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Question: How does insurance facilitate global supply chain?

Answer: International Insurance is of paramount importance in global supply chain, primarily because the movement of goods internationally is high risk and full of perils. Importers and exporters must be willing to accept these risks or transfer them to an insurance company.

International transportation of goods inherently increases the number of perils and hazards that are encountered, mainly because of there are usually multiple carriers involved in the process from pre-carriage to main-carriage to on-carriage. As the number of segments increases, the number of hazards also increases, and international shipping faces many more hazards than domestic shipping. The number of risks also increases because goods are usually transferred from one mode of transportation to another, thereby increasing the number of times it is being handled as compared to domestic shipments. (David, P.A. 2017)

The perils of international cargo transport therefore have implications for insurance coverage. It also influences the way companies package their products for exporters and the way they pack into containers.

The list of potential perils in air and ocean shipment is quite long, ranging from theft to fires, capsizing, water damage, collision, etc., to name a few. Sufficed to say that roughly one cargo ship is lost every week, somewhere in the world. This further emphasizes the need for insurance coverage in international supply chain.

Insurance requirements is brought into the picture depending on who is liable to bear the consequences of a loss at the various stages of transporting the cargo and risks are naturally transferred from one party to another at different stages in the process. For example, the company will assume risk for transport from its facility to the exporter while the exported assumes risk up to the where the importer takes possession of the cargo. These varying scenarios add to the complexity of international insurance coverage and the number of factors that should be taken into consideration. Nevertheless, international insurance is indispensable to global supply chain to help reduce the amount of loss suffered in the process.