Jeffry Butt, National Marine Sales and Marketing Manager, Bryte Insurance Company Limited
The maritime industry is a key player in the success of global trade. The sector has been able to generate significant social and economic gains for countries. The marine sector is characterised by rapid growth in demand and pressure from transport services, and technical challenges that include outdated infrastructure and congestion that result in delays. Global supply chain disruptions exacerbated by the current war in Eastern Europe remain among the significant challenges interrupting growth.
For the longest period, the global shipping and maritime industry has required optimised cover to increase its profitability. The Eastern Europe conflict affected commercial ships, as operators had to redirect freight transport and divert vessels. At the beginning of the war, approximately 2 000 seafarers were stuck aboard 94 vessels in Ukrainian ports. This represents the kind of marine liabilities that can threaten businesses’ operations and companies’ ability to generate profits.
Increased shortages continue to affect countries –from food, fuel, electronics and the highly publicised, recent shortage of automotive parts. The incapacity to meet consumer demand and high costs in maintaining operations and security in a period when the global economy continues to face tremendous strain and uncharacteristically high inflation – have been incomparable.
Container shortages
The ongoing disruptions are creating wide-scale challenges for the industry. Container shortages have been an issue since the beginning of 2020 and remain a critical issue for global trade. Factors such as the global pandemic and growth in online shopping have all played a crucial role in the shortage of containers globally. These unprecedented challenges have resulted in a sharp increase in freight costs to over 300%1.
With South Africa already navigating multiple incidents such as the pandemic, civil unrest, flooding, theft, hijacking, and the recent worker’s strike at the country’s freight logistics chain have significantly impacted economic activities across various sectors.
The situations various players face cannot be anticipated or planned for. Because of this, businesses must collaborate with brokers and risk engineering experts to ensure a more considered, practical, robust exposure identification and management strategy. One that also factors in other dynamics that can substantially impact business continuity.
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Marine businesses are also prone to exposures faced by third-party logistics service providers, which can result in third-party liability claims/lawsuits that can result in devastating financial and reputational impacts. Reports suggest that the infamous Evergreen incident led to costs of over $5 billion worth of trade in a day. While the business was able to recoup these costs, this represents the financial and reputation risks a business needs to be able to mitigate against.
With liability exposures broadening and becoming more complex and costly, effective risk management requires a multi-faceted and consistent approach. Businesses that don’t effectively factor these realities into their risk resilience strategies would be remiss in doing so.
Ensuring business continuity
To protect all players across the shipping and maritime value chain, a collective, consistent focus – one that appreciates the catastrophic consequences of exposures is critical. Brokers, together with risk engineers and underwriters (who are all well versed in the regional and global risk dynamics), have a significant role in building awareness around evolving exposures and guiding on ways to drive robust risk management. To minimise the detrimental effects of huge losses on business continuity across multiple industries, suitable types of insurance and level of coverage can be invaluable.
Risk managers always look to provide enhanced cover tailor-made for clients’ unique risks. And as risk exposures continue to vary, it is critical for valuable partnerships that can ensure comprehensive risk profiling and efficient risk evaluation.