Future Prospects Of Shipping COVID-19 Vaccines By Sea




April 10, 2021

The lucrative prospect of transporting COVID-19 vaccines by sea has intensified the spotlight on the maritime industry’s cold supply chain and its ability to carry high-value pharmaceuticals.

At present, speed to market is critical to stemming the spread of the pandemic, so the vaccines are being shipped by air to international destinations. Delivering them by sea is a longer-term strategy; certainly, the present urgency would have to calm considerably before enough confidence could be built to support delivery times in weeks, rather than hours.

While the majority do not expect COVID-19 vaccines to be carried by sea soon, there are some container lines, particularly those with established ‘cold chain’ infrastructure, partners and expertise, who believe opportunities could materialize before the end of the year.

Some lines that are already moving other vaccines believe sea transport will become ‘relevant’ to the COVID-19 variety as soon as the volume outputs from manufacturers become more predictable.

In general, container-shipping lines have had success prising a growing portion of the global market for pharmaceuticals away from their air-transport competitors. Pre-COVID, it was estimated about 3.5 million tonnes of pharmaceuticals moved by sea each year, against 0.5 million tonnes by air.

Revenues for the broader ‘cold chain’ industry – the ‘refrigerated’ part of the end-to-end supply chain – itself were estimated at US$73bn last year, and growing.

Pharmaceutical shipments have slowly migrated to the sea for the past 20 years as confidence grew in the quality and security of the marine ‘cold chain’; for example, AstraZeneca, one of the makers of COVID-19 vaccines, reportedly increased the proportion of pharma products it ships by sea from 5% in 2012 to nearly 70% in 2017.

Because vaccines are volatile and valuable, it follows that their owners will priortise using experi-enced cold-chain carriers to get their products to market. The Pfizer-BioNTech vaccine, for example, must be consistently stored at -70C, or it will be rendered unusable. The vaccines of its competitors Moderna (-20C) and AstraZeneca (2C-8C) have less demanding temperature requirements, but they are still subject to stringent environmental quality and security controls during transport.

Aside from environmental-control requirements, risk assessments for insurance contracts for pharma shipments by sea need to consider the comparatively high product valuations per conveyance. As pharma shipments that travel by sea are generally larger than those sent by air, the totally lost COVID-19 vaccine shipment could represent a loss as high as US$50m.

Because the COVID-19 vaccines are highly valuable and potentially volatile, insurance contracts need to be carefully constructed to respond to the characteristics of each shipment. Standard limits to liability established by national regulatory bodies are likely to fall short of ship¬ment valuations and, as there is no standard global template to limit liability, it’s important that each policyholder shares their unique risk profile to establish the limits of the policy prior to its inception.

Limits of liability are typically established according to the maximum value of the carrying convey-ance, with the onus on the policyholder to provide proof. Insurers will generally provide limits up to the value of the cargo transported and most pharmaceutical companies have large insurance limits, which can be subject to limits on accumulation and can be substantial.

Limits per shipment are not specifically set for COVID-19 vaccines. But, as a loss under a transport policy would very likely result in a loss of sale (as replacements are unlikely to be readily available), it’s currently likely the shipper of the vaccines would expect compensation to be based on the selling price.

The vaccines’ retail price has been estimated by some manufacturers at $20-$25 per dose. With World Health Organization expecting up to 25% of the vaccines to be ruined every year due to poor temperature control, it is easy to see how the financial risks could rise considerably for all parties.
Also, because cyber attacks are a real risk for such socially vital cargo, all parties should ask whether standard marine cargo policies would respond to an attack that damaged their vaccine consignment. Using the International Maritime Organisation’s Cyber Security Guidelines as a foundation, those involved in the distribution of vaccines will need additional comfort that their transportation provi¬ders are also compliant with other guidelines and/or have a robust framework in place to protect them from this emerging risk.

Many marine cargo policies have multiple cyber exclusions that could rule out compensation for loss, damage, liability, or expenses stemming from an event with “malicious intent” to cause loss, whether directly or indirectly.

Also, ‘exclusion’ is a very broad term that is widely used in dedicated cyber policies, so insureds would be wise to ask whether their marine cargo policy would protect them in the event of shortfalls brought about by any cyber-exclusion language.

Cyber cover has come under a brighter spotlight since the Prudential Regulation Authority, which supervises about 1,500 financial institutions including banks and insurance companies, made it mandatory from 1 January 2020 that contracts of insurance in the London market become affirmative on cyber protection, as opposed to ‘silent’.

As such, the prospect of clients transporting volatile and highly valuable COVID-19 vaccines will receive heightened scrutiny from the insurance community. In today’s market, marine insurers will want more details about most of the links in their client’s supply chain and its third parties, before underwriting. These questions could include:

  • Carrier and warehouse vetting processes
  • Details of any loss-control or risk-management protocols and tools, such as GPS tracking devices, temperature-recording devices, etc, including whether those items are monitored by the policyholder’s employees, or third parties, even in warehouses
  • Details of contingency plans in the event of a conveyance breakdown at any point within the transit from origin to final destination
  • For temperature-controlled shipments, how are the goods packed/transported to minimise the potential for changes in temperature?
  • What security measures exist to minimise potential of theft and non-delivery of products

Clearly, any marine cargo insurance policies – even for experienced pharmaceutical carriers – will need to be re-examined to ensure they will respond to the risks inherent in carrying these precious goods.

Source

Marinepress

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