Skip to content Skip to footer

Shipping Industry: Insurance Coverage on the Rise

The global order of sea trade is at risk due to geopolitical divisions. The ongoing war in Ukraine has already disrupted shipments of energy and grain from Russia. A potential invasion or blockade of Taiwan could have the same effect on trade in East Asia. However, insurance coverage does not currently account for the possibility of war.

The availability of open sea lanes with Russia and Ukraine is crucial for the transportation of grain and other commodities. Recent drone attacks in Crimea highlight the dangers involved in these trade routes. Given its significant role in global chip supplies, trade with Taiwan is even more important.

Unlike the Black Sea region, the waters surrounding Taiwan are not currently included in Lloyd’s of London’s Joint War Committee list. Insurance coverage for war-related risks only becomes necessary once a region is added to this list. If Taiwan were to be included, insurance costs would likely increase.

A basic global war coverage premium could cost 10 basis points of a ship’s value annually. Entering the conflict zone in the Black Sea could add an additional 100 to 150 basis points. In comparison, coverage for traversing the Gulf, which is on the JWC list, typically costs 10 to 25 basis points. During the Libyan civil war, rates reached as high as 500 basis points, although this was only temporary.

Maritime tension is one of the many challenges facing the global shipping industry. Supply chains are recovering from disruptions caused by the pandemic, putting pressure on shippers’ costs. Port congestion has increased hull rates and cargo coverage at key bottlenecks. Additionally, the risk of fires rises as ships carry larger quantities of lithium-ion batteries.

According to an international insurance company, the war in Ukraine has resulted in a sustained increase in insurance rates, unlike anything seen in a generation. This company was among the first to provide coverage for the Ukrainian grain trade after the war began. The rates reflect the heightened risks in the region. A similar situation in the waters surrounding China would lead to a costly increase in insurance coverage.

Stay Informed with the latest Supply Chain updates! Subscribe to TAPA APAC!

    Select: