Insurance Business recently looked at why the cost of freight is so high. Daniel Morrison (pictured above), NTI’s national cargo product manager for transport and logistics described the situation as a ‘perfect storm’. Morrison said the cause is extremely strong competition for shipping space and containers, due to both the impacts of COVID-19 and huge consumer demand for goods in the run up to Christmas.
Read more: Why are freight costs so high right now?
This unique situation became surreal in a recent Time interview. Referring to shipping exports out of the United States, Gene Seroka, the Port of Los Angeles boss made the comment, “our biggest export is air”. It’s one big reason why Australian businesses are having trouble finding containers. There are just so many empty ones on ships heading from the US to China.
But what can brokers do to help clients who are suffering these impacts? We brought NTI’s experts back to the table to get some practical advice.
“One of the things we really try and get across to customers is we’re here and we’ll protect you and we’ll pay the claims but what we try to do is help you get your goods to your customer safely because that customer still needs goods,” said Morrison.
He encourages clients to think in the long term. It’s one thing if the container has a hole in it. In that case, NTI will pay the claim for damages. But if the goods don’t arrive at all, the customer expecting to receive them may look elsewhere and the NTI client loses business.
“So, with the slow down and the difficulty in getting goods on vessels, they need to be aware of it and they need to talk to their logistics providers just to understand the impact on their business,” said Morrison.
NTI’s logistics risk engineer, Kurt Herron (pictured below) has some practical tips for brokers advising clients who are struggling to find containers and cargo space.
“If you’re using sea freight, can you put small quantities in air freight? Are the margins large enough? Can you look at something on the back end? Is there anything local you can do?” he said.
Morrison said brokers should also make sure their customers are aware of how the current difficulties can change their exposure.
“For example, a customer might have, say, a $500,000 limit under our cargo policy and that covers a container of their goods being moved. But with these changes and backlogs they might unexpectedly find that they have two containers on one vessel, one container left yesterday and sat at the port for two days and another container three days later,” he said.
In this case one container has now become two.
“So, our cargo policy says we pay $500,000 in the event of a loss but if that vessel sank they’d have two containers that went down - so $500,000 each, and they’d be out of pocket,” said Morrison.
These changing exposures are important to be aware of, said Morrison.
“We do try and get those messages out there: talk to your broker, review your insurance policy, make sure it’s appropriate for the new exposures,” he said. “That’s what we’re here for.”
Morrison said that’s why insurance brokers are important.
“We keep pointing out that’s where their strength is, they can talk to the customer, they know the market, they should know the products,” he said. “That’s where they can really add the value in advising us of the change and getting us to set things up for the customer that’s appropriate.”
There are serious practical issues that need attention in the current climate. Brokers and their clients need to be very proactive.
“You’re getting a container, for example - check the container to make sure it’s what you were expecting and what you paid for,” he said. “Don’t put your goods in substandard containers.”
Morrison said unless the market changes, there will likely be increasing problems with substandard containers.
“Container quality at the moment is quite poor. All of the high-quality containers are heading to Asia, to go to either Europe or the US, where all the money is being spent,” said Herron.
He said that means the containers in Australia are often lower quality – the sorts of containers you wouldn’t normally ship goods in, but right now there’s no choice.
“So, I look at things like making sure that brokers speak to their customers about checking container quality, checking it when it arrives when it’s empty if you’re loading it for export. Light test the container, which is basically closing up the doors, standing inside it and making sure that no light comes in unless it’s from the little vents in the corners,” said Herron.
It is also very important to document everything.
“That’s the big thing, if it’s not documented it didn’t happen,” he said.
Read next: Navigating the storms
However, Herron said brokers shouldn’t see this as all doom and gloom.
“Here is the opportunity for brokers to talk to their customers,” he explained. “Now’s the time to be in touch with your customers, understanding if they’ve pivoted or where they’ve gone to, how they’re adapting and how they’re changing to this current economic climate and making sure that the insurance product that they’ve got is in line with what they need.”
But how do you calm nerves when prices have gone up so much? Shipping goods to China in a 40ft container cost an Australian business $2,000 a couple of years ago. Now, it can cost about $7,000.
“That’s the million-dollar question isn’t it? Unfortunately, it is what it is. It’s out of your control really. It’s about being ready for it and understanding and pivoting and really trying to adjust your business model to suit what you’re doing,” said Herron.
Once again, the message for the rest of us is clear: buy your Christmas presents now.
