Pirates, wars and extreme weather: how to prevent and mitigate the risks of international logistics

by Marcus Vinicius Lima

Countries around the world have never been so close. With the evolution of technology and driven by globalization, borders have shrunk and the opportunities to do business internationally have increased, stimulating global trade and logistics.

However, some risks and challenges have also arisen throughout this process that need to be taken into account. Between pirates, wars, technical failures and abrupt weather conditions, the transportation of cargo across borders is a concern that is part of the routine for crew members, shippers, suppliers and buyers.

In this scenario, international logistics insurance has gained strength as an essential tool for mitigating risks and reducing the impact on the agents involved in the business, avoiding problems and benefiting economic sectors.

What are the most common risks?

Physical damage, such as the Baltimore Bridge collapse, misplacement, theft or loss, delays, weather events, human error and regulatory problems are those that can happen most often.

Analyzing the situation in the face of adversity and responding with different customized solutions is fundamental in this market. In fact, this is one of Horiens’ strengths.

Pirate attacks in the Red Sea: risks on maritime routes in practice

A practical example is the pirate attacks in the Red Sea. Four major shipping companies have suspended their routes through the region for fear of attacks by the Houthi militia, which governs part of Yemen.

Increasingly structured, this group is attacking vessels with drones and even helicopters, which makes containment much more complex. And all this has an impact on the world economy.

The main objective is to hijack ships, goods and even people in order to demand rewards and actions to further strengthen terrorist groups. Considered an important international trade route, traffic on the Suez Canal fell by 42% compared to the beginning of last year. The weekly traffic of container ships fell even more: 67%, as UNCTAD (United Nations Conference on Trade and Development) data shows.

So which route are the ships following? Vessels opt for a longer route, bypassing Africa, increasing the journey time by 10 to 15 days, and the logistics end up becoming more costly due to the increase in the price of freight for the products and the delay in delivery time.

Think of an industry that needs a part to repair its machinery. The machine, which would have been down for about a month for repairs, will probably remain unusable for three months. How big would the damage be?

International logistics insurance is an alternative to mitigate risks

There are various types of cover that can protect the logistics chain, mitigating risks and preventing major losses. The important thing is to have a strategic partner with experience and reference in the market with whom you can exchange and think together about an alternative or solution to problems.

From the point of view of risk transfer, War and Terrorism are events excluded from the standard Hull and Machinery and Transport insurance clauses, but they can be covered by taking out additional and special cover in the policies.

Even so, it is important to have a risk consultancy that is attentive to the specifications of the clauses.

For example, following the outbreak of a conflict, insurers have the right to cancel War and Terrorism cover for the affected region seven days after it is announced.

In other words, when the modality is contracted, it’s because the war hasn’t started yet, so it’s covering the risk of a possible conflict. However, when war breaks out, it is no longer a risk and there is no longer any cover for it.

Even if there is a notification period and a response from the client, it is essential to have a trusted intermediary who can advise you on how to protect yourself in the event of a more serious situation, such as war, looting or a pirate attack.

In addition, the insurance market offers a differentiated solution which is K&R (Kidnap and Ransom Insurance), an insurance that aims to guarantee events related to the kidnapping of crew and detention of vessels, as well as the financial impacts caused by them.

In extreme situations, it is important to analyze case by case

At Horiens, we always try to present a specific solution to the national and international insurance market that meets the client’s needs. In this way, we try to get to the bottom of things in order to design the best possible solution.

In the event of a problem caused by human error, climate change, war or pirate attacks, we would probably have to assess the specifics and make a completely different decision. That’s why the partner’s role is so important.

From the simplest to the most complex problems, taking a strategic look at an international transaction is fundamental to maintaining your competitiveness in the market. And when your company has someone to rely on in this process, the response becomes more agile and the decision much more assertive, avoiding losses and bigger problems in the future.

Shall we talk about it? Contact: www.horiens.com/contato