Calmer waters ahead?

Shipping companies, their customers, insurance brokers and insurers are hoping for calmer waters in 2023 after several years of high seas. Neil Atkinson , Head of Marine, UK Company, CNA Hardy, looks at the key challenges in the marine sector and outlines how the industry is collectively responding

In recent months an unprecedented combination of events has made global trade harder, with the war in Ukraine, soaring inflation and the Omicron variant of Covid which have led to supply chain disruption. This in turn has led to an increase in delays and risk of deterioration of sensitive cargoes, further compounded by an increased fire hazard on board vessels.

This year some pressure points appear to be easing, though there is no end to geopolitical and economic turmoil in sight.

For insureds and their brokers, the good news is that new capacity in the $18.9bn global premium cargo market has kept rates in check, for the moment.

However, the fly in the ointment is reinsurance, with global reinsurance capital falling by 17% or $115bn in 2023 according to Aon. Many risk players are pulling capacity altogether or hardening their stance with exclusions and tougher conditions. Insurers are likely to be left with higher retentions and additional costs to bear.

Physical capacity for cargo is a different story. For almost three years, securing slots on container ships has been challenging and expensive, with breakbulk expanding in response. The latter is a riskier method of transport and comes against a backdrop of rising damaged-goods claims. Will the container capacity squeeze continue? Moody’s in October predicted that container supply would exceed demand as it downgraded its shipping sector forecast to negative.

However, Reuters recently suggested that freight rates will not normalise for months, even though spot rates as of early January were down 80% from a September peak above $20,000 for a 40-foot container. Rates continue to be above pre-pandemic levels boosted by higher labour costs and continued Covid in China .

New ship orders, including from Mediterranean Shipping and A.P. Moller-Maersk, will help. However, if demand falls shipping companies will adjust capacity accordingly.

Ukraine And Supply Chain

The Ukraine war has trounced the pandemic as the major global trade disrupter, triggering port closures, stranded vessels and, most notably, surging commodity prices. Many manufacturers, meanwhile, have been forced to find new suppliers in a hurry or to stockpile goods, both of which have insurance ramifications.

Brokers have been monitoring the supply chain disruption closely. Distribution upsets - what AJG last spring called a “chain of chaos” - have highlighted shortcomings of standard 15-day duration provisions, created instances of significant under insurance and made monitoring goods’ location harder.

AJG has also noted a rise in attritional losses around perishable goods.

Another major issue on the radar of brokers has been increased value accumulation, as stockpiles up at ports and other hubs.

Worried shippers chartering vessels or huge swathes of them to ensure capacity are also increasing values at risk, while ever larger vessel sizes – such as the 400m long, 61.5m wide Ever Ace – and mammoth single port sites exacerbate such concentrations.

EASING SUPPLY-CHAIN PROBLEMS

Sea-Intelligence, the marine-focused data analytics firm, found that global schedule reliability in November, at 56.6%, was well up on the same period in 2021 and 2020. The company predicted a return to normal levels of shipping congestion in March.

The Ukraine conflict is clouding the outlook, as is Covid in China, home to seven of the world’s 10 largest ports. China recently eased Covid-related port restrictions, and infection rates are surging.

Navigating sanctions against Russia has created difficulties for insurers and the recent G7/EU/US oil price