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Now more than ever, international shippers and the marine transportation companies that serve them need to tap into the expertise of their agents and insurers in order to match their insurance coverage with their growing potential for liability.

BY THE NUMBERS

-- Surging exports: With the low value of the dollar making U.S. products attractively priced for overseas buyers, exports are at historical highs. U.S. exports of goods and services totaled $1,649 billion for the 12 months ending in January 2008, an increase of 13.1 percent over the prior year, according to the latest U.S. Department of Commerce's International Trade Administration fact sheet. Exports are also growing as a share of the overall U.S. economy. In the fourth quarter of 2007, exports comprised 12.3 percent of the gross domestic product, compared to only 9.6 percent five years earlier, and 5.1 percent 40 years ago.

-- Jammed shipyards: 2007 was a record-setting year for orders to build new ships worldwide. Orders were placed for almost 250 million deadweight tons of new ship capacity--a 46 percent increase over 2006. While some analysts have begun to question whether the credit crunch will allow this growth to continue, today's shipyards have a three- to four-year backlog already, a very substantial cushion against the headwinds of the credit markets. In some cases, shipbuilding facilities still under construction and not even in operation yet have their hands full with future orders.

NOT JUST MORE, BUT DIFFERENT

The statistics above indicate the ocean marine industry is in expansion mode, and it is easy to understand how greater numbers of ships and larger amounts of cargo translate into more opportunities for things to go wrong. The statistics alone, however, do not illuminate how changing patterns of trade are also introducing greater risk.

The following are just a few examples of the trends that are making a difference in both exposure and liability:

-- U.S. trade is still import-dominated, with historical relationships and established trade routes very much at the forefront. However, the rise of exports introduces new levels of risk because of the unknowns involved in trading with new, untested partners and shipping goods over unfamiliar routes.

-- The types of cargo being exported from the United States are increasingly sophisticated and complex. For the most part, the United States is not shipping out raw materials but instead is selling finished products, such as high-tech goods and pharmaceuticals. These tend to have both higher values and sensitivity to loss per load, thus opening the way for larger losses.

-- The changing patterns of trade are replacing our traditional first-tier partners in Northern Europe with buyers in the robust, high-growth economies of India and China. New patterns of trade also reflect the expansion of opportunities in the Middle East, Africa and South America. These are often riskier environments--for both ocean marine operators and businesses shipping their goods--in terms of local conditions, transportation infrastructure, legal systems and business sophistication.

-- Even when cargoes are the same as in the past, today's pricing may mean a much larger value for a ship's load. For example, a tanker filled with crude represented a far smaller potential loss five years ago--before the run-up in the cost of oil--than it does today.

WHAT INSURERS BRING TO THE TABLE

Because of the changing dynamics of trade, yesterday's perfectly adequate insurance protection may no longer be good enough. By turning to their agent, marine operators and shippers can tap into a resource that can help them understand their exposure to an ever-increasing array of financial losses, and help to identify gaps in their current coverage and the solutions available.

That resource includes the proven expertise of insurers who have long experience in loss trends, and who have a vested interest in staying current with the implications of changing trade patterns from a liability perspective.

The insurance industry, through recent consolidations and growth, has several players who are now capable of offering multiline coverage, from hull to shipyard to cargo. The advantage? Integrated insurance products eliminate the finger-pointing and blame-shifting that can arise when a claim falls between the coverages of dueling insurers.

There is also increasing sophistication with respect to the delivery of insurance services. Customers today have access to easy claims filing and risk-control expertise online, 24/7. They can also expect to find coverage options that are customized to meet their needs. The days of a single type of policy on a "take-it-or-leave-it" basis are in the past.

IT ALL ADDS UP TO ADDRESSING RISK

The marine industry has never been busier and, with the rapid economic development of countries like China and India, there is no indication of a slowdown in the future. With robust growth, however, comes increased risk and potential for liability beyond the coverage that many ocean marine operators currently have in place.

As ocean marine operators and overseas shippers juggle the many priorities for meeting customer demands, they need to move insurance to the top of their list. By working closely with their agent, they can make sure they have the right coverage to protect both their current and future success.

RICH DESIMONE is president of Travelers Ocean Marine.

June 1, 2008

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