The problems arising out of Hurricane Irma have reached the shipping industry. The natural disaster has affected US supply chains (not to mention the fact that the industry has already been battered by the after-effects of Hurricane Harvey). “To say that this is going to have huge impacts and it’s going to be a puzzle for supply chain managers, when everything from Memphis to Charlotte is going to be impacted from high winds and rains, is an understatement,” said Mark Montague, a pricing analyst for DAT solutions.
The Effects of the Hurricane
The impact of these hurricanes can be traced back to Harvey which made landfall in Texas. During that time, Port Houston was not working for six days. The same thing happened with Irma as the hurricane fell on the states of Georgia and Florida. It was reported in the media that the respective ports had shut down for three days each in the immediate aftermath of the hurricane.
Apart from the closure, there were significant losses in terms of human life and property across the affected states. Those shippers that had goods waiting to be loaded, unloaded, or shipped off had to wait in order to get their cargo processed. Houston and Miami were particularly hit by the storms and the resultant damage. The Non-Vessel-Operating Common Carriers (NVOCCs) acted as information points as well as alternatives for some shippers. Many shippers are also planning ahead for all eventualities.
Tonnage is Down but Freight Demand Is Up
The impact of the hurricane was felt in September when truck tonnage slipped. Nevertheless, the demand for trucking in the industry is still rising. Although the demand rates are not yet as high as they would like them to be, they are expected to rise in December as we come into the holiday season. The American Trucking Associations reported a fall of 0.9% in tonnage. Bob Costello, the Chief Economist for ATA said, “Freight has been improving and I would have thought tonnage last month would have been softer than it was…despite weather-related issues.”
This is borne out by the statistics. For example, the seasonally adjusted tonnage index recorded a 7.4% year-on-year increment. The actual annual increment now stands at 2.4%. That being said, September was a challenging time for the industry. Trucks were quite simply unable to get to locations like Florida and Texas. That meant that capacity was scarce and dear.
Ironically it might turn out that the backwash from storm season is going to be the savior for the shipping industry. As Costello noted, “Going forward, rebuilding from those hurricanes and other natural disasters like the wildfires in California will add to freight demand”.
Use Cargo Insurance to Protect Yourself
Short of precisely and accurately predicting what the future holds, members of the industry have to purchase insurance in order to protect themselves. This used to be an expensive business cost but now there is increasing recognition that it is essential, if only to ensure that the hurricane season does not turn into a business liability.
It is notable that marine cargo insurance is actually one of the oldest in the category. The original concept focused on financial protections for both exporters and importers. Normally users will find that it is a separate arrangement from the other insurance policies that cover the vessel. Indeed, there are products these days which can cover the hull of a ship.
Many in the industry may be wondering: “What does marine cargo insurance cover and do you need it?” There are actually four scenarios in which coverage is of the essence.
[a] Door to Door Coverage: Some shippers may not understand that they don’t have door to door coverage until it’s too late. Many shippers have insurance that only covers their cargo from port-to-port or airport-to-airport. What they really need is a policy that will cover cargo from door to door. These arrangements must be made prior in order to avoid costly mistakes.
[b] Finger Pointing: This occurs when you think you are covered for the entire journey including delivery to the door but then find that you are still liable upon filing a claim. The problem is that carriers will begin to finger point and claim that the incident occurred on a part of a journey which they are not responsible for. With a comprehensive insurance package, it is possible to ensure that all parts of the journey are automatically covered.
[c] Foreign Insurance: This scenario happens when the supplier has arranged insurance but that policy is not as open as you might think. For example, a number of policy, language and legal requirements may make it difficult to file a claim on that policy. A comprehensive product that is bought in your home country may help to resolve the problem before it occurs.
[d] Old Containers: This typically happens when carriers delay decommissioning or repairing faulty containers. This significantly increases the risk of water damage. The carriers refuse to pay out because they are not clear where and when the water damage occurred. The comprehensive package ensures that everything is covered.
Preparing for the Worst
As the hurricane season has shown, disruptions can happen in the industry at any point. This is information that is hard to come by in advance. A hurricane can come at a time that was anticipated but have an impact that is much harsher than anticipated. All these represent potential losses to the sector. That is why it is advisable to prepare for the worst and be pleasantly surprised by a smaller impact. It is also advisable to be very proactive in planning schedules and transfers. This is the best way of minimizing the potential impact on your business. Shipping is becoming a place of uncertainty and those that do not plan for the worst case scenario may end up having to exit the industry after a catastrophic event.