Freight rates are rising inexorably. Unfortunately, the alternatives to ocean freight are scant. One solution is to charter a vessel directly. Another is to move a much greater volume of goods in a single transit. For maximum efficiency, both tactics can be adopted together. However, either approach will have significant impacts on the adequacy of any existing cargo and stock throughput (STP) insurance policies.

Drewry’s Composite World Container Index reached USD9,421.48 per 40-foot container on 12 August, 358% higher than the same week in 2020, and up from about USD1,500 in August 2019. In just that week, spot rates for Shanghai to Los Angeles were up USD93 to USD10,322. The trend shows no signs yet of changing direction. These relentlessly rising shipping costs must either be passed on to customers, or allowed to eat into the bottom line. Cargo owners are looking for a way out.

Annual policies vs facultative transits

Shipping more goods in one go creates a dramatically different risk profile, and demands considerably higher insurance limits. Domestic insurers that granted cargo or STP coverage with low limits may be unable to react quickly to meet their clients’ changed supply-chain needs. Few will be able to grant the much-greater coverage required, leaving brokers scrambling to place standalone policies for much larger, one-off transits.  

We’ve seen a recent flurry of these consolidated cargo risks in London’s facultative insurance market. Even here, the risks are not entirely straightforward to insure on a standalone basis in the open market. Underwriters’ appetite is limited because of the narrow spread of risk and the spike limit they bring to their carefully balanced risk portfolios.  

Challenges and solutions

As a result, insurers want to charge up for the cover. The premium rate can be driven up by the risk profile, but also by minimum premium thresholds, and potentially by both, which may mean insureds are hit doubly hard. Shipping more volatile risks such as temperature-sensitive cargos will further multiply the challenge. 

It is far from insurmountable; solutions can be found. Existing insurers may shy away from larger risks, but often too those that have provided a client’s annual coverage for several years may have a “premium bank” accrued. If they possess the necessary spread of risk, they may be best-placed to step up and help their existing customers. Another solution, would be to consider a named-perils policy, which may be necessary to obtain terms especially for certain cargoes such as soft commodities.

Reliable London

When new insurers are required to assume aggregated cargo risks created pragmatically in response to rising freight rates, the London subscription market is a reliable alternative. The market here is typically able to adapt more easily than others, because multiple Lloyd’s syndicates and conventional insurers will each take a share of the overall limit. Any increase in limit is therefore also shared, making the concentration of risk much easier to bear. 

London’s marine cargo market consists of more than 30 syndicates and about 15 companies, so a large limit can be divided between many insurers. Working from the global centre of marine insurance, underwriters in London are familiar with territories and interests that domestic insurers typically shy away from, and make it their business to respond when other insurers are unable to do so.  

We can help

Miller’s Supply Chain team is one of the largest and most experienced in London. With 18 brokers, technicians, and claims brokers standing by to serve clients world-wide, we place more than USD80 million of premium, which gives Miller significant clout with underwriters. We operate several exclusive facilities that provide ease of access to dedicated market capacity. If you or your clients face an insurance squeeze due to sky-high freight rates, and domestic markets have frozen in the headlights, please contact me or a member of the team. 

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