Coronavirus and Cargo Insurance

The word is out. China-related supply chain delays are not only possible; they are already happening due to the coronavirus. You can also expect delays for nearby countries for inbound and outbound cargo. As delays in China increase, ocean carriers will skip ports and will have blank sailings. Like a snowstorm in Chicago, IL impacts if your flight is on-time in Charlotte, NC, China’s woes will impact countries around it.

One reason delay can affect surrounding countries may be shippers routing cargo away from China to ports in Thailand, Vietnam, and South Korea in hopes of getting around China’s growing problem. An enormous number of containers regularly move to, from, or through China’s ports. If enough shippers reroute containers around China ports, smaller ports in nearby countries could be overwhelmed.

Moreover, China ports also act as common transship facilities for cargo bound for other smaller ports. In short, transshipping is one vessel dropping a container at a port that is not the destination port. The container will sit and wait for a second vessel to pick it up to head to the next port or the destination port. Some containers can be transshipped several times before reaching its destination. Like missing your connecting flight, if an ocean carrier bypasses a transship port, containers scheduled to be dropped there just missed their next ride and are now bound for an alternate port. And just like in air travel, the carrier isn’t going to schedule a new vessel only for you to make things right. The carrier will get the container delivered sooner or later, but in an already stressed system, it maybe later.

Will typical cargo insurance cover any expenses caused by the shipping delay?

In short, no, it will not. Cargo insurance covers financial losses caused by the physical damage or loss of the cargo. Cargo insurance does not cover loss of market value due to shipping delays. Often there is no devaluation of cargo due being delayed, sometimes there is. Let us use the example of a USA based snack food seller. If the snack food seller books a shipment of cookies with a specific ‘sell-by date’ to Thailand, and that shipment gets delayed in transit, it may miss its next ride. The container’s next ‘ride’ may not be possible for three weeks. The product may be short-dated (approaching its sell-by date) by the time it gets to the destination. The buyer in Thailand certainly won’t pay full price for short-dated inventory and may not accept the shipment at all.

This example is going to cost the shipper plenty of money. Not only is the cost of the inventory wholly or partially lost, the transport costs still must be paid, and the shipper must also pay the tab for dealing with what to do with the cookies that are no longer saleable. The likely options are selling the cookies dirt cheap if they can find a buyer, or pay to have the cookies offloaded and destroyed. Ocean carriers don’t like it when cargo gets abandoned, which also comes with a price tag. Normal cargo insurance will not pay for any of the aforementioned costs.

Since the path and extent of the coronavirus are impossible to guess, it will be difficult to guarantee you will be able to dodge the delay bullet. Shippers should consider this when signing contracts and shipping goods. Now maybe a good time to ask yourself if you want to sell a container full of cookies or sign service level agreements with tight delivery windows. This question applies to any shipments to or from China or anywhere Southeast Asia. Not doing so would be elevating your risk of feeling the pain of frustrated freight.