The recent grounding of the mega-ship Ever Given in the Suez Canal has once again highlighted the fragility of global supply chains. Now that the Ever Given has been freed and global trade can once again resume, all eyes are now moving to the secondary issues of liability and cost.
Potential Issues and Costs
As the investigation into the causes is still underway, it is far too early to tell the extent of how the financial losses from this incident will manifest into insurance claims. Some potential issues and/or costs exposure that may likely arise in the coming weeks or months:
It is obvious that the delays to goods reaching their intended destinations, including through using alternative routes, will create additional costs that should be taken into account in risk finance planning. Hence, the reminder is clear: talk to your trusted risk advisors to ensure adequate due diligence. Cargo owners can consider all cover extensions, including additional freight forwarding expenses, so that you understand what protection is in place and can ensure that you are covered for similar instances.
For companies, especially those approaching renewals, should engage your risk advisors to understand your risk profile, including the liabilities arising out of contractual obligations as a result of delays caused by route blockage. They should optimize their risk mitigation approach, or develop a transfer strategy via insurance coverage in line with their risk appetite.
It is often possible, at the time of initial risk placement, to have a marine delay cover extended to include a wider set of events such as a physical route blockage affecting business. There is also insurance that covers the potential liabilities from being unable to perform contractual delivery responsibilities in a timely fashion.
This Suez Canal blockage is the most recent example of how an isolated incident that occurs in a specific location can generate systemic impacts around the globe. The knock-on effect of mismatched demand and capacity at ports will be felt for some time. Cargo delays are nothing foreign to this region. Back in 2016, companies in Asia have faced similar issues as a result of the Hanjin Shipping insolvency, where cargo suppliers/buyers experienced serious delays, diversions and, in some cases, lost cargo. Aside from that, the Straits of Malacca is among one of the known chokepoints for the global economy, together with Suez and Panama Canals, the Straits of Hormuz and the Bab-el-Mandeb. There is certainly a need for businesses to better prepare for supply chain disruptions.
It is vital to manage such risks through careful consideration. Organizations should periodically reassess the exposures (from such low probability-high impact risks) on their global supply chain and the overall business value creation process. An up-to-date, in-depth understanding of the exposure (over a period of time) to risks like blockage of critical sea lines of communication will inform the implementation of a more effective supply chain resilience and business continuity program.
Marsh advises our clients to consider these risks and talk to us to ensure you have the relevant coverage.