TT Talk - Windstorm damage risk - why its getting worse
With climate change increasingly impacting port operations and infrastructure every year, costs resulting from unpredictable storm damage are set to rise, putting port authorities and terminal operators at increasing risk.
The potential for physical devastation from natural disasters is generally understood. But adding to the risks, a recent court ruling from China (see below for more on this), making a port liable for wind damage to cargo, raises the possibility that container terminal operators may no longer be able to rely on a force majeure defence when facing claims. The line of reasoning here may be followed in other jurisdictions.
There are two leading risks of windstorms for port facilities – quay cranes being blown over or along the berth and ships at the berth breaking mooring. Latest TT Club statistics reveal that wind damage due to cranes being blown over or along the rails accounts for about one fifth of the total cost of weather-related insurance claims in ports and terminals globally. Mooring lines parting during windstorms account for a further 13% of related costs.
Ports are frequently and almost inevitably located in vulnerable coastal zones or low-lying areas, increasing their exposure to weather-related risks. Given the critical nature of ports in the global supply chain, protecting these operations is of strategic economic importance for every nation.
Given the critical nature of ports in the global supply chain, protecting these operations is of strategic economic importance for every nation
The need for risk assessments and reviews has never been greater. Research by the United Nations Conference on Trade and Development (UNCTAD) revealed that urgent actions needed to be taken to increase both the knowledge base and human capacity in ports regarding risks to port operations and infrastructure under different climatic scenarios. While associated risks arguably vary regionally in the context of historical weather data, as highlighted in UNCTAD’s Port Industry Survey on Climate Change Impacts and Adaptation, respondents from 29 countries indicated wind as being the climatic factor with the most significant impact.
How much damage can wind do?
- Handling equipment: crane and container handling equipment, despite their size and mass, are vulnerable to exposure to wind, in particular sudden wind bursts. Incidents range from derailments through to catastrophic collapses. All incidents involving handling equipment attract high costs.
- Property: this could be direct wind damage to structures, such as cladding/roofing becoming loose. Equally, collapsing equipment or airborne debris may cause catastrophic damage to buildings and other infrastructure. Once structural integrity is compromised, damage may be compounded by rainfall or storm surge.
- Cargo and ships: anything held in the port area may be exposed to damage.
- Bodily injury: personnel present during storm conditions may be at risk, particularly when operating equipment or undertaking mitigating activities.
- Business interruption: this potential consequence should be considered in advance in thorough risk assessment and setting a risk appetite. If a key piece of handling equipment was to be severely impacted by a storm burst and, as a result, blocks part of the operational quayside or berth, how would your operation continue?
- Reputational damage: if interruption to your services because of a storm-related incident is significant, you might not be able to serve your existing and prospective customers. The resulting reputational damage has the potential to affect long-term volume throughput.
- Economic costs: there are a host of potential wider economic costs associated with such incidents reverberating through not just supply chain actors but also the hinterland.
Where does liability rest?
While each incident would be subject to thorough investigation and be assessed on its own merits, the terminal operator is potentially exposed to a range of liabilities. These could include claims for delays, as well as property and cargo damage. A potential defence to such incidents could be ‘force majeure’ – the weather conditions were beyond the reasonable expectations of the operator and therefore beyond the scope of reasonable preventative measures that were taken.
However, the recent decision from the Shandong Higher People’s Court in China throws doubt on the ability of terminal operators to rely up on such a defence. The case concerned an incident at the Port of Qingdao in June 2018 and a claim brought by subrogated insurers who suffered loss when one of the quay cranes at the port collapsed on to a barge carrying the subject cargo. The cause of the quay crane collapse: a sudden wind burst.
The terminal was aware of the approaching storm and had taken some preventative measures to protect the assets. The court, however, found that port employees had failed to take all available preventative measures, including anti-collapse measures, such as installing windproof mooring anchors or setting pier studs in accordance with local regulations relating to storm conditions for large port machinery. It is understood that these required wheel brakes on the non-driven wheels of a crane, plus rail clamps, in addition to storm tie downs.
The decision raises an interesting question as to whether container terminal operators in China will be able to rely upon a force majeure defence when facing future claims of this nature from cargo interests.
How to mitigate the risks
- Risk assessment: review and update risk assessments to account for latest climatic data, paying attention, for example, to safety specifications of installed equipment.
- Weather monitoring technology: predictive technology continues to improve. Embrace monitoring both on site (proportionate to the site area) and from relevant local or national sources.
- Preparations: document responsibilities and actions to be invoked in storm conditions, including clear operational parameters (such as ceasing activity and tying down equipment).
- Review terms of contract: while force majeure might be considered differently by jurisdiction, it would be prudent to review the terms of contract. Is there a force majeure clause included? Does the clause, on its natural construction, encompass storm events?
Further information can be found in Windstorm II: Practical risk management guidance for marine & inland terminals.
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club