04.29.22
Kevin Kempf

5 Market Trends: Diving into Cargo Insurance

A single interruption in the shipping industry can ripple worldwide. Since the onset of the pandemic, the average consumer has heard the words “supply chain” more than they’d like to. Add to that, the Ever Given container ship blocking the Suez Canal in 2021 — plus its sister vessel repeating the feat a year later in Chesapeake Bay — and the consequences of the Russian invasion of Ukraine, we’ve all gotten used to seeing much more of the behind-the-scenes movement of our goods on center stage. 

But what does this all mean for the Cargo Insurance market? Surprisingly, not all bad. While the impacts of Russia’s invasion of Ukraine are certainly going to be felt as carriers adjust to the risk, supply-chain disruptions continue to impact perishable goods, and lithium batteries are threatening auto imports — the market is softening as supply increases. 

With our fingers on the pulse of the fluctuating market, we’ve wrapped up the market trends we’ve seen so far in 2022:

 

1. The Russian Invasion Hurts Cargo Imports (And Premiums)

The ramifications of Russia’s invasion of Ukraine are undeniably far-reaching, but no line of coverage is feeling the impacts of wartime more than marine cargo. Sanctions hitting Russia — and the International Association of Classification Societies’ (IACS) vote to revoke Russia’s membership, which could impact shipowners’ ability to obtain insurance are only the beginning of collateral damage to the supply chain. Parts of the Black Sea and Sea of Azov (an essential access point for ocean trade in Ukraine) are hazardous, closed off by Russian naval forces, and overwhelmed by missile strikes. 

With cargo movements at a standstill and the future unpredictable, carriers are ultimately left recalculating their risk in the area. Due to the current conflict, we’re seeing the following:

  1. Many marine cargo policies include coverage for acts of war, but some carriers are invoking a Notice of Cancellation (specific to War, Strikes, Riots, and Civil Commotion risks) for shipments in and out of Russia, Ukraine, and territorial waters.
  2. For the very limited number of US markets that will offer war coverage in this region, additional premium will most likely be required.
  3. For both renewals and new submissions, we anticipate markets will exclude all-risk coverage for shippers with exposure in and out of Ukraine and Russia.

2. Market Stabilization

Back in 2018, the cargo market faced a hard reality: losses were adding up. When Lloyd’s threatened to exit the market if there weren’t improvements, capacity dropped and prices swelled -- the law of supply and demand played out as predictably as ever.  (See our market analysis from 2019: Cargo in Chaos) But we’re seeing a positive turn: a slow and steady softening of the market. We’ve continued to see some significant losses the past few years, so what changed? Primarily, hardening rates have attracted existing insurers and new companies alike to revisit the market, which has expanded capacity. Within the London market, general cargo insurance capacity is estimated to be around $800 million.  This trend of higher rates has enabled the market to withstand recent shocks. 

3. Reconsidering Auto Risk

In February, a ship carrying 3,965 Volkswagen vehicles caught fire one thousand miles off the coast of Portugal. The total cargo loss could exceed $400 million. While the origin of the fire is yet to be confirmed, the electric cars onboard held a key component to keep the ship ablaze: lithium-ion batteries. Dry chemicals — not water — are key to stopping a lithium-fueled fire, which introduced further complications to saving cargo ship Felicity Ace. 

That’s led to a (lithium-powered) elephant entering the room: The risk of transporting electric vehicles. Having many lithium batteries together in one space — like a cargo ship, for example — heightens the risk of consequential flames, as it spreads easily from one vehicle to the next. Since 2018, there have been 35 lithium-ion battery fires, ranging from a Tesla storage battery to an electric ferry, reports Quartz. Should electric vehicles be stored separately? Is there a safer way to transport lithium-ion batteries to mitigate potential losses? With the growing demand for electric vehicles, carriers will need to determine how to best address the risk.

4. CBD Impacts

The 2018 Farm Bill removed hemp from the Controlled Substances Act, making CBD legal in all 50 states. Now that more is being grown on U.S. soil than ever — and the industry is on track to earn the global economy over $2.3 billion by 2025 — what does that mean for transporting related products? Some insurers are concerned about expanding into the CBD market, given its relatively new widespread legalization (at least across U.K., U.S., and Australian markets), the risks may still feel unclear. Carriers will need to face logistical challenges, such as understanding the necessary legal avenues and documentation required to avoid delivery delays, how to provide adequate coverage for the growing demand, and how to best track that perishable cargo stays intact (like through IoT sensors)

5. Supply Chain Disruptions Continue 

At this point, we don’t need to tell you that everyone is feeling the continued supply-chain disruptions. Due to the global pandemic, there have been unrelenting logical challenges which include port backups and delays. For carriers and insureds alike, adjustment hasn’t come easy. For example, some cargo policies will include time-specific termination provisions, allotting a specific amount of time for transport under coverage. With delays on the horizon, this may leave insureds at risk. As a result, transporting perishable goods — such as food and beverages — has never felt more tumultuous. Serious backups can risk your entire shipment.

[RELATED POST] 5 Market Trends: Diving into Cargo Insurance

5 Market Trends: Diving into Cargo Insurance

A single interruption in the shipping industry can ripple worldwide. Since the onset of the pandemic, the average consumer has heard the words “supply chain” more than they’d like to. Add to that, the Ever Given container ship blocking the Suez Canal in 2021 — plus its sister vessel repeating the feat a year later in Chesapeake Bay — and the consequences of the Russian invasion of Ukraine, we’ve all gotten used to seeing much more of the behind-the-scenes movement of our goods on center stage. 

[RELATED POST] Introducing the Corvus Cargo Score

Introducing the Corvus Cargo Score

Marine Cargo insurance is vaunted as the foundation of modern insurance, with its lineage dating to the insuring of ocean-crossing vessels, and their cargoes, in the fifteenth century. With all that history, change tends to come gradually to the line. (And with generally stable profitability, carriers could be forgiven for not rocking the boat.) More recently, technologies such as connected temperature sensors and GPS trackers have entered the picture for shippers. But the data they generate hasn’t been factored into insurance underwriting at scale. Today, we’re sharing an exciting update that will help to finally bridge Cargo Insurance into the 21st century.