Many would agree that the most urgent issue in transport right now is supply chain disruptions. This issue has been particularly pressing in the wake of the COVID-19 pandemic, the Russia-Ukraine war, ongoing geopolitical tensions, and climate events, which have significantly affected the viability and efficiency of global supply chains. 

These disruptions have had widespread impacts on the availability and cost of goods, shipping times, and overall industry stability.

Let’s look at a few recent examples highlighting the threats to supply chains and the importance of being adequately insured against them. 

Supply Chain Disruptions 

1. Ever Given Suez Canal Blockage (2021):

• The grounding of the Ever Given container ship in the Suez Canal blocked one of the world’s busiest shipping routes for nearly a week, causing delays for hundreds of ships. This incident highlighted the vulnerability of global supply chains, as the Suez bottleneck disrupted an estimated $9.6 billion worth of goods per day.

• Companies relying on time-critical manufacturing faced delays in materials and product shipments, which had a cascade effect on industries like automotive and consumer goods.

2. COVID-19 Pandemic:

• The pandemic caused massive disruptions across all forms of transport—air, land, and sea. Factory shutdowns, labor shortages, and health-related restrictions led to major delays and shortfalls, notably in semiconductors (affecting automotive and electronics industries).

• Companies like Ford and General Motors faced production halts due to semiconductor shortages, mainly caused by factory closures in Asia and increased demand for electronics during the pandemic.

3. Russia-Ukraine Conflict (2022–2024):

• The ongoing war between Russia and Ukraine has severely impacted the transport of goods, particularly in Europe. Sanctions on Russia, the destruction of transport infrastructure in Ukraine and elsewhere, along with higher fuel costs have all contributed to longer delivery timelines and inflated shipping costs.

• The European Union's reliance on rail and road transport through key Eastern European routes was significantly impacted, affecting everything from raw materials like steel and grain to finished goods. Industries like automotive, agriculture, and energy were especially hard-hit.

4. Port Congestion in the U.S. (2020–2022):

• Ports in the U.S., particularly on the West Coast (e.g., Los Angeles and Long Beach), saw record levels of congestion during the pandemic. Ships were left waiting offshore for weeks on end, exacerbating shipment delays, particularly from Asia. 

• Companies like Walmart and Target were forced to find alternative shipping methods, and some resorted to chartering vessels to avoid the gridlock at major ports.

Climate-Related Events 

Likewise, climate-related events have played a significant role in supply chain interruptions, especially in the transport industry. Hurricanes, bushfires, floods, and droughts have all wreaked havoc on transport routes worldwide. 

These events are becoming more frequent and severe due to climate change, leading to widespread disruptions. Here are some key examples:

1. Hurricane Ida (2021) – U.S. Gulf Coast

• Impact: Hurricane Ida caused significant infrastructure damage, including to ports, rail lines, and highways in the Gulf Coast region of the United States. The Port of New Orleans was shuttered for days, causing delays in both imports and exports, notably affecting industries reliant on agricultural products, oil, and gas.

• Industries Affected: The oil and gas industry was severely affected as offshore rigs and refineries shut down. Additionally, the disruption to the transport network caused delays for consumer goods, raw materials, and agricultural products like grain and soybeans.

2. Australian Bushfires (2019–2020)

• Impact: The widespread bushfires in Australia caused significant transport and logistics delays. Major highways and rail lines were blocked or destroyed, interrupting the flow of goods across the country. Ports and distribution centers were also affected by smoke and fire damage.

• Industries Affected: The agricultural sector was hard hit, as fires destroyed crops and livestock. The construction and consumer goods sectors also experienced delays in receiving raw materials and finished products due to transportation issues.

3. Flooding in Europe (2021)

• Impact: Severe flooding in Germany, Belgium, and the Netherlands in July 2021 caused major transport disruptions. Roads, railways, and bridges were damaged, leading to long-term supply chain disruptions. River transport, particularly on the Rhine, was disrupted, affecting the movement of goods throughout the region.

• Industries Affected: Automotive, chemical, and manufacturing industries suffered delays in receiving critical parts and raw materials. Companies like Volkswagen and BASF faced production slowdowns due to damaged infrastructure and delivery delays.

Proper Insurance Is Vital

As unforeseen supply chain disruptions become more frequent and unpredictable, having the right insurance coverage becomes critical. Businesses need specialised support and insurance solutions designed to help mitigate the financial and operational impact of these challenges. Here are some critical coverages to consider:

1. Supply Chain Interruption Insurance

• Coverage Overview: This coverage protects against financial losses due to interruptions in a business’s supply chain, whether from natural disasters, geopolitical issues, or major accidents. Coverage can apply to direct suppliers as well as critical upstream and downstream partners.

• Client Benefit: This insurance covers lost revenue, expenses incurred to secure alternative suppliers, and costs for delayed shipments. It’s particularly valuable for businesses that rely on just-in-time (JIT) models or have limited supplier redundancy.

2. Business Interruption Insurance with Contingent Coverage

• Coverage Overview: Traditional business interruption insurance covers a business’s losses following a covered property damage event, but contingent business interruption (CBI) insurance extends to disruptions in a client’s supply chain. This protection can be invaluable when suppliers, logistics providers, or customers experience operational halts due to issues outside the client’s control, like flooding or natural disasters in supplier regions.

• Client Benefit: With CBI, businesses are financially protected even if the disruption doesn’t occur directly at their location but affects important suppliers or transport routes. This coverage is essential for industries like automotive, technology, and retail, where supply chain reliability is crucial.

3. Cyber Insurance for Supply Chain Security

• Coverage Overview: Cyber Insurance, customised for supply chain risks, can help protect businesses from losses caused by cyberattacks on suppliers or logistics providers. This coverage is increasingly relevant as ransomware and data breaches targeting global supply chains rise.

• Client Benefit: This coverage can include financial support for business interruptions, data recovery, and legal fees. It can also cover the costs of communicating with affected clients and partners, which is essential for industries reliant on digital systems to manage inventory and logistics.

4. Parametric Insurance for Quick Payouts

• Coverage Overview: Parametric insurance provides pre-determined payouts based on specific triggers (e.g., a natural disaster within a specified distance of a supplier’s location) without requiring traditional claims assessments. This coverage can provide faster financial relief to clients affected by supply chain disruptions.

• Client Benefit: Quick payouts enable businesses to address immediate operational needs, like sourcing alternative suppliers or securing emergency transport. This is especially helpful for industries that require a rapid response to disruptions, such as manufacturing, retail, and pharmaceuticals.

8. Environmental and Climate Risk Insurance

• Coverage Overview: Environmental and climate risk insurance helps businesses manage the threat of climate-related disruptions such as extreme weather events (e.g., floods, fires, droughts) and their impacts on operations. This coverage can include property damage from natural disasters, pollution liability in environmental contamination cases, and recovery and remediation costs for affected areas.

• Client Benefit: Covers costs associated with physical damage to facilities, business interruption due to extreme weather, and potential liabilities for environmental damage, such as pollution from runoff or fire-related accidents. Transport companies at risk from floods or other climate-driven delays could benefit from this coverage.

In Closing 

By providing a comprehensive suite of these insurance solutions and services, Knightcorp Insurance Brokers can serve as a trusted advisor to businesses navigating an increasingly complex and uncertain global supply chain environment. Get in touch today and let us help you protect your business, from port to warehouse and every point in between. 

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DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.