12 Asia Insurance Review February 2022
Insurance – General – marine and supply c hain
Supply-chain
risk management
strategy needed
In order to stay competitive and
relevant, risk management has to
be an essential component of the
global supply-chain network.
By Jimmy John
T
he global supply
chain and logistics
business has grown
so large and complex
today, that a repeat of the
Ever Given incident will
spell doom for the sector.
In late March 2021, the
Suez Canal was blocked
for six days when the
mega container ship Ever Mr KS Shankarraman
Given ran aground. The
blockage resulted in the stranding
of 369 ships, causing widespread
disruption to global supply chains,
the impact of which is still being
felt. The stranded ships significantly
delayed critical and perishable cargo
and also created a backlog of cargo
that impacted various stakeholders
across continents.
Risk management can reduce
impact
The fact that no one can predict such
incidents makes it all the
more necessary for the
logistics and shipping
community to have risk
management strategies in
place.
Link India Logistics
and Aqua Global Logistics
GCC director and CEO KS
Shankarraman said that
logistics intermediaries
were hard pressed to
explain the circumstances relating
to the Suez Canal blockage to their
clients and many customers were
concerned over the fate of their cargo
in the containers on board, which
included perishable items that had
limited life and hazardous cargo.
“Customers who had not insured
their cargo were left with a financial
liability of paying funds towards their
share of general average contribution
called for and shipments that were ‘co-
loaded’ between multiple forwarders

Insurance – General – marine and supply c hain
faced the situation as
to who would be the
ultimate party responsible
for the general average
contribution,” he said.
Newglobe logistik
managing director
Ashwin Didwania
said that the Suez
Canal blockage led to a
subsequent rise in freight
Mr Ashwin Didwania
costs across the board and
this was reflected in price increases
and shortages of end products
worldwide.
Lessons for marine cargo
Although the Suez Canal handles
around 13% of global trade, the
blockage last year impacted supply
chains worldwide, as the channel is a
major transit point for ships between
Asia and Europe.
Vessels that were rerouted because
of the blockage arrived late at their
final destination and
also faced additional
costs and challenges as
they navigated through
rough seas. The delay in
shipments also resulted
in inventory shortages
and created logistical
challenges at various
offloading points.
Mr Shankarraman
feels that forwarders
should educate customers about the
importance of marine insurance and
endeavour to ensure that cargo is
insured by their clients when in their
custody.
“They must ensure that the terms
of carriage they enter into with a
non-vessel-owning common carrier
or another forwarder are in line with
acceptable standards to ensure that
their interests are not jeopardised in
such circumstances,” he said.
Mr Didwania said that since the
February 2022 Asia Insurance Review 13
Ever Given incident last year, he
has been advising clients to build a
buffer stock and move away from the
‘just in time’ leaner system of stock
management.
It is practically impossible for
shippers or logistics experts to
predict an incident, but it makes
sense to have a plan in place for
every eventuality. Planning ensures
flexibility regardless of the obstacles
faced along the way.
Mr Shankarraman said that there
should be a review of the freight
forwarder’s liability policy clauses to
ensure that the level of coverage is
adequate for the quantum of business
they are doing at any point in time.
“Ensure the policy safeguards
their interest in such unexpected
situations and not have a policy
for the sake of compliance
requirements,” he said.
Critical role of marine
insurance
Marine insurance should be a priority
area for the logistics and shipping
industry, as it offers protection from
the numerous risks they face, both
to cargo and to the vessel while in
transit. The Ever Given incident
impacted perishable cargo on many
of the stranded vessels and also
livestock; owners of the vessel,
according to some media reports,
had to pay compensation and fines
to the tune of $550m to the Egyptian
government for the disruptions caused
due to the blockage.
Mr Shankarraman believes that
though insurance is a risk-mitigation
mechanism, it cannot eliminate risk
completely, but will help to minimise
the financial exposure of a freight
forwarder when such incidents occur.
“Ensure that the terms of
understanding when dealing with
the overseas counterparts are clearly
documented with respect to handling
of cargo claims, “he said.
The Ever Given incident is a wake-
up call for the logistics and shipping
industry to adopt risk management
practices before the next big marine
supply-chain event happens.