage may be tougher to negotiate. If you have high value goods or really large value concentrations, your conversations with your insurance broker or placement person may be more difficult. And so you should expect to see larger increases. But the good news is, this may very well be a knee-jerk reaction and make correct itself within the next 12 to 24 months market cycle as the industry and the line of business moves to a profitable position. So you want to go to the next slide.

What Can You Expect

So, what other things can we expect? Coverage restrictions, you may be seeing more exclusions emerging on your cargo policies, communicable diseases, some cyber exclusions we've seen starting to be prevalent in, on renewal policies, and tightening of delay and seasonal value causes. Certainly during the most recent incidents, we've seen, you know coverage questions arising around these clauses, and so insurers are looking to refine the language and be much more specific in that space.

You're also gonna see increased deductibles and retentions. Insurers want to move themselves, remove themselves from frequency. And the best way to do that is to increase the deductible. And really, it's in your best interest only to make a claim where it makes sense to make it, not just because you can, because especially if you're on an annual policy, if you have three claims, or you know some significant frequency, insurers are going to charge you more, it's no different than your any other insurance policy you buy, even your homeowners. If you make three claims, your insurance carrier may cancel you or increase your rates, it's no different here. So, I encourage you to be selective about what you, when and what you claim.

So, we're also going to see more scrutiny on warehouse locations. Because of what's happening, we have greater value concentrations sitting at warehouse locations. People have stocked up, anticipating the delays, so they've brought in way more cargo, way more goods, and those goods are sitting and may or may not be moving quickly through their warehouse locations. So insurers are looking, where I'm seeing more inspections, more questions, more focus in on protection than we had seen previously.

And lastly, capacity is there but insurers are being careful with it. If you have large large value concentrations, getting the limits you need maybe harder. But the good news is you can still go to the London markets and capacity is available for large access limits placements. Next slide please.

What You Need To Do:

So what do you need to do? Make sure you're starting your renewals early. Budget for those rate increases. Look to build better value. So while rates may be going up, and deductibles may be going up, there are things that you can do that you can ask for to extend your coverages, like extension into warehouse, like retail value coverage, like different things that you can ask to be added onto your policy, so that you are getting more value for the policy that you're purchasing. And then lastly, if you haven't yet, take a look at risk mitigation. How are you packaging your goods? Are you shipping in huge concentrations? Do you have the opportunity to diversify that? How do you, what operational methods can you put in place to de-risk your cargo situation?

What You Should Ask

So, what should we be asking? When you're going into renewal, you have to ask a couple really important questions. Does your broker know cargo insurance? Now, if you have a generalist broker who's taking care of all of your insurance, that person may or may not be a cargo specialist. So I encourage you to make sure that ask the question, do they have a cargo department? Do they have a marine group? So that you are connecting with those people and getting the most accurate and real time information on not only state of the marketplace, but also what carriers, what policy types, what's best for your situation?

And I think at the end of the day, you also have to look and here's the conversation around the Package Policy. There's so many people I see coming through Flexport who have BOP's what we call a Business Owners Policy, and they say I've got coverage under that. But the reality is, in the majority of times that coverage is really insufficient to meet their shipping needs. Either the values are too low, their sub limits attached to it, it's really an add on coverage not intended to be a full robust cargo product. So, if you've got that situation, I encourage you to reach out and talk to someone about that, and Flexport, we're here to help you with that. Because understanding what is included in that box, and what the gaps are, can mean the difference between, you know just getting a CI value for your loss and really helping to ensure your business.

And ask about the claims process up front. So many people don't give a thought to the claims process until something happens. Does your provider offer a digital experience, where you can upload claims, you can upload documents, and you can monitor the claim slot? Or, do you have to fill out an email PDF document, and you know hope for the best. So, ask those questions ahead of time, make sure that your team on the ground who is dealing with this damage cargo understands what to do when they see damage or loss, and how to protect the rest of the load from damage, from further damage loss. That's a really important part of this process as well. Next slide.

Insurance Through Flexport

So, because we're talking about insurance, I have to do a bit of a commercial for insurance through Flexport. And the reason is, because we believe we've built a really robust product that helps meet all of these challenges. At Flexport, we offer per shipment and annual policy off options. And all of our options are available for both Flexport and non Flexport shipments. So that's a really unique feature when you buy insurance for their forwarder. Generally, it's really just applies to their shipments, but we can cover all your shipments. And that means the same terms, the same conditions, the same deductibles, and the same pricing structure.

Our per shipment does carry a $0 deductible, and our annual policy carries $1,000 deductible. In addition to that, we have options to insure your cargo, not only for the CI value, but for the retail value. So if you declare the retail value of those goods, we are putting you in a position of being able to reclaim your loss sales associated with that loss, which is really important in a time in an environment where you simply can't get easily get replacement stock.

We also offer warehouse coverage for annual policies. And that includes catastrophe coverage, flood, earthquake and the like, so that you're making sure that should anything happen the goods that are sitting in those warehouses are also protected. If you buy insurance through Flexport, we provide you with LBL access to LBL bonds, if you should have a last bill of lading. And with all these delays, and the port chaos and all of that, the propensity to lose documentation is increased. So it makes it much more important that we can actually provide you with that guarantee under our policies, so that you don't have to go arrange those financial guarantees at the bank.

And then from a claims handling standpoint, we have dedicated claims teams, we have automated claims systems. And we're A, because we hold the documentation, we’re A, we're easily able to pull that and submit that to insurers on your behalf. Now we offer a no obligation review of your insurance program. So, if you have questions, you want us to take a look, we're happy to take a look at your policies, to help you figure out how to navigate this environment. And oh, by the way, did I forget to mention that we are committed to not increasing our rates for 2021. Even though the market is increasing, we know that our customers have been through a ton. And anything that we can do to mitigate that is really important to us. So we are holding our shelf rates for this coming year.

So with my commercial over, thank you for your patience. We can move to some Q&A. Now, just to remind you, please ask questions through the Q&A widget on the right. We'll try to answer as many of these questions as we can, and I look forward to hearing from you.

So, David asked us, how many containers are shipped? It defines risk better. And, I think, so we're looking at about 6000 on any given day. So those volumes are really significant. Yasuko, can you add anything to that?

Yasuko Kudo: Yeah, unfortunately I do not have annual numbers, but if you look at the 6000 any given day, yes, container overboard incident seems very small percentage. However the impact, financial impact, if your container happened to be one of those, it's a huge. And as Flexport, we do have a number of customers unfortunately on especially ONE Apus cases, and ONE Aquila, Maersk Essen, so it is a small chance, however, you have to always keep in mind that impacts to your business, it's really big. So that's, you know if you need annual numbers, I can probably get back to you.

Julie Zimmer: Okay. So we have another question. So Erica asked, are we going to cover how to select an insurance provider for cargo insurance for companies that prefer having to have their own insurance, other than the insurance provided, and I'm assuming they mean by the, you mean by the forwarder.

So, I will, Erica, hopefully some of the information I provided gave you some insight, but what's really important is that you, in generally to get to cargo insurance you have to get to it through a broker. So, what's really important is that any agent or broker that you decide to use, that you make sure they do have a marine or some kind of specialty in this area. Because the worst thing that can happen is you've signed up with an agent or broker, and they're very well versed in your DNO, your work comp, your property insurance, but they only place a few cargo insurance policies. And that is fine until you have a loss. And then their ability to help you is really just put you in contact with the insurance company and hope for the best and provide you with a claim form. So, those are the questions you just want to ask up front. And obviously if you have deeper questions about that, please contact us, I'll be more than happy to discuss it with you further. And Natalie has asked for providing an example of shortage. So can you take that one?

Yasuko Kudo: Yeah, so shortage could have be, it happens on different scenarios, and in the US, most concern on a shortage is theft. And that could be entire container or pilferage, which is just a partial theft of a product. And on the air case, air cargo cases, they could it be warehouse theft, it happens a lot more than you think. So hopefully that would answer your questions.

Julie Zimmer: All right. And I apologize if I'm mispronouncing your name, Huvanna asks regarding pull delay impacts coverage, port delay and back coverage, what are the examples of the scenarios when port delay is covered? So when we look at that, it's really very difficult to say, definitively this is covered or that's not, because each claim as adjusted on its own situation. But generally speaking, if you have a port delay, a great example of when a port delay may be covered is, when your goods are damaged because they have been sitting in a container, it's a great example of that wet damage or mold claim.

Port delay impacts, if the port delay is caused by a fire, or is caused by, you know if you have incidents where your goods aren't damaged, but they're not able to be landed because of a covered peril. What's not covered is simple delay, is just the backup that is caused by a non covered peril, and that's where the stickiness comes in. Now, I have seen, we've been talking to some providers, and I have seen some products emerging in the marketplace that will provide you with some payout for delay. I'm working with those providers to try to bring a product to provision. And believe me, when and if we as an industry get to the point where we can offer our product against delay, we will be the first place that you can come for that, because I'm very anxious to solve for that. But right now, as of today, it's a difficult conversation and there's not a lot of capacity from the insurance companies or appetite to cover that delay piece.

So Mark asked, does Flexport insurance cover South Africa? So Mark, in some instances, we can, and I would be happy to discuss it further with you. You can email us at insurance.flexport.com, and we can chat about it, but yes, we do have the capability.

I'm gonna, I may mispronounce this so I apologize in advance. Briony asked, what is the best way to set a retail value for my shipment, if it contains multiple price point products, that each multiple retail price is based on the actual customer who eventually buys the product? That's a really good question. Retail value is almost like a stated amount product. What would happen is you would take the CI value and we attach a multiple to it. So it's not always an accounting exact number. But we attach that so we reported it to the insurers, you know at that value. So, let's say for instance, you have $10,000 worth of goods, you sell it for $30,000, so the multiplier would be 3x. Now, in the event of an actual loss, let's say of that $10,000 of goods you had, you lost half of it, so you have $5,000. What you would do is, you would essentially show your catalog price, your website, whatever price you used to charge for those.

And as long as you can demonstrate reasonably that, that would be the price that you would sell those goods for, we can adjust it for the retail value. Like I say, you know we've actually had a lot of discussions about extending product catalog to include retail value, and you may see that in the future. But for now, it's good enough for us to put a general multiplier on it. And we have that function as a stated amount. Hopefully that answers your question.

Christopher wants to know what information do we need to provide when documenting a claim? Yasuko can you handle that?

Yasuko Kudo: Yes, so I guess you're talking about the insurance claim right, so the word, the insurance claim, there is normally claim form or if you don't have a claim form we ask a claim statement, commercial invoice to prove the cost of the products below grading or airway bill, packing list and if it's, I'm sorry, the theft or loss of cargo, we will need a delivery receipt. And of course the pictures always helpful and any other documents that you have corresponded with a carrier. Those are the standard documentation, of course once you file a claim there might be additional information we will request.

Julie Zimmer: Okay. And Telise asks, what's the tipping point in owner declaring GA? Example ship suffered catastrophic engine failure and higher to salvage to tow it to port.

Yasuko Kudo: So I can take that. So the general average is defined in York Antwerp group, so we or the vessel owner have to follow the rule. And it's not easy to just declare general average, there is a process and it's all defined in York Antwerp group, which says for essential future of GA, the sacrifice must be extraordinary, the act must be intentional or voluntary, and not inevitable, there must be peril, the action must be for the common safety and not merrit for the safety of a part of the property involved. So those are just a basic of four elements. Hopefully that would answer your question and not too technical.

Julie Zimmer: Okay. So Robbie asked, do we have to be a Flexport customer to have a cargo insurance policy to cover all of our shipments, like what the competition Robbie is offering. You do not have to be a Flexport customer to have a cargo insurance policy with us. That's one of the great things about we do, we are a separate insurance brokerage, you do not have to be tied to Flexport shipments in order to procure, for us to place coverage for you. Commercial and, on that same note, we can also cover your non Flexport shipment. So if you are a Flexport customer, and you're also, we don't have 100% wallet share, that's not a problem for us. We can give you coverage across all your shipments.

Brendon asks, on slide 27, can you go into detail about tougher risks versus favorable loss. So when we're looking at pricing on insurance policies, one of the things that's, underwriters tend to look at a, a tougher risk, meaning is the cargo fragile goods, is it perishable goods, is it by electronics that by nature has high high value concentrations, if you look at like pharmaceuticals and things of that nature, you have smaller footprint, but way higher value in that footprint. So those are tougher risks. Because if anything happens to those type of goods, you know the dollar impact is going to be significant.

Underwriters also look at losses. And frequency is just as important in many cases as severity. So, if you have a cost, if your account submits a lot of very small losses, and generally loss on writing happens on an annual policy, on the per shipment we don't do that. But on the annual policy, when you're negotiating on behalf of yourself only as opposed to negotiating, you know being part of a pool of people who are shipping.

Frequency in the loss category is a red flag for underwriters. So what they're going to say to themselves is, we're going to charge this person more because we know that this person is going to make more frequent claims. So there are two kinds of tough risk and favorable loss experience are two things that are a little bit mutually exclusive, but you have to consider, both are considerations for underwriters when deciding the rate.

Lori asks, at what point does it make more sense to have an annual policy versus a per shipment coverage? Is there a total CI value or number of shipments that make the two options the same? So Lori, my best advice to you is, to just let's have the conversation and compare the two. There'll be a price tipping point, and for different commodities and different shipment volumes, that price tipping point will be different. So I don't want to throw out one blanket statement that's misleading. But as your business grows, you should be evaluating a transition into an annual policy if your shipment volumes are getting really significant. Additionally, if you're shipping across many different shippers, it's always really good to have consistency in the terms and conditions and the quality of the product. So that would be my advice to you.

So, I want to check how we're doing on time. We've got a few more minutes, maybe we can take one more question. Robbie, yes, we do offer marine insurance to other forwarders, and we can help you with that. And we've got some very interesting branded solutions for you, so please feel free to reach out.

Let's see. Okay, Kara asks, has a question on the Zim Kingston. So maybe Yasuko you can answer this? How long do you estimate delays on receiving an uninsured LCL?

Yasuko Kudo: Okay, so that's a good question. I, assuming you're talking about general average. Unfortunately, there's no estimate and we're not in position to provide that information, the best advice I can give to you is, contact the average adjuster and ask, and because it’s LCL there are many elements involved. So I mean, I'd be happy to help you, but I'm not sure it's a freak's polish. Cargo, I mean you can contact your freight forwarder and they could give you guidance.

Julie Zimmer: Great. Okay, see, I think I have covered the majority of questions here. Oh, okay, Malik asks, when working to try to acquire government contracts as a 3PLs, are there different processes or types of insurance that you should acquire? That's a really good question. And I personally don't have a ton of experience working with government contracts. Yasuko could you, are you familiar with this?

Yasuko Kudo: I'm not sure if there's anything different if you're dealing with a government versus a private entity. I don't think it shows requirements are different, but again I cannot give you advice unless I see the contract or the requirements. I mean, again, best suggestion I can give you is work with your insurance broker, have them review the contract or RFP requirements and they can definitely give you guidance.

Julie Zimmer: Yeah, to reiterate that, I think that answer is going to lie in the physical contract. Because I have worked with government entities outside the cargo space and each one of them does have different requirements, depending on the agency, the jurisdiction, etc. So, just to reiterate, reviewing those would be super important.

Alright, I think that does it for us today. Thank you so much for your time and your attention. Hopefully we've been able to provide you some help in navigating this difficult terrain. Please feel free to reach out to us, we’re available at insurance@flexport.com and we look forward to hearing from you. Please stay safe, and enjoy your holidays.

Yasuko Kudo: Thank you. Bye.