Peregrine Storrs-Fox, the Risk management Director of specialist freight transport insurer, TT Club, is concerned that a lack of emphasis on the safe handling of dangerous goods, epitomised by the dramatic explosion in the Chinese port of Tianjin last year, is leading to increased risk in global trade.
There have inevitably been a number of differing assessments of the impact of the explosions at Tianjin last August, but a sound and thorough analysis has recently been provided within a Swiss Re ‘sigma’ report (No 1/2016). That report states that Tianjin was the biggest insured loss of the year, with property loss estimated at between US$2.5 billion and 3.5 billion, and approaching 200 fatalities. The official Chinese report speaks of the destruction of over 12,000 vehicles and 7,500 freight containers, together with significant further damage up to 5 km away. However, TT Club would argue that these blasts should primarily be seen as a spectacular example of why those operating throughout the global supply chains should examine their work practices and risk procedures more thoroughly.
However the damage is estimated, the incident should become a focal point, drawing attention to underlying vulnerabilities within global supply chain processes. It underlines how cargo in transit, potentially mis-declared, packed or handled incorrectly, can cause widespread damage and loss of life.
Understanding the causes of cargo related fires
TT Club’s analysis of its claims history reveals that incident causation is concentrated within just five classifications. Approximately two thirds by both value and number relate to the sum of vehicle accidents, including both road traffic and cargo handling equipment collisions, fire, theft and poor cargo packing. This rolling five year analysis takes in over 7,500 insurance claims, with a total insured claim value of around US$500 million. While there is substantial consistency in the relative significance of each major causation year-on-year, it is notable that the costs related to fire are almost invariably disproportionate to the number of incidents.
In this regard, TT Club highlights that the total economic costs incurred by the industry, as well as individual entities, should take account also for those elements that fall outside the ambit of insurance, and particularly headings that are frequently hidden losses, such as management time, distraction and reputational damage. The Swiss Re ‘sigma’ report (mentioned above) identifies the disparity between ‘insured’ and ‘total economic’ losses; earlier studies have concluded that any entity may expect to suffer many multiples of the insured losses in the overall economic impact following an incident. And this is particularly relevant in relation to fire, which by nature is a most destructive and intrusive type of incident, more directly threatening the survival of an entity.
While Tianjin was undoubtedly a substantial and tragic incident, a key issue that needs to be understood in the context of both maritime and land-based transport is that cargo-related fires and explosions are too common in the containerized supply chain. In addition to port based incidents over the last year in Vancouver, Canada, and Santos, Brazil, there is a lengthening list of container ship explosions and fires in recent years. There are numerous examples of catastrophic cargo-related ship fire incidents, perhaps an ideal one being ‘MSC Flaminia’ occurring in July 2012. Furthermore, there is generally perceived to be a worsening trend with regard to cargo-related shipboard fires. At sea, each incident, regardless of ultimate size, is horrific for crew, who are not primarily trained as firefighters, being presented with unknown hazards in the ship’s stow and hardly adequate firefighting techniques or briefed with safety procedure.
The nature of most of these cargo-related fires, in port areas and at sea, amply demonstrates what TT Club describes as ‘adjacency’. This is the risk arising from one package within one transport unit amongst some kind of storage area. Where such a package is or becomes dangerous, whether or not accurately packaged, declared, packed and secured in the transport unit, the proximity to other cargo and units may lead to a catastrophic consequence.
It is clear that cocktails of chemicals can be extremely potent, individually and in combination; it is equally true that many inert cargoes are capable of igniting fiercely and easily. Thus, while the burning, intensity and longevity of a fire may be directly influenced by the type of cargo concerned, the totality of the devastation and consequent economic loss, in risk assessment terms, needs to take account of the uncertainties inherent in the unit load industry. Huge benefits have been derived, particularly in containerization, through the concept of utilizing standard sized units to enclose diverse cargoes and move them in close proximity to one another. However, the contents of any given box and their current condition, is largely a matter of speculation and guesswork.
TT Club has repeatedly publicised the generic risks arising from poor and incorrect packing practices, finding consistently that about two thirds of insured cargo damage claims can be attributed to such issues. This general statement is corroborated from the container shipping lines’ Cargo Incident Notification System Organisation (CINS) data, which shows an overwhelming 75% of the incidents reported as being due to packing issues. The general importance of the CTU Code (IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units)[1], published at the end of 2014, cannot be stressed too highly.
However, matters relating to cargoes that inherently defined as dangerous inevitably lead to greater concern. There are well established international standards relating to the transport of dangerous goods by any mode, derived from the recommendations of the UN Committee of Experts, contained in the UN Recommendations on the Transport of Dangerous Goods (known as the ‘orange book’). This forms the basis of a series of codes covering the classification, packaging and labeling of dangerous goods for transport by road, rail, inland, waterway, sea and air.
Relevant guidance for activity within the port area, dovetailed into this intermodal regime at international level, is the International Maritime Organization’s (IMO) document ‘Recommendations on the Safe Transport of Dangerous Cargoes & related Activities in Port Areas’ (MSC.1/Circ.1216 (2007)). Aspirationally, the contents of these recommendations would be implemented, modified or otherwise covered in national guidance or regulations.
The concern has to be that the level of compliance with the mandatory international law is insufficient to preclude incidents. Inherent in such regulations are many, necessary, detailed requirements. However, perhaps greater focus should be addressed to training and competence, together with engendering behavioral change. It is sobering to recognize that the supply chain industry includes many substantial entities, with considerable asset-based interests – including port and ship operators – counter-balanced by entities for whom the entry barriers to trade are nigh non-existent.
Seeking to address the issues of behavior and culture, the IMO recently issued MSC.1/Circ.1531 in relation to the CTU Code. In this Circular, national governments are encouraged to promote due diligence checks between supply chain stakeholders, and guidance is provided as to the characteristics of service providers. More importantly, a broad set of stakeholders is identified, setting out their roles and how they can effect a culture change, promoting the safety of workers and third parties while maintaining the integrity of the cargo. The recognition that all stakeholders have an ownership in the success of the supply chain venture rings very true with maritime tradition; crucially, it is consistent with the reality that most stakeholders have no actual knowledge of what is in the box and how it is packed and secured.
Nevertheless, the ‘elephant in the room’ remains that implementation and enforcement of international law is practically reliant on processes and controls at individual, corporate and national levels. For every known incident, there will almost inevitably be a plethora of ‘near miss’ events. By way of example, CINS report that the investigated cause for a third of the liner operators’ records relate to ‘mis-declaration’, while Hapag-Lloyd noted a sharp rise in their ‘Watchdog’ findings following Tianjin, commenting that ‘many ports drastically tightened their dangerous goods guidelines in the wake of the incident or even prohibited dangerous goods from being processed at all’. This demonstrates both the risks and a capability, through intelligent software, to implement mitigation.
At their heart, trade facilitation and efficient global supply chains rely on the operation of good faith. In the same vein, carefully constructed international standards rely on the competence of each stakeholder. The CTU Code falls short of requiring accredited packers and most maritime administrations choose not to report container inspections annually to the IMO. There is continuing need through the supply chain, not only to review regulation and guidance, but also to promote sound corporate culture. It is perhaps time that quality management principles (‘plan, do, check, act’) are applied to ensure that good faith genuinely can replace speculation. This requires international and national stakeholder engagement in order to improve the safety of workers and third parties, as well as maintaining the integrity of cargo and transport infrastructure, whether at sea or on land. Let the explosions at Tianjin be a rallying call for increased market safety.
[1] http://www.imo.org/en/OurWork/Safety/Cargoes/CargoSecuring/Pages/CTU-Code.aspx
