HONG KONG SNARL FINDS FEW INSUREDPosted On: Jul. 26, 1998 12:00 AM CST
HONG KONG-A massive cargo snarl at Hong Kong's Chek Lap Kok Airport is leaving many businesses with uninsured losses.
The computer problems that shut down freight operations at Hong Kong's new $20 billion airport earlier this month left cargo handlers and customs officials unable to process goods arriving or departing. Shipments of food rotted before local restaurants could claim them, and crates of clothing and other goods bound for the United States and other countries faced long delays.
Shipments were beginning to move in and out of the airport last week.
Hong Kong Air Cargo Terminal Ltd., the company that processes most of the freight that moves through the airport, lifted a 13-day embargo that had been placed on all shipments except perishables and urgent medical supplies. Asia Airfreight Terminal Co. Ltd., which deals with most of the remaining cargo, is handling only freight booked before the delays began.
Airport and cargo company officials have said normal operations probably will not be restored at least until late August. The airport is designed to handle 3 million tons of cargo annually.
Economic losses related to the cargo problems could reach more than $1 billion, the Hong Kong government has said.
The losses stem from spoiled perishables, extra expenses to ship cargo out of the country by other means, lost
profits and other problems related to the fiasco.
Insurance industry sources say it is likely that most of the losses are uninsured. Coverage for losses related to cargo delays is not widely available, and many Hong Kong businesses did not feel it was needed anyway. Hong Kong companies were counting on the new operation to be as efficient as cargo handling at the airport that was replaced.
"Kai Tak Airport was very efficient," and Hong Kong companies didn't worry much about long shipping delays, said a spokeswoman for the Hong Kong Federation of Insurers, an association of about 163 insurance companies. "So when (freight owners) buy insurance, they buy it for damage, not delay."
Most insurers don't write coverage for losses related to cargo delays because delays are frequent, she added, albeit on a much smaller scale than those that occurred at Chek Lap Kok.
While Hong Kong businesses are hardest hit by the cargo problems, companies in the United States and other countries are being hampered by delays, as clothing, furniture and other goods wait to be processed before they can leave Hong Kong. Some retailers currently are waiting for shipments of goods for the upcoming Christmas shopping season.
If businesses suffer financial losses because freight is late, they likely won't have coverage to make up those losses.
"I don't know that that would be covered, because there is no direct physical damage," said Robert B. Edgar, a consultant with Chubb & Son Inc. in Warren, N.J.
In the case of spoiled food, a policy might cover such a loss if it were specifically written for that peril, he said. Policyholders will have to take a close look at their policies, he added. "You would have to look at whether rotting or contamination is covered."
A spokeswoman for the public relations firm representing HACTL, one of the airport's cargo handlers, said the company would not comment on the problems "because they are too busy." The problems with HACTL's freight processing system caused cargo to begin backing up shortly after the airport opened on July 6.
Asia Airfreight Terminal Co., the other cargo handler, says it has insurance written to limits of $150 million for losses it suffers because of lost or damaged cargo. The coverage was placed in the United Kingdom by Sedgwick Ltd. in Hong Kong.
AAT as of last week had not filed claims against the coverage and was tracking some cargo that was missing, according to Debbie Hall, financial and administrative manager for the company.
She said less than 10% of the cargo handled by the company was unaccounted for as of last week.
While HACTL, AAT and shipping companies try to sort out the mess, it remains unclear exactly who is responsible and whether anyone's insurance will respond. The Hong Kong government has set up a task force to investigate the problem.
The problems began on opening day at the airport, when lengthy flight delays coincided with computer problems in the material handling system at the airport's cargo terminal.
See Sengwang, chief executive officer at AAT, said there were other reasons for the cargo problems. For example, airport ramp operators mistakenly moved some cargo marked for his company to HACTL's warehouse.
"Wrong and late deliveries have had an adverse effect on AAT's operations, which has meant AAT has had to clear a backlog, which in some cases was freight three to four days old," Mr. Sengwang said.
And, he added, AAT is short on experienced staffers, with new hires still learning on the job.
Cargo handling was further hampered by a shortage of dollies used to move crates, Mr. Sengwang said.
Ms. Hall said AAT had been forced to handle extra cargo when HACTL stopped handling freight. The burden strained its new material handling system, which was not "operating at 100% efficiency" because it had only recently been installed, she added.
Mr. Sengwang said, "Intermittent breakdowns had contributed to the handling problems at the warehouse." He expects AAT to be operating normally by the end of this month.
The HACTL spokeswoman did say that dust from construction at the airport played a part in the computer problems, but she would not give details on how it affected the system.
Ms. Hall of AAT said its system was unaffected by the dust.
Although the computer systems that failed were operated by the freight handlers, some say the government's Airport Authority should take the blame for the foul-up.
The Airport Authority did not respond to a faxed list of questions about the cargo problems. Its insurance broker, Sedgwick Ltd., said in a faxed response to questions that the broker is not authorized to speak on behalf of the Airport Authority or to release information on its insurance coverage.
Ms. Hall said the Airport Authority, which is responsible for the airport and its operations, should take responsibility for the cargo snafu.
"I think it's the airport," agreed Craig Holmes, a senior vp with J&H Marsh & McLennan in Charlotte, N.C., and an expert in business continuity and planning.
The Airport Authority is responsible for the actions of the cargo companies it licensed for the work, he added. "They are the ones who hired them."
And the computerized cargo handling system-even though it is not directly operated by the Airport Authority-is one of many functions that keep the facility running, he explained.
Meanwhile, cargo shippers were adding extra flights into and out of Hong Kong to help alleviate the congestion.
United Parcel Service of America Inc. added seven flights to handle shipments in and out of Hong Kong and reported that its operation at Chek Lap Kok was unaffected.
"We have self-handling rights," said a UPS spokesman. "The fact that we are not hooked into HACTL means we have had no problems."
UPS uses its own computers and employees to process shipments, enabling it to bypass the airport's cargo operation.
"We brought in the additional flights to meet demand," particularly for shipping apparel to retailers outside of Hong Kong, the UPS spokesman said. "Our phones have been ringing off the hook over there," he added, as businesses learned that UPS was able to move cargo.
DHL Worldwide Express said it added a flight and began processing shipments with its own employees and systems after the problems overwhelmed HACTL.
At least one U.S. company took steps to avoid problems at the new airport.
Dell Computer Corp. ships a small quantity of computer components from Hong Kong, and "we did foresee problems," a spokeswoman for the Austin, Texas-based company said.
Dell made alternative shipping arrangements that were used when the cargo began piling up at Chek Lap Kok; the computer maker has therefore been able to avoid any disruption, she said.
Businesses affected by the problems could have taken steps that might have saved them money and aggravation, pointed out Mr. Holmes of J&H Marsh & McLennan. He explained that companies have to "define who their critical suppliers are" and make arrangements to use a secondary source if, for some reason, products cannot be delivered. "Traditionally, people get single suppliers and don't worry about a backup," he said.
Mr. Edgar of Chubb agreed, saying, "Businesses are too blase about their planning approach. They don't direct enough time to it."
When losses do occur, many companies are surprised they don't have coverage, he said, because they failed to "take the time to distinguish what is covered under their insurance policies."