Adapting to new realities: a changing landscape for delay coverage in shipping and cargo
In the world of marine shipping and cargo, acquiring delay, business interruption or trade disruption coverage has not, historically, been a focus for marine players. However, with the increasing complexity of global supply chains and the unpredictable nature of disruptions, the need for effective delay coverage is becoming more apparent. Delay and disruption are driven by a wide range of factors that can change suddenly, making comprehensive risk management solutions more crucial than ever.
Key takeaways:
- Increasing geopolitical tensions and climate change are significantly reshaping global trade, leading to more frequent and costly delays.
- The approach to risk management is evolving as the sector looks for effective ways to mitigate these risks.
- Novel solutions for delay, including shipping options and parametric insurance are emerging to adapt to the new realities of global supply chains.
The rising tide of supply chain disruptions
Supply chains, already stretched thin by a volatile global economy, are now facing unprecedented disruptions driven by a complex web of geopolitical factors. Upheavals such as the conflicts in Ukraine and Gaza, have led to the unexpected rerouting of vessels and restrictions on exports and imports. The Red Sea crisis is a prime example of how quickly these risks can escalate. Following attacks by Yemen’s Houthis, linked to the war in Gaza, shipping companies have been forced to reroute vessels traditionally using the Suez Canal, which handles roughly a third of global cargo. Other factors, including the possibility of increased tariffs arising from Trump US election win leading to increased output from China and SE Asia, are impacting cots and timelines. The average worldwide cost to ship a 40-foot container has doubled, with vessels now opting for the much longer route around Africa—adding an additional two weeks to their journey.
This surge in geopolitical tensions is reshaping the landscape of global trade, creating a climate of uncertainty that challenges even the most resilient supply chains. There were more than 3,000 new restrictions in 2023, a sharp rise from about 650 restrictions introduced in 2017 . Climate change compounds these challenges, as seen in the 2024 drought in the Panama Canal, where vessel traffic was significantly restricted. Ships are now forced to delay their transit or find alternative routes, further straining global supply chains. The frequency and severity of natural catastrophe events is also increasing.
The impact of 'Grey Swan' events
Beyond geopolitical and environmental challenges, the industry must also contend with 'grey swan' events—unforeseen but plausible disruptions that can have outsized impacts. The 2021 blockage of the Suez Canal by the Ever Given, which halted an estimated $9.6 billion worth of goods daily , is a prime example. Such events highlight the vulnerability of global trade routes and the severe consequences that can result from even a single point of failure. Similarly, the disruption at the Port of Baltimore, a caused by a container ship colliding with a bridge, caused significant delays and underscores how unforseen events can escalate costs and prolong transit times.
The growing need for effective risk management
Despite the obvious need, delay coverage for financial loss has historicallybeen, and in many cases continues to be, excluded from marine cargo policies, leaving businesses exposed to significant financial losses even when their cargo remains undamaged. The interconnected nature of global supply chains means that a delay in one region can trigger far-reaching consequences, such as contract penalties, opportunity costs—especially for time-sensitive shipments like prototypes or exhibitions—and disruptions to industries like automotive manufacturing that rely on ‘just in time’ inventory systems to maintain production efficiency and meet market demands. Perishable goods, particularly vulnerable to time delays, also represent a significant area of concern.
Innovations in delay Insurance for cargo
As global trade becomes more complex, businesses are seeking comprehensive solutions to protect against the financial fallout from delays. This demand has driven innovation in the marine insurance sector, leading to the development of new products that fill the gaps left by traditional policies. One such innovation is parametric insurance, which has gained traction in relation to natural catastrophe events and is now being applied to logistics and marine cargo.
Parametric insurance differs from traditional indemnity insurance by basing payouts on predefined triggers, such as a specific delay duration, rather than actual losses. This approach is particularly beneficial for cargo insurance, where maintaining cash flow is often critical. Traditional insurance claims can be slow and resource intensive, requiring extensive damage assessments before a payout is made. In contrast, parametric insurance offers a streamlined process, providing quick payouts once the predefined trigger is met. In some cases, payments can be processed in as little as 48 hours. This prompt payment is crucial for businesses, helping them manage cash flow and mitigate the financial impact of delays.
Shipping coverage for delays is back in focus
As shipping delays become more frequent and costly, delay cover products have evolved to address the specific challenges ship owners and charterers face in the current landscape t Some delay covers can protect against financial losses even in the absence of physical damage to the vessel, such as strikes at ports, port closure due to authority, export and import bans, and P&I-related risks.
For example, coverage for weather-related delays is designed to protect against the financial impacts of adverse weather conditions such as typhoons, hurricanes, wind, swell, fog, rain (excluding customary rain), and ice. These weather events can leave vessels idle in port, force them to remain at sea, or require navigation along alternative routes, leading to significant delays and financial losses. This type of coverage complements existing insurance like P&I and H&M (as they exclude financial loss) providing a cost-effective solution for managing smaller but significant delay-related losses as compared to a traditional loss of income product like Loss of Hire which has a high deductible.
With new solutions emerging that cater to the specific risks of shipping and cargo delays, risk managers in Asia’s marine and cargo sectors have more tools at their disposal than ever before. These solutions not only provide much-needed protection against the financial fallout from delays but also reflect a broader shift towards more sophisticated and responsive risk management strategies in an increasingly interconnected global economy.