Cargo digitalisation

The digital transformation in the logistics and marine insurance sectors is leading to new opportunities to collaborate more effectively and deliver innovative products and solutions argue Matthew Yeshin (above) and Herman Brito, Marsh Specialty Managing Directors in the group’s Marine, Logistics and Transportation Practice in North America

Full speed ahead for cargo insurance digital transformation

Digitalisation in logistics has accelerated because of the pandemic-fueled boom in e-commerce and customer expectations for fast delivery, as well as aggressive competition driven by advances in technology. Similar trends are accelerating digitalisation in insurance, creating a convergence for both industries that has led to innovation in cargo insurance and claims to meet the expectations of the logistics industry and its customers.

Developments that are driving change in logistics and insurance include: > Sharp reduction in the cost of technology, expanding access to digital tools that improve efficiency, mitigate risk, and enhance the customer experience; > Evolving consumer expectations for delivery of goods and products, as well as heightened demand for information and service in real time; and, > Increasing competition from technology-enabled startups. During the fourth quarter of 2021, for example, more than 250 supply chain startups attracted nearly US$11bn in venture capital in the US and Europe, according to PitchBook. That represented a year-over-year increase of almost 8%.

CONSUMER EXPECTATIONS CHANGING

Ongoing supply chain disruptions have increased the impact of delivery delays across the global manufacturing and retail industries. At the same time, consumers are becoming increasingly willing to seek alternate suppliers that can deliver goods and products faster. Buyers simply are no longer willing to wait a few more weeks to receive deliveries, particularly if they can find another supplier.

Consumers’ and corporate shippers’ expectations changed radically during the Covid-19 pandemic that began in 2019. Since that time, advancements in technology have accelerated e-commerce trends and growth in business-to-business (B2B) and business-to-consumer (B2C) commerce.

Even though B2B has long been the core focus of the logistics industry, global supply chain revenue growth is seeing opportunities in B2C. As a result, new digital providers with B2C experience are entering the logistics and supply chain industry. These entrants are placing pressure on traditional players to create new business models and provide innovative products that meet the rising expectations of consumers.

“Ongoing supply chain disruptions have increased the impact of delivery delays across the global manufacturing and retail industries. At the same time, consumers are becoming increasingly willing to seek alternate suppliers that can deliver goods and products faster.”

CARGO INSURANCE EVOLUTION

In 2022, digital cargo insurance is no longer an aspiration. It is now a reality. There are several reasons for this. Traditional barriers of global trade are breaking down partly because of the acceleration of investment in supply chain technology and the rise of e-commerce.

As a result, the logistics industry is serving new customers, that expect greater transparency and a more streamlined and digital experience to ensure they receive efficient service.

The future of insuring goods in transit increasingly appears to be shifting to logistics companies. This shift is propelled by the evolution in customer expectations and the operational efficiencies that digitalisation affords. First, customers are less likely to accept standard conventions and limitations when it comes to damage to cargo in transit. Second, a digitalised logistics industry is a more efficient distribution channel for cargo insurance.

Insuring cargo is becoming further integrated with booking and arranging freight, and more goods are being shipped “on-demand” worldwide. The launch of digital freight platforms by forwarders, ocean carriers, air freight carriers and online freight marketplaces offers an untapped distribution channel for cargo insurance products. Digital cargo insurance allows cargo owners to select the shipments they want to insure and shop for price, in an efficient digital environment.

DIGITAL PRICING

It is notable that a pricing strategy long used in the transportation industry is also helping to modernise cargo insurance. While transportation businesses have used dynamic pricing for years to optimize their capacity, and freight pricing models to boost margins through alternative routing and timing, the same technology-enabled approach is influencing cargo insurance pricing.

As logistics providers standardise shipment data, implement blockchain, and assimilate smart contracts, digital technology is driving transformation in cargo insurance. The combination of high-quality data insights and predictive analytics that is enabling the logistics industry to improve its efficiency and meet consumer demands will also bring benefits to cargo insurance. The ongoing digital transformation will enhance cargo risk management, improve underwriting, and facilitate claims mitigation.

Working with the right partners to deploy digital cargo insurance technologies will provide the opportunity to improve the customer experience as well as create new revenue growth channels.

The future success of logistics businesses in a digitally transforming marketplace will depend on their ability to select, manage and leverage the risk created by these new opportunities.