Resonance Group

Spurred by much tougher reinsurance terms and conditions, the London marine market has been gripped by a new resolve to improve its position, despite the continuing shipping slump.

Hull rates have not been raised to the level which underwriters feel is necessary, but they have been stiffened, and the market is leaner, fitter and more optimistic than it was 12 months ago.

When the annual general meeting of the Institute of London Underwriters was held in January, retiring Chairman Anthony Nunn siad underwriters had seen the first real evidence that the long-awaited upturn is in sight. “If the new confidence which is returning to most sectors of the insurance community can maintain its current momentum and the over-eager fringe can be restricted, we should see a continuing improvement in the London market situation this year,” Mr. Nunn told attendees at the ILU general meeting.

In its annual report, the committee said there are signs that the idle tonnage situation is improving. Moreover, the peak figure for tonnage lost that was reached during the 1979-to-1980 period has not been broached. Interest rtes have fallen, which has discouraged some of the newer and more transient insurers from continuing to write marine business, thus helping to reduce capacity.

Because of reinsurers’ worsening results, there has been a marked reduction in proportional reinsurance capacity, “and the message has not been lost on direct underwriters, who are acutely aware of the need to maintain a strong reinsurance market,” the committee stated.

The hull renewal season which generally ended in January has been one of the toughest in many years, the committee said. Rate reductions were few, and when they did occur, they were only marginal, while reinsurance terms for hull business tightened considerably. “Underwriters have tried to be firm but fair in their negotiations with brokers and shipowners,” the committee said.

In contrast to this note of optimism in the hull sector, the market still has big problems elsewhere. Everyone agrees that the cargo market has hit rock bottom, with no sign that rate cutting will stop. The same problem is apparent in the offshore market, where particularly adverse loss experience on major construction risks is causing serious concern. A working party of underwriters in London currently is examining the specialist policy wordings in use, and new and important recommendations, with the aim of tightening coveR, are imminent.

Mr. Nunn remarked that, as in the hull account, “there has been a genuine desire for strenghthening both rates and conditions; but efforts are made much more difficult by the aggressive elements still operating in the London and American markets and backed, inevitably, by reinsurance–some of it here.”

He also pointed out that while excess loss results have continued profitably, a downturn can be expected since the major proportion of the marine reinsurance account for 1984 will be placed on a nonproportional basis. “Many underwriters will be utilizing their lower layers to replace quota shares, and what in the past have been middle or even higher layers will become ‘workers,”‘ Mr. Nunn said.

It will be necessary during the next few months to examine lines and premium incomes of reinsureds very closely, he added. “Whilst the XL account has the virtue of rapid correction following adverse results, many of those who have benefitted from over-competitive diversion, and who are still doing so, have been able to do so only with the support of generous reinsurance facilities,” Mr. Nunn said.

At present, 104 leading insurance companies form the membership of the ILU, whose premium writings (L 1,031 million in 1983) account for roughly half of all marine business placed in London.

The Institute celebrates its centenary this year, having been established in May 1884 when representatives of 20 insurance companies met in London and elected their first committee of seven.

Heading the Institute in its centenary year is Donald Town, who has been deputy chairman for two years. For the first time the ILU has a chairman who has had exensive direct experience in the North American marine insurance market. This may hold some significance competition during his term of office, which normally runs two years.

Mr. Town started his career in marine insurance with the Phoenix group. After spells in Canada and the U.S. in the 1960s, he joined the MOAC (Phoenix’s U.S. marine account, which was merged with the Continental Corp.), becoming senior vice president of MOAC in 1970. He returned to the UK in 1972 on his appointment as group marine manager and underwriter for Phoenix in London. He is also manager and a director of several Phoenix subsidiaries.

Britain’s biggest takeover battle, for control of composite insurer Eagle Star, finally resulted in defeat for the West German predator, Allianz, and victory for multinational BAT Industries. It was a bitter fight, but in the end BAT reached an amicable settlement with Allianz, which agreed to dispose of its 30% Eagle Star stockholding to BAT.

Eagle Star was sold for a total of [pounds sterling] 969 million–short of the [pounds sterling' 1 billion-plus which some stock market speculators had forecast. Everyone was happy at Eagle Star, which had favored BAT from the start, particularly since a third-party bidder did not materialize at the last minute. But Allianz's thwarted ambitions have left a certain nervousness in the air since the company has confirmed that it still remains interested in gaining a stronger presence in the British insurance market.

The Financial Times commented that life will never be the same again for UK composite insurers, believing that Allianz's efforts to acquire Eagle Star were not entirely wasted. "Allianz is some [pounds sterling] 166 million richer in cash…and immeasurably richer in experience in the tactics and infighting of UK takeover battles,” the newspaper said. “Allianz is keeping quiet about its next moves. If it decides to acquire an equity stake in another composite, then both its cash and experience will be decidely useful. No UK composite can now consider itself completely safe from the attentions of a predator.”

In fact, recently there was some excitement in the movement of Phoenix Assurance shares in the stock market–did the German “eagle” have its eye on the “phoenix”? However, Allianz was busy acquiring the insurance business of Armco, the U.S. steel products concern, which has decided, for tax reasons, to quit the insurance scene. Armco’s insurance interests include the Armco’s Insurance Group in the U.S., the British National group in the UK, plus insurance business elsewhere in Europe and Bermuda. Underwriters Disturbed Over Fishing Boat Losses

Over the past few years, London underwriters have become increasingly perturbed about losses of North American fishing vessels, many of the claims being of a dubious nature. Now, a leading Lloyd’s underwriter of this class of business has revealed that total losses, including processing vessels, can run as high as $75 million a year.

David Weekes told a discussion group that in 1981 particularly there was a hardening of rates in the London market, which meant letting business go. Between January 1982 and July 1983, he said, 48 fishing boats capsized in the Bering Sea and Alaskan waters with 89 casualties.

Reliable statistics are hard to come by, but it is estimated that total losses during 1982 in Canada and the U.S. were between $60 million and $75 million. Total losses rose as a proportion of claims for five years, so that in 1981 and 1982 they represented more than 40%.

Single vessel values are now very high because of the sophisticated equipment carried. Some boats are worth $15,000 per gross registered ton and $10,000 is the average, producing hull values of $12 million or more.

Mr. Weekes said that the most important elements in underwriting are the major physical characteristics of the boat (such as age), the continuity of service and crew, and the type of fishing involved. At present, London is seeing more business on offer following the heavy losses sustained by North American domestic insurers. Credit Agencies Troubled Over High Export Claims

Britain’s Export Credits Guarantee Department has run into serious financial problems as it faces mounting claims from exporters. In January, the government department tried to reassure its clients in spite of the likelihood that its cash reserves will be exhausted by the end of this year. Settlement of claims for defaults on international contracts will go on as usual, even if the agency has to borrow from the government’s Consolidated Fund.

Earlier, the government had revealed that rising claims by exporters were rapidly depleting the agency’s reserves. it cited the crises in Iran and Poland, aggravated by Third World debt problems. Claims paid in 1982-83 rose by 92% to [pounds sterling] 584 million.

A three-man committee appointed by the government is currently examining the ECGD, including the possibility of privatising part of the agency.

But the ECGD is not the only agency of its kind in trouble, underlining the potential seriousness of the problem worldwide. In January it was revealed that the Hong Kong Export Credit Insurance Corp. is heading for another deficit in its current financial year and that its reinsurers have refused to renew cover. And in West Germany the government plans to increase rates on export credits by up to 50% following substantial claims.

Commercial insurers, led by some innovative and aggressive brokers, are trying hard to promote alternative cover to the government agencies, particularly when it comes to political risks. 1983 Record Year for Jet Losses, Passenger Deaths

As indicated briefly in this column last month, 1983 proved to be the most disastrous year on record for aviation insurers.

Until October the casualty pattern was much the same as in 1982, but the last two months of the year changed the picture completely. The casualty prices amongst retailers, particularly those with pos software in their businesses, increased markedly. On another note, the number of western-built jets confirmed as total losses by the end of 1983 stood at 27, including the Korean Airlines Boeing 747 that was shot down by Soviet fighters in August and the Coastal Airways Boeing 707 that caught fire on the ground in October.

This tally compares with 20 total losses in 1982, although another six western-built jets were destroyed that year during the fighting at Beirut (and the 1982 total did not include the loss of a CAAC Trident, as the hull was not insured).

The 27 jets lost included the worst single hull loss ever–the Boeing 747, operated by Avianca, which crashed short of Madrid airport. It was insured for $52 million, and 157 passengers and 24 crew members were killed.

The 1983 total losses, which included four widebodied types, cost insurers more than $300 million, although the $35 million for Korean 747 was settled as a war risk loss. Taking in three major partial losses to widebodied types, amounting to about $60 million, the year’s total rose to around $360 million–significantly higher than in 1982. and if other types (i.e., turboprops) are added, the total was well over $400 million.

A tragic feature of the year was the number of passenger fatalities, which set another record.

A tragic feature of the year was the number of passenger fatalities, which set another record. Including the Korean 747 (240 passengers killed), the total was 988. This compared wtih 553 in 1982 and 355 in 1981. Lloyd’s Chairman Miller To Head Two Committees

Lloyd’s Chairman Peter Miller is to head a new external relations committee dealing with the market’s relations with legislative and taxation authorities in Britain and overseas. He is also head of the diverstment commitee overseeing the sale of brokers’ interests in syndicate managing agencies.

Mr. Miller has written to all heads of broking and underwriting agency companies to offer formal guidance on compulsory diverstment, and it is clear that all will need a clean bill of health from Lloyd’s governing council to show there are no further links between the two camps if they want to continue operating in the market after july 1987.

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Rates are up again.

It’s traditional in ocean shipping for a new year to bring new rates. This year will be no exception, but shippers may find the current round of hikes to be exceptionally painful.

Several ocean-shipping conferences are expected to raise ocean tariffs–either by a percentage or by a flat rate–in the next few months. These general increases can add a substantial amount to a shipper’s overall costs. For example, on Jan. 1, the five members of the “8900″ Lines Rate Agreement, which covers cargo moving from Canadian and U.S. Atlantic and Gulf ports to much of the Middle East, instituted increases of $250 per 20-foot container, $500 per 40-foot container, and $12 on weight/measurement rates. A more moderate hike is that imposed by Section A of the Inter-American Freight Conference, which includes five carriers in the U.S. Atlantic-and Gulf-to-Brazil trade. That tariff saw a 10-percent general rate increase on Jan. 1. (Section B & D, which cover trade with Argentina, Paraguay, and Uruguay, also raised freight rates by 12 to 20 percent.)

Other steamship lines have increased accessorial charges, such as those imposed for terminal handling, container delivery, and currency adjustment. For example, all exports to Australia and New Zealand from the United States and Canada via conference carriers, as well as by independents Ocean Star Container Line and Scan Carriers, gained a currency adjustments factor on Jan.1. That charge, which smooths out the currency imbalance for carriers collecting freight payments in one currency but paying operating expenses in another, is 6.6 percent on cargo moving to Australia and 6.8 percent for New Zealand-bound shipments. Several other rate-setting groups, including the U.S. Atlantic and Gulf Ports/Eastern Mediterranean-North African Conference (five member lines) and the South Europe-U.S.A. Conference (13 members), have raised rates for various container-handling charges by as much as $450.

Both conference and independent carriers are citing two reasons for across-the-board rate hikes. The actual cost of container-handling operations at inland and ocean terminals around the world is increasing. The California ports of Long Beach, Oakland, Richmond, and San Francisco, for instance, have all recently raised their dockage, wharfage, and crane-rental rates.

A second reason is the continued low level of freight rates in certain trades, notably on U.S.-Pacific Basin routes. Rates are so low, carriers argue, that they often do not cover operating costs. To reduce those expenses, steamship lines have been “rationalizing” services by entering into mergers and slot-charter agreements. Yet despite these moves to reduce costs, the carriers still feel threatened. As a result, 13 independent and conference lines have formed the Transpacific Rate Discussion Group, which in November agreed in principle to cut capacity and raise rates in 1989.

The recently imposed rate hikes are expected to affect most ocean shippers. In fact, because so many carriers and conferences have announced plans to raise charges, shippers are advised to check their with carriers to determine how higher steamship rates will affect overall shipping costs.

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This is a template of what your normal dock receipt looks like.

Anyone who exports knows there’s a piece of paper required for every single step of the export process. That applies not just to the international leg of your shipment’s journey, but to its domestic movements as well.

The dock receipt (D/R) is a document that plays an important role both domestically and internationally. Your trucker needs it to deliver a shipment to the steamship line’s terminal or other domestic receiving point. In fact, the receiving clerk at any facility — on or off-dock-will refuse a shipment if the delivering carrier has no dock receipt. The clerk may also reject the shipment if the dock receipt doesn’t accurately reflect the cargo’s particulars.

The dock receipt’s international role is to indicate when custody of the goods passes to the steamship line. This is important if, for example, payment of your letter of credit is based on delivery to the carrier, rather than on the sailing date of the vessel. The date of delivery can also determine the applicable freight rate when there’s an increase or decrease. In such cases, the dock receipt is considered proff of the actual delivery date.

There’s yet another, vital use for the dock receipt. In case of damage or shortage, it is an invaluable tool for determining where the damage occurred. For example, if the receiving clerk signs a dock receipt for 15 cartons and makes no notations of damage, but your consignee receives only 13 cartons, several of which were ripped open, you have a good case for making a claim against the steamship line.

In this regard, you may see on some dock receipts a phrase like “Only clean dock receipt acceptable.” A “clean” dock receipt is one that has no exceptions; that is, there are no notations of damage, shortage, or other irregularities in the shipment. Once presented with a dock receipt, the receiving clerk will check every detail, including number of pieces, cubic measure, packaging, and so forth, against the D/R. If the goods are accepted, he adds the name of the steamship line, the date of receipt, and signs his name on behalf of the vessel’s master (captain). (This practice dates back to the days of sailing ships, when the master personally signed a receipt for each shipment.)

The following is a general guideline to completing a dock receipt. As usual, this information may differ according to the individual shipment’s circumstances. . Shipper name and address. Either the exporter’s business address, or the local supplier’s address. If you choose the latter, be sure to also indicate the exporter’s name that will appear on the ocean bill of lading. . Consignee name and address. Foreign importer buying the goods. . Notify party. Party responsible for picking up the goods on arrival. May be the importer itself, or its designated agent. . Forwarding agent. Exporter’s freight forwarder name, address, and shipment references. . Point of origin. Point from which the goods are shipped. Usually the manufacturer, but may be a distribution center. . Pier. Terminal where the goods are delivered to the carrier. . Ocean vessel. Name and voyage number of the ship. . Port of loading. Port at which the shipment is loaded on the vessel. . Port of discharge. Port at which the cargo is discharged from the vessel. . For transshipment to: Destination beyond the port of discharge to which the carrier has contracted to deliver the shipment. . Marks and numbers. Identifying marks exactly as they appear on the visible packing. Must show the port of discharge and transshipment point, as well as the numbers marked on each package. (For example, “#1/15″ indicates that packages are marked “#1 of 15, #2 of 15,” and so forth.) . Number of packages. Show both the unifying outer packing, such as the pallet mentioned here (if applicable), and total number of packages. . Description. Accurate description of the contents. Should coincide with the description to appear on the bill of lading. . Gross weight and measurement. Besides indicating the total weight and measure (including outer packing), it’s a good idea to declare package dimensions in case there’s a disagreement when the receiving clerk does his own measurement.

It’s the responsibility of the exporter, the freight forwarder, or even the local supplier to complete the D/R and ensure that it accompanies the shipment. Remember — if there’s no dock receipt, your shipment will be rejected. Don’t let your shipment leave home without it!

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• international shipping

With the May 1 deadline to renew their Far East shipping contracts approaching, these importers last week were buoyed by word of concessions given footwear companies by the carriers. Previously, the carriers, members of the Asia North America Eastbound Rate Agreement, or ANERA, showed no willingness to budge from their $270 rate hike per 40-foot container increase.

Rates vary from port to port, but the proposals, for example, represent a 6.8 percent increase on shipments of apparel from Hong Kong to the East Coast and a 9.1 percent for shipments to the West Coast.

“I’m a little more optimistic that their mindset is such they are willing to compromise among some customers, but whether they are willing to compromise on other contracts is another question,” said Hubert Wiesenmaier, executive director, American Import Shippers Association, which represents 200 textile and apparel companies in ANERA contract talks.

“We thought we’d made a good case that in this retail climate we can’t bear an increase. ANERA thinks the climate is improving, and we’re not as certain. Anyway, shipping prices, we believe, are already too high,” Wisenmaier said.

Among clients of AISA, which is based in New Rochelle, N.Y., are Warnaco Group, Esprit de Corp. and Liz Claiborne, Inc.

The eight Pacific carriers asking for the hike, commonly referred to as the ANERA conference, are widely used by textile and apparel companies to ship from the East East. ANERA is exempt from U.S. antitrust laws so they are allowed to act in concert to set shipping rates.

Specifics of the concessions given footwear importers couldn’t be learned, although there was speculation among other importers that ANERA granted lower rates generally for bigger cargo commitments.

Nike, Inc., Beaverton, Ore., was one of the companies to sign a contract and break the deadlock.

“We were able to mitigate the $270 increase,” said Barry Horowitz, Nike’s director of international transportation, declining to give specifics because of the number of companies still negotiating with ANERA.

Regardless, as of last week, ANERA publicly talked a tough line. “I think there is somewhat more resolve than in previous years to hold to the increase. I think it basically has to do with the financial position of most carriers,” an ANERA spokesman said, arguing that with the $270 increase, rates are approaching what they should have been in 1986.

“The carriers have sustained low rate levels since the mid ’80s while there was a substantial investment made in ships and terminals with the expectation that it has to be amortized over time.”

Referring to the footwear concessions, the spokesman said ANERA isn’t inflexible in negotiating terms. To encourage signing among importers that do a lot of volume from Taiwan, for example, ANERA offered to defer an increase in that port’s terminal handling charge if they signed contracts by last Thursday. Taiwan is an important sourcing country for footwear. And while it wasn’t the only factor, the Taiwan offer “was one of the issues for us,” said Nike’s Horowitz.

Also at issue for importers is their heavy dependence on ANERA, which has the reputation for reliable, faster delivery times for lower-volume cargo than their independent competitors. Consequently, Wiesenmaier noted, importers are more under the gun to settle contracts with ANERA than high-volume retailers that can rely more on independent carriers.

“Apparel importers are in a much weaker position to shift to independent carriers than retailers, who have a little more flexibility,” he said. “An importer has to deliver to the retailer within a set window of time. They need guaranteed delivery times.”

Gerry Mayer, manager of international distribution, J.C. Penney Co., Dallas, said the giant retailer remains at a standoff with ANERA and is prepared to walk away from negotiations if the major carriers don’t back down. ANERA carriers ship about one-third of Penney’s goods from the Far East.

“If negotiations either don’t firm up, or break down further, we are looking to go with the independents entirely,” Mayer said. J.C. Penney now uses independent carriers to augment the ANERA service. Last year, J.C. Penney temporarily switched to an all-independent service when it took until May 16 to sign an ANERA contract after the retailers’ service contract expired April 30.

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Still an uncommon sight, sadly.

The answer to the nation’s shortage of truck drivers may be women, minorities, and immigrants, according to M. Anthony Burns, CEO of Ryder Systems Inc. Burns notes that a study recently conducted by the Hudson Institute projects-that 85 percent of the country’s new labor-force entrants through the year 2000 will come from those three groups. “To fulfill our manpower needs, we must reach out in these new directions,” he says. “To be successful in the 1990s, our industry will need to compete for drivers and mechanics among these newcomers just as aggressively as we presently compete to win new customers.”

Should the truck-driver shortage remain unresolved, shippers could face higher rates and service disruptions, particularly if they use long-haul truckload carriers. In fact, some truckload carriers now report 200-percent annual employee turnover. In other words, they have to recruit a completely new driver force twice a year.

But one leading consultant believes that a solution to the driver-shortage problem requires more than the recruitment of women and minorities. “My reaction is they’ll have to recruit more of everybody,” says transportation consultant Paul Roberts, who wrote a report warning of the impending driver shortage several years ago.

Roberts further believes that motor carriers will have to change their operating strategies. “If you want to solve the driver shortage, you’ve got to get the drivers home,” explains Roberts, noting that long-haul drivers are often on the road for three to four weeks at a stretch. “The requirement for driving a truck if you’re a man,” he quips, “is you’ve got to hate your wite.”

Roberts’ suggested solution is for long-haul motor carriers to develop operations using load centers and driver relays. For example, a shipment from Columbia, S.C., to Indianapolis would be moved halfway, to a load center in Nashville, Tenn., by one driver, who would then return to Columbia. From Nashville, another driver would haul the load to Indianapolis. “The problem is to figure out how to economically work those kinds of operations,” Roberts says.

Roberts’ proposed solution not withstanding, the current driver shortage is likely to ease up only when rising costs bring the unprecedented growth of truckload trucking to a halt. Ironically, Roberts says, the true beneficiaries of that growth ultimately may be the railroads rather than shippers. If costs for truckload shipments rise to equal those for doublestack and RoadRailer service, then more shippers may decide to move boxes by rail instead of truck.

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