In March 2020, office employees across the country and around the world headed home with their laptops to begin working remotely in an effort to stave off the pandemic.
At the same time, the global supply chain kicked into high gear to meet the surging demand for just about everything delivered straight to the front door of a world that became housebound almost overnight.
“The supply chain got completely overwhelmed,” remembers Jack Falvey, chief operating officer at Falvey Insurance Group. “We went from a just-in-time supply chain model to people ordering a lot of everything all at once, just in case.”
Skyrocketing demand was complicated by COVID-19-related port delays and manufacturing closures. When shipped goods were cleared to enter the U.S. market, they were met with existing trucking shortages that made it challenging to get merchandise to its final destinations.
Since those early days of the pandemic, the supply chain has caught up and inventories have begun to normalize. However, the vulnerabilities that were exposed in transit and cargo continue to have a major impact on the industry.
While the pandemic may have abated, other issues have emerged that will continue to disrupt the transit and cargo industry. Geopolitical factors are affecting businesses, which are increasingly sourcing goods from Mexico and Asian countries outside China. This means they’ll need new supply chain routes, which will take time to establish.
While goods from Mexico are easier to transport to the U.S., this seemingly straightforward approach is complicated by the ongoing shortage of truck drivers and trailers, the latter being impacted by a scarcity of parts and labor.
“We had a delicate balance when things stopped in 2020, and it’s really tough to get it all moving again,” notes Falvey.
In addition to these obstacles, there has also been a dramatic rise in organized cargo theft rings.
“Toward the end of last year, there was a rampant surge in cargo theft,” he added. “I think this is the single greatest factor impacting the supply chain right now that people may not know about.”
Of course, volatile gas prices continue to raise the cost of transportation and, ultimately, the price consumers pay for goods once they reach retailers.
Insureds are playing catch up
According to Falvey, the biggest challenge for businesses is that they don’t have the right coverage for the goods they’re transporting. For example, they may assume that their policy covers the full value of goods being shipped via shipping container, when in actuality the policy may only cover half the value.
“The best way for insureds to protect themselves is to have full cargo coverage for all the goods they are shipping to their clients,” stresses Falvey.
Another challenge is that goods may be protected by a cargo package coverage. While this offers protection against financial loss for goods in transit, it has its limitations. For example, if the value of goods being transported exceeds the policy limit, the insured won’t recoup the full value of the items. Also, high deductibles on a cargo policy may dramatically reduce the amount of reimbursement in the event of a claim.
“As ships get bigger, values get higher,” he says. “It’s important that shippers consider this when selecting their coverage.”
Cargo coverage often has many exclusions, too. This means that cargo impacted by geopolitical factors, including war, riots and acts of God may not be covered at all.
Because of this, it’s essential that insureds partner with their underwriters to ensure they have a thorough understanding of the protection their policies provide.
Of course, an obvious way to ensure you are protected is to select a policy that aligns with the goods you are shipping and what kind of protection you require. Partnering with a broker with expertise in the shipping space can help you select the best possible coverage.
“It’s critical that you match your coverage to exactly what you need,” insists Falvey. “For example, if you’re shipping food or pharmaceuticals, then you should be sure to purchase spoilage and temperature coverage.”
Also, make sure you are thoroughly vetting any third-party logistics providers you are considering to ensure you are working with qualified vendors.
“Study their carrier scorecard carefully,” he notes. “Don’t just go for the cheapest one. Saving 12 thousand dollars now might cost you 100 thousand dollars down the line if you choose the wrong type of carrier.”
Falvey also stresses the importance of investing in proper packaging for the goods you’re shipping.
“Packaging is the first line of defense when an accident occurs,” he adds. “Don’t just store goods for storage. Store them for movement, too.”
A future defined by innovation
The supply chain is evolving, and Falvey says one major trend is decentralization. For example, in Utah there is a large inland port that accepts cargo shipped via train from ports in California. Smaller, unconventional ports like this one offer shippers more options for sourcing their transportation needs.
Of course, technology is playing a major role in the changing transportation landscape. Artificial intelligence is helping shippers manage loads more quickly and safely, optimize routes for fuel efficiency and monitor for theft.
For his part, Falvey and the Group rely on data to make informed decisions about risk.
“We need to use data and innovation to integrate with the fast-paced supply chain we have today so we can actively manage our exposure,” he says.
Of course, technology is a double-edged sword that also brings risk in the form of cyber-attacks. Today, transit and cargo coverage must consider potential cyber-related shipping losses, such as ransomware attacks on shipping companies and ports and GPS spoofing attacks on ships.
The insurance industry must be nimble and responsive as new risks emerge so they can meet the changing expectations of insureds.
“Products should live, breathe and adapt with time so they meet the risks we have today,” sums up Falvey.