Safety and Shipping Review 2021:
Delay, supply chain and port risk accumulation issues take center stage

Expert risk article | August 2021
Maritime supply chain resilience has been thrown into the spotlight after a series of recent events including the Suez Canal blockage, Covid-19, extreme weather, as well as trade and political disputes, collided to cause unprecedented disruption to shipping and the flow of goods. Meanwhile last year’s explosion in Beirut highlights concerns over the storage of hazardous goods and concentrations of risk at ports. A similar event in a busy US, European or Asian port could be even more catastrophic.
AGCS' Safety and Shipping Review identifies loss trends and highlights a number of risk challenges for the maritime sector.
The blocking of the Suez Canal by the container ship Ever Given in March 2021 sent shockwaves through global supply chains that are critically dependent on seaborne transport. The six-day closure of one of the world’s busiest shipping routes saw hundreds of vessels backed up, while many more were rerouted or held in ports. The repercussions lasted for months, with product shortages for European retailers and delays in supply chains for manufacturers, as well as a logistical backlog for shipping companies and container ports.

The incident exposed potentially serious vulnerabilities in the maritime supply chain, demonstrating the potential for global-scale disruption from chokepoints, such as major ports and shipping routes. It compounded delays and disruption already caused by trade disputes over the past year, extreme weather in the US and, of course, the fact that the shipping industry was already dealing with disruption caused by the pandemic, the result of coronavirus measures and restrictions, the Covid-19 crew crisis, and surges in demand for containerized goods and commodities.

At the end of 2020, container ships were forced to queue at some of the world’s busiest ports – including Los Angeles and Long Beach in the US – resulting in cancelled sailings and re-routing of vessels by shipping companies. The problem was exacerbated by a shortage of shipping containers in Asia, caused by increased demand and port delays. In May 2021, Covid-19 outbreaks at Guangdong Province in southern China caused acute congestion at the region’s ports while, one of the world’s busiest ports, Yantian in Shenzhen – which services about 100 ships a week – was already operating at a fraction of its normal capacity due to the pandemic. The global nature of the sector, and the lack of spare capacity within it, means problems in one region can have ripple effects around the world for months.

In June 2021, it was estimated that there was a record total of more than 300 freighters awaiting to enter overcrowded ports. In addition, the time container ships are spending waiting for port berths has more than doubled [1] since 2019.

Meanwhile, last year’s hurricane season and winter storms caused significant disruption throughout the transport and logistics chain, from ports and international shipping, through to inland marine, rail and road. Recent years have also seen major delays to shipping from floods and droughts on key inland shipping routes, including the Mississippi in the US and Rhine in Europe. Last year also saw large cargo losses for insurers after a series of tornadoes tore through large warehouses in Nashville.

Climate change volatility is increasingly impacting shipping and logistics, says Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS. “Weather is no longer seasonal. Year round we see tornadoes, hurricanes, floods and storms affecting shipping and inland marine, as well as associated infrastructure. Almost every mode of transport is affected, with a knock-on effect for supply chains,” says Kinsey.

Going forward, the shipping industry needs to be more proactive in addressing and mitigating the impacts of extreme weather, says Kinsey.

“More accurate weather forecasting and technology will help shipping companies plan ahead and take action to avoid losses. If we can track and predict storms, shipping companies can consider their best options – such as to delay departure, seek shelter, or reroute to an alternative port. It’s about planning, understanding when it is safe to proceed and identifying safe harbors and alternatives,” says Kinsey.

“Companies can be more proactive and address loss control and not just wait for a crisis. Planning needs to take place early on, even before the vessel sets sail, and plans will need revisiting and adjusting during the life of a project.”

Extreme weather events and Covid-19 have also exposed vulnerabilities in critical infrastructure, demonstrating the need to invest in resilience against future events, says Kinsey. “US inland infrastructure and other critical infrastructure is ageing and is in urgent need of investment. There is a need for more resilient infrastructure in the transportation network, power and refining. At present, investment is not keeping pace with demands on infrastructure, which could result in future claims for insurers and supply chain disruption,” says Kinsey. 

The severe cold snap in February 2021 that hit parts of the US with record freezing temperatures caused crippling power outages, severe disruption to transport, and the closure of ports and oil and gas facilities. Then in May, 2021, a crack in the Hernando de Soto Bridge in Tennessee closed an important road and river route over the Mississippi River. Within days of the closure to boat traffic there were at least 24 vessels with a total of 346 barges [2] waiting to travel the Lower Mississippi River.

Political risks are also affecting maritime transport and supply chains. A trade dispute between China and Australia, which led to an unofficial ban on Australian coal imports in 2020, resulted in more than 60 vessels [3] stranded at sea, unable to deliver their cargoes of thermal coal. Almost nine months later, some 40 vessels were still waiting to unload in March 2021, with many unable to change crew. Conflicts in the Middle East and piracy in Africa also continue to threaten shipping. In April, Saudi Arabia [4] intercepted an explosive-laden boat off the Red Sea port of Yanbu, thought to be targeting an oil tanker. In December 2020, a tanker anchored at the Jeddah port was hit by an explosive-laden boat.

The shortage of high-performance semiconductors illustrates how critical supplies can be impacted by a series of unrelated events. Auto manufacturers around the world have halted production of some models due to the shortage of chips while supplies of consumer electronics are also being impacted. The shortage of chips is being blamed on a surge in demand, in part related to Covid-19, coinciding with supply constraints. However, other factors have included a fire at a major chip manufacturing facility in Japan while the Texas Big Freeze in February also caused chip makers in the state to shut factories. The worst drought in 50 years threatens semi-conductor manufacturing in Taiwan, which accounts for two thirds of semi-conductors overall. Tensions between the US and China also may have played a role after sanctions caused Chinese firms to stockpile chips.

“Such events expose the weak links in supply chains and have magnified them. Developing more robust and diversified supply chains will become increasingly important, as will understanding pinch points and supply chain nodes,” says Kinsey. 

  • For container shipments: if there are risk accumulations in a port due to weather delays there could be a potential shortage of refrigerated container plugs, resulting in spoilage of refrigerated cargoes.
  • For bulk shipments: vessels that faced longer waiting times at anchor in the Mississippi River due to high water levels had anchor windlass and ground tackle failures, resulting in hull claims.
  • For RoRo shipments: excessive accumulation of rolling stock can lead to storage in areas that are subject to flooding in the event of storms, as the primary storage areas are at maximum capacity
[1] IHS Markit’s Port Performance Data, The Maritime Executive, Time Containerships Spent Waiting for Berths Doubled in Two Years, July 16, 2021
[2] CNN, The repair of a vital Memphis bridge could take 2 months, chief engineer says. The impacts are already being felt, May 14, 2021
[3] Bloomberg, China Set To Unload Some Stranded Australian Coal Amid Ban, February 8, 2021
[4] Reuters, Saudi Arabia says it foiled boat attack off Yanbu, April 27, 2021
 
Picture: Adobe Stock
The Beirut explosion raises questions about the storage of hayardous chemicals. Picture: Adobe Stock

Last year’s devastating explosion at the port of Beirut in Lebanon on August 4, 2020 has added to industry concerns over the storage of hazardous goods and concentrations of risk at ports.

The explosion caused wide-scale damage to the docks and surrounding city, killing around 200 people and was caused by the detonation of an estimated 2,750 tons of ammonium nitrate – the largest single recorded explosion ever to occur in the region and one of the largest worldwide. The World Bank estimated the damage caused to be in the range of $3.8bn to $4.6bn, with economic losses adding a further $2.9bn to $3.5bn. Insured losses are estimated to be around $1.5bn.

This incident follows the fire and explosion at the Chinese port of Tianjin in 2015, caused by the spontaneous ignition of nitrocellulose at a warehouse storing other hazardous and flammable materials, including ammonium nitrate (which is typically used to make fertilizers and explosives). The resulting insured damage cost $2.5bn to $3.5bn, one of the largest man-made insurance losses in modern times. Similarly, in 2013, a fatal explosion ripped through an ammonium nitrate storage facility in Texas, killing 15 people.

The Beirut port and Tianjin explosions raise questions about risk controls for the storage of hazardous chemicals – such as ammonium nitrate – as well as the potential for very large accumulations of risks at ports and surrounding areas. Ammonium nitrate is a widely used chemical and can be found in ports and warehouses across the world. However, it should be stored away from combustible materials or other sensitizers and away from populated areas or critical services.

The explosions also highlight the concentrations of risk in the world’s largest ports. Beirut port, for example, is a major gateway to the Middle East, processing around 68% of Lebanon’s total external trade. According to the Russell Group [5], the EU had the highest port exposure in Q4, 2020, with $509bn in trade flow, followed by the US with $262bn and China with $176bn.

“The Beirut port explosion has thrown light on an issue that is known, but where the impact is underestimated,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “Ammonium nitrate is a widely used product, so the fact that it caused devastation on that scale should remind us all that an everyday product has the potential to cause such damage. It is clear that higher standards of cargo storage are key,” says Khanna.

“Along with the Tianjin incident, the Beirut port explosion also shows that this type of exposure in a busy port can have huge consequences, financially and for trade. And for insurers, this represents a massive accumulation of risk, which requires modeling. A similar event in a busy US or European port could be catastrophic.”

[5] Insurance Business, Revealed: Trade exposures across UK ports, December 21, 2020
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