April 2011 | Commentary | Risks and Rewards

Avoid Big Losses When Shipping Big Machinery

Tags: Risk Management

Barry Tarnef is an assistant vice president, Chubb & Son, and a senior loss control specialist for Chubb Marine Underwriters, 908-903-2000

In their journey from manufacturer to customer, large pieces of sophisticated machinery often sustain costly damage due to lack of care and attention in packaging and handling. The losses, however, often go beyond the machinery’s value. Businesses can also suffer significant production shortfalls if their facilities grind to a halt as they wait for replacement machinery.

Some examples of recent transit losses include:

  • Textile machinery shipping from Germany to the United States was damaged when a driver transporting it in a container at an East Coast port attempted a quick U-turn. The machinery fell, resulting in a $1.8-million loss.
  • During bad weather in Asia, steel-forming machinery being transported from the United States to Korea broke loose in stow, causing a $900,000 loss.
  • Paper-making machinery fell from a truck during transit between Canada and the United States. The cargo was reportedly secured at the loading site, but the driver was supposed to add more chains shortly after leaving. The loss exceeded $200,000.

As these examples show, damage can occur at any point during shipment. Insurance underwriters and marine loss control specialists often focus on traditional marine perils when considering international machinery shipments, but this cargo is also at risk when being transferred from pier side to a staging area within the marine terminal.

Modern machinery can also be easily damaged. In the past, machines were virtually indestructible, but today’s machinery often contains sophisticated electronic components. Even apparently minor damage can result in a total loss if the original equipment manufacturers are unwilling to grant a warranty.

Preparing for the worst

Heavy machinery shippers can take the following steps to reduce handling and transportation risks:

  • Assign surveyors to assess risk. Many shippers do not use surveyors because the machinery’s value falls within the company’s insurance policy limits, and they can ship the cargo without notifying the underwriter. When the machinery’s value is greater than the policy limits, however, businesses are required to notify the underwriter, who will typically arrange for a surveyor to supervise the shipment. Survey costs average about $1,000 per day plus travel and expenses, but this expense can pay off by significantly reducing the risk.
  • Use military specifications as benchmarks. Military specifications are considered the gold standard in the shipping industry because they were designed to ensure all types of cargo arrive at their final destination in good condition and ready for use. Commercial standards are adequate for most shipments, but it may be worthwhile to upgrade for very sensitive or mission-critical equipment.
  • Outsource shipping services. Instead of attempting to handle machinery shipments themselves, companies should consider hiring experienced logistics professionals. Experience in packaging, handling, and shipping can make a significant difference in whether cargo is damaged in transit or arrives safely. Ask a prospective logistics partner if it has experience not only with the type of cargo you plan to ship, but also with the cargo’s destination.

Shipping large equipment to far-off locations takes skill and experience. While accidents may still happen, strategic planning can help ensure cargo arrives at its destination safely.