The Trump Administration’s assertive trade agenda has started to reshape global supply chains.
All industries will face challenges due to delays in customs clearance and disputes over who is responsible for tariff costs. Furthermore, because executive orders can take effect immediately, companies have little time to adapt to these changes.
While these policies aim to lower trade deficits, bring manufacturing jobs back to the US, reduce illegal immigration and combat drug trafficking they have also caused significant disruptions, increased costs, and heightened risks for existing businesses and international suppliers.
The impact on stock throughput/cargo policies placed through the London market
Accurate basis of valuation
Given the significant increase in import costs, companies must review and potentially update their basis of evaluation to avoid underinsurance or to make informed decisions about retaining more risk on their balance sheets.
Higher insurance limits
Considering the rapidly changing environment and increasing valuations, the limits set during the renewal process may no longer reflect the full value of the transits. Failing to properly assess and adjust these limits could result in disputes and inadequate coverage in the event of a loss.
Existing coverage and flexibility
Stock throughput and cargo policies are designed to provide sufficient coverage, allowing flexibility for re-routing, additional storage, and onward transit to the original or an alternate destination. However, it’s important for companies to check whether their current policies still meet these requirements.
The impact on trade disruption insurance
Trade disruption insurance (TDI) provides coverage for the financial impacts of supply chain disruptions, even in the absence of physical loss or damage to the policyholder's goods or assets.
TDI insurers typically consider various named perils, including natural disasters and specific political events (such as Russia's annexation of Crimea).
However, insurers have traditionally excluded tariffs from covered risks. Due to ongoing international political events, they are currently reluctant to revise policies to include coverage for tariff-related losses.
The impact on trade credit insurance
While tariffs are not covered by trade credit policies, they highlight the broader issue of maintaining financial stability in supply chains through trade credit insurance. Tariffs are considered a cost of doing business rather than a credit risk.
A whole turnover trade credit policy is specifically designed to protect against the non-payment of invoices due to customer insolvency, extended defaults, or political risks. Although tariffs themselves are not directly insurable, the potential knock-on effects - such as financial strain on customers leading to payment defaults - underscore the importance of trade credit insurance as a valuable safeguard for clients to consider.
Additionally, the 'pre-shipment' aspect of the coverage addresses issues like losses incurred when the insured has produced goods for export, but the contract is cancelled due to events beyond their control. This feature offers a more tailored and comprehensive solution.
The changes in US trade policies have forced businesses to reassess their insurance valuations and cargo policy limits. They have exposed gaps in trade disruption coverage while financially securing supply chains with trade credit.
Miller is one of London's most influential cargo brokers. With 21 dedicated specialists, our team delivers innovative, cost-effective cover. Like all Miller teams we work closely and collaboratively with our other specialist teams to bring the best options to our clients.
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