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F&B logistics: How to mitigate rising costs and supply chain disruption

According to the latest Marsh Asia F&B, Retail and Wholesale survey report, businesses in these sectors reported low confidence (3.7 out of 10) in responding well to geopolitical and security threats. In addition, less than half of the respondents were confident in responding to supply chain disruptions. 

These recent global incidents have significantly impacted F&B logistics and cargo and is a reminder for businesses to place greater focus on managing their supply chain risks:

  • In 2024, ship crossings through the Panama Canal, a critical trade route connecting North America and Asia, were restricted due to severe drought conditions, leading to rerouting that increased fuel prices and freight shipping rates,1 as well as affecting the availability of essential components for businesses and industries worldwide. 
  • Geopolitical tensions in the Red Sea have led to attacks on cargo ships such as the recent sinking of Belize-flagged ship Rubymar.2 Security risks have forced container ships to reroute, increasing costs and disrupting supply chains.

What do escalating supply chain disruptions mean for F&B businesses in Asia?

Concerns over perishable and temperature sensitive goods 

Recently, the supply chain of agricultural commodities, such as grain and oilseeds, have been impacted by geopolitical tensions in the Red Sea. Wheat shipments flowing via the Suez Canal plummeted by nearly 40% in the first half of January 2024, along with an increased risk of spoilage and waste from delays and extended routing.3

F&B logistics and cargo often involve perishable and temperature-sensitive goods. Aside from increased costs from rerouting, extended transit times can also impact the integrity of the products being transported, putting businesses at risk of partial and total loss as well as contractual breaches from failing to deliver cargo of the stated quality and/or quantity. 

Certain goods can only manage shorter shipping times in bulk or containers, and if this is not possible, then cold chain (reefer) containers would have to be used, which increases costs substantially. Furthermore, such containers may not be available, depending on the time and location.

To mitigate risks and control costs, F&B businesses that ship perishable goods on long voyages must adopt a new and tailored approach to risk management and mitigation protocols, and invest in comprehensive insurance coverages while ensuring that the risks are allocated optimally amongst trading parties, including freight forwarders.

Rising F&B logistics and cargo costs

F&B businesses utilising the Red Sea route for shipments have also experienced an increase in insurance costs. Breach of Warranty (BoW) rates, for example, have increased for single voyages lasting between seven to 14 days.

Furthermore, Marine Cargo underwriters have also introduced an additional premium for War & Strikes risks for vessels sailing through the Red Sea. This has directly impacted the bottom line of F&B businesses reliant on the shipping lane.

The ripple effect of the Red Sea conflict: Global shipping and retail supply chains disrupted

Amid the security concerns surrounding the Red Sea passage, some container ships have rerouted by sailing around the Cape of Good Hope, which introduces logistical challenges of its own. This detour not only extends transit times by at least two weeks,4 but also results in higher freight rates due to the increased demand for space on vessels using this route and increased fuel consumption over the extended journey. In addition, the increased piracy activity on the coast of Somalia is picking up and pirates have been attacking the re-routed container vessels sailing the Cape of Good Hope route5

Container freight rates into Europe via the Cape of Good Hope have also nearly doubled between October 2023 and January 2024. F&B businesses must decide how much of these additional costs to absorb and how much to pass on to buyers and consumers.6 With their profits and bottom line likely to be compromised, these businesses have an even greater imperative to safeguard against further losses.

How F&B businesses can address supply chain risks

1. Obtain adequate Marine Cargo and trade credit coverage

The first step F&B businesses can take is to minimise the financial impact of any loss or damage of their cargo and shipments via insurance. Amid rising insurance costs, they can rely on a trusted risk advisor and insurance broker to seek competitively priced and right-sized Marine Cargo insurance solutions, in addition to trade credit insurance if selling on credit terms. Businesses with existing policies should review and assess their wordings with special attention to:

  • Coverage for war.
  • Coverage linked to the inherent nature of the goods such as heating, sweating and spontaneous combustion (especially applicable for agricultural commodities).
  • The time deductible in the event of reefer container breakdown (and whether it is possible to minimise it).
  • Coverage for costs associated with delayed completion of voyage even when no physical damage is caused.

At the same time, F&B businesses seeking coverage for goods at a place of storage or distribution location can also consider Stock-throughput Insurance. Additionally, Trade Credit Insurance can cover delayed product deliveries, shortages, and subsequent payment delays from buyers, hence protecting cash flow and balance sheets.  

For businesses directly involved in a war-related situation or a loss linked to a disrupted supply chain, Marsh Asia can provide the necessary claims advisory expertise to liaise with the relevant insurers (e.g. hull, P&I, cargo) and ensure that the businesses’ interests are protected.

2. Seek alternative suppliers to mitigate risk of disruption

As geopolitical tensions and supply chain disruptions can lead to severe shipment delays and product shortages. F&B businesses in Asia should seek alternative suppliers within the region to enhance supply chain resilience. 

This strategy has helped Asian markets that have a high reliance on food imports. For example, Singapore and Hong Kong, with limited natural resources, are vulnerable to export restrictions and price fluctuations. Singapore has since successfully increased its food import sources7, demonstrating the value of supply chain diversification.

3. Review risk management strategies for supply chain resilience

With extended transit times and heightened risk of damage to shipments, F&B businesses can consider negotiating contracts with freight forwarders to gain more control and flexibility over routing, subcontractors, movement of goods, and levels of liability.

Following that, F&B businesses can conduct supply chain mapping to better understand the risks inherent in their existing supply chain ecosystems. This enables businesses to decide whether to diversify and reduce their dependency on any single source, supplier, or route. Supply chain mapping can also inform the development of effective contingency and continuity plans for quick and effective response to delays and disruptions.

Enhance your F&B logistics and cargo protection

Marsh Asia has helped over 15,000 companies in the region — from small-medium enterprises to large corporations — obtain competitive and cost-effective insurance coverage mitigating a spectrum of risks. Our global presence in marine and cargo insurance helps us access different markets to secure the best solution for your needs, while our in-depth expertise in the F&B industry enables us to advise the optimal risk management measures to adopt. 

As a trusted risk advisory and insurance broking partner, Marsh Asia empowers your business to mitigate F&B logistics and cargo risk while taking advantage of opportunities in a highly competitive industry, helping you gain an advantage over your peers amid a volatile risk environment.

Learn how to uncover your risk exposures for a resilient F&B business

Get in touch with a Marsh representative for a non-obligatory discussion today.