Recent developments in the marine industry have made operating in the market quite challenging, particularly in terms of remaining profitable and able to provide efficient, uninterrupted services. Risks in the market – such as the increase in COVID-19 cases for workers in ports and disruption in transportation – continue to display how businesses in the sector have to navigate around complex supply chain issues.
Grappling With Geopolitical Events
The significant increase in risks and their severity in different areas include the Black Sea and Sea of Azov, both of which were recently listed as high-risk areas due to continuous disruptions to supply chain at the sea. This continues to showcase the considerations that companies need to make when taking up marine insurance, which provide an extension of cover that ranges from road and rail that can safeguard all critical players in the industry.
Geopolitical activities always play a significant role, as they disrupt maritime trade and businesses that deeply rely on the sea. The recent tensions involving Russia and Ukraine have already had devastating effects for activities in the sector. Developments in the Black Sea have increased the price of marine bunker fuel, which affects the excessive costs of shipping goods.
While the insurance industry has a significant role in terms of providing proactive and timely risk identification and management advice, risk engineers are essential players who are much closer to the customers. They can educate and advise on the proper mitigation steps against threats to their businesses. Marine players need to stay abreast of any developments to stay risk-ready and optimised to efficiently manage challenges that can risk their business’s finances and operations.
Businesses continue to increasingly face unprecedented liability risks that harm operations. With maritime trade only expected to grow by 2.4% between 2022 and 2026, supply chain risks such as war and political tension will have an impact on businesses that rely on the economic activities in the sea. Companies need to implement these sound and effective risk mitigation strategies to future-proof their businesses properly:
- Diversify supply chain: It is usually stated that people should not put all their eggs in one basket, and this also applies to businesses too. Having multiple suppliers assists in reducing reliance on one service provider and also provides a safety net should a supplier run into difficulties. Top car manufacturers recently had to suspend output after their suppliers had to shut down, which affected their total production. Diversifying also provides companies with more flexibility to cope with unexpected events that can affect capacity.
- Negotiating fixed, long-term contract: The marine industry is characterised by a short supply of alternatives in ocean freight. This has made it hard to prevent ever-increasing transport costs. According to the United Nations Conference on Trade and Development (UNCTAD), the increasing costs in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% by 2023. Considering this and the high rise in oil prices, it is essential for companies to negotiate long-term transport and shipping rates to ensure businesses do not suffer from a volatility of transporting costs.
- Regular assessment of contracts: When experiencing a supply chain crisis, different suppliers and partners may be impacted in several ways. This requires checking if there are any provisions such as a force majeure and if clauses such as these cover incidents like embargoes, pandemics or hurricanes etc. These are important to understand since these specific events may result in a suspension in operation or fulfilment of contracts.
Effective full proof against risks: Understanding the grand landscape of evolving risks requires assistance from risk experts that can effectively guide and advise on the appropriate insurance cover businesses require. Operating in the marine industry requires an insurer with deep insight and capacity to undertake a full risk evaluation. Intermediaries are also in a position to educate clients around the cover their businesses can get and the reasonable measures to implement that can assist businesses in approaching risk with purpose