Maritime transport through key transit routes, that funnel around 80% of global goods movement, is under threat from global forces such as climate change and geopolitical violence.
Following attacks by Houthi rebels on commercial vessels travelling through the Red Sea and the subsequent military attacks by the United States and United Kingdom, ship traffic through the Red Sea has drastically reduced, and created new exposures for insurers.
Many shipping companies have diverted their vessels around the Cape of Good Hope. A journey that takes two weeks longer, and will emit more CO2 emissions, according to many estimates.
The impact of this is being felt across the global economy. Shipping rates from Shanghai to Rotterdam have more than trebled from $1,442 in mid-December 2023 to $4,984 in late January 2024 according to Drewry.
The Red Sea and Suez Canal is responsible for 12% of world trade by dollar value, which is about $3 trillion according to Russell’s ALPS Marine analysis.
However, the Red Sea is not the only transit route that is under threat now.
The Panama Canal is suffering from extreme drought, which has been exacerbated by an ongoing El Nino that is affecting Gatún Lake and the whole region until May. Daily traffic through the Canal is down 40% compared with last year according to data by the Panama Canal Authority.
The canal represents about 2% of all world trade by dollar value ($491 billion) according to analysis by ALPS Marine. The canal is a key gateway for North American imports from China and other northeast Asia nations.
In this new seascape, an insurer must understand its transit route exposures, in addition to its port risk accumulation. As a result, an insurer can help their clients to identify and visualise potential supply chain disruptions, helping them to build resilience and a more robust risk mitigation strategy.
The knowledge gained from the marine industry can go much wider than an insurer’s understanding of underwriting exposures. Knowledge of the underlying trade movement can bring insurers close to the insured, thus ensuring that they maintain and protect both their clients’ and their own future viability.