COVID-19 is impacting a wide range of sectors and businesses at different levels. The marine industry is one of many, as 90% of the non-bulk world trade cargo is carried in containers. So what does that impact look like for individual companies and what will they need to consider as the pandemic continues?
The first layer is one of reputational damage for marine companies involved, as some of their ships are stranded in waters or at ports with no guaranteed access to their destinations. This is in part due to protective measures set by various countries.
In an interesting example, different brands within the cruise industry have adopted different measures. Some forged ahead as the coronavirus began to spread, while others more quickly chose to suspend activities. These choices may have been made because early suspension was viewed as a preferable alternative to ships being placed in quarantine. Now, all cruise lines have suspended their activities, but the time period for this seems to vary for each cruise line and depend on specific regions and ships. AIDA, for example, is expected to start cruising again in July, while Royal Caribbean, Celebrity and Carnival are set for August. Certainly reputation weighs in the choice to balance risk and returning to business.
Over the last few weeks, we have seen some cruise ships enter the port of Rotterdam. While they don’t have the typical amount of passengers, they do hold hundreds of crewmembers from various cruise lines who were still making their way home – awaiting the new beginning for the cruise industry. News headlines share the stories of crew members quarantined on board ships or struggling to repatriate – many of which have been critical of the process and their employers.
It is important to highlight that the consequences of the COVID-19 pandemic will differ significantly from that of major economic crises. Cruises are being cancelled, but there is the possibility they can be rebooked in a few weeks or months’ time. Once the pandemic ceases, it is likely the cruise lines return to normal, or in this case, a new normal.
Delays and temperature exposure
Since the coronavirus outbreak began, approximately 105 sailings (container vessels) have already been cancelled from Asia to Europe and America– with more likely to follow. One lesson learned so far is how much we depend on foreign manufacturers, specifically those based in Asia. Many goods produced in that region are temporarily unavailable in Europe and the U.S., due to the lack of transport facilities affecting retailers and the supply chains that are particularly exposed to China.
Several large ports in Asia have also experienced delays as a result of the lack of laborers and transport crews. If cargos aren’t delivered on time, there will be damages caused by delays. Modern container ships can carry up to 20,000 individual transport units. The extent of the damage from abandoned cargo or delayed shipment would depend on the type of goods in each unit. For instance, delays in paper shipment likely will not cause any severe issues; the worst, and only impact, is delay. However, delays in products that need to be carried in refrigerated conditions in order to maintain their temperature, i.e. perishable cargo, will.
Moving forward, we can expect damages, whether they are due to delays, labor shortages, vessel availability and/or temperature issues. As a result, companies may need to find alternative ways to bring their cargo to their destination.
Contrary to common container casualty cases where the risks are certain, e.g. fire or storm, the case involving a global pandemic of this scale is relatively unprecedented. If a large vessel carrying thousands of containers catches fire or collides, policyholders and insurers know the extent of their exposure and can take immediate action.
For example, 700 containers were destroyed in January 2019 when a fire occurred on the Yantian Express. Because the number of containers destroyed was a known entity, impacted parties were able to order replacement stock and, depending on their policy, re-ship or fly the new containers. The delivery of the undamaged containers from that initial shipment was also delayed by a couple of months. While inconvenient, these incidents are somewhat easy to deal with.
The biggest issue with COVID-19 is the uncertainty surrounding the extent of the damage and loss. Furthermore, we’re also seeing increased rates of abandonment of cargo on water across the globe. It is extremely difficult to assess whether insurers might use force majeure clauses in the coming weeks and months, as the circumstances are still new. I have spoken with many clients – some who believe their policy covers the pandemic, while others think it does not. They are all waiting to see what is going to happen.
The marine industry is also impacted by cancellations of certain events like music festivals, as these productions and the equipment can potentially be part of a marine cargo policy that covers transportation of goods. Some countries, including the Netherlands, have seen an increased number of claims on staging equipment that has been shipped for big concerts and events, or simply due to the local governments postponing events for the time being.
Policies were not written with this particular pandemic in mind. In “normal” circumstances, cancellations might occur due to weather, for example. However, this is completely new and uncharted territory. We expect to receive more claims in the following weeks as more events are cancelled or postponed to 2021. But again, it is extremely difficult to measure with any precision the extent to which COVID-19 will have an impact in this sector.
The impact of COVID-19 is changing rapidly and we want to assure our clients that we are here to help. Our global marine team can respond quickly to expedite claims and lower claims costs. We can also advise on measures to be taken to minimize losses. Additional information is available at sedgwick.com/coronavirus. Continue to follow Sedgwick’s blog and social media sites for the latest and reach out if you have any questions.