Managing maritime connections between Asia and Europe
Global trade is facing multifaceted challenges causing longer delivery times, increased risks, and significant increases in costs.
In the Red Sea, a series of Houthi attacks on vessels have led most major shipping companies to reroute around Africa, avoiding the Suez Canal. On the other side of the world, a severe drought is significantly impacting cargo through the Panama Canal. Independent of location, the cyber risk landscape is growing increasingly sophisticated, posing a substantial risk to shipping companies worldwide.
In this article Markus Hytönen, Cargo Risk Engineer with If Insurance, provides examples of concrete risk mitigating factors that shipping companies should consider, with a focus on the maritime connections and shipping routes between Asia and Europe.
Rerouting around the Suez Canal
According to the Guardian, more than 100 container vessels have rerouted from the Suez Canal to avoid Houthi attacks. The alternative route via Cape Town prolongs the transit time to Europe by approximately 10 days, and poses further risks, as cargo is exposed to more rough seafaring.
Markus says, “the current situation in the Red Sea will have long-term consequences on global trade. Even if the situation were to cease today, uncertainty will remain in the future and potentially influence many shipping companies to continue rerouting to avoid the risk of an attack.”
Panama Canal drought causes global disruption
One of the world’s key shipping channels is running at reduced capacity due to a severe drought. With water levels below normal, only 24 vessels can cross per day, causing delays and higher shipping costs. Before the drought, as many as 38 vessels per day passed through the Canal. The drought comes as a combination of the El Niño effect and the dry season in Panama. The rainy season is predicted to begin in late April, which can impact the situation positively.
Cyber attacks
According to the Economist, the maritime industry is expected to go through a digital transformation over the coming decade, driven by the technological adoption, the climate agenda and intensifying geopolitical and macroeconomic shifts. The industry is becoming increasingly reliant on artificial intelligence and the opportunities Big Data, and the Internet of Things have to offer. These new technological developments come with an increased risk of potential cyber-attacks, which has already materialised for several large shipping companies.
One example occurred in July 2023, when one of Japan’s busiest ports, Nagoya, was hit by a cyber-attack, affecting its ability to load and unload containers from ships. The ransomware variant caused two days of downtime for the port, which had a significant impact on Toyota’s imports and exports, as Nagoya is the main route for auto exports for Japan’s car industry.
Markus Hytönen says, “The need for cyber resilience is more important than ever before. We see many seaports being attacked and, in some cases, they are forced to shut down operations for several days causing huge financial losses. Cyber security measures must be up to date and improved continuously.”
The shipping industry in transition
The intensifying geopolitical situation in Red Sea, the drought in Panama Canal and the escalating cyber landscape will undoubtedly have far-reaching impacts on the future shipping industry. The current situation causes increases in transit rates, which will impact prices, ultimately impacting consumers. Vessels therefore need to be more cost-efficient, which can lead to the use of larger vessels with fewer transports.
Hytönen says, “The issue with larger vessels is that already now, only specific ports allow the bigger container vessels to enter where containers are then unloaded and reloaded to minor vessels, which can go to smaller seaports. This increases complexity in supply chains and will cause even more delays in transit.”
Markus continues, “Another development on the rise, is autonomous vessels. For example, YARA has an autonomous container vessel carrying fertilisers on the south coast of Norway. The autonomous vessels have more cargo capacity as no space is needed for crew or cabins. However, significant cyber measures must be taken into consideration, to avoid, for example, a full takeover of the vessel.”
Concrete risk mitigating factors
Looking at the maritime transportation to and from Asia, there are some general considerations companies need to keep in mind when doing business along these trade routes.
Markus Hytönen explains, "some of the common challenges shippers face concerns the adequate packaging and cargo securing methods for the long transit time. Additionally, the changing weather conditions should be taken into account as more frequent and extreme weather events are causing widespread impacts onshore as well as offshore. Shippers as well as consignees should prepare for additional costs and, in this regard, also longer transit times.”
Understanding the risks
As we are monitoring all these risks and situations closely, If Insurance works to keep our clients up to date on their risk management and loss prevention efforts by offering suggestions or solutions on how to better protect their transported goods.
We are also communicating on an ongoing basis with our clients, for instance, regarding geopolitical risks and their existing insurance coverage. We provide guidance on alerts and warnings, and across critical areas relating to shipping.
References
Busy Japanese port hit by cyberattack - Ship Technology (ship-technology.com)
More than 100 container ships rerouted from Suez canal to avoid Houthi attacks / Shipping industry / The Guardian
Global Maritime Trends 2050 (economist.com)
Yara Birkeland / The first zero emission, autonomous ship / Yara International
Clearing the Waters: Dispelling Myths About Panama Canal Operations - Autoridad del Canal de Panama (pancanal.com)