The economic slowdown and slow recovery in the midst of the pandemic are major challenges facing the transport and logistics industry, and this, coupled with trade tensions and political upheaval, is exacerbating the supply chain risks in the transportation and logistics industry. One of the key lessons learned from the COVID-19 experience is the massive interdependence of the supply chain, and that disruptions are becoming more severe and occurring with greater frequency.

In such an environment, the freight forwarding sector is under tremendous pressure in terms of costs and achieving operational efficiencies, while also having to balance the risks faced in safeguarding valuable and high-risk cargo through marine insurance solutions.

Elesh Bisla says that while marine insurance products are conventional in nature, each policy must be customised to meet the unique needs and risk exposures of every client, every cargo, and every operating environment – from simple and straightforward, through to complex and high-value. Here, the roles of experienced marine insurance brokers and underwriters are crucial.

“In an increasingly litigious environment, as well as escalating crime and weather catastrophes, it is crucial that all role players in the supply chain fully understand the nature of freight being transported, its value including all duties and taxes, the transportation risks whether by sea, air, rail or road, who is liable and what exactly is covered at every point of the supply chain journey. The brokers, underwriters, adjusters, surveyors, and claims handlers play a crucial role in this supply chain, and their skills and experience are increasingly in demand,” explains Bisla.

Escalating overhead costs 

“Freight forwarding and cargo handling is a highly competitive industry and price plays a big role. With escalating costs from fuel to taxes, duties and security, there is always the temptation to cut costs and corners, including on the insurance side – often with disastrous consequences if and when things do go wrong. We’re seeing an increasing trend of freight operators taking the bare minimum of cover, exposing themselves to massive liabilities both in terms of their balance sheet and reputation. In some instances, freight forwarders are so eager to sign up new business that they do not fully interrogate the real value, risks and liability associated with the cargo they are taking on,” says Bisla.

Consider the implications of a logistics company that only has R500,000 damaged goods cover, but the cargo load being transported is worth R4 million. If that vehicle is involved in an accident and the load is an outright loss, the implications of a R3.5 million shortfall in cover could put the forwarder out of business permanently and they would be liable for the damages.

Escalating crime 

Escalating crime and syndicates pose another significant risk, with cargoes such as electronics, cell phones, sim cards, alcohol and cigarettes falling prey to hijackers and looters.

Training of transport operators 

Freight handling and loading is also a risk that requires training to ensure that drivers and transport operators know how to load and offload cargo correctly, as well as the correct storage and handling conditions of such goods – for example, perishables and flammable items. In such instances, it’s important to understand whether your insurance coverage applies once cargo is offloaded and ownership or possession is transferred to another party.

The importance of insurance 

“It’s crucial to fully interrogate the value and nature of the goods being transported, and, in turn, ensure that your marine insurance limits and conditions of cover are correctly scoped,” advises Bisla.

As the effects of the pandemic continue to be felt in terms of a decline in trade volumes, service providers in the supply chain are chasing a smaller pool of ships and cargo. The temptation to cut costs and skimp on insurance in a bid to secure business should be avoided at all costs, and freight operators would do well to apply proper risk management and assessment protocols to reduce their exposures in uncertain and challenging economic conditions. A catastrophic loss of cargo that is not correctly insured could spell the end of the business and a raft of crippling liabilities.

Use an experienced marine insurance underwriter and broker 

It is here where the skills and sector knowledge of an experienced marine insurance underwriter and professional broker can prove invaluable. “Ultimately, it is the marine insurance broker who will assess the risks faced by their client, prepare the broking notes in accordance with the client’s needs, ensure compliance with the sector rules and regulations, negotiate and place the risk with an insurer. Professionalism and expertise are beneficial in this critically important business that underpins the world trade and economy,” asserts Bislae.