Managing cargo risk during the COVID-19 outbreak

The impact of the COVID-19 virus, and the measures put in place by governments and authorities to try to combat its spread, are affecting businesses of all types, across the entire worldThis is, first and foremost, a very human crisis. The protection of health, safety and lives is paramount. While measures put in place by governments to try to stem the spread of the virus vary from country to country, all have the same aim; to keep humans as safe as possible and to stop transmission of the virus.

Companies and individuals are finding new ways of working to enable them to remain operating, as safely as possible. Employee health and safety, crisis management, business continuity and communication are key.

Every element of the supply chain is affected by the restrictions in movement of people and goods imposed by various governments to try to halt the spread of COVID-19. Many manufacturing plants are in lockdown or have seen their production drastically reduced. Deliveries may be delayed or even fail because of difficulties in moving goods as swiftly as usual.

In some cases, cargo might be physically damaged; this is particularly true where goods are perishable.

Our clients may be facing business interruption losses or contractual penalties because their cargo simply cannot be moved as quickly, or in the same way, as before the virus began to spread.

These are challenging times, but cargo loss prevention never stops. We can offer a range of remote dialogue capabilities that collect information and enable us to make recommendations to clients – even in cases where a physical survey is not possible.

Coping with the new normal

The closure of some national borders and the drastic reduction in transport is having the effect that the volume – and value – of stock in warehouses or other storage facilities may have increased substantially. In some cases, additional storage locations are needed to cope with this increased volume of stock.

Clients who find themselves in this situation should monitor the supply chain and identify those areas where the movement of goods might be stopped. They should assess the value of goods that might have to be warehoused – either in transit or at their intended destination. They also should gather information about the storage facility were the goods are being kept and contact their insurer so the risk can be assessed.

The closure of some facilities, such as warehouses or logistics centres, to staff is also a concern for many businesses who have goods in storage. Again, there are steps that they can take to ensure that their goods are kept safely despite a reduction in personnel. For example, they should make sure that protection systems are in operation around the clock. They should check that there are anti-intrusion alarms in place and, where applicable, guards. The integrity of fire detection systems should also be tested, and the energy supply must remain constant. Risk engineers can offer a remote assessment to give clients peace of mind.

Another effect of the restriction in movement of goods is that in some cases soft or perishable goods must be kept in storage for longer than they ordinarily would. If this occurs, clients should carry out additional checks on the products, and ensure that the temperature and humidity of the storage facility is appropriate, that pests are controlled, and that the packing of goods is performed to a proper standard.

Transportation changes

Many businesses are experiencing the effect of a drastic reduction in flights. About 60% of the freight that is shipped by air globally each year is shipped on passenger planes; the grounding of some fleets and the enormous reduction in passenger flights in recent weeks has meant that this is no longer possible. And there simply are not enough freight planes in operation to cope with the usual volume of freight.

If this is a concern for companies, there are steps they can take. Firstly, they should identify those goods that might suffer from a delay in transportation and seek to ensure those are kept in appropriate temporary storage conditions – for example, they may require a temperature-controlled facility.

And they can ask their carrier to seek out alternative routes to transport their goods. For example, in recent days some airlines have proposed that flights that previously would have been for commercial passengers instead be given over to carrying freight on certain routes.

Marine transport also has been affected by the changes necessitated by the international response to COVID-19.

One area where this is particularly pertinent is the cessation of activity at shipyards in China. This will cause a delay in the retrofitting of vessels to comply with the International Maritime Organization’s cap on sulphur emissions. This will likely mean that some vessels cannot be used for some time. It may also mean that some vessels miss dry-dock assessment reviews.

Clients must be mindful of these factors when chartering new vessels and ensure that those vessels are compliant with international regulations. Again, risk engineers can provide remote assessments to help clients be comfortable with their choice of vessel and its compliance with safety rules and regulations.

Supply chain breaks

In some cases, the actions of freight forwarders or carriers might cause delays or breaks in the supply chain. Here we suggest that clients check the wording of their Force Majeure clause in order to be prepared for future liability discussions.

Many clients will look to use new carriers to maintain the supply chain. It is important that the same level of rigour in assessing the operational security and safety standards of new logistics providers be applied as would have been before this crisis.

These are unprecedented circumstances. This crisis has cascaded across countries and companies in all industries are grappling with changes in circumstances to remain operating while protecting the health of their employees and customers.

The major supply chain events of the recent past, such as the Japanese earthquake and tsunami of 2011, have taught us valuable lessons and given great insights into the way these crises can be managed. But this is of a different – global – magnitude.

Risk engineering, however, hasn’t stopped – we can offer remote assessments, and we are here to provide insights to enable our clients to face the various challenges these circumstances are presenting.

Until we meet again, let’s keep talking.

Authored by AXA XL Senior Marine Risk Engineer Pascal Matthey