Amid rising global trade tensions and the looming threat of new United States tariffs, businesses are being urged to reassess their cargo insurance arrangements to ensure adequate protection against the evolving risks of sudden shipment changes.
US President Donald Trump’s announcement of a 50% tariff on European Union (EU) goods has sparked market anxiety and a flurry of shipping activity, a report from Yahoo Finance noted. Although the implementation date has been pushed from June 1 to July 9 following discussions between Trump and European Commission president Ursula von der Leyen, the temporary reprieve offers limited certainty.
As exporters scramble to respond – either by accelerating shipments, redirecting cargo, or pausing deliveries altogether – Lockton Re warned that such changes can alter a shipment’s risk profile and potentially expose businesses to gaps in cover.
One scenario facing cargo owners involves order cancellations during transit. In such cases, goods are often diverted to alternative ports or stored temporarily. If the new storage facility does not meet policy safety standards, the cargo may fall outside the scope of insurance. Industry guidance stresses the importance of promptly notifying insurers or brokers, as Marine Extension Clauses may only respond if informed without undue delay.
Another common challenge occurs when orders are cancelled before dispatch. Goods are then stored at manufacturing sites or warehousing facilities, raising the possibility of aggregation risk – the accumulation of high-value items in one location. If a loss were to occur, the potential payout might exceed the agreed policy limit. Adjusting cover limits may be possible but depends on the insurer’s capacity and risk appetite.
In a third scenario, businesses may opt to proceed with shipment despite tariff increases. This can lead to goods being valued much higher than initially declared. If a loss occurs, the policy is likely to respond only up to the stated limit, and insurers may apply the “average principle”—reducing claims payments if the goods are found to be underinsured.
Each of these outcomes underscores the importance of clear and current cargo insurance terms, especially as tariff developments remain unpredictable.
These scenarios highlight the importance of maintaining accurate policy terms and reviewing them as trade conditions change.
As negotiations between the US and EU continue, with focus on industries such as semiconductors, vehicles, pharmaceuticals and aluminium, both sides aim to avoid escalating the dispute. Meanwhile, the EU is reportedly preparing retaliatory tariffs totalling US$108 billion (~NZ$174 billion) if talks collapse.
Insurance professionals recommend that businesses facing tariff exposure take the following actions:
What steps should businesses take to mitigate the risks they face? Share your insights below.
