Does the cargo market have a handle on port accumulations?

By Suki Basi, manging director, Russell Group.

The cargo market, like the wider maritime market, is currently wrestling with the same set of problems: skyrocketing inflation, labour strikes, geopolitical tensions and a deteriorating economic pictures. All of which combine to create a difficult environment for cargo underwriters to operate in.

As these storm fronts multiply, cargo underwriters could be forgiven for not focusing on port accumulations.

Global containerised trade is becoming more concentrated within a set group of nations, which include the United States and China, which are projected to account for just under 50% of all container exports by 2030, according to S&P.

This concentration of global trade mirrors the recent concentration of trade within a select group of ports too.

Russell’s ALPS Marine analysis shows that the top 5 ports, when adjusted for dollar transit, are expected to represent 23% of all total dollar trade transit for 2023. If we expand this to include the top 10 ports, then this increases to 40%, with the figure rising to 60%, when accounting for the top 20 ports.

However, this port accumulation or peak trade exposure may not be something many companies or indeed (re)insurers are aware of or even monitoring as accurately as they could do. 

Understanding this must be a key tool in any form of risk mitigation for the cargo market, especially if the recent port disruptions events are anything to go by.

Events from the last two years from ports in Shanghai to Felixstowe have highlighted the impact that any form of disruption at a major port can have on an organisation and their (re)insurers. 

The closure of these ports can result in a supply chain delay that slows the delivery of products, reducing choice for consumers, and impacting a company’s revenue along with creating reputational damage for an organisation.

Now that we have identified Port accumulation as a significant issue for the cargo market, this raises the next question; how can cargo underwriters manage their exposures more effectively?

Firstly, this would require underwriters to not just be aware of their peak exposures across all ports, but to have a specific value attached to these exposures. 

This valuation would be extremely beneficial to an underwriter, as they would not only know their exposures at major ports, but also at ports that are of interest to them. This would in effect give them a better handle of aggregate peak exposure.

Secondly, this trade intelligence cannot exist on its own. It must be combined and overlaid with trading intelligence on vessels, transit routes, companies, operators and commodities.

Thirdly, this approach would give an underwriter the ability to overlay their entire portfolio, thereby identifying any potential exposures of their clients across these variables.

Finally, the success of any such platform or solution, like the one we have identified, relies on a standard information flow to reinsurers. This information would flow into a real-time dashboard, enabling any reinsurer to understand and know their trading exposure, as broken down across the areas we have discussed.

It is becoming clear that the global trading landscape is transitioning to a new landscape. In this landscape, events are occurring faster than before, and decision-makers are required to make much quicker choices and decisions. The margin between success and failure has never been so small.

Therefore, it is the belief of Russell that cargo underwriters who successfully manage their port accumulations will be the ones which embrace data-led decision-making and become more flexible in their culture and working practices.

In contrast, those that fail to embrace this change will find themselves buffeted by wave after wave of crises, always responding to oncoming storms, rather than being proactive in navigating a route through or around them.

Emerging Risks, in conjunction with Russell Group, is hosting a dedicated Roundtable on this topic during the IUMI Conference in Edinburgh on 19 September.