PHILIPPINE exporters have been advised to prioritize the valuation of their tangible assets, including their freightage, amid shipment delays that may cause asset price volatility.
According to John Foord International Valuers of Industrial Plant and Property, knowing the exact value of their assets will help exporters arrange the appropriate insurance coverage for the companies.
“Our position is that the best way for firms to ensure they have adequate insurance coverage for all their tangible assets—and to mitigate the risk of fluctuating global asset prices—is to get the declared values of those assets regularly appraised by an independent professional firm,” John Foord CEO Andrew Slevin said in an interview with the BusinessMirror.
“We would advise Philippine exporters and logistics service providers to engage with their clients to ensure that shippers and recipients are aware of the costs, risks and timelines required in today’s situation,” he added.
The London-based independent advisory firm said having a regular asset appraisal can limit the risk of both under- and over-insurance, given that global asset prices change.
Slevin said that, in case of under insurance, a company may be paying too little in insurance premiums because of under declaration. This means the asset is priced at a lower amount compared to actual cost to replace at present valuation.
With this, the insurers are unlikely to pay out the full amount to cover the asset’s replacement in the event of claim, he explained. Slevin said this could dent the company’s balance sheet as a result because it would be paying the rest out of its own pocket.
“In the case of over-insurance, the current replacement cost of the asset [such as a piece of real estate or energy facility] may have fallen due to lower commodity prices or technological innovation that has driven down the costs,” he explained.
The companies, Slevin said, may be able to save money on premiums or secure better insurance terms with updated declared valuations.
Suez Canal blockage
The importance of asset valuation and insurance was highlighted amid the pandemic-induced disruptions resulting in shipment delays, with Slevin citing the unfortunate Suez Canal blockage that lasted a week.
“While the impact on material and equipment costs due to the Suez blockage was temporary and primarily regional, this incident has highlighted the fragility of current supply chains across a variety of sectors,” the John Foord head said. “It also showed how they can be unintentionally disrupted, causing asset prices to vary significantly.”
On March 23, the 220,000-ton container ship Ever Given was stuck in one of the major sea-level waterways and was only able to be released nearly a week after.
This disruption was to the detriment of 12 percent of global trade, Slevin noted, citing that around $10 billion worth of goods pass through it each day according to Lloyd’s List.
Slevin said that the conclusion of the weeklong shipping mess brought relief to asset and risk managers monitoring regional and global portfolios that are exposed to commodities transported via the canal, including oil.
“Immediately after the unblockage, oil prices dropped following an initial spike when the blockage was first reported about a week earlier—Brent crude, the international oil benchmark, fell almost 1 percent as ships were able to resume their journeys,” he explained.
“If the blockage had gone on longer, there would have been more serious implications for the supply of everything from computer chips to Covid-19 vaccines, which rely on the vital Suez connection linking Europe, Africa, and Asia,” Slevin added.
More challenges to come
The Philippine exporters and logistics service providers may have to hang tight for a bit longer as the disruption induced by the pandemic is seen to continue, Slevin explained.
The John Foord official said they will likely still face challenges in forecasting and navigating transportation controls and supply constraints.
The “sense of normality” will take time to return, he added.
“The diverse, and sometimes seemingly haphazard, national strategies to handle the virus across the world means that there is no single obvious path to a virus-free future, and we are likely to see different scenarios play out for some time, with travel bubbles perhaps being the best we can hope for,” he explained.
Logistics, Slevin said, not only ensures that “customers can get their goods and materials transported efficiently,” but also conveys to “customers the reality of the situation in terms of costs, timelines and risks.”
Image credits: Qilai Shen/Bloomberg