Navigating Supply Chain Risks: The Evolving Landscape of Cargo Insurance

Introduction: The Changing Face 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 its ability to adapt, the current landscape presents a unique set of hurdles that demand innovative solutions. At FreightAmigo, we recognize the importance of staying ahead of these challenges to provide our clients with the best possible digital logistics solutions.

Let's delve into some key statistics that highlight the current state of the supply chain industry:

• In Q4 2020 alone, two cargo ships lost nearly 1,900 containers due to severe weather conditions.
• Between 2018 and 2019, there were 425 reported ship fires contributing to cargo loss and damage.
• Container ship sizes have increased by a staggering 1500% in the past decade.
• For seven consecutive years, overboard accidents have been on the rise, reaching a peak at the end of 2020.

The Heightened Risk Exposure in Modern Supply Chains

The current global scenario has amplified the volatility inherent in supply chains. Despite a decrease in major incidents compared to the past two years, the logistics industry appears riskier than ever. This perception stems from the inability of global systems to keep pace with surging consumer demand.

Risk exposure in the supply chain context extends beyond the mere probability of loss. It encompasses the value of potential losses when they occur. With the increase in ship sizes, extended transit times, and various unpredictable factors such as weather conditions, cyber threats, and political instabilities, the financial impact of a single incident can be devastating for businesses.

The Financial Stakes: Why Cargo Insurance Matters More Than Ever

In today's high-demand environment, companies often have substantial cash invested in their supply chains. This investment may manifest in various forms:

• Higher-than-usual volumes in purchase orders
• Investments in new product introductions to meet growing business needs
• Shortened product cycles to meet consumer expectations
• Increased logistics bills due to more frequent shipments
• Rising landed costs driven by market forces

Given these circumstances, a loss at any point in the supply chain could prove extremely costly. This shift in risk exposure necessitates a new approach to supply chain protection. While cargo insurance has always been available, traditional coverages may no longer suffice to mitigate the full impact of potential losses on businesses.

Evolving Insurance Needs for Modern Supply Chains

As consumer demand, inventory supply, and logistics scenarios continue to exert pressure on cash flow and product cycles, a new demand emerges. Companies are increasingly seeking flexible cargo insurance solutions that can adapt to the challenges of modern supply chains.

At FreightAmigo, we understand this need and strive to offer comprehensive digital logistics solutions that include access to flexible insurance options. Our Digital Platform allows clients to obtain instant quotes from underwriters and find cargo insurance policies that can be effective immediately.

Tailoring Insurance to Evolving Risks

While recent increases in risk exposure may be attributed to accelerated consumer habits, the impact on businesses still manifests in specific incidents. When dealing with crushed pallets or missing goods, the primary concern is getting the supply chain back on track.

The combination of the specific incident type and your cargo insurance coverages determines how you can recoup value after a loss. Let's explore how incidents are shifting and which coverages may be the right fit for modern supply chains.

The Impact of Congestion

In an era of persistently high shipping demand and congestion levels, the rate and type of cargo incidents reflect the increased logistics pressure. With a heightened need for throughput, there's a higher propensity for 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.

Insuring goods against rough handling-related loss can be one of the most effective ways to limit the impact of an incident. The main protection strategies include:

• Selecting an annual policy that covers all shipments
• Scaling insurance to cover cargo on a per-shipment basis

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

The Double Impact of Congestion

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

One option to consider is insuring goods with retail value coverage. This approach can potentially allow you to recover the full retail sales price for damaged goods, helping to mitigate the financial impact of losses.

The Changing Landscape of General Average Events

As we analyze data related to cargo insurance claims, we observe 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 contribute to similar events:

• Increased container ship sizes (1500% growth in the past decade)
• Higher container stacks
• Outdated lashing systems

Although the industry is seeing an overall decrease in major incidents, when they do occur, they tend to lead to more costly General Average events.

Understanding General Average

General Average is an ancient maritime principle based on shared liability across all cargo owners for loss that occurs in a catastrophe. In modern times, it comprises four elements:

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

When a carrier declares General Average, all consignees with cargo on the ship must share in the cost of expenditures. Your cargo can be held as collateral to satisfy your obligation to the carrier. As ships carry more high-value cargo for longer periods, risk exposures in General Average events are greater than in the past, potentially leading to extraordinary salvage costs.

The Importance of Comprehensive Cargo Insurance

Given the evolving nature of supply chain risks, it's crucial to have a cargo insurance policy that provides appropriate General Average guarantee documentation. Without such coverage, your options become more complex and potentially financially straining. You may need to post cash collateral or obtain a Letter of Credit from your bank to back a guarantee.

At FreightAmigo, we understand these complexities. Our Digital Logistics Platform is designed to simplify the process of obtaining and managing comprehensive cargo insurance. We offer products that cover General Average events, and our expertise in handling these situations sets us apart from corporate umbrella policies.

FreightAmigo: Your Partner in Digital Logistics Solutions

As a full-service, one-stop digital supply chain finance platform, FreightAmigo is committed to helping organizations, enterprises, and individuals transform and redefine their logistics experience. Our Digital Platform combines artificial intelligence, big data, FreighTech, FinTech, InsurTech, and GreenTech to accelerate logistics, information, and cash flow, ensuring a hassle-free and enjoyable logistics experience.

With FreightAmigo, you can:

1. Compare door-to-door freight quotes for international courier, airfreight, sea freight, rail freight, and trucking solutions and book online.
2. Track shipment status anytime, anywhere (connecting with more than 1000+ reputable airlines and shipping lines).
3. Arrange customs clearance, cargo insurance, and trade finance in one stop.
4. Automate shipment documents.
5. Access 24/7 logistics expert support.

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 help protect your company from both major disasters and everyday complications. At FreightAmigo, we're dedicated to providing Digital Logistics Solutions that address these changing needs, helping you navigate the complexities of modern supply chains with confidence.

Take the next step in safeguarding your goods by exploring our comprehensive Digital Logistics Platform. With FreightAmigo, you can ensure that your supply chain is not just efficient, but also resilient in the face of evolving risks.