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    Home » Geopolitical Risks and Trade Disruptions Reshaping Risk Management in the Shipping Industry
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    Geopolitical Risks and Trade Disruptions Reshaping Risk Management in the Shipping Industry

    insurancejournalnewsBy insurancejournalnewsMarch 9, 2025No Comments5 Mins Read
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    Geopolitical Risks and Trade Disruptions Reshaping Risk Management

    The global shipping industry is navigating an increasingly volatile landscape, grappling with heightened geopolitical risks that are reshaping how businesses manage operations. Tensions between major economic and political players, notably the United States and China, are at the forefront of these concerns, according to a recent report. Ongoing trade disputes, the potential for state-based conflicts, and evolving regulatory frameworks are introducing new uncertainties for fleet operators and shipowners, demanding a proactive approach to risk management.

    Global shipping on a tense geopolitical stage
    Global shipping on a tense geopolitical stage

    As concerns escalate over trade, the industry is closely following proposals from the United States targeting Chinese-built vessels. These policies could lead to significant challenges, including potential delays, contract cancellations, and supply chain disruptions, according to industry experts who emphasize the need for reassessment and adaptation.

    Adam Ashworth, a senior marine broker at Lockton, has been closely monitoring the evolving risk environment, particularly as it pertains to shipbuilding, trade disruptions, and the insurance solutions available to fleet owners and operators. “The global shipping industry is increasingly vulnerable to geopolitical risks. Political and economic tensions have risen since the January inauguration of US President Donald Trump. Meanwhile state-based armed conflicts rank as the risk most likely to present a material crisis on a global scale,” Ashworth noted.

    Potential for Trade Wars and Shipbuilding Disruptions

    Fleet owners are being advised to prepare for a range of disruptive scenarios, including vessel delivery delays and order cancellations stemming from rising tensions. A recent example is the Trump administration’s imposition of a 10% tariff on Chinese imports, a move that prompted China to file a dispute with the World Trade Organization and signal potential retaliatory measures. Ashworth believes that these actions could be the genesis of a wider trade war, with the shipbuilding industry likely to be directly affected.

    “The new US Trade Representative has already proposed, among other measures, steep US port fees on Chinese-built ships, and on any ship operator that has even a single Chinese-built vessel in its fleet or a single new building on order at a Chinese yard,” said Ashworth. He went on to note that such measures, if put into effect, would have significant consequences for the global shipbuilding industry, impacting ship operators.

    China currently holds a dominant position in global shipbuilding. “Today, China is the pre-eminent force in global shipbuilding. Chinese shipbuilders dominate the market with 53% of the shipyard output in 2024, according to shipping services provider Clarksons,” Ashworth stated. He noted China’s rapid expansion in the market, which has been at the expense of other manufacturers in countries such as South Korea and Japan.

    The China-Taiwan Factor

    Beyond trade disputes, escalating tensions between China and Taiwan are another critical factor that could disrupt fleet operations. Ashworth has highlighted the potential for delays or even cancellations of new ships, particularly from China-based shipbuilders. He also suggested that growing conflict could raise concerns about the security of existing vessels ordered from Chinese yards.

    Notably, Ashworth emphasized the likelihood of short notice should such risks materialize. “Any such event is likely to come at short notice for the industry. Owing to the long-tail nature of shipbuilding, fleet owners are unlikely to be able to recalibrate supply chains quickly enough to avoid the impact,” the broker explained.

    Strategies for Mitigation

    Despite the complex challenges, Ashworth suggests steps that fleet owners can take to reduce their exposure. “Such measures may include assessing business exposure to shipbuilding risks, including the reliance of future performance and growth projections on Chinese-built vessels, and the potential impact of delayed delivery.”

    Ashworth recommended exploring contingency plans in the event of delays, confiscations, or other disruptions. “For example, businesses may wish to explore potential supplier relationships in countries with lower exposure to risk,” he said. He also pointed to the importance of increased attention to evolving regulatory and sanctions frameworks. “Staying abreast of country-specific sanctions and regulatory changes relevant to global shipping, as well as the cost of complying with any such sanctions is essential,” Ashworth added.

    Educating internal teams about these changing risks also is crucial. “Educating teams on potential threats, including supply chain issues and evolving import processes, denied parties, and sanctions,” he advised.

    The Role of Insurance in Mitigating Risk

    On the insurance front, Ashworth highlighted an increased interest in Trade Disruption Insurance (TDI) products. “As a result of the growing threat to the industry, recent months have seen an uptick in interest for Trade Disruption Insurance (TDI) products worldwide, including from operators of Chinese-built vessels,” he said. TDI is generally designed to cover income loss resulting from events that occur outside of the operator’s asset, he explained.

    “TDI typically provides cover for whole or partial deprival of income following events that take place away from the operator’s asset,” Ashworth stated, adding that this could encompass income lost due to failure to deliver, extra costs of discharging, expropriation and confiscation, quarantine, arrest, or detainment, along with the introduction of new legislation and third-party blockages or border closures that arise during or during a political risk event.

    Several insurers are utilizing technology to enhance their TDI offerings, especially to analyze disruption risks across different geographies and supply chains. Ashworth also mentioned changing insurer appetites for political risk coverage. “Appetite and scope for political risk, meanwhile, wavered in 2024, with many insurers already having increased their aggregate exposures in this region. However, there continues to be some strong security willing to offer effective coverage to help shipowners de-risk,” he said.

    Ashworth concluded by noting that despite tightening conditions in the market, insurance remains a vital tool for operators seeking to successfully manage a complex, and rapidly changing, geopolitical risk environment.

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