Tank containers and the inland marine market

They’re more difficult to handle, but the cargo carriers are aware of the risks,” said Ben Armistead, chairman of Greenwich Transportation Underwriters (GTU) in Nashville, Tenn. “A lot of things can happen, so they’re a lot more careful about how they move and store them.”

Armistead, whose managing general agency handles truck coverage exclusively, was talking about tank containers — a hybrid storage vehicle for transporting liquids. He participated in putting together a “Guide to Cargo Carrying Conveyances-Tank Containers” prepared by the Inland Marine Underwriters Association’s (IMUA) Loss Control and Claims Committee. The study notes that tank containers were first built in the 1960s “as a cylindrical pressure vessel set within a framework that conformed to the ISO (International Standards Organization) 20 foot long x 8 foot wide x 8 feet 6 inches high footprint” — the standard cargo container size.

“The function of the steel frame is to support and protect the tank as well as facilitate stowage, securement and handling by standard ISO container equipment,” the IMUA continues. “Tank containers were developed for the carriage of all types of bulk liquid cargo including, but not limited to, food grade or ‘potable’ substances, non-hazardous and hazardous materials.”

Their carrying capacity varies, “based on volume and weight (also an issue for inland transit by rail or road) with the specific gravity of the particular cargo having the most impact. Most tank containers are designed to accommodate a maximum of 35,000 liters (9,246 U.S. gallons) although there are a few that can carry up to 37,000 liters (9,774 gallons).”

Nice niche

“They fit a nice niche,” explained Barry Tarneff, the Chubb Corp.’s loss prevention expert for transportation, who chaired the IMUA study. “Bulk [liquid] carriers are used for shipments of thousands of tons, but smaller quantities have to go into 55 gallon drums.” Using drums requires a great deal more handling, as well as increased risks when they are filled or emptied. “Tank containers are perfect for shipments of 20 to 40 tons,” Tarneff said. “You can usually get that into one or two containers. They are truly a ‘multi-modal’ means of transport.”

Regardless of the type of container used, it requires insurance, which falls under the category of “inland marine” that includes virtually all commercial transport over land, as opposed to maritime (ocean) transport. While inland marine also covers shipments carried by barges, planes and trains, the most important sector in the U.S. and many other countries is trucks — from the giant big rigs that crisscross the Interstates to simple delivery vans. They don’t move unless they’re insured, which puts both retail and wholesale agents, along with the carriers, in a strategic position.

“Truck insurance is basically first party coverage and third party legal liability coverage,” Armistead explained. “You cover the truck and the driver, and what the driver does with that truck.

“From a motor truck cargo insurance perspective, when the truck carries goods that have been given into their ‘care, custody and control’ under the terms of the bill of lading, tariff or contract, you cover the legal liability for those risks of loss subject to the terms, conditions and exclusions under that policy.”

Coverage concerns

Tank containers also present additional coverage concerns.

To start with the workers’ compensation requirements are different. In addition “they’re a higher risk on the cargo side,” Armistead said. “There are more concerns and coverage issues in tandem with exposures for pollution claims and debris removal. The better inland marine insurers cover this loss, but on a sub limit basis, as loss is not precluded under the commercial auto policy.”

He also pointed out that “while terrorism coverage doesn’t often sell with most commercial truckers,” it is a concern for both agents and insurance companies, as well as the shippers of liquid cargoes. Tank containers are often used to carry flammable and/or explosive liquids. Many claims, therefore can involve a total loss of both the truck and the cargo.

Mis-delivery and contamination

Armistead also described the problems of mis-delivery and the risk that a previous cargo could contaminate the next shipment, if the tank hasn’t been properly cleaned.

“The total losses are greater and the damages are frequently more severe,” Armistead said. “But in general they [tank container carriers] have lower loss ratios due to a much lower frequency of loss; it’s a better performing class of business [than the general truck coverage market]. The carriers are more vigilant, and take greater care in handling tank containers.”

They may be useful, but they’re also expensive, which perhaps explains why the U.S. market is relatively small. The IMUA report noted that “container manufacturers expected to build about 2,900 new tank containers in 2006 with an estimated aggregate price of $63 million or roughly $22,000 per unit.”

As a result first party coverage costs more, as not only are the truck and driver at risk, but also an expensive piece of equipment. This factor contravenes the overall inland marine market, which is “very commodity driven with little differentiation between insurance carrier and coverage,” Armistead said. “We try and differentiate ourselves and our partner insurance carriers by matching the carrier to the risk. We do only trucking insurance, so we try to be very innovative when it comes to anything to do with transportation.” This starts with identifying the “special cases.”

The motor truck market in the U.S. is huge, with some very major players — AIG, Zurich, XL, Firemen’s Fund, Chubb and others — heavily committed. “Most of these carriers work directly with the retail agents, and in their eyes, covering tank containers is still very much a niche market,” he said.

They may pay more attention to tank container coverage in the future, as they are becoming better known.

Homeland Security

“The Department of Homeland Security will be taking a greater interest in the type of cargo being transported, and what can happen to it from a terrorism point of view,” Armistead said. “That presents a different risk from a cargo insurance perspective as well.”

Tarneff also explained that studies like the one on tank containers are one of the IMUA’s main functions, i.e., to identify new methods and innovations in transport. They not only fill a niche, but may also be part of a larger trend. “Companies are increasingly committed to holding less and less inventory,” he explained. “If they can receive a shipment, and send it out to their customers immediately, it greatly reduces their inventory costs.” Tank containers offer a relatively simple solution that fits those requirements.

The fact that they are truly “multi-modal” — they can be loaded, carried and stored in much the same way as any cargo container — is part of their attraction. But they do present the additional problem of being a liquids’ container.

They must be cleaned thoroughly after each use to avoid contaminating the next shipment. Valves and fittings also have to be cleaned, checked and repaired, if necessary. The tanks frequently incorporate heating elements — electrical or steam — which further complicates maintenance by adding a new system that needs to be checked. As they are usually made of carbon rather than stainless steel to reduce costs, they have to be sandblasted periodically to eliminate rust. These specificities have consequences when it comes to coverage.

Armistead offered some advice: “For truckers hauling tank containers, please make sure you deal with a seasoned professional who understands the class of business.”