The ripple effect of Red Sea conflict: Global shipping and retail supply chains disrupted
The Suez Canal, which connects the Red Sea to the Mediterranean Sea, accounts for 10-15% of world trade and 30% of global container shipping volumes. Recent supply chain delays caused by the geopolitical situation in the Red Sea has been further exacerbated by extreme weather conditions that caused the Panama Canal to become impassable for extended periods.
As a result of forced diversions and delays, rates for breach of warranty (BoW) insurance coverage have risen for a single voyage between seven to 14 days. Cargo markets are also charging a premium for sailing through the Red Sea, compared to no premium charged previously.
At the same time, businesses also face increased costs from higher fuel prices, shipping rates, and the need for security escorts in waters with heightened security risks. The restricted availability of parts and components also greatly impact sectors such as energy markets, food and agriculture, metals, and manufacturing, particularly for industries with short ‘product-to-market’ life cycles.
How to address cargo shipment delays and short-term price hikes
Marsh Asia is advising businesses to renegotiate their contracts with freight forwarders to gain more control over the movement of goods, routes, use of subcontractors, and levels of liability.
From a risk transfer perspective, businesses should also review their marine cargo policy wordings and consider increasing the coverage for rerouting and costs associated with completion of voyage, even for delay-only scenarios where no physical damage has been incurred.
For businesses directly involved in an attack, they can rely on Marsh Asia’s claims advisory expertise to ensure their interests are protected.