Navigating Supply Chain Risks: The Evolving Landscape of Cargo Insurance

Introduction: The Shifting Tides of Supply Chain Resilience

In recent years, the supply chain industry has faced unprecedented challenges, pushing the boundaries of resilience to new limits. While the logistics sector has always been characterized by volatility, recent global events have amplified these uncertainties to extraordinary levels. Despite a decrease in major incidents in 2022 compared to the previous two years, the perception of risk in logistics has intensified.

This heightened sense of risk isn't solely attributed to the pandemic. Rather, it's a symptom of a deeper issue: the world's systems are struggling to keep pace with demand. Factories are grappling with years of explosive consumer appetite, while shipping capacity falls short of accommodating the resulting logistics demands. Inland, trucks and warehouses labor to prevent container bottlenecks. The cumulative effect of this congestion is a significant increase in risk exposure across the supply chain.

Understanding Risk Exposure in Modern Supply Chains

Risk exposure extends beyond the mere probability of loss; it encompasses the value of those losses when they occur. In today's complex supply chain environment, there are numerous unavoidable and unpredictable incidents that can disrupt operations. Cargo loss, for instance, has become more common due to various factors:

• Increase in the size of container ships
• Longer transit times
• Human error
• Unpredictable weather conditions
• Cyber threats
• Political and piracy threats
• Machinery breakdown

To put this into perspective, consider these sobering statistics:

• In Q4 of 2020 alone, two cargo ships experienced heavy weather and lost nearly 1,900 containers.
• In 2018-2019, there were 425 ship fires that contributed to cargo loss and damage.

The critical issue here isn't necessarily the frequency of these events, but rather their potential financial impact. For instance, if your entire season's inventory is consolidated in a single shipment, the loss could be catastrophic for your business. Without adequate insurance coverage, your only recourse is carrier liability, which is generally very limited and often results in recovery of only cents on the dollar.

The Financial Stakes in Modern Supply Chains

In the current high-demand environment, companies are likely to have substantial cash invested in their supply chains. This increased investment manifests in several ways:

• Purchase orders may include higher-than-usual volumes
• Investments in new product introductions as business grows
• Shortened product cycles due to evolving consumer expectations
• Increased logistics bills due to higher shipment volumes
• Rising landed costs driven by market forces

Given these circumstances, a loss at this juncture could be financially devastating. This shift in risk exposure necessitates a reevaluation of how companies protect their supply chains. While cargo insurance has historically been available to cover part or all of cargo loss, typical coverages may no longer suffice to mitigate the full impact on your business.

The Evolution of Cargo Insurance: Meeting Modern Challenges

As consumer demand, inventory supply, and logistics scenarios exert pressure on cash flow and product cycles, a new demand emerges. Companies are now seeking flexible cargo insurance solutions that evolve in tandem with the challenges posed by modern supply chains.

At FreightAmigo, we understand these evolving needs. Our Digital Logistics Platform offers comprehensive solutions that adapt to the changing risk landscape. We provide instant quotes through our underwriters and offer cargo insurance policies that can be effective immediately, ensuring that your goods are protected whether you ship them with us or not.

Tailoring Insurance to Evolving Risks

While recent increases in risk exposure may be attributed to accelerated consumer habits, the impact on your business still manifests in the form of specific incidents. In these situations, the primary concern is getting your supply chain back on track.

Ultimately, the combination of the specific incident type and your cargo insurance coverages determine how you can recoup value after a loss. Let's examine how incidents are shifting to help you identify which coverages may be the right fit for your business.

The Impact of Congestion

In an era of persistently high shipping demand and congestion levels, we're witnessing changes in the rate and type of cargo incidents. With increased pressure for throughput, there's a higher likelihood of rough handling, leading to crushed or damaged goods. According to industry data, these types of incidents account for more than a third of cargo insurance claims.

Protecting your goods against rough handling-related loss can be one of the most effective ways to mitigate the impact of an incident. At FreightAmigo, we offer two main approaches:

1. Annual policies that cover all your shipments
2. Scalable insurance to cover cargo by individual shipment

These policies cover the value of your Commercial Invoice, plus freight and duties. Annual policies can even extend coverage to certain circumstances in ports and warehouses.

Our Digital Logistics Platform streamlines the claims process. All data captured by our insurance quoting tool is pre-populated in claim forms, ready to be submitted instantly. Our dedicated claims team handles all communication between clients and necessary parties, ensuring typically faster payouts compared to general corporate insurers.

The Double Impact of Congestion

Congestion presents a twofold challenge for companies experiencing loss. Not only is there the immediate loss of cargo, but replacing that cargo becomes more challenging when factories have long lead times and ports are bottlenecked. For companies that need to meet their sales goals, insurance can provide a crucial safety net.

At FreightAmigo, we offer retail value coverage. This means you can potentially recover the full retail sales price for your damaged goods for a fraction of the cost. Our Digital Logistics Platform allows you to easily explore what coverages cost for your specific scenarios.

The Changing Landscape of Major Events and Incidents

As we analyze data related to cargo insurance claims, we're observing a shift in the impact of major events and incidents. These can include containers going overboard in the middle of the ocean or ships running aground during transit.

While the frequency of these incidents can be hard to predict, we can identify risk factors that could point to similar occurrences:

• Container ship size has increased 1500% in the past 10 years
• Higher container stacks and outdated lashing systems contribute to risk
• Overboard accidents have been on the rise for the past 7 years, peaking at the end of 2020

During the two-month period between November 2020 and January 2021, almost double the annual average number of containers went overboard. While the industry is now seeing an overall decrease in major incidents, when they do occur, they tend to lead to more costly General Average events.

Understanding General Average Events

A General Average declaration requires all consignees with cargo on the ship to share in the cost of expenditures. Your cargo can be held as collateral to satisfy your obligation to the carrier. With ships carrying more high-value cargo for longer periods of service, risk exposures in General Average events are greater than in the past. Salvage costs can be extraordinary, meaning that even if the rate of incidents dips, the cost of General Average is likely to increase significantly.

The principle of General Average is rooted in ancient maritime rules of shared liability across all cargo owners for loss that occurs in a catastrophe. In its modern incarnation, General Average comprises four elements:

1. Extraordinary sacrifice
2. Intentional or voluntary action
3. Peril
4. Common safety

At FreightAmigo, all our insurance products cover General Average events. Our expertise in handling these events sets us apart from corporate umbrella policies. When a carrier declares General Average, you simply need to notify our claims team. We'll submit the necessary documentation on your behalf to trigger the quick and easy release of your cargo.

Without an experienced claims team, you'd bear the administrative and financial burden of settling disputes yourself. Throughout the process, our Digital Logistics Platform allows you to track what's happening in your insurance application, keeping you informed to make the right decisions for your supply chain.

Conclusion: Safeguarding Your Supply Chain in a Changing World

As risk exposures continue to evolve alongside other supply chain and logistics issues, the right mix of insurance coverages can protect your company from both outsized disasters and everyday complications. At FreightAmigo, we're committed to providing comprehensive Digital Logistics Solutions that adapt to these changing needs.

Our Digital Platform offers not only cargo insurance but a full suite of services designed to streamline your logistics operations. From comparing door-to-door freight quotes for various shipping methods to tracking shipment status in real-time, arranging customs clearance, and providing 24/7 expert support, we're here to ensure a hassle-free and enjoyable logistics experience.

In today's volatile supply chain landscape, protection is not just about mitigating risk—it's about empowering your business to thrive despite uncertainties. With FreightAmigo, you're not just insuring your cargo; you're securing your business's future in the global marketplace.

Take the next step in safeguarding your goods. Explore our Digital Logistics Platform today and discover how we can help you navigate the complexities of modern supply chains with confidence and ease.