How to address the trade risks of a potential blockade of the Strait of Hormuz: A case study of trade credit insurance

As people are concerned about whether the Strait of Hormuz will be blocked, AWM insurance experts suggest using trade credit insurance to help alleviate current concerns about trade risks

According to the United Nations Conference on Trade and Development (UNCTAD), global trade will reach US$33 trillion in 2024, with exports accounting for approximately US$16.5 trillion. East and South Asia (including China and Hong Kong) are the main export hubs. The report shows that nearly 45% of China's oil imports rely on the Strait of Hormuz; a blockade could push oil prices above US$100 per barrel, and transportation costs would also rise significantly.Trade credit insuranceis a crucial tool for Hong Kong SMEs to manage geopolitical risks.

This article uses case studies and global export data from 2024 and 2025 to demonstrate how trade credit insurance can safeguard the stability of Hong Kong's export business

Background: The impact on exports if the Strait of Hormuz were blocked 

The Strait of Hormuz carries approximately 20 million barrels of oil daily, accounting for a quarter of global maritime oil trade. The blockade will have the following impacts on Hong Kong's exporting companies: 

1.        Soaring oil prices: Kinsak predicts that oil prices may exceed $100 per barrel, pushing up energy and raw material costs and affecting the price competitiveness of exported products. 

2.        Rising freight costs: The detour around the Cape of Good Hope in Africa increases shipping costs, with container freight rates potentially rising from $2,000 to $3,500, squeezing profits. 

3.        Buyer default risk: Overseas buyers may delay payments or default due to cost pressures, affecting the company's cash flow. 

4.        Supply chain disruptions: Delays in raw material imports affect the production and export delivery capabilities of Hong Kong companies. 

Global and Hong Kong export data 

According to data from the World Trade Organization (WTO) and UNCTAD, the global export situation in 2024 is as follows: 

China Theworld's largest exporter, with exports of approximately US$3.4 trillion in 2023 and an estimated growth of 3.7% in 2024. Its main exports are electronic products, machinery and textiles. 

Hong Kong: Exports are expected to reach approximately US$570 billion in 2024, accounting for 1.7% of global trade. The main exports are electronic products and high-tech products. Major markets include Mainland China (56%), the United States (8%) and the European Union. 

• Other Asian markets: Japan's exports reached US$707.39 billion in 2024, an increase of 1%; India's exports reached US$72.32 billion, an increase of 100% (data from January 2025).

• 2025 Outlook: The World Bank predicts that global trade growth may slow due to geopolitical factors and U.S. tariff policies, particularly impacting Asian economies that rely on Middle Eastern oil. 

As an Asian export hub, Hong Kong is highly dependent on maritime transport and a stable energy supply. The blockade of the Strait of Hormuz will directly threaten its export business 

Applications of Trade Credit Insurance 

XYZ Electronics purchases trade credit insurance through insurance brokers, covering 90% of its export receivables. Here's how the insurance works: 

1.        Protect cash flow： 

a. After the European buyer defaulted, the insurance company provided HK$2.4 million (80% of accounts receivable) to stabilize cash flow 

b. Through the arrangements of insurance brokers, the underwriting trade credit insurance company can provide buyer credit assessments to help businesses identify risks and adjust transaction terms 

2.        Ease shipping cost pressure： 

a. The cash flow from insurance coverage allows XYZ Electronics to absorb part of the shipping costs and maintain customer relationships 

b. Market intelligence from insurance brokers helps businesses predict freight rate trends and negotiate favorable contracts 

3.        Stable supply chain： 

a. Insurance funds ensure timely payments to suppliers to avoid raw material supply disruptions 

b. Through insurance brokerage arrangements, the underwriting trade credit insurance company can assist in finding alternative suppliers and reducing market dependence 

4.        Enhance competitiveness： 

a. Insurance support allows XYZ Electronics to offer a 90-day payment period, attracting new orders 

b. Insurance brokers recommend enhancing businesses' negotiation confidence during crises 

Results 

•       Financial stability: XYZ Electronics' revenue declined by only 5%, far below the industry average of 15%. 

•       Market expansion: HK$20 million in new orders from Southeast Asia. 

•       Risk Management: Establish a long-term credit management strategy to reduce the impact of geopolitical risks. 

Why choose Trade Credit Insurance? 

Hong Kong SMEs face geopolitical risks, andtrade credit insuranceoffers the following advantages: 

•       Protect cash flow: Compensate buyers for breach of contract and ensure cash flow. 

•       Credit Management: Provides buyer credit assessments and market intelligence. 

•       Enhance competitiveness: Support flexible payment terms to attract buyers. 

•       Crisis Response: Ensuring business continuity during oil price fluctuations and supply chain disruptions. 

Data from the Hong Kong Export Credit Insurance Corporation shows that claims amounted to 20% in 2024, reflecting rising insurance demand. Businesses can obtain customized solutions through professional insurance brokers 

Action Recommendations 

1.        Assess risks: Analyze buyer and market risks to determine insurance needs. 

2.        Contact a broker: Partner with a professional insurance broker to select the most suitable insurance product. 

3.        Flexible policy: The insurance terms are adjusted based on the assessment of different risks, such as changes in oil prices and freight costs. 

4.        Integrated Management: Combining insurance with internal risk management for comprehensive prevention. 

Contact a professional insurance broker now for a free assessment of your trade risks and to customize a personalized insurance plan! 

Conclusion 

The potential blockade of the Strait of Hormuz highlights the importance of trade credit insurance, but it is just one of many trade credit risks, such as buyer bankruptcy, market volatility, or policy changes. Case studies show that through trade credit insurance, businesses can operate steadily and explore new opportunities during crises. Take action now to add a safety net to your export business! 

 
 
Sources: CBS News, Business Insider, Euronews, Time.com