COVID-19 Pandemic: Do Your Shipments Have the Right Protection?
Despite the many events that can disrupt today’s complex global supply chains, shippers too often don’t make cargo risk-management planning a priority for their business. But now, with the emergence of the coronavirus and its disruption of global trade, many shippers are seeing the value in such planning.
Shipping delays are a very real possibility at the moment. In fact, 75% of companies surveyed recently say they’re experiencing supply chain disruptions because of coronavirus-related transportation restrictions. And that’s in addition to the many other risks that your supply chain regularly faces.
With the right risk-management plan, you can better understand the risks facing your operations and make sure your business is prepared by protecting the value of the goods you ship globally.
Know Your Risks
When importing or exporting goods, it’s critical that you identify the types of risks your cargo could face. These risks can include not only the ongoing pandemic, but also major events like hurricanes, floods and political unrest, as well as everyday problems like theft, counterfeiting and documentation errors. Any of these circumstances can delay or ruin delivery of the most perfectly planned global shipment.
Once you understand your risks, you can insure your goods to protect their value against potential losses that can happen while they’re in transit as part of air, ocean and rail shipments.
Keep in mind: Most cargo insurance plans don’t cover revenue that’s lost because of a public health crisis, like the coronavirus pandemic. However, in China, the virus caused an extended Chinese New Year that delayed the product exports. As factories return to full efficiency, many importers from China are utilizing expedited shipping services to restock inventory—and cargo insurance will help them avoid additional vulnerability.
Put a Price on Your Risks
Cargo insurance that protects the value of shipped goods from physical damage, theft or other calamity is readily available. But before you buy it, you or your consignee must make sure the coverage you purchase is the best fit for your unique risk exposure.
You can do this in a fairly straightforward way. First, estimate the chances of a risk event happening and multiply it by the cost of your cargo value to identify your potential loss. For example, if you determine there’s a 0.5% probability of a risk event occurring and you’re transporting $1.5 million in cargo value, multiply those two numbers together. In this case, your potential loss would be $7,500.
Then, with that estimate in hand, you can reduce the expected loss by reducing the probability of the occurrence, or the cost of the occurrence. This can help you buy the appropriate amount of insurance.
Three More Tips
In addition to buying the right amount of insurance for your cargo, there are some other best practices you can use to reduce your cargo risk. For example, make sure the valuation clauses for your shipments define the maximum amount an insurance company will pay for a loss. Most valuation clauses include the commercial invoice value and any prepaid charges associated with the shipment, such as freight, customs clearance or duty.
It can also be helpful to use an insurance intermediary that has specific training or experience in international logistics and transportation insurance.
Finally, if you use a third-party logistics provider, make sure it has in-house risk-management professionals. They often have valuable experience that can help you uncover potential liabilities in the supply chain, so you can understand your specific risk-management needs and create the right solutions.
Protection Equals Peace of Mind
These difficult times are a reminder that moving goods around the world comes with risks. And while cargo insurance may involve a lot of complexities, it’s crucial that you be able to understand and navigate them so you can get the right protection. That way, if and when the unexpected does happen, you can take comfort knowing that you’ve protected yourself.