Marine Insurance, GenAI and Geopolitical Instability: What’s the Link?

The Red Sea has been a famous trade route for centuries, connecting Europe, the Middle East, and Asia. During peacetime, its strategic role in the global supply chain is critical.?

During conflict, that influence multiplies, impacting every supply chain link. The conflict in Yemen, for example, has affected the coffee trade, leading to supply shortages and price fluctuations. Transportation and logistics have also been impacted, with increased security risks such as piracy and terrorism disrupting shipping schedules and rising marine insurance premiums.

The introduction of war risk premiums is a trend amongst marine insurers. For example, a group of insurers called the Joint War Committee now includes the Red Sea in its list of high-risk areas, resulting in war risk surcharges of 0.5% of a ship's hull value per voyage.?

These surges are being driven by the Yemeni Civil War, Iran and Saudi Arabia tensions and conflict in the Red Sea bordering countries like Sudan, not to mention piracy, terrorism and heightened environmental risks demonstrated by the sinking of the Rubymar last month.?

Unfortunately, the shadow of instability reaches beyond this region.

What geopolitical events are impacting supply chain security in 2024?

The attacks on oil tankers in the Strait of Hormuz have increased insurance premiums and shipping costs for companies transporting goods through the region. Shippers and forwarders are left to bear the brunt of these costs – business as usual then.?

For instance, the war risk premium, which increased from 0.05% to 0.7% in December, has surged to one percent of the value of the ship, translating to a premium of $2 million for a $200 million vessel (compared to just $100,000).?

Further east, The South China Sea, carrying one-third of all global shipping estimated at $5 trillion annually, faces rising tensions between China and other nations in the region, forcing some shipping companies to reroute their vessels, lengthening journey times and pushing up costs impacting businesses and consumers worldwide.

Northeast of this potential regional hot spot in the Black Sea, Russia's economic sanctions have disrupted the supply of key raw materials, such as steel and aluminum, forcing manufacturers to find alternative sources at higher costs.

In every part of the world, shippers and manufacturers must now factor in the disruptions and build more resilient supply chains to mitigate the risks posed by regional instability.

The role of Marine cargo insurance in stabilizing global trade

Marine cargo insurance supports stakeholders at every point of the supply chain.?

Manufacturers can focus on production and innovation, knowing their cargo is insured and financially protected against losses due to theft, piracy, accidents, and other unforeseen events. Freight forwarders can confidently fulfill their contractual obligations, knowing they have a safety net in case of cargo damage.?

3PLs don’t have to worry about absorbing the costs of damaged goods because marine insurance allows them to focus on their core competencies—efficient logistics and last-mile delivery. Retailers can protect their supply chains from unplanned losses, ensuring consistent product availability and potentially improving pricing negotiations with manufacturers.

Marine insurers are buffers in the supply chain, absorbing risk so that everyone can contribute to enabling cost stability and a wide array of products for consumers—in spite of intense regional conflicts. However, this essential function is too often hijacked by clickbait headlines about rate increases.

GenAI’s role in protecting supply chain organizations from geopolitical events?

Let's consider a use case where a shipper, ETech Ltd., has a cargo of high-end consumer electronics scheduled to travel through the Red Sea and the Suez Canal. However, due to the escalating conflict, the company faces extra risk and disruptions to their shipment. Here’s how a GenAI-powered platform like Stardox can help.

Protect cargo

Stardox's Mycelium module helps ETech Ltd. collaborate with its freight forwarders and carriers. It creates a knowledge graph of its supply chain network to identify alternative routes and develop contingency plans faster in response to the conflict.

Protect against customs delays and penalties

Stardox's Gennesys module helps ETech Ltd. generate accurate and compliant documentation for any necessary customs clearance procedures for rerouting their shipment. By automating the document generation process and ensuring 100% accuracy, Stardox minimizes the risk of delays or penalties associated with customs compliance.

Protect against human error

Additionally, Stargo Large Language Model (SLLM), Stargo’s proprietary LLM, validates and corrects any data inconsistencies related to the shipment due to manual processes, resulting in reliable, real-time information for decision-making. By applying AI-driven analytics, ETech Ltd. identifies cost-effective alternative routes for its cargo and optimizes its transportation costs.

Protect against blind spots?

Lastly, Stardox Control Tower provides ETech Ltd. with a high-level overview of its data needs, enabling it to make informed decisions, adapt to disruptions, and protect its high-value cargo throughout its journey.

Stardox provides stability during geopolitical instability

As geopolitical fault lines and regional conflict persist, partnering with a GenAI platform trained on industry-specific documents and data is no longer a luxury.?

By leveraging the power of a GenAI platform that speaks “freight” for data management, collaboration, process optimization, and insurance optimization, supply chain stakeholders can navigate the complexities of global trade and turn their data into 20% more revenue within 12 weeks. Book a demo to know more.