ANDY EDWARDS: Hello, and welcome to today's episode of Waves by Willis. Today's feature aims to take you through the life cycle of those everyday items we take for granted that keep our lives moving. Supply chain, geopolitics, tariffs, elections, and trade wars are all topics we hear every day and have become part of our lives. But how do these events influence the goods we consume? The question is, what raw materials go into these items and where do they come from?
I'm your host, Andy Edwards. And joining me for this episode, we have a subject matter expert from the Marine Cargo team in Jacob Shalka, as well as one of our Willis industry leaders in the technology, media, and telecoms space. Our head of GB TMT, Karl Sawyer, who we'll be speaking with shortly.
So that's the brief and a quick introduction to our speakers. If Karl's title hasn't given it away yet, here are a few clues as to what the item is that we're going to be talking about today. The first recorded use of this device was in 1973 and took place on the streets of New York. It was another 10 years or so before these were commercially available, and they cost a whopping $4,000.
These devices now have more computing power than the systems used at NASA for the Apollo 11 launch. And finally, more than 4 billion people own one of these, but only 3.5 billion use a toothbrush. That's a ratio that doesn't just apply to the insurance industry. We're, of course, if you haven't worked it out yet, talking about the mobile phone or smartphone.
So with that, what goes into them and where do these materials come from? Most people would likely answer the Far East, so let's get into it.
So Jacob, you obviously sit within the marine cargo team here at Willis, and you place insurance coverage for physical loss or damage to goods throughout the supply chain. Can you give us a bit of a run-through as to what goes into the average smartphone and where some of these components come from?
JACOB SHALKA: Yeah, sure. Thanks, Andy. And some of those stats you mentioned there, just quite frankly baffling, really. I couldn't imagine life without my mobile phone. So I'm glad to at least, while I put my phone down to do this podcast, I can just think about it instead, rather than using it for a change.
But yeah, you're correct. Obviously, there's so many elements that go into the makeup of a mobile phone. Some of those probably we don't appreciate or don't consider when we're using our devices on a daily basis. They're actually, of the 115 elements, approximately 75 of them can go into the making, or do go into the making of a mobile phone. And don't worry, as much as I enjoy chemistry at school, I'm not going to be listing all 75 of them off. But I think it's definitely important to touch on some of those, and some of those will be familiar to listeners as well.
Silicon is one of the key elements going into the phones. It's a very important element, particularly for the transistors and the chips that actually power the device. Like you say, obviously more powerful now than the devices that NASA used back in the day. There's several silicon mines globally, but I know, Karl, I think when we discussed prior to this recording, this podcast, had an example of instances where that's come to fruition or been in the news recently.
Gold makes up a lot of the electrical wiring, it's about 0.03 grams that go into an iPhone. Indium, used to make the touch screen devices. I almost said Imodium there that would have been a bad mistake to make. And obviously, one of the main talking points, and one that has been a key feature of the cargo market and supply chains in general for the last few years and also a major talking point is lithium, of course used to construct the batteries of the devices.
And in terms of where they come from, let's start with lithium. Until recently, Chile was considered the main producer and exporter of lithium, although recently that's now been overtaken by Australia. There's also obviously a lot of the raw materials coming from Africa. Actually, I didn't know this until I came across an article before the podcast, but DRC (Democratic Republic of Congo) actually produces more than 50% of the world's cobalt, so there's clearly a massive dependency on the supply chain. And Africa is also responsible for other key precious metals that go into the iPhone, such as copper.
But I think obviously what's really interesting, all these elements, not infinite, they're finite and actually only 10% or approximately 10% of devices are currently recycled worldwide. So there's going to be interesting discussions when we look at this supply chain between now and the future of how that can develop and how it becomes more sustainable.
ANDY EDWARDS: Thanks for that Jacob. I'm not going to ask you to pronounce some of the rarer minerals that go into them but certainly some decent insight into the multitude of components.
Karl, this one's for you. You know, you work with some of the world's biggest players in the tech space. I'm sure we'll touch upon this later, but how do you think the trade environment at the moment is going to affect the supply chain and the supply of these devices? And what components do you think are going to be worst hit in terms of raw material?
I know it's the sort of million-dollar question here, but what are the sort of impacts we as consumers might see off the back of the raft of tariffs that seem to be threatened or being introduced day by day?
KARL SAWYER: Thanks, Andy, for the interesting question and if I did know the answer, I'd probably be working in the financial stock markets rather than insurance. So this has been going on for quite a while, not in terms of tariffs but in terms of the trade wars around just the general semiconductor market.
So you've had this going on probably since post COVID on the semiconductor shortage. So there's been various aspects. So for example, China have implemented export restrictions on two of the minerals. Again, I won't say them because I'll probably get them wrong, but they are the ones that are used within the global semiconductor supply chain.
So effectively, I think what a lot of companies are having to do is almost create two different supply chains, an East supply chain and a West supply chain. And again, this brings into aspects such as China's export restrictions, US export restrictions, and also just generally, as well, is the overall ESG aspects as well.
So Jacob mentioned Democratic Republic of Congo. There's big, larger companies, obviously, that take an interest in this in terms of minerals from non-conflict situations. So again, these all lead into these aspects of their decision making.
The tariffs, this is obviously we'll have to date this podcast because it is literally changing every day. So it's affecting a lot of companies which haven't had tariffs imposed on them. So again, further down the supply chain from the raw materials they're stockpiling. So the likes of Sony are stockpiling in Japan and others.
So it's how they're dealing with – it's probably how companies have dealt with it before in terms of Brexit, in terms of uncertainty. So yeah, these companies are known for their differentials in supply chains already. They've had to make decisions. So I think it's something which the complexity and the speed is something. But the way these companies can deal with them and the way they know their supply chains, especially the likes of Apple, where they actually have – you can access their supply chain via their website, and it's got details of their manufacturing from their supply chain for 98% of their supply chain. So some of these companies really, really do know their supply chain very well indeed.
ANDY EDWARDS: Yeah, you made some interesting points there. I think the DRC tends to pop up a lot in conversations here. When you're talking about cobalt, you know, just a few weeks ago, the government there has sort of put a four-month halt on the exports of cobalt that mostly would be going into China and the like and that's a key component of the batteries. And that's sort of irrelevant of the kind of political situation that's going on in the east of the company, in east of the country, sorry.
So obviously, we've started by discussing the many components here that make up each device and a little bit of the supply chain. Jacob, perhaps here you could touch upon the concerns about the transportation or the storage of large quantities of these devices and talk about how firms can mitigate, you know, often uninsured supply chain risk events, as well as the more standard loss scenarios that you'd expect to see or hear about for smartphones.
JACOB SHALKA: Sure. And I think, obviously, you mentioned it in the question there, Andy, that one of the major, major concerns for the manufacturers and sellers of iPhones, of any phones to be honest, is the massive accumulations that you can get within transit and/or within storage. I mean, some of the biggest placements that we see in the cargo market are predominantly storage placements for high tech facilities, some of which are well in excess of $1 billion value. And that's just for the stock alone, as well.
So that's obviously really a difficult concern to manage from a storage perspective, while it's also in static risk. Obviously that brings into account other considerations, such as your natural catastrophe perils. So earthquake, windstorm, flood, particularly, as Karl mentioned with a lot of these supply chains in Southeast Asia, it can be quite a volatile area from a natural catastrophe perspective.
In 2021, there were 64 natural catastrophe events reported in Southeast Asia and the Pacific. And just to put that into perspective, from an insurance side, that generated insured losses of $10 billion or in excess of $10 billion in that year. And I think, actually, when you consider that's just insured losses, it begs the question, how much can we quantify the actual knock-on effects of that as well?
So that's like some of the risks when talking about the physical static storage. Obviously, when you're looking at mobile phones, a big, big problem and, whether it just carries the same weight, I don't know, as a static side, but something certainly for risk managers and clients to consider is from a theft perspective and particularly strategic theft.
And this is more prominent, not only, of course, phones are theft attractive just because the value of an individual unit, but actually, the amount of phones that you can ship on a single transit means that you're shipping enormous amounts of value in any one conveyance.
So, I mean, just to visualize that and put that into perspective, I'm sure, Karl, you will know this already but, on a Boeing 747, well-known smartphone manufacturers typically will ship around 200,000 units on that. That's a rough estimation based on the weight, I won't bore you with the weight calculation because I'm clearly not a pilot, so that's obviously a massive value.
And then on container ships, some smartphone manufacturers have been known to ship up to 27 million individual units on a single container ship. And obviously, when you factor in from an insurance perspective, we're insuring these devices, or we're looking to insure these devices at selling price. Those are some pretty, pretty daunting figures.
And unfortunately, the world is quite a volatile place at the moment and theft is something that's on the rise. We've seen a sharp increase in North America, actually up by 49% in the first half of 2024 versus 2023 in terms of cargo theft. And actually, what's really interesting about that is, whilst the theft numbers are up 49%, obviously, that's quite an alarming number already, of those thefts, the average shipment loss is over 80%.
So it's not the case of you're losing maybe a few containers or one or two devices from a truck. It's often well in excess of 1/2 and pushing actually in excess of 3/4 of the value of that transit. And probably quite expectedly, over 70% of those are also road theft. So, actually, we're seeing a lot of the theft occurring once goods are leaving the warehouse or the distribution center, being transited to a retailer or to a second distribution center, or even to the endpoint consumer.
That's obviously a big, big focus there and that's an area of vulnerability in the supply chain for sure. But it all comes back to those initial accumulations, which makes that mobile phone supply chain challenging, to say the least.
ANDY EDWARDS: Yes. You've touched upon a good point there, and a bit of a plug to an article that we did at the back end of 2024 talking about strategic theft. I know there's been a few stats mentioned but this sort of theft is a little bit more sophisticated. On the theme of tech, these guys are infiltrating security systems, transit lines, and sometimes even getting employed within these businesses so that they can infiltrate that supply chain and just essentially drive off.
I think you've mentioned a couple of the US stats there but closer to home in the EU, and these are 2023 stats, but the number of road thefts grew by about 35% and the value of that was up about 438% year on year. Taking EMEA, which includes some Middle East and Africa, the number of incidents there was up almost 700% over the same period and estimated losses in 2023 there reached about $776 million, so 3/4 of $1 billion. So not insignificant there.
JACOB SHALKA: Yeah, I mean, and just to add to that, I mean, when you look at it for the industry as a whole, whether from a cargo perspective and also from further losses and effects on the supply chain, the estimate is around $17 billion of insured and uninsured losses as a result of theft so, it's not insignificant it's having a massive, massive effect on that supply chain.
ANDY EDWARDS: And you're getting your phone ultimately, which everyone's going to get upset about, I guess.
JACOB SHALKA: Of course.
ANDY EDWARDS: Right, Karl, picked on you, my first question, I think I'm going to do the same here again. So how do you think the technological advancements of these bits of kit have influenced the supply chain? And what, if any, of these materials that go into them are going to become obsolete? And Jacob touched upon them being finite, or worse, susceptible to some of the issues that we've touched upon? On that, has the emergence of AI had any impact on different materials that haven't been used before?
KARL SAWYER: In terms of AI, obviously, we're in the first wave of devices that are including AI chips. So normally, AI is still running via the cloud, but very much this week, Apple have chosen Google and Gemini to be the background AI to run on their devices when they manufacture them within the thing.
So there's various different things you have in an AI chip that you would have slightly differently in a normal semiconductor. It doesn't really change the minerals as much. I think one of the bigger things around the materials is probably the difference in share. So we're moving – funny, you mentioned the mobile phone costing $4,000 in your introduction, because there's tri-fold phones that are coming out now, which are $3,000 a piece.
So those will be coming out. They came out last year. And we're expecting those to rise generally as a growth across the market. And again, it's not so much the minerals used. It's just generally the pressure on the general semiconductor market. So you can see this with the COVID, previously. And again, it goes back to the complexity and it goes back to – as a risk manager, I was always told Swiss cheese. It's not just one thing that goes wrong. It's one thing upon another thing and upon another thing.
So, with the likes of COVID, that was a change in demand for semiconductors from the semiconductors within mobile industry, within the automotive industry, going towards laptops and that occurred. And then obviously you had other aspects such as Russia-Ukraine war, again that changes demand for certain things, probably more into the defense industry.
And then you've got other aspects, again, which Jacob mentioned, is the natural catastrophe aspects which have impacted manufacturing units of these devices or the finishing of these devices in Taiwan. There was a drought that affected the manufacturing, and also in Texas as well. Because, again, we are looking at a completely global supply chain in terms of from the raw materials to the end products.
So I think, generally, there'll be probably not a massive difference in materials. I think that the companies are always looking at differing materials and that's because these materials in demand for every semiconductor mostly and every technology company. So they're continuously looking at this. But I think AI just exacerbates it. It exacerbates the demand for some of these minerals. And they are getting to a stage where they have to balance this as well.
So, when Jacob was mentioning the theft and strategic thefts is that, as soon as that's out of your supply chain, that's also out of your, possibly your recycling chain as well. And more and more, these companies are looking at producing the device, then tracking not literally tracking the device, but making sure they have an end-of-life cycle on that as well.
So one of the stats I was talking about, looking at was, Jacob mentioned as well, around gold, is that there's seemingly more gold in a pound of electronics, and there isn't a pound of gold ore. So it's very, very much their focus on creating a whole life cycle, not just for ESG purposes of seeming good, but also for general cost purposes as well.
Don't think we're there with AI. I think, in terms of the materials used in the screens and the OLED devices, I think that will be played out in the next couple of years as we see more and more demand. And I was thinking that, where a mobile phone took the place of a music player, will the tablet, or will the trifold tablet take the place of a mobile phone? We don't know yet, but it'll be interesting to see over the next couple of years.
ANDY EDWARDS: Jacob, look, you've touched upon this earlier. Karl's briefly mentioned war and war perils. We've seen what's happened in terms of food security and impact on energy from the war in Ukraine. We've had huge disruptions and delays off the back of the Israel-Gaza conflict and the change in shipping routes there. The next real area that people are worried about in the insurance market is Taiwan for obvious reasons.
And you don't need to be an expert, really, to have heard of some of the names of the huge component manufacturers based there. How can clients protect their interests in terms of those items in the insurance market?
JACOB SHALKA: Yeah, so it's a great question and obviously, unfortunately, we've seen many examples of similar scenarios across the world in recent years. And obviously, they can have devastating consequences from an insurance perspective on the market as well. Just to put it in perspective, when the Russia-Ukraine conflict began, the losses in 2022 that followed in the insurance market were somewhere in the region of $10 billion to $35 billion, of which $5 billion of that attributable to marine. So, clearly huge impacts.
And like you say, it's no secret the influence that Taiwan in particular has on the manufacturing process for these smartphone supply chains. Majority manufactured there. Very, very significant names as well. From an insurance perspective in the cargo market, and when clients are looking to protect against these risks, very typically, we'll lean towards the institute war and institute strikes clauses.
Although I would clarify with the institute war clauses, this is just applicable to war oversea. And that offers a way in which we can give some security to, or offer some form of security to clients as a result of tensions escalating and breaking out into conflicts in certain territories.
ANDY EDWARDS: I think you make a good point. Arguably, it's a bit of a patchwork quilt, putting together adequate protection for your company. I think often people hear about war coverage and just assume that's everywhere. So I think on that, it's probably more important than ever that you partner with a broker that knows the coverage is outside of the specialism, right? So, we as marine fall under the umbrella of specialty.
But actually, I think with what's going on in the world at the moment, you need to be able to think on your feet and work with clients on cross-class solutions. So particularly relevant to what we're up to is you've mentioned cargo war and strikes, but actually, you've got to be tapping into the political violence markets as well as political risk to just absolutely close any gaps people might have in terms of coverage requirement.
JACOB SHALKA: Yeah, you're absolutely right. And obviously, when we're talking from a cargo perspective, we're only concerned with the physical loss or damage to goods. But obviously, you're completely correct when you talk about political violence and trade disruption products available that can help assist clients when looking to protect themselves against these risks from the non-physical losses, such as delay, that can arise as a result of escalating conflicts.
ANDY EDWARDS: So, Karl, given the multitude of events that can affect these devices, what strategies have you seen companies adopting to diversify that supply chain for the raw materials? And actually, based upon where you find these geographically, can they do that to a large extent?
KARL SAWYER: Definitely, they can do it. Obviously minerals are in the ground, so you can't move the country that has the minerals. You can sometimes seek more secure sources. But in terms of, it's not just an enterprise level risk, it's a nation level risk. So the nations, again, probably following on from COVID and the general semiconductor shortage, a lot of those countries have taken to either onshoring or what's called friendshoring.
So again, going back to that, I don't like to say it because it's not literally East-West, but it is having those two supply chain streams and looking at it from a geopolitical situation, because effectively, these companies have and I think Jacob will probably go on to this, it doesn't take a week to produce a mobile phone from scratch. It takes quite a while.
And obviously, sourcing all the materials takes quite a while as well and the developing of new models, etc.
So it's something that they have to take a long-term view on. And with that in mind, they have to have these things at least planned for as well. So with the US, they had the CHIP Act, which was all about onshoring. And again, recently, one of the big Taiwanese companies this week have announced an investment into the US, which hopefully will secure some geopolitical risk from there as well. And the nature of those companies also looking to invest into Europe as well.
But again, these things aren't built in a week. These are very much purpose-built factories depending on whereabouts on the supply chain they are in terms of finishing or developing the chips or developing the components for it. And again, we go back to the things that they know they can do, and that's around, I've mentioned it, around the recycling.
So they know what they've put into the phone so they know what they can get out of the phone. So there's various targets by a lot of the leading companies to use 100% recycled cobalt for the batteries. So this has been built into them for quite a while anyway but if you look at Apple's, again, this is all public domain information, if you look at Apple, their supply chain involves over 50 different countries.
So within that, you can get a flavor of where it's more biased. And it is more biased in terms of, obviously, the minerals are, say, South America, Africa, China with some of those minerals as well, whereas the supply chain in terms of the manufacturing of the components and the finishing is more Asia-Pacific, which you can tell within the Apple sheet.
So they're ahead of their game because they've mapped it out, and therefore, they know where to start if a situation comes along. And I would say it's all about exercise, exercise, exercise. It's almost business continuity. And they're probably doing this on a daily basis now because of the tariffs. So it's very much an exercise in action.
So it would be interesting to see how they diversify more. And also, in terms of those materials, because, say, with the geopolitical things, with the manufacturing, you've got at least the ability to build a factory onshore or build a factory somewhere else. So again, India's doing exactly the same principle, trying to bring talent in-house, trying to bring manufacturing onshore as well. But with essentially the raw material, you can't pick up a country and move it somewhere.
So it'll be interesting to see how they look at that and if that diversifies, indeed, the nature of the materials used, which may end up producing, may not be for the premium product, but it may be for an entry level product if they can secure that.
ANDY EDWARDS: I mean, it's all interesting stuff, and I think you could talk for days about what goes on supply chains and all the issues that affect it. You talked a little bit there about e-waste and recycling. I can't think how many phones I've had over the course of my life, but I think, on average, people have them for about two and a half, three years now.
And whilst we're regularly getting software updates, sort of sent through to us, it's the hardware tech that's accelerating, I mean, even 10 years ago, I guess your camera on your phone was fairly basic. And now, they're much better than cameras that we had that were hundreds, if not thousands of pounds 15, 20 years ago.
KARL SAWYER: Yeah. Yeah. Indeed, just to add to that, actually, there's a stat around, in 2022, there was end of life for 5 billion mobile phones. And they equated that to the economic value to the material supply of $9.25 billion. So it really is something that they're not just doing from an ESG perspective, but they're doing it from a financial perspective.
But again, that probably questions, you guys, in terms of it adds that back into the realms of the cargo and the shipping. And essentially, we've had many a conversations about electric batteries and lithium batteries so it adds a risk in from that end-of-life cycle as well.
ANDY EDWARDS: Yeah. I mean, that's a topic for another podcast, Karl. So we'll take you through that on the next one. Just a couple of final questions before we wrap it up. Jacob, what's your top score on Snake?
JACOB SHALKA: I think, Snake, I can barely remember, not to show my age, but if you ask me, Angry Birds
ANDY EDWARDS: So you are old enough, then that's good to know.
JACOB SHALKA: I can just about remember it. My first phone was a Nokia, yeah.
ANDY EDWARDS: And Karl, look, there's another one for you. What chip stocks do I need to be investing in 2025 and beyond?
KARL SAWYER: I can't give any financial advice information.
ANDY EDWARDS: You don't need an answer.
KARL SAWYER: But I will say that there's constant movements in the chip market and I would still say there is, in terms of mobile phone growth, I think with these tri-fold phones coming in, there's definitely growth in that market. And it would just be interesting to see how AI changes that, because I think AI on phones, and this is where the AI guys have looked at it and said, right, OK; and that's why they're starting with a voice first type of approach.
So I'm expecting AI to move dramatically on phones. And that, yeah, that will be worth looking in with your own analysis and your own investment source.
ANDY EDWARDS: Brilliant. So that's it for this episode. We hope you found that eye-opening. It's made you look at your device a little differently, now you know how much goes into it. I've been your host, Andy Edwards. And thank you to our contributors, Jacob Shalka and Karl Sawyer. Join us next time, where we'll be talking you through the supply chain of another everyday item. Thank you to our listeners for tuning in. We're glad you joined us for this episode of Waves our Marine podcast. Until next time.
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