On the morning of March 23rd 2021, the Japanese container ship Ever-Given was knocked by strong wind and stuck itself on the bank of the Suez Canal. With it’s bow and stern stuck in the sand, the 400m long, 220,00 tons vessel blocked the Canal for 6 whole days. After the Egyptian authorities finally managed to free the ship, traffic was able to resume normally. On the span of these 6 days, 369 ships were stuck in a giant traffic jam waiting for the Ever Given to move, halting billions of dollars in trade.

The Suez Canal sees over 10% of the global maritime trade traffic and is the main route between Asia and Europe. As a lot of business operate with just-in-time manufacturing, the slightest delay can be very costly. The Suez Canal incident cost was estimated at 400 million dollars per hour the canal was closed and another 90 million dollars in toll fee for the Egyptian government. The incident has highlighted the fragility of international trade and the importance for businesses to plan for contingencies and/or freight insurance to avoid severe potential losses. In this article we will go over the reasons to subscribe to marine logistics insurance in China.

Why is understanding maritime logistics important for businesses in China?

China is the most important maritime logistics hub in the world

According to the United Nations Conference on Trade and Development (UNCTAD), China is the most important maritime logistics hub in the world. In 2019, Chinese ports had a throughput of 242 million containers, which is almost 5 times of what transited through US ports, the world’s second largest maritime hub.

China represents 13.2% of worldwide merchandise exports and almost 30% of worldwide container throughput. China also plans to develop further it’s already extensive infrastructure network by 2025 building logistics hubs in its’ major port cities. Although rail freight is developing as an alternative, the vast majority of international freight coming from and going to China transits by the major ports of Shanghai, Ningbo, Qingdao, Shekou and Xiamen. For foreign and domestic companies in China, maritime freight is the go-to way to import and export goods.

The Suez Canal is a major transit point for traffic coming and going to China

The Suez Canal is the main route to Europe from China. It cuts about 10 days of transit and 3,500 nautical miles from the Cape of Good Hope route that goes around the African continent. According to the European Commission the total volume of European maritime freight for imports and exports to and from China transiting through the Suez Canal was 117.1 million tons in 2019. During its whole history, the Canal was closed 5 times following several incidents.

Although these are extremely rare, the cost of rerouting or delaying transit are so high that freight companies have started to look for alternatives. With climate warming, the Northern Sea route that goes around Russia has been increasingly practicable. Now open from July to September, the route is shorter by approximately ten days from China to Europe, but presents high risks due to the presence of numerous icebergs. Although the Northern Sea route has been practicable since 2013, there are less vessels transiting through the route per year than ships going through the Suez Canal per day on average.

The Belt and Road Initiative opens new logistics corridors towards Europe

The Belt and Road Initiative (BRI) is a Chinese infrastructure megaproject aiming at developing infrastructure in participating countries to facilitate the transfer of goods to and through them toward the European Union. The “road” section of the BRI takes the tried and true Suez Canal maritime route and aims to develop ports along its course. As for the “belt” section, it cuts through Central Asia to Iran, then Turkey and finally the EU thanks to an ambitious network of railway and roads. Although Chinese investment in railroad infrastructure in the region has soared in the last decade and the freight train traffic has increased sevenfold since 2016 between China and the EU, sea freight remains undefeated due to cheaper cost.  

How does marine logistics insurance in China work?

Marine insurance covers goods from the moment they leave the sellers warehouse until they reach the buyer’s warehouse. Thus, unlike what the name suggests, marine insurance also covers the travel on land between the port where cargo was unloaded to the warehouse. Most of the time, insurance is not covered by incoterms, so the buyer is responsible to check if the shipment is insured. The minimum insurance rate for freight is called “carrier liability”, it covers natural disasters, accidents and war acts. Most insurers offer services that go beyond carrier liability and no insurance policy is the same, that is why it is important to pick and choose the right insurer providing the best coverage possible. The most common risks are tied to shipping lane delays due to extreme weather or political unrest, cargo vehicle accidents and mishandling of cargo in warehouses and ports.

Why should your business should subscribe to marine logistics insurance in China?

• As the largest exporter in the world, China trades the vast majority of its goods by sea and as a result has one of the most developed maritime infrastructures in the world.
• While the cheapest way of shipping goods, sea freight is also the slowest and entails many risks from extreme weather to unloading accidents and piracy.
• The Suez Canal incident has shown us that a shipping delay as short as 6 days can cost millions to companies.
• It is also important to note that some countries calculate custom duties with the CIF value of the goods as a base, which often leads officials to raise custom duties for uninsured goods.

For these reasons, it is important that you find the right insurer for your shipments to and from China.

To find insurance for your company, contact Asian-Risks