At a glance
- UK ports handled just over 483 million tonnes of goods in 2018
- Transporting goods globally can lead to complex risks and exposures
- In order to get the right insurance it's necessary to understand these risks
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Great Britain has a long and proud trading tradition, a tradition that owes as much to the small traders and manufacturers as it does to the titans of industry. And in a post-Brexit landscape, that tradition has never been more important.
That tradition appears to be as active today as it was in the past with UK ports handling just over 483 million tonnes of goods in 2018 and around 1.4 million tonnes of domestic freight and 9 million tonnes of international freight travelling the UK’s roads every year.
But behind those trading statistics and the economic benefits they bring, lies a very complex, often international network of transportation across land, sea and air. And with that complexity comes a whole host of risks that require close management by everyone in the supply chain including the good owners.
Insurance is an obvious way to start mitigating those risks. After all, the whole industry was founded on spreading the risk of maritime trading. But to understand the role that insurance has to play today, it’s necessary to understand the exposures that goods face on their journey.
There are a whole host of ways they can be damaged or lost in transit, but the most common reasons are theft, accidental damage, loss and simply going missing along the route.
Of all these risks, theft is the number one concern. Last year, half of the UK’s exports went to the EU, a territory where €8.2bn worth of goods were stolen last year. And on UK roads, £54m worth of cargo was lost to theft in 2018, 84% of which came from vehicles.
Although organised crime has a significant part to play in this, much of the theft is opportunistic with food, beverage, tobacco, alcohol and electronic goods all high on the thieves’ wish list. If it can be sold down the market, it will likely be a target.
And much of the theft takes place when lorries and vans are parked up overnight when there is little the driver can do to protect their cargo.
But even if a business manages to get its goods to port intact, they are not safe yet, not by a long shot. Goods can be damaged or lost during loading and unloading, in transit during bad weather, spoiled by water damage or condensation in the container, deteriorate due to poor packing or in the case of perishables, spoil when refrigeration units fail.
Which paints a rather negative picture, but it is worth remembering that billions of tonnes of goods are traded globally without a hitch every year so it’s not exactly a minefield.
Whether a business is exporting or importing, it is vital that they have and understand the terms of trade or the ‘incoterms’. For example, it is advisable to purchase on an ex-works or ‘Free on Board’ (FOB) basis and sell on a ‘Cost, Insurance and Freight’ (CIF) basis. This gives both parties absolute clarity on where responsibility for the cargo lies at any given point of the journey and insurance plays a key role in defining those responsibilities.
As an exporter of goods, it is possible to rely upon the insurance of third parties, but that approach simply adds another layer of risk to what, as we have seen, is already a risky process.
Relying on the buyer of the goods or a freight forwarder to secure the safe arrival of goods, exposes a manufacturer’s bottom line which, particularly for SMEs, can threaten a business’ survival. Which is why all companies, particularly small ones, should seek to take control of the insurance process wherever they can to ensure they have the cover they need.
With so many exposures at play and so many laws and jurisdictions to contend with, it can be a complicated undertaking, but statistics show that the number of SMEs exporting goods is on the rise. It is clear that for many, their ambitions require the ability to trade internationally and brokers and insurers must be able to support that ambition.
Although cargo insurance is often seen as the preserve of the big boys, in terms of the buyers, sellers and brokers of that cover, that is not reflected in reality. Zurich has designed a cargo product specifically for the SME market and we have the underwriters and the experience to help brokers ensure that clients of all sizes can take a more proactive stance in their exporting endeavours.
Because if SMEs are to be the driving force of Britain’s post-Brexit economy and that economy is to be driven by increasingly global trade, it is vital the insurance industry is able to step up and facilitate this transition.
The risks inherent in global trading are many and complex but with brokers managing their clients’ risk effectively, transferring that risk into the insurance market and putting the client in control, insurance can continue to play a vital role in ensuring the UK economy continues to thrive.