The Rates of Wrath
War isn’t something that’s spoken of lightly, but when you’re in the shipping business you have to constantly look ahead and plan for any possibility.
With North Korea recently stirring up tensions with nuclear missiles testing, it’s very possible that this could become a situation in which commodity shippers need to prepare for an increase in cargo insurance, disruptions to ports, and even loss of profits due to exclusion zones.
We’ve talked about the importance of cargo insurance for shipments many times in the past. In addition to your regular cargo insurance, many companies offer war risk policies as a way to protect against loss of cargo during war. Because they are an addition to your normal policy, they are outside of the normal costs associated with shipping and an example of how war can begin to add up for importers and exporters.
Port disruptions are old news for regular shippers. Everything from weather to cyber attacks can and have caused temporary stops for many ports this year.
However, during wartime, countries may have embargoes and sanctions passed, limiting the types of commodities that can be sold to a country. Sometimes, countries may pass a complete cessation of trade in a region. While weather may close down a port for a few days, an economic sanction can last years or decades as demonstrated with America’s embargo on Cuba, which has lasted since Oct. 19, 1960. America’s only embargo that has lasted longer is with North Korea, which is ironic because the goal of economic sanctions is to stop behavior that is undesirable, but this embargo has actually had the opposite effect.
Shippers need to prepare for the possibility of port exclusions in the coming months if nuclear testing by North Korea continues.
Ultimately, what would make these exclusion zones such a big problem for shippers are inevitable changes to trade routes. According to Bloomberg Markets:
The impact on commodity trade routes would depend on whether the reach of the conflict is restricted to the Korean peninsula or spreads more broadly around the region. In the 10-week Falklands Islands war of 1982, the U.K. enforced a 200-nautical-mile maritime exclusion zone around the islands that made any ship entering the area a potential target. In the same decade, neutral commercial vessels were attacked in the Persian Gulf during the war between Iran and Iraq.
If the exclusion zone set up around the Korean peninsula is wide enough, trade could be completely disrupted in the area.
For now, all of the many difficulties surrounding marine merchandising and the possibility of war are only speculation. Merchants have navigated seas far rougher than what we are facing today, and though it may slow down, trade will always be a necessity.