An innovative tool for cost control under fragmented scenarios: The container freight index microinsurance

Fangping Yu, Zhiyuan Xiang, Xuanhe Wang, Mo Yang and Haibo Kuang

Transportation Research Part E: Logistics and Transportation Review, 2023, vol. 169, issue C

Abstract: With the impact of the COVID-19 pandemic, global container freights have increased dramatically since the second half of 2020, which has significantly hampered the booking activities of fragmented transportation space for small and medium-sized import and export enterprises (SMIEEs). To provide SMIEEs with an effective tool for controlling shipping costs, we propose the design principles of index microinsurance under fragmented scenarios and design the container freight index microinsurance (CFIM) based on a comprehensive analysis of the term, compensation and share structures. We further establish the pricing model for the CFIM and selection procedure for product optimization, and illustrate the framework with a case study based on the data of the China Containerized Freight Index Europe Service, which demonstrates the good performance of the designed product even under extreme market conditions. The design principles proposed can shed light on the innovation of index microinsurance product that meets fragmented needs and the newly designed CFIM, along with the pricing and optimization procedure, provides practitioners with useful tools for cost control.

Keywords: Container freight index microinsurance; Small and medium-sized import and export enterprises; Fragment insurance scenario; Cost control; Forward-starting arithmetic average Asian call option; China Containerized Freight Index Europe Service (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.tre.2022.102975

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