Australia is facing a logistics challenge: how to address supply chain issues including rising costs and limited supply availability impeding the flow of goods to market. Many local businesses find sea freight options (or services) are unreliable, unaffordable and unattainable, restricting their ability to access stock, scale up, be competitive and build resilience, the Australian Supply Chains: State of Play report says.
Freight costs have reached unprecedented levels, with rates on key global trade routes inflated to around 7 times higher than they were a couple of years ago, according to the Australian Competition & Consumer Commission's (ACCC) Container stevedoring monitoring report 2020‒21.
These heightened costs are due to the backlog of demand caused by port closures and interruptions to freight movements from global COVID restrictions over recent years resulting in a lack of available space on ships and leading to extra costs for priority loading ‒ and inability for many businesses down the supply chain to meet contractual obligations or customer demand due to lack of supplies of required materials.
With 98% of Australian trade and many jobs dependent on sea freight of goods or materials, the supply chain flow is critical to connecting distributors with manufacturers who are reliant on materials and components for the goods they sell. These items travel via shipping lines, airlines, trucking and delivery companies, which are all reliant on ports, airports, warehouses and distribution centres. Many exporters are also importers and the disruption to imported materials has also restricted their exports.
These disruptions have implications for the insurance cover on shipped items.
"Shippers (cargo owners) should consider cargo insurance, ideally through an experienced marine insurance broker, because liability can be problematic," says Gallagher National Head of Marine, Transport & Logistics, Stephen Rudman.
Insurance for outgoing goods provides protection against damage or loss, and key factors like space on board vessels or availability of containers can impact certain insurance entitlements and conditions, so thorough understanding of your cargo insurance cover is required for complexities such as the need for consignment cover to apply to unanticipated spreading across multiple containers, for example.
Shippers are also advised to check any contracts with customers and to clarify who is responsible for demurrage charges for delays which occur if containers are held up or if multiple items arrive without additional free storage days being available from the shipping companies.
Effective strategies businesses use to deal with supply chain pressure include stockpiling, diversification of suppliers or markets, contingent contracting and developing domestic capability, which also involve new logistical factors to deal with, such as increased internal freight costs and warehousing.
Again, businesses adopting new measures need to take into account the new risk exposures involved and ensure they have considered the appropriate insurance cover to address them.
One area of added risk may include payment default by end buyers of goods and services, or requests for deferred payments or adjustments to payment terms. Trade credit insurance policies are available to protect the policy holder(s) from non-payment by customers due to defined insured events or perils. This typically covers insolvency and protracted default events. Some policies also cover defined political risks.
Businesses reliant on distant suppliers must also deal with geopolitical tensions and as yet unknown risks, a further incentive to reconsidering their supply chain relationships. Since existing contractual agreements may preclude any sudden changes, political risk insurance provides businesses with protection from government confiscation of goods or intervention, political violence, war and forced abandonment, and currency transfer blockages.
Overseas supply chain movements involve goods being transferred from trucks and containers, to ships, through ports, customs and from warehouse to warehouse, with each stage increasing the potential risks involved.
Our insurance specialists can help businesses cover their increased supply chain risks with the appropriate policies and face their future with confidence. Gallagher has a dedicated specialist team in the marine, cargo, freight and logistics sector with expertise in all areas of risk and insurance solutions.
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