Navigating rough seas with the right partner

Jeffry Butt, National Marine Sales Manager, Bryte Insurance Company Limited

Disruptions and complex challenges are not new to the maritime industry. But, none have been as unique and severe as those posed by the COVID-19 pandemic.

Global supply chain disruptions – exacerbated by simultaneous lockdowns and what could be argued as the “shut down” of the global economy—remain among the adverse effects synonymous with the pandemic.

For extended periods—especially at the onset of the pandemic—the global shipping and maritime industry came to a standstill. All modes of transport—barges, trucks, rail, etc. were significantly impacted by halted production and port closures, especially across key manufacturing markets.

The debilitating effects were widely felt from manufacturers to wholesalers, retailers, agents, freight forwarders, service and transport companies.

Unprecedented shortages continue to make headlines—from food, pharmaceuticals, medical supplies, automotive and electronics to the more publicised recent shortages of computer chips (notably affecting computers and cars). An inability to meet consumer demand, aside, the financial and job losses—when the global economy is under intense strain—have been unparalleled.

The ongoing disruptions are bringing about wide-scale business interruption, with some reports suggesting the losses from supply chain disruptions may have been upwards of {R60trn) in 2020.

To provide greater context, the global auto industry alone is expected to produce up to 5 million fewer vehicles this year than initially planned due to these disruptions.

Fire incident

Already navigating the effects of the pandemic, South Africa’s maritime industry took a further knock following the recent fires that caused damage to the ports of Durban and Richards Bay. This led to R1 billion worth of damage to Transnet’s container belts and related infrastructure.

Some could argue that these are events that one could not have either anticipated or been able to plan for the impact thereof. For this reason, businesses must partner with brokers and risk engineering experts to ensure a more considered, robust exposure identification and management strategy. One that also factors in other dynamics that can have a substantial impact on business continuity.

Mega ship, mega risks

Among these dynamics is the prominence of megaships—a mode of transportation that has been a boon for the global economy, bringing necessary economies of scale. But, lending truth to the adage, “the bigger they are, the harder they fall”, and as highlighted by insurers the world over, these megaships come with more than their fair share of challenges. When one considers that these ships have grown 15 times bigger in just five decades, it stands to reason that infrastructure is failing to keep pace.

While ports continue to be dredged deeper and wharfs have been extended, the reality is that most, take the Suez Canal for example, being notoriously narrow and one of the busiest waterways in the world with 12% of the world’s trade volume passing through each year. Making global headlines was reports of the Ever Given (which ranks in the top 1% in terms of), which ran aground, lodging itself across the depth of the canal for six days.

The blockage was estimated to have affected the transportation of R136 billion worth of goods each day with collective losses far surpassing that. Authorities are believed to have fined the owners of the Ever Given about R30 billion (four times the budget of our annual National School Nutrition Programme).

This demonstrates just how devastating and expensive a ship grounding can be for an entire global economy. On the other hand, a ship fire (which is much more common than some realise) can cause major disruptions to supply chains. It could translate to devastating financial losses but also, sadly, sometimes even the loss of lives.

Some of the common risk themes associated with the marine logistics industry (especially supersized vessels) thus include:

• Safety of crew—which can be threatened by a range of exposures on board
• Restrictive port and canal sizes
• Increasing risk of vessel groundings
• Container stack collapse—while this could cause financial loss, the threat to crew lives is an even greater concern
• Container losses—in 2020, more than 3,000 containers were lost at sea
• Extreme weather conditions
• Container fires—sometimes uncontrollable and severely impacting both the ship and its occupants
• Spillages—loss of cargo is one thing but the cost and logistics of clean-up operations is another
• Overloading risks, often due to incorrectly declared cargo weights
• Increased repair and recovery costs

Ensuring business continuity

Protecting all players across the shipping and maritime value chain involves a collective, consistent focus—one that appreciates the catastrophic consequences of exposures. Together with risk engineers and underwriters (who are all well versed on the regional and global risk dynamics), brokers 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, the right types of insurance and level of covers can be invaluable.

Businesses must therefore prioritise the regular review of their risk management strategy. With the guidance of its risk advisors, data, insights and trends predictions must be leveraged to maintain the relevance of both proactive and reactive risk response strategies.