Changing weather patterns, a threat to global shipping flows 

By Kennedy Ntenjwa, Head of Marine Insurance at Santam 

Major trade routes were disrupted recently when the southern section of the Rhine River, a key link between European industrial trading centres and key trading hubs, was closed to cargo ships due to high water levels caused by heavy rainfall.  

The Panama Canal – a key thoroughfare responsible for approximately 1000 cargo ship per month – has also been battling the impact of drought and has subsequently seen a 5% decrease flows in 2023 alone. With 90% of the world’s products transported via oceans and riverways, the increasing risk of climate change poses a significant risk to maritime shipping and global trade in general. 

Climate change impact to marine insurance industry 

The world is experiencing more catastrophic events such as tsunamis, increased tropical cyclone activity, rougher seas in general, rising sea levels and higher volumes of earthquake activities at sea. On land, as part of the maritime freight supply chain, severe flooding and hail events are also increasing. All of these pose a significant risk to global shipping flows. 

As Africa’s largest marine insurer, we are seeing the impact of climate change evidenced by an increasing claims trend for damages to both the cargo itself during storage and transportation, as well as to the actual vessels themselves. 

Rougher seas and the increasing severity of storms cause cargo items to dislodge or fall off during sea transportation voyages. Losses and damages in this regard can be extremely costly and many voyages are therefore delayed which places immense pressure on global supply chains. 

Additionally, as vessels take on more water during rough seas the risk of corrosive rust damage is exacerbated. Not only does this damage the actual hull or vessel itself but especially impacts steel cargo like construction equipment. 

Coupled with the enhanced risks for cargo and vessels during the sea transportation, we are also seeing the impact of climate change more broadly in terms of risks to the onward land transport of marine cargo as well as the storage risk for the warehouses that are located around the port or inland. 

Warehouses that are located around the coastal areas have become increasingly exposed to damages to cargo due to flooding. The KZN floods in 2022 were a prime example of significant flood-related damages to maritime cargo being stored in warehouse on land. In addition to flooding, hail damage is also an increasing peril – especially in scenarios where cargo is exposed outside while waiting, after being discharged off ships, to be loaded for road or rail transport. 

As extreme weather delays scheduled voyages certain ports are becoming increasingly exposed to concentration risk. Rotterdam is an example of a major global port where there is a significant accumulation of cargo resulting in heightened risk exposure in one area. 

The increasing frequency of inclement weather also poses a heightened risk to perishable cargo such as fruit and meat. As these items have a shorter life span, an extended voyage due to bad weather will significantly impact quality (which impacts price), and in some cases may result in items having to be discarded altogether. 

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Marine perils still insurable, but a proactive approach is required 

With reliance on the global shipping industry to transport 90% of our products, it is imperative that we take steps to safeguard the sustainability of marine insurance. But this is a collective effort – and needs to be addressed by all parties including insurers, shipping lines and freight forwarders. 

As insurers, proactive trends analysis forms a big part of our risk mitigation process to fully understand risks associated with particular ports, types of cargoes that are susceptible to damage, and trade routes. Based on the outcome of the analysis, we then put a huge focus into actual risk management and risk mitigation by way of guidance to our clients. 

Marine insurance surveyors as well as marine insurance brokers are a critical part of this. They are skilled in advising on loading/pickup methods as well as storage methods on the vessel and can advise on whether the methods utilised can withstand the hazards of a long marine voyage. For marine cargo being stored or transported on land, we also make use of risk engineers to provide support and guidance – especially in terms of warehousing locations and stacking methods to minimise risks. We also encourage regular maintenance and reservice of warehouses to reduce risk exposures. 
 
As a secondary layer we will look at corrective actions such as, as an example, additional flood excesses on flood prone areas. We do however work on a three-year claims trend to ensure clients are not prejudiced by one negative loss event. 

The sustainability of risk alongside increasing climate change effects 

While there are international examples of certain insurers removing cover for certain perils in areas of high risk, such as removing fire cover in fire-prone areas, a collaborative effort will ensure that marine perils will remain insurable. It could be a combination of proactive risk management between insurer and client, as well as creative ways of finding levels of self-insurance depending on the client’s appetite for risk, such as insurance funds for catastrophic events. 

We need to look beyond just the insurance portion of the value chain. Shipping lines and freight forwarders must take proactive measures to reduce their risk exposure. An increase in proactively using trends analysis in route planning would go a long way to avoiding adverse-weather prone areas. Additionally, best-practice storage and securing methods both on ship and in warehouses will reduce damages to cargo.  Lastly, basic hygiene factors are extremely important in the face of increasing severe weather patterns. For example, the regular maintenance of ships to secure certificates of seaworthiness and ensure vessels are seaworthy for increasingly long voyages.