When extreme winds blow
Extreme weather-related incidents in the supply chain business are twisting the claims knot ever tighter. Effective planning by all stakeholders has been proven to reduce the risk.
In the early hours of September 2nd, Hurricane Hermine struck Florida, becoming the first to hit that U.S. state in 11 years, and the first hurricane to hit the U.S. in more than two.
Only a month later, Hurricane Matthew struck the Caribbean, southeastern U.S. and Canadian Maritimes, leaving a trail of destruction and death, and billions of dollars in estimated insurance losses in its wake.
While Canada has not been severely affected since Hurricane Arthur made landfall in Nova Scotia on 5 July, 2014, the increasing regularity of severe weather on Canada’s Atlantic coast means shippers and others in the logistics chain must become better prepared.
Hurricanes and storm activity are among the most serious considerations for risk professionals in the shipping and transport industries. Extreme weather conditions, such as hurricanes, have caused extremely expensive nat cat damage in the past through the combination of wind, rain and storm surge, so effective planning is vital for all stakeholders.
Mitigating the risk
The challenge with forecasting, however, is the unpredictable nature of extreme weather. Regardless of location and season, there needs to be ongoing diligence for all ports and terminals to monitor, review and test plans and procedures, and to ensure that equipment is in appropriate condition to withstand any storms.
While operators usually receive warning of extreme storms several days in advance, they still need constant vigilance concerning general operational standards. Risk mitigation on land should include looking at the ways space is used, and how goods and equipment are organised. While contractual conditions may be sympathetic to storm conditions (typically with “force majeure” defences), thorough preparations have been proven to reduce the exposure of individual entities and their insurers.
A TT Club analysis of claims during the period between 2010-2015, showed that weather related claims accounted for 13 per cent of the cost of all claims in the international supply chain. This ranged from maritime incidents to property damage at ports, and flooding of low-lying areas.
Managements should give key consideration to disaster planning and emergency response. Port-side terminals, as well as inland facilities, for example, should have a properly thought-out policy for container stacking to reduce risk.
And because changing weather patterns mean storms are occurring in places they haven’t before, every littoral port should have emergency procedures for severe storm forecasts.
A major consideration should be the risk of storm-related water damage, either by precipitation, but most likely by storm surges. Water damage is often difficult to prevent where cyclonic swells surge into terminal areas and nearby low-lying areas. These issues, and subsequent rising sea levels and more flooding due to climate change, should be factors when designing and locating future terminals.
Rapid action ahead of impending storms in the past has substantially reduced resultant losses and, more importantly for any commercial venture, disruption. Play it safe and a ship might arrive at its destination experiencing calm seas with a reduction in cargo volume. But heighten the risk appetite, and the disruption and liabilities for cargo damage and loss might outweigh the potential capacity gains.
Peregrine Storrs-Fox is Risk Management Director at TT Club, a transport and logistics insurance & risk management provider.
Copyright © 2016 Transcontinental Media G.P. This article first appeared in the November 2016 edition of Canadian Insurance Top Broker magazine