TT Talk - Pre-emptive risk assessment and planning
Whilst many storm events globally are considered geographically seasonal - such as the hurricane and typhoon seasons typical in the Tropics - the entire supply chain industry globally must take adequate steps to prepare for isolated severe weather events.
Windstorms have the potential to cause severe damage to port and marina facilities, both in terms of infrastructure and third party property. In addition to property damage, such an event can give rise to business interruption and the potential of pollution exposures. While wind strength is at its most ferocious in coastal areas, with the result that action needs to be taken to secure assets, it is often the surge and flood risk that can cause greater problems, both on the coastline and further inland.
Furthermore, there have been several localised incidents in recent years, for example where extraordinary volumes of rain fall over a short period has resulted in flash flooding, causing significant damage to warehouse facilities and the cargo stored therein.
Extreme weather events can be challenging to predict and even when forecast may only provide a matter of hours for the respective operators to react.
The associated losses of such incidents can be far reaching; water is unforgiving and has the ability to penetrate and damage just about any area or commodity. Flood water is inevitably dirty, which increases the propensity to damage. Additionally, in many cases where local sewers have been flooded the water can be unsanitary which further elevates the seriousness of the damage and the risk to health.
Clearly, supply chain operators do not wish to experience such incidents and find the associated losses unwelcome. The prudent will seek to apply sound pre-emptive advice to mitigate the risk of damage to their property, the cargo in their custody and their commercial reputation as a responsible logistics service provider.
It is important to ensure that adequate risk assessments are undertaken across the full breadth of your operation in order to understand thoroughly the various risks and, where appropriate, develop mitigating actions and controls, together with effective continuity plans to protect your business.
Whilst not exhaustive the following areas should provide a sound basis for assessing the risk to your business.Your operation
- What operational activities does your business undertake? Storage, in-bound and out-bound distribution, co-packing, self-store, vehicle parking? How would your operation be affected in the event of your premises being flooded?Location
- The location of your operation is critical. Consider how foreseeable, for example, it is that a storm surge could result in a breach of your storage facility - yard and warehouse - particularly where it is near to sea level or a river/other watercourse. If your operation is exposed to potentially high winds, precautions may need to be taken regarding the stack height of containers.Historic local weather data
- Investigate historical weather data, this may provide in indication as to the propensity of heavy rain fall and flooding.Cargoes
- Consider what cargoes are you storing, how vulnerable they are to wet damage and how are they protected from such risks? Is the cargo palletised? Is the cargo positioned in racking off the floor? Are you storing heavy or sensitive cargo on the floor? How realistic is your emergency evacuation plan for cargo if a storm was forecast at short notice?Aggregation risk
- Consider the value of the cargo you are storing. Where you are storing large volumes, consider the aggregated risk and ensure that your insurer is aware. What could be the exposure if it were all to be damaged in a single event?Business continuity
- How quickly would your business return to full operational capacity? Are you able to protect vehicles and mobile handling equipment, any office premises and equipment, as well as maintain communication capability?Property
- Consider who owns the property/buildings; who is responsible for their upkeep and maintenance? Is there a clear path of communication and escalation where defects are discovered? Is preventative maintenance undertaken, such as unblocking drains and rain guttering - if so, is it recorded? Where buildings have been extended, does the drainage capacity remain sufficient to handle the potential rainfall collecting on a now extended roof area?Contractual obligations
- If your warehouse was flooded, aside from the damaged cargo, would you be able to satisfy your contractual commitments to your customers? This may be accepting and processing further deliveries of stock as well as distributing existing stock held. What are the financial exposures and limits of liability in your contracts? Are your standard trading conditions properly incorporated in your general business dealings? Have you assessed the full potential exposure in any special contracts? Are there financial penalties for non-performance which will not be covered by insurance?Insurance
- Insurance may provide a degree of protection; studies have shown that there can, however, be a significant difference between an insured loss and the full economic loss, the latter including various indirect costs, such as lost management time and reputational damage. It is imperative that your insurer has a sound understanding of your operational activities, your property, what cargo you are storing, what equipment is on site at any given time and a reasonable valuation of it all. .
Thorough risk assessments are critical before you commence an operation or take on a new facility. They should be reviewed periodically, particularly as your business diversifies or you take on new contracts. And, of course, the output from such risk assessments will include mitigation, response and recovery plans and actions, appropriately protecting your business.
You may also be interested in:
TT Talk - Changing climatic risk
Find out how changing climatic risks and extreme weather events can impact your insurance cover and validity of claims
TT Club highlights weather-related risk
Freight transport and logistics insurance specialist TT Club's analysis of weather-related risk highlights water damage to cargoes in particular.
TT Club announces new CFO appointment
A new CFO has joined the TT Club to manage the leading transport and logistics insurer's plan profit targets with a view to simplifying and automating processes.