After pandemic, what is the next frontier of challenges in the transport and logistics space?

Not long after Canada’s transportation and logistics industry has hurdled the disruption caused by COVID-19, it now faces up to exposures from inflation and geopolitical conflict.

Wesley Lai, Senior Marine Underwriter at CNA Canada, has noted a healthy recovery from port delays that left huge numbers of container ships sitting idle off the US and Canadian coasts.

“In 2023, these port delays have mostly been cleared out, so in terms of recovery, we’ve gotten much better,” said Lai.

The pandemic also triggered a shortage of freight containers. Many “were in all the wrong places” at the wrong times due to differences in Canada’s imports versus exports, according to Lai.

Freight rates peaked at around $25,000 per container for imports from China during the pandemic but have now dropped to pre-COVID rates. However, the senior underwriter suggested that this trend is indicative of something different.

“There has been a shift in the economy. With increased inflation, consumers are spending less on products and this has lead to less shipping being required,” Lai told Insurance Business.

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Inflation and Ukraine conflict open exposures

CNA Canada has noted a shift from huge demands for products to consumers focusing more of their spending on essentials, such as food, gas and services.

With lower demand for imports, particularly the Far East, transportation and logistics companies are seeing reduced shipping volumes, but also taking the opportunity to restock their warehouses. This has led to an increase in requests for higher stock limits on corporate policies.

Brokers should engage with their transportation clients to understand volume expectations on the cargo side considering the economic headwinds.

“Rising inflation has an effect on the goods that businesses store,” Lai pointed out.

The other major influence on transportation and shipping risks is the war in Ukraine, which has entered its second year. Brokers and their clients should keep pace with tightening sanctions regimes and changing shipping patterns.

“Trade to these regions is generally low for Canadian companies. But it’s best practice to know and understand the changing sanctions landscape,” said Lai.

Lai has noted an uptick in requests to insure shipments of military equipment and ammunition to Ukraine, as Western countries continue to provide support during the conflict.

“Brokers need to properly understand their clients’ exposure and identify all products offered in the insurance market to cover these exposures properly,” he said.

Shortage of truckers and seafarers

Even as Canadian transport and logistics companies bounce back from pandemic-driven delays, they have yet to plug the gap in skilled workers.

The pandemic magnified this exposure for Canada’s trucking industry, as truckers were laid off during the initial lockdowns.

“Ever since then, there continues to be difficulty with recruiting into this space. As truckers retire, companies struggle to attract and retain truck drivers. This is going to be a point of consideration going into the future,” Lai said.

The issue also extends to seafarers. Despite global trade relying heavily on the marine shipping industry, seafarers must contend with difficult work conditions and poor pay.

“They spend long periods of time away from home, and the working conditions are quite dangerous.” said Lai. “It’s becoming harder and harder to recruit into the industry.”

Pivoting towards supply chain resilience

The good news is that Canadian businesses have taken steps to make the supply chain more resilient, from diversifying suppliers and holding more inventory, to trying to bring manufacturing back to Canadian soil.

“There’s been a movement away from the ‘just in time’ model to the ‘just in case’ model,” Lai observed.

“Companies are keeping more stock on hand. After many months of restocking by manufacturers, imports are lower. They no longer need to continually order goods to keep manufacturing going.”

The pandemic prompted increased calls for nearshoring and reshoring, rather than offshoring manufacturing. Canadian businesses are no longer specifically tied to manufacturing in China and there has been increased focus in finding solutions in other regions.

But while there is yet to be a notable effect from operational changes, “it’s still early days,” Lai pointed out.

“I’m hopeful about what the next three to five years will bring in terms of repatriation of these manufacturing jobs,” he told Insurance Business.

Helping transport and logistics clients with risks

CNA Canada’s ocean and inland marine solution offers a comprehensive suite of products for the transportation and logistics industry, including cargo, direct damage, cargo liabilities for transportation brokers and freight forwarders, and motor truck cargo solutions.

The solution also offers extended cover for short-term incidental storage, as storage becomes more of an issue for businesses.