Joe Klobus, OEC Group’s Logistics Insurance Manager, discusses dangers passing through the Suez Canal and what the current landscape means for cargo insurance.
From an insurance perspective, what do you make of the situation going on around the Suez Canal?
All carriers that normally bring freight through the Suez Canal have been forced to divert their vessels around the Cape of Good Hope because of attacks by the Houthi Rebels. While these diversions take the vessels out of harm’s way in one scenario they, however, increase risk in another. Rounding the Cape of Good Hope increases the vessel’s exposure to piracy and another increased risks because it will be on the water much longer than normal. Anytime a journey is increased by a few weeks there is a significantly higher chance of a problem occurring.
What are the specific problems, from an insurance perspective, shippers should know about the route around the Cape of Good Hope?
This is a classic “damned if you do damned if you don’t” situation. The Houthi rebel attacks are brand-new to the industry and they’ve garnered significant media attention, but the alternate ocean shipping routes around Africa have their own difficulties. Pirates are very active along both the East and West Coasts of Africa. Piracy off the West Coast of Africa, particularly off the coast of Nigeria, is especially active and could directly impact this popular alternate route. On top of that, the Cape of Good Hope is where the Atlantic and Indian Oceans meet. Waters tend to be rougher, currents tend to be stronger, and wind conditions in the region can be severe. Also, as we saw during COVID, when more capacity is needed, vessels begin running behind schedule, and normal patterns become disrupted. This is when errors happen and cargo tends to go overboard at a higher rate than normal. Needless to say, if your cargo is on a vessel taking this route it would be a good idea to buy insurance.
Is there another option than importing goods directly through the U.S. East Coast? If so, what are the risks?
Yes, shipments from China to the U.S. East Coast can be imported through the West Coast and then put on a train or truck and then brought to their final destinations on the ground. Also, several carriers are using railways across South America, commonly referred to as land bridges, to circumvent the Panama Canal without drastically changing overall shipping routes. While there are obvious risks such as congestion and delivery delays that were pervasive during the pandemic, shippers need to remember that last year there were serious issues along U.S. rails and, while rare, auto accidents are always a concern. Therefore, even with these alternative routing options, investing in cargo insurance would be a smart move.
What advice would you give to shippers looking to protect their shipment in the current environment?
It is essential that you speak with your insurer in a market like this one. It’s very important to not only understand the risks involved right now, but to also develop a thorough understanding of your individual policy. Things like war exclusions can be very complex, and it’s important that shippers and insurers are on the same page.