Picture credit: Anekoho, Adobe Stock
Amidst ongoing disruption as a result of the crisis in the Red Sea, supply chain resilience and flexibility are paramount.
The heightened risk associated with travelling through the Red Sea has raised awareness among cargo owners and logistics companies about the significance of robust risk management strategies, which are particularly valuable in navigating volatile and unpredictable environments.
Most notably, the crisis has prompted our industry to take a closer look at how we are insuring our goods, revealing the importance of digital insurance solutions that offer agility, efficiency, and enhanced risk management capabilities in the face of geopolitical uncertainty.
The dangers associated with travelling through the Red Sea have prompted a sizeable shift in the way goods are transported from Asia to Europe.
In January, we witnessed a 90% drop in container ship traffic through the mouth of the Red Sea, highlighting that many shippers are opting to reroute cargo ships to safer passage around the Cape of Good Hope.
But those who want to avoid the additional 10-day transit time and subsequent $1million in fuel costs are choosing to pursue sea-air options – whereby goods move by sea to an airfreight hub, to be flown onwards. Demand for moving goods in this manner rose by 25-30% in January according to the Financial Times.
These trends are of key importance to insurers, who will need to adjust their premiums and policy quotes based on the route and transportation method of the cargo they insure.
Flexibility to match the quick and sometimes unexpected shifts in supply chain operations is paramount to ensuring cargo is always adequately protected.
So how, when there are so many different factors at play, can freight forwarders and logistics companies ensure they are still getting accurate quotes quickly?
The role of digital insurance
Amidst this backdrop of uncertainty, digital cargo insurance has emerged as a critical tool in mitigating risks and safeguarding the interests of stakeholders across the supply chain.
The evolving nature of the Red Sea crisis, characterised by shifting geopolitical dynamics and security threats, requires logistics stakeholders to adapt quickly to changing circumstances.
Digital insurance platforms offer greater agility and flexibility compared to traditional insurance methods, allowing cargo owners to adjust coverage, monitor shipments, and respond to emerging risks in real time.
As a digital cargo insurance provider, where data is available Breeze is able to monitor the shipments it insures and track the exact cargo location in real-time, enabling its team to assess potential loss prevention measures or alternative routes on a case-by-case basis.
The visibility afforded by digital means, which gives Breeze users insight into the status of their shipments to provide a more comprehensive and sophisticated service to their end customers, is especially vital at times like these.
At Breeze, where data is available, we offer full transparency for shipments to inform a capacity provider immediately if there is a claim or if cargo has been exposed to risk.
It is also important to note the fundamental role an insurance company plays in providing relief during times of crisis, acting as a mechanism to support economic resilience and ensuring population well-being.
This requires an understanding that vessels will continue to need to pass through the Red Sea - be it to deliver humanitarian aid, resources, or avoid delays for time-sensitive cargoes - and covering those that do.
Digitalising this process also lends itself to providing precise and fair risk assessments, which informs insurance prices.
Whilst traditional cargo insurance models often rely on historical data and predefined risk parameters, making them ill-equipped to provide precise and dynamic risk assessments, Breeze uses Machine Learning models to analyse vast datasets in real time.
This enables Breeze to recommend updating pricing models rapidly if needed, and ensure a more accurate reflection of current risks, providing the more sophisticated near-time approach to risk pricing that the Red Sea crisis demands.
Machine Learning models are also incredibly useful for utilising predictive analytics, to identify potential risks before they arise. By analysing historical data and other relevant factors, Breeze’s data and models can better predict potential disruptions and provide insurers with valuable insights to proactively adjust risk pricing.
What lessons can we learn from the Red Sea crisis?
Ultimately, it’s clear that the flexibility afforded by technology is critical in supporting stakeholders across the supply chain to adapt to unexpected changes.
In this way, the Red Sea crisis has not only underscored the pressing need for innovative risk management solutions, but also highlights the transformative potential of digital insurance in navigating the complexities of today’s geopolitical landscape.
As our industry is buffeted by geopolitical uncertainties, and shippers are increasingly varying their transport operations, it is becoming increasingly apparent that digital tools have become indispensable to keeping our supply chains moving, and ensuring cargo is always protected.