West Coast marine operators brace for rising marine insurance rates as China trade war looms
The global maritime industry is bracing for the impact of an escalating trade war. On the West Coast of the United States, ports relying on trade with Asia are expected to see ship calls decrease in the coming months as the impact of tariffs slows the movement of goods. Meanwhile, the global marine insurance market is hardening fast after a decade of low premiums and high capacity. With cost control as critical as ever, the maritime industry must prepare for rising insurance and risk management costs.
Impending trade war
The United States and China are the two largest economies in the world. Both have benefitted enormously from trade and investment over the last 50 years. Currently, two-thirds of the more than $500bn of annual Chinese imported goods enter the U.S. through one of five ports in California or Washington. Trade with China is vital to the West Coast economy, and rising tariffs will hit marine operators in the region hard. The numerous marine terminals, agents, brokers, logistics and equipment providers in the Bay Area will see a significant decrease in revenue as trade slows.
Meanwhile, consolidation in the global shipping industry has analysts concerned that shipping companies may be over-leveraged. In a worst-case scenario, some large global shippers are at risk of default in the coming months and years if trade continues to decline. Those same marine operators and equipment providers worried about falling revenues may also be writing off millions of dollars of bad debt in the event of such a default.
It’s not only the movement of goods which fuels the marine economy, but the movement of people as well. Nationwide, the number of visitors from China fell in 2018 for the first time since 2003 – down by 5.7%, according to data released last Friday. Chinese tourism has been a boom to the city of San Francisco for decades. Yet, for one boat tour operator in the San Francisco Bay Area, the recent decrease in tourists coming from Asia has already had a significant impact on their bottom line.
Hardening insurance market
Even novice buyers have noticed an uptick in their insurance costs in recent years. Homeowners across the Bay can attest to increasing insurance premiums, as seemingly endless wildfire and hurricane seasons have led to drastic increases in property insurance premiums. Flood zone maps are quickly expanding with the threat of sea level rise, and premiums for earthquake insurance grow as Insurers grow more fearful of the next “Big One.”
For the marine industry, the Bay Area’s aging waterfront piers, wharves, and docks are increasingly expensive to maintain and insure. Marine terminal operators face increases of five to 15% for earthquake insurance alone for their billions of dollars of cranes and equipment.
Markets for many lines of marine insurance are hardening rapidly after years of unnaturally soft market conditions. During this time, even high-performing underwriters struggled for years to stay afloat as new market entrants kept prices artificially low. A series of high-profile hull losses, including a $700 million fire loss to a newly-built superyacht in Germany finally brought the hull market to its knees. A number of underwriting syndicates at Lloyds of London, the traditional home of marine insurance, have since pulled out of marine altogether. Those that remain were given strict guidelines to return to profitability. Marine clients in London for their insurance can expect price increases as much as 15% at renewal.
Difficulties at Lloyds may provide new opportunities for U.S. insurance markets. There are signs marine capacity in the U.S. is expanding, with American markets eager to take advantage of price increases across the pond.
Insurance buyers should be prepared to explore new underwriter relationships if they wish to achieve lower premiums. For best renewal results, early planning and discussions with your insurance broker are critical. By helping your company navigate the changing insurance market and presenting you with creative risk management solutions, your insurance broker as your trusted advisor is a valuable port in a storm.
Source: San Fransisco Business Times