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Climate - Record-Breaking Hurricane Season Brings Supply Chain Pressure

The impact of Harvey, Irma and Maria (HIM) in particular highlights the fragile nature of just-intime supply lines and the need to consider multiple events in contingency planning.

The three powerful storms which struck the Caribbean and southern United States in 2017 provide a clear reminder to the shipping sector that traditional maritime risks should not be overlooked.

“For whatever reason, we are witnessing a rise in the frequency and severity of extreme weather events, while rising sea levels will mean an increased risk of flooding and storm surge for coastal areas and ports,” explains Captain Andrew Kinsey, Senior Marine Risk Consultant, AGCS.

In September 2017, Hurricane Irma caused major disruption to the fuel market in Florida, first by creating increased demand and then by disrupting the supply chain. As people fled the approaching hurricane, it generated a spike in demand for fuel, adding to logistical pressures already created by Hurricane Harvey, which struck Texas just over a week earlier. Between August 21 and August 28, 2017 when Harvey made landfall in Texas, retail gasoline prices in Florida and Miami increased 10 cents per gallon and 5 cents per gallon respectively.

“The events of 2017 have shown that shippers need to look at the seasonal impact of hurricanes across a region, and not just one specific event. Storms can build on top of each other and as one port recovers from a storm it can impact the ability of another port to prepare for the next one,” says Kinsey.

Harvey, Irma and Maria affected parts of Texas, Louisiana and Florida in the space of just one month. As each storm struck, it caused freight to be redirected to other ports, with a knock-on impact for rail and truck shipments across the region. Major ports along the Gulf Coast and Caribbean, including Houston and Miami, were closed for up to a week after the hurricanes, causing delays in cargo shipments and cruise ship operations.

“When drawing up contingency plans, shippers need to consider scenarios where multiple locations are impacted. Look at the whole season and not just what happens if a storm hits a particular location,” advises Kinsey.

According to the Boat Owners Association of The United States, some 63,000 boats were damaged by Harvey and Irma in the US alone, at a cost of an estimated $655 million. For months after the storms, salvage teams recovered large and small craft that either sunk or were run-aground on beaches, coral reefs and mangroves – 1,500 vessels were salvaged in Florida after Hurricane Irma alone and 459 boats were recovered in the United States Virgin Islands.

The series of storms have prompted debate within the marine insurance market about the insurability of pleasure craft in the region during hurricane season.

“The yacht insurance market saw large losses from the 2017 hurricane season. While larger permanently manned vessels are able to sail away from storms, many smaller pleasure craft were not as well-informed or alert to the hurricane activity,” says Volker Dierks, Head of Marine Hull Underwriting, AGCS Central & Eastern Europe. “Many remained in the area and were not adequately-secured.”

Following the storms, the insurance market is reconsidering the adequacy of premiums for pleasure craft exposed to hurricanes, as well as how the risk can be covered in the future.

“The 2017 hurricane season was a wake-up call and resulted in a large number of pleasure craft claims. Some insurers have quit the market due to losses and many are now considering under what circumstances they can continue to cover yachts in hurricane exposed regions, especially during the actual hurricane season,” says Dierks.

Superstorms pose future challenges for yacht markets

Hurricanes Harvey, Irma and Maria also damaged or destroyed thousands of pleasure craft in the Caribbean and US, raising questions over the insurability of vessels remaining in the region during the season.

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Image: iStock

According to the Boat Owners Association of The United States, some 63,000 boats were damaged by Harvey and Irma in the US alone, at a cost of an estimated $655 million. For months after the storms, salvage teams recovered large and small craft that either sunk or were run-aground on beaches, coral reefs and mangroves – 1,500 vessels were salvaged in Florida after Hurricane Irma alone and 459 boats were recovered in the United States Virgin Islands.

The series of storms have prompted debate within the marine insurance market about the insurability of pleasure craft in the region during hurricane season.

“The yacht insurance market saw large losses from the 2017 hurricane season. While larger permanentlymanned vessels are able to sail away from storms, many smaller pleasure craft were not as well-informed or alert to the hurricane activity,” says Dierks. “Many remained in the area and were not adequately-secured.”

Following the storms, the insurance market is reconsidering the adequacy of premiums for pleasure craft exposed to hurricanes, as well as how the risk can be covered in the future.

“The 2017 hurricane season was a wake-up call and resulted in a large number of pleasure craft claims. Some insurers have quit the market due to losses and many are now considering under what circumstances they can continue to cover yachts in hurricane exposed regions, especially during the actual hurricane season,” says Dierks.