Managing risk in port developments
According to Peter Lyall of maritime consultants and Global Maritime subsidiary Eagle Lyon Pope, the ports sector is undergoing major changes as it faces a highly competitive economic environment and ongoing global challenges.
Challenges include the need to adapt operations, diversify and expand revenue streams, and put in place cost-effective but sustainable risk management strategies.
The last few years have also seen a continued increase in new port developments, the expansion of existing ports or - in some cases – the merging of operations.
Examples of recent port expansions include a proposed £1 billion expansion at the Tilbury container port near London; Abu Dhabi’s Khalifa Port where there are plans to increase annual container throughput to 2.5 million twenty-foot equivalent units (TEUs); and an increase in traffic volumes in the Chinese ports of Shanghai, Shenzhen and Ningbo. Elsewhere in the Middle East there are major plans in Saudi Arabia, Kuwait and Oman to further develop their ports and infrastructure systems.
A recent survey of over 150 ports around the world by market intelligence specialists Alphaliner found that global container port throughput is estimated to have grown by 5.8% in the first quarter of 2017.
As expansions take place and new assets become operational, however, so do the potential risks. This article will look at some of these risks and what strategies can be put in place to alleviate them.
There are a wide variety of potential risks to be aware of in port development and expansions and developments today.
Firstly, there is the increase in large vessels and the need to safely accommodate them. The capacity of the biggest container ships has risen dramatically over the last few years and more than doubled since 2000 with the first ships with a capacity of over 20,000 TEUs recently coming to market.
While benefits to the carrier include lower fuel and crew costs per transported container, such vessels increase the pressure on port infrastructure and risks.
They often require bigger approach channels and expanded berths as well as larger gantry cranes, greater storage capabilities and better inland distribution. Such shipping also has the potential to increase the dangers of accidents to vessels or cargo as well as damage to equipment, personnel, sea walls or piers.
Another challenge that brings increased risks is the changing role of ports in different regions as they look to source new or complimentary forms of revenue.
One example in the UK is that of decommissioning in the North Sea with Oil & Gas UK estimating that £17.6 billion will be spent on decommissioning between 2016 and 2025.
The result is that along much of the East Coast of the UK, many ports are looking at means of attracting decommissioning work – work that requires infrastructural upgrades and new salvage and transportation methods – all of which need to be risk assessed as do any growing risks from pollution or contamination.
Another example of the changing roles of ports is in supporting renewable energy projects and the different equipment required – all of which must be risk assessed. According to industry body Wind Europe, for example, over 3,600 turbines are now installed in European waters, representing 12.6 GW of installed capacity. By 2020, this number is expected to reach 24.6 GW with ports playing a major supporting role.
Pollution is also another potential risk with vessel berthing and cargo handling sometimes resulting in oil or other hazardous material release. Clean up, disposal costs and fines can be significant, as can the lost revenue from port shut downs.
Technology, while facilitating global trade, also comes with its own risks with ports more reliant than ever on IT systems for container tracking, equipment management and maintenance. Such systems are vulnerable to cyber-crime and economic and commercial damage to port operators.
Finally, there is what is called the ‘Black Swan’ effect – described in the words of Insurance Brokers Marsh & McLennan as a ‘potentially devastating impact from a low-probability, high-impact event’ which ‘cannot be fully predicted or mitigated.’ Their comments followed the Tianjin Port explosion in China in August 2015 - thought to be due to chemicals being stored on site - that resulted in a fireball destroying facilities and infrastructure several kilometres away with the insured losses estimated to be US$874 million as well as massive losses which were not the subject of traditional insurance carrier claims.
In addition to man-made disasters such as Tianjin, other possible Black Swan scenarios Marsh & McLennan points to include natural disasters, such as hurricanes or earthquakes; terrorism and asset sabotage; and cyber attacks.
What is clear is that without a clear risk management strategy, the costs can be huge. In 2016, Risk modeling company RMS analysed the highest insurance risk of the world’s ports based on criteria such as cargo type, storage location and storage type, and ranked the top ten for greatest potential loss. Nagoya, Japan and Guangzhou, China came out top with an estimated marine cargo loss of over US$2 billion. Six of the ten ports most at risk were in the United States with the remaining two in Europe.
It’s against this context that a comprehensive risk management strategy is crucial. The rest of this article will look at some of the key elements of such a strategy.
THE IMPORTANCE OF QUANTITATIVE RISK ASSESSMENTS
Quantitative Risk Assessments are a key element of risk management today and generally an effective alternative to the more subjective qualitative assessments.
Quantitative risk assessment focuses on factual and measurable data that can calculate probability and impact values often in monetary terms – important information to the underwriters. They can also cover a broad variety of areas, such as collisions and grounding; dropped objects risk analysis; anchor strike analysis; and vessel-to-vessel collisions.
Such risk assessments must be consistent as opposed to the subjectivity of qualitative assessments. In this way, risk assessments can create benchmarks, and be regularly updated and compared with other ports.
One key means of ensuring this consistency is through IT innovations. Eagle Lyon Pope, for example, uses a software package developed by its parent company Global Maritime called GM Inspect that is deployed on hand-held devices.
GM Inspect is used for vessel inspections and provides for absolute consistency in reports through standardised inspection checklists
There are also specialist software packages for specific areas of port risk management, such as the Navi-Training Professional (NTPRO5000) software that provides full mission manoeuvring simulations; and the ELECTRA software for port/berth capacity studies.
The result is consistency, clarity and a demonstration of value for money in risk assessments in what is a cost conscious market.
HSEQ AND INDEPENDENCE
Another important driver of quantitative risk assessments is that they must be balanced against other approaches, disciplines and engineering judgements. HSEQ, for example, should also be incorporated into any risk assessments and cover areas such as health and safety management plans, environment management plans, HSEQ audits and the evaluation of previous report incident investigations.
Finally, Quantitative Risk Assessments must be viewed as being independent and authentic. This requires an independent body carrying out the assessment without bias, self-interest, or a role in delivering final accreditation. Such independence is also an important criterion for underwriters.
EMERGENCY RESPONSE PLANS
The development of an emergency response plan is also a vital component of any risk management strategy.
In such cases, it’s important to conduct a risk assessment to identify all future potential scenarios. Many of these might come from the Quantitative Risk Assessments with HAZID (hazard identification) studies a key technique in the early identification of risks.
In all emergency response plans, there should ideally be a single point of contact to ensure a coordinated response from all parties. It’s due to this need for a single point of contact anywhere in the world that Eagle Lyon Pope is partnering with emergency response provider Northcott Global Solutions (NGS). NGS provides 24-hour medical and security assistance and will activate ‘first response’ emergency support within minutes to the actual incident location. The result is a single contact and an overview of all parties involved.
Finally, emergency response plans should always go further than the emergency in hand and look at additional repercussions – the Black Swan effect, as previously mentioned.
This might consist of looking at business continuity issues past the event – If my port is damaged by poor weather, for example, how can I ensure the continuity of operations during the clean up? What if there is widespread IT failure or flooding inland that can affect transportation links to the port? These and many other questions need to be addressed.
POLLUTION RESPONSE PLANS
Port operators should also have a pollution response plan running alongside their emergency response plan. When such spills occur, there is a need for immediate action to minimize environmental impact.
In such cases, while it’s important to react to conditions and prevent initial damage, it’s also important to manage expectations and not to panic. Oil is a natural product, with nature often having its own way of dealing it, and while one must contain any outbreaks of pollution, decision-making should be taken in a measured way based on the available information and what is achievable.
We are also very conscious that the International Maritime Organization (IMO)’s International Convention for the Control and Management of Ships’ Ballast Water and Sediments requires all international vessels to be equipped with a system to clean their ballast water before releasing it into the ocean. This prevents the transfer of alien marine species, such as bacteria and microbes.
This is another important pollution issue and it’s positive to see a global response to a global problem where incidents can be seen every day if not acted upon quickly. The IMO’s regulations will ensure standardization in this area.
OTHER MEANS OF REDUCING RISK
There are other means in which risk can be reduced and should be part of a risk management strategy.
For example, there should be greater transparency and collaboration across the supply chain, not only to move cargo faster and more efficiently, but to ensure there are no bottlenecks and failure points. The last few years, for example, have seen a growth of inland ports in the supply chain to reduce congestion in seaports and provide processing and distribution support. Any risk management strategy should cover these as well.
In such cases, standardisation and consistency as mentioned earlier in the article is vital. Increased stakeholder collaboration in regard to supply chains, cargo management, and operational and infrastructure efficiencies, will be important elements of this standardization.
Greater automation and more sophisticated IT in ports can also help reduce risk and bring greater predictability to operations with a rise in unmanned cranes and smarter cargo handling. Conversely, however, the growth in automation can also increase vulnerabilities to cyber crime and must be taken into account as part of a risk management strategy.
As vessel traffic increases and vessels become larger, safety in navigation and marine operations is also of paramount importance. To this end, Eagle Lyon Pope employs an experienced team to provide innovative solutions to highly technical marine issues. Using in-house operational simulation and risk management software disruption, delay, utilisation and risk can be effectively determined and managed.
Recently, Eagle Lyon Pope’s ports and shipping department conducted fast and real-time vessel simulations for berthing and unberthing Q-Flex LNG carriers at a newly developed floating storage regasification unit (FSRU) terminal within the Middle East. The project included the facilitation of a full mission ship simulator workshop, which engaged stakeholders such as marine pilots from the region, ship’s masters, vessel operators, charterers and terminal operators.
MANAGING ACCIDENTS WHEN THEY HAPPEN
Marine accidents and incidents can inevitably result in insurance claims and potential litigation.
With this in mind, Eagle Lyon Pope’s team of marine master mariners, naval architects, marine engineers, surveyors and insurance professionals can provide a global response service in investigating the cause, nature and extent of damage due to marine collisions, groundings, pollution and other incidents.
As vessels become more sophisticated, analysis of Automatic Identification System (AIS) and Voyage Event Recorder data is also becoming one of the key areas in which risk specialists can provide assistance to maritime lawyers and insurers.
Eagle Lyon Pope also provides marine casualty investigation and loss adjusting services covering energy and marine claims, through to cargo claims, damage to ports, terminals, handling equipment, stevedore’s liability losses, personal injury and onshore work that includes power and utility losses, construction and business interruption.
BALANCED, COMPREHENSIVE AND CONSISTENT
A balanced, comprehensive and consistent approach to shipping and port risk assessments has never more important. From tug masters to pollution response personnel to shipping companies and port infrastructure managers, it should also involve all parties.
The result will be reduced risk and safer and more sustainable long-term operations where ELP can provide a ‘safe pair of hands’.
Latest Press Releases
BC Ferries has awarded Damen Shipyards Group with a repeat order of four additional Damen Road Ferri... Read more
Inland shipping vessel Sendo Liner, built by Concordia Damen, has won the prestigious KNVTS Ship of ... Read more
On 1st November 2019, the latest Damen Shipyards Group fishing vessel, constructed at Damen Maaskant... Read more
Cutting-edge Damen tugs will serve partnership between Jawar Al Khaleej Shipping and General Company... Read more
From contract to shipping in just under four months. Read more