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Heightened marine trade risks and what they mean for insurance

With 90% of the world’s products transported via oceans and riverways, the maritime transport sector is at the centre of the global supply chain and is a critical cog in the wheel of the global economy.
Source: wirestock via
Source: wirestock via Freepik

Maritime insurance plays a critical role in ensuring the sustainability of this industry. But as global trade wars reignite, geopolitics heightens and the pace of climate change escalates, the risks for importers, exporters and the companies that insure them are shifting.

Climate change impact on maritime trade

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 trend of claims for damages to both the cargo itself during storage and transportation and to the actual vessels.

Losses due to rougher seas and the increasing severity of storms can be extremely costly and delay voyages, which places immense pressure on global supply chains.

Warehouses that are located around the coastal areas have become increasingly exposed to damage to cargo due to flooding. The KZN floods in 2022 were a prime example of significant flood-related damage to maritime cargo being stored in warehouses 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.

Global trade wars and heightened geopolitical tension

According to the United Nations, 2023 saw the most violent conflicts around the world since World War II. Unfortunately, since then, this has been exacerbated further by increased tensions in the Middle East as well as violence in the Ukraine. These ongoing and interconnected events drive significant supply chain uncertainty as key thoroughfares such as the Red Sea are impacted.

As an example, Houthi rebel activity in the Red Sea necessitated that ships reroute significantly further via South Africa to get to destinations. The shift in route had a dramatic impact on shipping costs and regional economies.

In addition to this, it is reported that the protectionist trade policy of the new US administration under President Trump will likely recalibrate existing trade routes as tariffs and sanctions force change. Critically, the pace of change in terms of geopolitics and the general current of deglobalisation has created an era of uncertainty.

All of these factors impact the marine risk landscape and have a significant impact on both maritime insurance premiums as well as the type and structure of policies.

The sustainability of insurance alongside shifting risks

While there are international examples of certain insurers removing cover for certain perils in areas of high risk, such as the removal of cover on the Red Sea, 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 trend analysis in route planning would go a long way to avoiding adverse-weather and violence-prone areas.

Additionally, best-practice storage and securing methods both on the ship and in warehouses will reduce damages to cargo. Lastly, basic hygiene factors are extremely important in the face of increasingly severe weather patterns. For example, the regular maintenance of ships to secure certificates of seaworthiness and ensure vessels are seaworthy for increasingly long voyages.

About Kennedy Ntenjwa

Kennedy Ntenjwa, Head of Marine Insurance, Santam.
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