The Hard Market for Ocean Cargo Won’t Be Helped by Vaccine Roll-Out
What are the risks involved in a global vaccine rollout?
The global roll-out of vaccines underway now is unprecedented in its speed, scale and complexity. And as we’ve seen in reports from around the country the past few weeks — of long lines, crashing registration systems, and shifting government guidance — that challenge is most apparent in the last mile. A good outline of the challenges of getting shots into arms in an orderly and fair fashion can be found here.
But there are more hidden challenges in the middle miles as well, the part of the supply chain that those of us who work in Marine Cargo or other lines of cargo insurance are familiar with.
What Are the Risks Involved in a Global Vaccine Rollout?
These enormously valuable shipments are at risk of theft and, in the U.S. at least, also sabotage given the strong “anti-vax” movement. As Insurance Journal reports, “A consignment carrying tens of thousands of packs of a COVID-19 vaccine that is lost, stolen or damaged…has an estimated value of $15-$50 million.” Especially now that the rollout has proven bumpy and states are desperate to get their hands on greater quantities of vaccines, there’s a heightened risk of criminal activity.
Ultra-Cold Storage and Inexperienced Handlers
Most of the cold chain is not equipped for the temperatures required for the Pfizer vaccine, and even the Moderna vaccine strains the limits of typical refrigeration. Long before COVID-19, the WHO estimated that over half of all vaccines were wasted every year due to “temperature control, logistics and shipment-related issues.” Given the added constraints of ultra-cold storage and the unprecedented demand around the world, we could see very expensive losses.
Further complicating an already taxing supply chain is the potential entry of less experienced handlers. As Willis Towers Watson’s Philip Clayton and Andy Bowman wrote in Aircargo News, “pressure to deliver the vaccine as quickly and widely as possible is expected to bring new, less-experienced operators to assist in their distribution,” since the small number of specialized cargo carriers who normally handle most pharmaceutical transportation will not have the capacity to take on the unprecedented number of shipments.
…All of the other risks
It’s winter in North America — we cannot discount the impacts that a major blizzard could have in moving extremely time-sensitive shipments and the potential spoilage that comes with the disruption. That or any other number of risks that are normally part of transit in any circumstance are heightened by the high value of the vaccines. Plus when it comes to spoilage, there’s added questions of liability around the side effects of that vaccines are administered after experiencing temperature excursions without anyone’s knowledge.
How Will This Impact Insurance?
The market for Ocean Cargo has been hardening for the last two years, and the added risk of a global vaccine roll-out is likely to make it worse.
For instance, renewals on existing risks have been already coming in with rate increases in excess 30% rate increases, and, as Business Insurance noted this week, “Where previously an insurer might have offered $10 million, $20 million, or $40 million in primary limits, it might now take several insurers to assemble the same limit.”
Where the lack of reinsurance capacity, political tensions and numerous other factors have been driving the hardening market, vaccine deployment may accelerate the hardening trend.
Consider a pharmaceutical company. Whether the manufacturer is utilizing in-house captive insurance or an outside insurer, the insurance capacity demanded by its shipments, in an environment of already limited risk capacity, may ripple into the broader market via pricing and availability changes that account for heightened liability of vaccine distribution. It could even stretch beyond the most immediate lines into adjacent lines, like Ocean Cargo.
This puts the manufacturers in a double bind. Skyrocketing insurance prices will coincide with the general lack of availability of adequate cold chain distribution, which will drive up prices of the shipment itself. There’s plenty of funding to ensure there’s no slowdown, but some impacts will be felt by various actors along the way.
What Can Brokers Do?
Whether it’s a vaccine shipment or something else that’s being affected less directly, we know one thing that can help clients, brokers and insurers alike: data about past and present temperature control.
For More on the Underlying Market Fundamentals in Marine Cargo See Our Whitepaper: Cargo in Chaos
As Tiina Ruhlandt, President of EIMC put it:
“The unique logistical demands of the CoVID-19 vaccines coupled with the intended distribution volume exceeds capacity amongst cold chain specialists. Rapid adaptation of non-specialist facilities, staff and equipment to the cold pharmaceutical transport mission presents inherently magnified risk of loss, which can be offset by careful loss prevention planning and data-centric supply chain monitoring.”
“Careful loss prevention planning and data-centric supply chain monitoring are key to meeting the unique logistical demands of successful CoVID-19 vaccine distribution.”
Companies like Sensitech offer technologies to monitor the temperature of goods throughout the cold chain. Properly arranged sensors could give the assured the comfort to know the products have not had any temperature excursions that would compromise the vaccines. In fact, at Corvus we can go a step further by offering insureds full spoilage cover with no waiting period, based on data from Sensitech, in the event of a claim due to delay or refrigeration breakdown. (Drop us a line for more info).
If clients are struggling with the rising rates in Ocean Cargo, whether they’re carrying vaccines or are just collateral damage from the constrained cargo risk capacity, temperature readings can provide a definitive history of performance that helps insurers to place coverage and even offer coverage enhancements.
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.
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.