Solutions from Ship to Shore: The Rotterdam Rules and Freight Forwarders

1. Aldis Underwriting Managers Inc. Solutions from ship to shore

2. TheRotterdam Rules CIFFA AGM – 13 May 2009 Solutions from ship to shore

3. Armageddon? • Insurance prices going up • Crazy Limits • Bullied by the big guys • Untested law • Partners that don’t have a clue • Promises that can’t be kept……… YOU’VE BEEN HERE BEFORE

4. This Weeks News • Kuehne + Nagel has published its results for the first quarter of 2010 showing that it has returned to growth, • Panalpina saw strong volume growth in the first quarter of this year • Deutsche Post DHL, has published its first quarter results, showing a sustained improvement in its profitability as the economy rebounds.

5. Market Turner? • Piper Alpha was a North Sea Rig • An explosion and resulting fire destroyed it on July 6, 1988, killing 167 men, with only 59 survivors. • Total insured loss was about £1.7 billion (US$ 3.4 billion).

7. Deepwater Horizon Insurance, Reinsurance Markets to Play Key Role in Covering Oil Spill Related Claims in Gulf Solutions from ship to shore

8. Rates Going Up? • Insurance Cycles • Investment income • Cat Losses

9. Strength of Recent Hard Markets by NWP Growth 1975-78 1984-87 2000-03 Percent Net written premiums fell 0.7% in 2007 (first decline since 1943) by 2.0% in 2008, and 4.2% in 2009, the first 3-year decline since 1930-33 during the Great Depression. Expected decline of 1.6% in 2010. Shaded areas denote “hard market” periods. Sources: A.M. Best (historical and forecast), ISO, Insurance Information Institute. 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

10. A 100 Combined Ratio Isn’t What ItOnce Was: 90-95 is Where It’s At Now Combined Ratio / ROE Combined ratio of about 100 generated a 6% ROE in 2009, 10% in 2005 and16% in 1979 Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs * 2009/2008 figures are return on average statutory surplus. 2008 and 2009 figures exclude mortgage and financial guaranty insurers Source: Insurance Information Institute from A.M. Best and ISO data

11. ROE: P/C vs. All Industries 1987–2009:Q3* P/C profitability iscyclical and volatile Katrina, Rita, Wilma Sept. 11 Percent Hugo 4 Hurricanes Lowest CAT Losses in 15 Years Andrew Financial Crisis* Northridge * Excludes Mortgage & Financial Guarantee in 2008 and 2009 through Q3. Sources: ISO, Fortune; Insurance Information Institute. 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

12. Do freight forwarders fall within the definition of "maritime performing party" so……………….that they are subject to the Rotterdam Rules? • Freight forwarders play various roles in connection with the contract of carriage. The • Rotterdam Rules apply to some of these and not to others. The application of the • Rotterdam Rules is decided depending on how they are involved in a specific contract • of carriage. • If, for instance, a freight forwarder undertakes to carry the goods to its customer, it is a • carrier under the Rotterdam Rules. If a freight forwarder enters into a contract with a • sub-carrier in its own name, it is a shipper under the Rotterdam Rules. If a freight • forwarder enters into a contract with a carrier on behalf of a customer (as an agent), it is • not the carrier or the shipper under the Rotterdam Rules and is not liable as such. It is • also not a “maritime performing party” unless it performs or undertakes to perform any • of the carrier’s obligations during the period between the arrival of the goods at the port • of loading of a ship and their departure from the port of discharge of a ship, and, in • respect of freight forwarders acting as inland carriers, only if the services performed are • done exclusively within the port area. • When a freight forwarder provides services as a stevedore, for instance, one should be • careful which relationship one focuses on. As regards the contractual relationship • between the freight forwarders (acting as stevedores) and the carrier, the contractual • relationship is not affected by the Rotterdam Rules because they do not apply to the • contract between the carrier and the maritime performing party, unless that contract • satisfies the definition of “contract of carriage” (article 1(1)) (this is apparently not the • case here). As regards the forwarder’s relationship with the shipper or consignee, the • Rotterdam Rules make the carrier and the maritime performing party jointly liable • towards the shipper and consignee. The fact that the freight forwarder, acting as a • maritime performing party, is subject to the Rotterdam Rules would probably constitute • an advantage rather than a disadvantage, because it guarantees that the freight • forwarders enjoy defences including the short time-bar and the right of limitation of its • liability. At present, irrespective of the contractual terms, in cases where it may be sued • in tort, it would be liable without limitation. YES VERY OFTEN!

13. How many do you have?What Limits do you need? 15200 TEU @ Est. $35,000 each?

14. Cargo Limitation of Liability • Carrier remains entitled to limit its liability to a pre-set amount. • Does not apply to intentional damage or damage caused recklessly and with knowledge that such loss would probably occur. • Rotterdam increases the limits. • Hague-Visby: 2 SDR’s per kilogram or 666.67 SDR’s per package • Rotterdam: 3 SDR’s per kilogram or 875 SDR’s per package

15. Cargo Limitation of Liability Assume total loss of 20,000 Metric tonnes of cargo shipped in bulk. Hague-Visby: $ 68,800,000 NVOCC Rotterdam: $103,200,000 CN RAIL HTA You?

16. (BACK TO BACK)For How Much? 1 X 20 FT FCL STC 1000 pkgs video games WGT 10,000 kgs NVOCC / Rotterdam $1,505,000 HTA $44,100 CN Rail $20,000? Carmack $?

17. Volume Contracts Carrier & Shipper can have customized agreement and independently negotiated liability and compensation regime. ANY SHIPMENT! Volume Contract: Carriage of a specified quantity of goods in a series of shipments during an agreed period of time. The specification of the quantity many include a minimum, a maximum or a certain range. i.e. Not less than 100,000 M.T. of wheat and not more than 200,000 M.T. of wheat over a six month period.

18. Volume Contracts Walmart sets shipment arrival deadlines (Volume Contract) Lloyd’s List Roger Hailey - Friday 7 May 2010 At a time when slow steaming requires costly inventory to spend more time at sea, major shippers are looking to tighten their supply chains, writes Roger Hailey. In February, US retail giant Walmart, with an estimated 750,000 teu a year at its command, announced a four-day delivery window leading up to a must arrive by date.

19. Volume Contracts Will allow Carrier and Customer/Shipper to tailor shipping arrangements to own needs, preferences and pricing. Will effect pricing and insurance depending on how much risk each side prepared to bear.

20. Get your house in Order Now What do consider…. • Sub contractor relationships • Your overseas agents – What are they signing • Their insurance • Your insurance • Your Risk Partners

21. CARRIER REPRESENTS AND WARRANTS THAT IT • INSURANCE: CARRIER shall furnish BROKER with Certificate(s) of Insurance, or insurance policies providing thirty (30) days advance written notice of cancellation or termination, and unless otherwise agreed, subject to the following minimum limits • Is this insurance going to respond to your customers loss?

22. Is it Covered? Your Subs; Are they Covered? The words securely parked shall mean: i) Garaged in a locked and/or garaged building, or parked in a fully enclosed yard which is securely closed and locked, or under constant surveillance or on a lot which is guarded by a security guard at all times, AND ii) The truck has all it’s openings closed and securely locked and all keys removed, in so far as local regulations permit.

23. Is it Covered? Your Subs; Are they Covered? The word garments shall mean: All items of clothing including but not limiting to innerwear and outerwear, footwear, shoes, boots, gloves and hats.

24. Your Subs; Are they Covered? • The words unattended truck shall mean: • A truck which has been left without a responsible person whose duty is to drive, guard, or attend the truck being either on, in, or within ten (10) yards of the truck at all times. • The words critical violation(s) shall mean: • Driving while intoxicated (DWI), implied consent, any suspension of the drivers license for failure to submit to alcohol testing, • Driving under the influence (DUI), implied consent, any drug related violation or any suspension of the drivers license for failure to submit to drug testing. • That has/have occurred within the three (3) years prior to the inception date of this policy or to the date of the hire of the driver, whichever is the later.

25. Your Subs; Are they Covered? • EXCLUSIONS • The insurance shall not indemnify the Insured for: • i) Loss or damage to accounts, bills, debts, evidence of debt, letters of credit, passports, documents, railroad or other tickets, notes, money, securities, currency, bullion, precious stones, jewelry and/or other similar valuable articles, paintings, statuary and other works of art, manuscripts, mechanical drawings. • ii) Loss or damage to tobacco, cigars, cigarettes, pharmaceuticals, perfume, eau de toilette, non-ferrous metal in scrap and/or ingot form, furs, garments, electronics, all forms of alcohol intended for human consumption other than beer, seafood unless canned. • iii) Loss or damage to household goods and/or personal effects, when forming part of a residential move or office relocation.

26. Your Subs; Are they Covered? • Loss or damage to cargocarried in and/or on anunattended truckunless thetruck: • Has all its openings closed and securely locked AND • All keys removed AND • The theft was a result of forcible and/or violent entry of which there are visible signs. • Loss or damage tocargocarried in and/or on a trailer or semi-trailer, which is detached from apower unitunless such trailer or semi-trailer issecurely parked.

27. Your Subs; Are they Covered? CO-INSURANCE – The Underwriters shall not be liable for a greater portion of any loss or damage to the total cargo than the amount of the applicable insurance bears to the total value of all cargo at the time and place of the loss. = 50%

28. Your Subs; Are they Covered? • Coverage under this endorsement is contingent on the failure of the Motor Truck Cargo legal liability insurance policy(ies) of the subcontractor or respond to a claim because: • The policy(ies) has/have been avoided, cancelled or suspended without the knowledge of the Insured, • The policy(ies) is/are bogus or illegal, or • The insurer(s) of the policy(ies) is/are insolvent.

29. Your Subs; Are they Covered?

30. Your Subs; Are they Covered? The word electronics shall mean: All items of assembled consumer and commercial electrical appliances/equipment and unassembled electron components, including but not limited to; Radios, televisions, computers (including peripherals), consoles, computer and/or gaming software, hard drives, chips, microchips, printed circuit boards and their components, modems, monitors, cameras, facsimile machines, telephones (including cellular), pagers, photocopiers printers scanners batteries PDS’s, VCR’s, HI-FI’s or stereos (including speakers/components), compact discs, MP3’s, DVD’s minidisks, digital players and/or recorders. Batter operated or electrically operated toys with a unit value greater than USD 75 shall be deemed to be electronics. Heavy electrical items such as switchgear, turbines, and generators, or kitchen appliances such as washing machines, dishwashers, microwave ovens, toasters, and irons shall not be considered electronics.

31. 3PL Lately • For the xxx's Claims set forth in (ii) above, FF shall ensure that XXX obtains full compensation for XXX's Claim, whether from the carrier's insurer or otherwise, within sixty (60) days from the incident. • If XXX's Claim is not paid in its entirety to XXX within the applicable sixty (60)-day delay, FF shall pay XXX’s Claim on the sixty-first (61st) day, whether or not the claim has been accepted or not, partially or in its entirety, by the carrier or its insurer

32. So You Do What? • “I just got a new contract”! • “I am cross docking” Packing, Loading etc. • 5 Bays • I issue Bills of Lading • Declared Values • Electronics, computers, Shoes? • The trucker has insurance • “I need this claim paid..holding freight”

33. How do the winner’s do it? • Pay to their captive • Own own Broker • Sell Insurance • Get “back to back” contracts • Do not over expose your loss record! • Approve all contracts! • Get the right Risk Management Partners!

34. Insurance Exposure • We could see a regime where carriers offer 3 types of carriage: 1) Rotterdam Limitation – i.e. 3 SDR’s per kilo 2) No liability – A Volume Contract with no liability for damage. Freight rate less. 3) Full liability – A Contract where carrier takes the risk and builds it into the price. • Remember Delay

35. Delay • Carrier is liable for delay in delivery. • Delay occurs when the goods are not delivered within the time agreed. • Notice for delay must be given to carrier within 21 consecutive days of delivery. • Economic loss due to delay limited to 2 ½ times freight payable.

36. When Will We Have the Rotterdam Rules? • US? • Needs 20 countries to ratify it. It then takes one year from 20th country’s ratification to come into force. • Some estimates are 2013 – 2015. Don’t wait to be ahead of this curve!

37. MARINE INSURANCE: THE CANADIAN TRADE OPPORTUNITY

38. On the Life Cycle of Businesses: Go Darwin Most Businesses, Like Living Species, Eventually Become Extinct 99.5% of all living species to ever exist on Earth are now extinct; Changes in the natural environment (not external forces like humans) were responsible for almost all extinctions This means that despite millions of years of evolution and adaptation, virtually every species eventually confronts a change in its environment to which it cannot adapt It is the same in business; Wall Street models likely offer less assurance than millions of years of evolution Business Cycle Gives Rise to “Creative Destruction” Mass extinctions in business are common Economy is constantly reinventing itself New industries and businesses spring from the ashes of the previous generation, fill voids and occupy niches

39. Let’s Make Lemonaid • You Have Options: • Where cargo insurance is readily available, the choice will be based on economics. • Is it cheaper to buy a more expensive “no fault” (no subrogation) cargo insurance policy and pay a lower freight rate or • Pay a higher freight rate in addition to buying a cargo policy that has normal subrogation rights against the carrier and its maritime performing parties? • Back to Back? We got some work to do! • Where cargo insurance is not readily available or cost-prohibitive, the carrier, you take the spread and deal with your Liability underwriters. • “No subrogation” cargo insurance policy meaning an insurance policy • ONE RISK SOLUTION….SPREAD OF RISK / LAW OF AVERAGES

40. Thank you Jerry Giroux President Aldis Underwriting Managers Inc (647)-776-0585 Email: jgiroux@aldisunderwriting.com Web:  www.aldisunderwriting.com