Logistics: Bite-Size Insights - February 2022
Welcome to the latest edition of Logistics: Bite-Size Insights, where we explore the risks attached to the continued demands on warehouse space, areas to consider when storing foodstuffs, an update on the UK operator licensing regime and an overview of the current risks to shippers in the United Arab Emirates.
Is your warehouse fit for purpose?
In our August 2021 edition we considered the increase in demand for warehouse space and the risks to warehouse keepers and hauliers in providing those additional services. The demand for warehousing has continued to increase, with UKWA reporting that future demand is likely to be at least 29% higher than the levels seen in recent years. However, when supply cannot keep up with demand it is inevitable that such a challenging environment can lead to standards falling by the wayside.
Whilst it is often correct to say that the customer gets what they pay for, it is also true that insurance policies may not cover claims if warehouses are not fit for purpose – regardless of any negotiated rates.
Warehouse keepers may also want to check policies as to any exclusions for storing specialist cargos. There are many cargos which may appear simple to store - such as animal feed and grain - but if they are stored in large quantities, they can self-heat and cause serious fires. For example, a warehouse keeper may have purchased insurance to respond to claims presented by cargo owners, but that cover is likely to be subject to the warehouse keeper ensuring that a warehouse is adequately maintained throughout the life of the policy. This could include things such as maintaining fire sprinkler systems, drainage facilities, and equipment on site (such as electric forklift trucks).
With the demands on warehousing showing no signs of waning in the new future, insureds and insurers are advised to check that their cargos are being stored correctly and that adequate cover is provided. Insurers, if you are providing insurance for high risk products, are sufficient conditions and (if appropriate) exclusions in place? Insureds, does your policy provide cover for the storage of high risk products and, if so, are you complying with the required provisions?
Contact: Shaan Burton
Foodstuffs and policy conditions
Keeping to the theme of suitability of warehousing, there is an increasing amount of claims being presented where liability far exceeds the levels a warehouse keeper or haulier ever imagined. One of the main areas of concern is the storage and transport of foodstuffs.
Foodstuffs are a particularly vulnerable cargo and will need specialist warehousing. Bulk foodstuffs can be easily contaminated either by other goods or simply through improper storage (whether in a warehouse or in a vehicle).
This can give rise to claims both for the damage to the goods themselves and, potentially, additional liability to other parties.
It is important to check that the transport and storage of foodstuffs meets trade and safety guidance. Such standards will need to be maintained throughout the movement and storage of the goods. Policies may even include a condition that such standards are complied with, and evidenced, for cover to respond to any claims for damage. For example, there may be a liability to other parties involved in the consumption of the foodstuffs or even prosecution by local authorities.
Refrigerated goods cause considerable difficulties, not least due to the obligation to maintain the refrigeration equipment. It is not uncommon for policies to make it a condition that equipment should be maintained and records kept.
With warehouse space being in high demand, it is more likely that goods from a number of different customers will be stored in very close proximity to each other. However, this can cause issues where, for example, a particularly delicate foodstuff is stored next to a product that has a high level of scent. This can cause contamination and potential liability to a party that the warehouse keeper/haulier never envisaged when they stored the products next to each other.
It is now more important than ever for companies to check whether there are any specific terms within insurance policies for the transport or warehousing of particular goods.
Equally, insurers may want to check that the policy has adequate conditions attached for such high risk goods. With many companies fighting for warehouse space, they may be forced to go to a haulier/warehouse facility it wouldn’t ordinarily use. In turn, this could result in goods being stored in warehouses that are simply not suitable.
Contact: Shaan Burton
Changes to the UK operator licensing regime
Following the conclusion of the UK-EU negotiations and the signing of the Trade and Cooperation Agreement (the TCA), the UK has agreed to implement elements of the EU Mobility Package. To facilitate this, draft legislation - The Goods Vehicles (Licensing of Operators) (Amendment) Regulations 2022 – was introduced into parliament on 11 January 2022. The two main areas of change are:
- Posting of workers and some HGV operator licensing changes – applicable from February 2022.
- Operator licensing – applicable from May 2022.
From this month, changes to the requirements of HGV operators engaged in international operations regarding effective and stable establishment, good repute and competence will come into force.
There will also be changes relating to the posting of drivers. Generally, the term ‘posted worker’ means a worker who, for a limited period, carries out their work in the territory of an EU state other than the state in which they normally work.
In May 2022, the most significant change to the operator licensing regime is the expansion to include vehicles used for hire and reward that weigh more than 2.5 tonnes (up to 3.5 tonnes). This change will bring vehicles such as courier vans used internationally into the scope of operator licensing for the first time. These changes do not apply to light goods vehicles which are only used domestically within the UK.The changes relate to procedures specific to goods vehicle drivers in the context of commercial road transport provided for in the TCA.
Due to the fast moving nature of this area, hauliers are advised to keep a close eye on the relevant regulations and requirements, especially when considering international transport.
UAE shipping update
Throughout 2020 and 2021 the UAE shipping industry saw drastic falls in cargo shipments in the wake of restrictions imposed on imports by governments across the globe in response to the COVID-19 pandemic. However, 2022 has seen record numbers in the region’s cargo volumes, exemplified by the 45 million tonnes of cargo handled through Sovereign Wealth Fund owned Abu Dhabi Ports throughout the back end of 2021, a 50% increase on the previous year.
This, coupled with the gradual easing of global government restrictions on cargo imports indicates a welcome upturn in the fortunes of the UAE’s freight and logistics market, now forecast to benefit from a 5% increase by 2027.
The UAE continues to put its freight and logistics market at the forefront of its planning in striving for economic diversification, and in recognising the country’s strategic location between both the East and West, funding and development projects will see the already impressive logistics infrastructure and integrated transport system enhanced, ensuring the industry can meet increased demands as the world re-opens.
Geo-political conflicts continue to impact global shipping operations. As tensions rise across the Gulf with a spate of missile attacks on the UAE by Yemen based rebel military group, the Houthi movement, the UAE has stepped up its civil defence measures including those to protect vessels operating in UAE waters and surrounding ports.
The recent missile attacks come after a series of vessel hijackings by the Houthi group across the Red Sea, most recently against the Saudi chartered and UAE flag bearing cargo vessel, the ‘Rawabi’. Alongside ‘booby trapped’ vessels, sea mine deployments and port seizures, these increased acts of piracy in the Red Sea’s international waters indicate a strategic approach beyond purely military motivation, targeting vessels crossing transit lanes accounting for around two thirds of the world’s oil transport and vital pathways for international trade, leading to a heightened threat to shipping in the region.
In light of these increased risks, ports, warehouses and hauliers would be well advised to review their risk management and security measures and procedures and liaise with their insurers on scope of cover.