Issue link: http://read.dmtmag.com/i/491350
STiR tea & coffee industry international 63 Insurance issues Coffee is typically warehoused near water. In the southern states that means exposure to hurricanes. Massive storms like Katrina that wreaked havoc in New Orleans and this year's post-tropical storm Sandy led to significant losses and "grumbling in the industry as to who was at risk." In August 2005 there were 1.6 million bags of coffee stored in New Orleans ware- houses, a sixth of the U.S. supply. Procter & Gamble's Gentilly Plant suffered $10 mil- lion in damage. Fortunately most of the inventory was spared but the scare led to the expansion of Houston warehouse space at the expense of New Orleans. Insurers bore $48.7 billion of the $148 billion in losses from Katrina (in 2012 dollars). Superstorm Sandy caused $71 billion in damage of which $22 billion was insured, according to the New York Times. "Big catastrophic losses are where we have problems," observes Brett Anderhub, senior vice president at Rekerdres & Sons with more than 20 years of experience in global commodity insurance. During Sandy, water damage burst the lowest bag on pal- lets warehoused in the flood zone. This caused the sacks to give way spilling the entire pallet and greatly increasing loss. Warehouses are generally well run. Once the coffee arrives "they do a good job preventing losses," said Anderhub. But only $500,000 in legal liability insurance is mandated so, unless roasters could prove warehouses liable for the loss roasters that did not carry their own insurance could have suffered their own financial loss. "People really need to review the underlying rules that govern the trade," he ad- vises. Understanding the Green Coffee Association's standard contract and practices recommended by the Intercontinental Exchange (ICE) are an important first step in managing risk, he said. The contract identifies five positions of transfer: shipment, afloat, arrival, delivery and spot. Cargo insurance can be written to provide coverage from supplier to roaster if requested. Parties can agree to their own terms outside the contract but they should put this in writing, he said. The International Trade Centre notes that there are fewer insurance claims on cof- fee shipped in bulk. "Shipping in bulk avoids most of the problems associated with bagged cargo: no baggy smells, no weight losses due to handling, and generally better preservation of quality. When correct liners and procedures are used, and the coffee is shipped at the correct moisture content, there are far fewer claims on coffee shipped in bulk than there are on coffee shipped in bags - according to some, claims are reduced by up to two-thirds." Risks in transit from loss or damage are inherent but buyers also need protec- tion within the seemingly secure confines of the warehouse. Risk factors include flooding, fire, lightning, explosion, theft, burglary and embezzlement. Others are deterioration due to excessive moisture content, prolonged storage or infestation (but not all of these latter types of risk are insurable). The buildings themselves can pose risk if roofs are not tight, drain- age pipes are blocked, ventilation is inad- equate or the walls and floor are of poor quality. The area in which the warehouse is located may pose risks if neighboring buildings are used to store or produce hazardous or smelly goods. Clients differ in their appetite for risk. Think of insurance as a means to fund your loss, he said. "Once you find a good insurance broker, be up front and trans- parent as possible," said Anderhub. The biggest challenge is identifying exposure and settling gray-area claims, according to Anderhub who has a post graduate diploma in marine insurance. "You are at risk every time you release goods before the check has cleared." Looking ahead The biggest advances in supply chain ef- ficiency are due to partnerships between origin, importers and their warehousing partners. "Relaying accurate feedback to ori- gin on how they can affect the long-term storage of products is key," according to Presnell. Ultimately a combination of good communication and technology that as- sists in real-time inventory, as well as safe and efficient transportation, ensures the best outcome, he said. Paris Brothers Warehouse in Kansas City, Mo., is located deep underground in limestone caves where conditions are easily controlled. Defining the Future of Cargo Insurance Since 1953. 13760 Noel Road, Suite 860 Dallas, Texas 75240 214.520.2345 • www.reksons.com Rekerdres & Sons Insurance Agency's experience with marine insurance allows us to stay ahead of the ever-changing rules and threats facing commodities merchants around the world. Our expertise allows us to tailor policies to your specific needs and cover cargo from interior origins, via any conveyance until delivery and buyer take-up at final destination. We there for you, every step of the way. No matter where you ship your cargo, we there to cover you.