COVID exposes global supply chain fragility amid looting and delays

The growing crisis in the global supply chain and a move away from the “just in time” system is putting huge pressure on the marine insurance sector.

The chair of the cargo committee committee at the International Union of Marine Insurance (IUMI), Isabelle Therrien warned that the growing inability to move goods and services across the world was causing aggregation risks due to backlogs and has sparked a crime wave on the west coast of the United States.

Speaking at the end of the organisation’s winter meeting in London Therrien warned the global supply chain like any system was only strong as its weakest link and as such the disruption caused by the pandemic has tested those links to the extreme.

“We have seen severe port disruption, and a lack of truckers many of which are not paid to wait at ports for cargo to be delivered,” she said. “There has also been a lack of warehouse personal with many leaving their job as part of what has been described as the great resignation.”

Therrien said that during the peak of the port backlogs in Long Beach and other Californian ports there was $24 billion worth of goods which were on vessels outside of the ports and unable to unload. It also saw goods left stranded in rail yards in the approaches to the ports waiting to be loaded onto stranded vessels.

The situation has prompted widespread looting of rail goods yards with crime levels between October 2020 and October 2021 rising by 365%.

It has come against a backdrop of a tripling in the costs of freight charges on some routes over the past two years.

Therrien said the perfect storm in the supply chain has caused many businesses to make a fundamental shift in their strategies on goods and supplies.

“Companies have been moving away from the just in time system to a just in case strategy to in effect hedge their bets. It is likely that there will be a move n further to a more hybrid approach rather than a reliance on a just in time supply chain.”

Therrien said that the market’s stock throughput risks would increase as the movement of goods was impacted.

The issue of whether cargo underwriters should be writing stock throughput risks has been a debate within IUMI itself for many years. Cargo cover will traditionally be enacted when the goods are in transit from one point to another. Stock throughput will also cover the goods while they are in situ, sometimes for months or even years.

A least one previous IUMI cargo chairs has warned that the cargo sector was in danger of assuming stock throughput risks that the property market were no willing to underwrite. However Therrien said that the current pricing of stock throughput cover was such that they were valid risks for the sector.

However, when asked about the changing dynamics of the risks and the coverage for cargo underwriters Therrien warned: “The sheer accumulation is a risk for the market when goods are in pinch points around the world. Cargo not moving is cargo at risk, as we have seen by the looting in Long Beach.”

The issue of whether cargo underwriters should be writing stock throughput risks has been a debate within IUMI itself for many years. Cargo cover will traditionally be enacted when the goods are in transit from one point to another. Stock throughput will also cover the goods while they are in situ, sometimes for months or even years.

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