Writing Off Damaged Goods Costing Millions

November 14, 2007

Failure to investigate salvaging options in cases where large quantities of damaged goods are written off is costing the insurance industry millions of dollars annually.

A good example is the recent MSC Napoli shipwreck off the coast of England. The container ship suffered structural damage to its hull and was deliberately grounded near the beach to prevent it from sinking into deep water. The crew was rescued but more than 200 of the ship’s 2,323 containers went overboard estimated to be worth around $30 million.

Instead of just hiring a salvage company to do the beach clean up and subsequent disposal of everything, they could find a refurbishment consulting firm or facility to abate the enormity of the claim.

The driver of a truckload of red wine from Spain delivered to the Port of Los Angles earlier this year on its way to a distributor in Las Vegas encountered what are known as Santa Ana winds formed from a high pressure system over the Great Basin in Nevada and can approach hurricane force. This encounter caused the truck and trailer to tip over and spill the majority of the load. (I can personally confirm the force of the Santa Ana winds as I recently faced this phenomenon while driving the same route costing me $2,100 in sand blast damage to my auto as winds clocked at 108 mph.)

The adjuster believed the load was a total loss, filled out the appropriate paperwork and finished. However, had he known about some companies’ ability to salvage that load, his handling of the case may have differed. True, the majority of the load was fairly damaged, but some solutions were available.

Perhaps some of the cases packaging the wine bore the brunt of the accident as intended. If the wine bottles were salvageable they could have been separated out from the destroyed ones and moved to a warehouse. New wooden cases could be ordered from the winery along with new labels and a quality control forms. The salvaged bottles could be washed, inspected, re-labeled, packaged, stacked, shrink-wrapped and shipped to market. On what turned out to be a near million-dollar claim, I believe an estimated $250,000 could have been saved.

Other examples salvageable cargo include products damaged from leaking containers onboard ships or products stored in open-air warehouses overseas where weather gets them wet, moldy and mildewed.

Shipments may be mixed with other merchandise on containers that present strong, foul odors that may contaminate clients’ shipments. These items may also be salvageable.

Finding the right company to do any rework or salvage can be an arduous task. Very important considerations must be taken into account before proceeding.

How long have they been in business?

Do they understand and speak “Insurance”?

Can they turn to product around expediently?

Do they have a dedicated quality control expert or procedures in

Who do they do work for and have you heard of them?

Do they have a consultitative view of working with you, or are they just selling you?

No matter what procedures are put in place, risks remain. Mitigating that risk is a constant evolving process that anyone in the logistics business and those that insure them must tackle on a daily basis. And, regrettably, not all risk can be abated.


Michael Wardell is the Director of Business Development for Quality Corrections & Inspections, www.qualitycorrections.com.

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