Companies ill-prepared for Black Swan port events: Marsh

In a paper published this week, the broker warned that the threat of business interruption from a black swan event on ports and terminals could be severe, and should be considered more carefully as part of operators' risk management. "Operators may be aware of many of the complex risks they are susceptible to and employ best practice to mitigate them, they may not be fully prepared for the potentially devastating impact from a low-probability, high-impact event," Marsh said. Natural hazards – including earthquake, volcanic activity, windstorm, flooding and tsunami – can cause significant damage to ports. They are not entirely unexpected and can be mitigated. However, less frequent, more extreme events - known as black swan events - are much harder to predict and consequently manage, Marsh said. Unexpected events include denial of access – from blocked sea, road or rail access – terrorism, failure of essential utilities and a cyber attack, it added.hideMarsh noted that the 12 August 2015 explosion at the Chinese port of Tianjin was one of the largest and most complex man-made losses in recent history. The resulting disruption was felt far beyond the port, affecting supply chains across the globe, including a severe impact on the automotive industry. The effect of the explosion on supply chains is expected to remain for the long-term, Marsh said. The broker also pointed to typhoon Maemi, which hit South Korea in 2003. The multi-billion dollar loss event, made worse by the combination of a high tide and a massive storm, caused significant damage to the port of Busan, affecting infrastructure and ships. Ports and terminals are also exposed to growing cyber risk as hackers turn their attention to critical infrastructure, having been previously occupied with theft of personal data. "The result of a cyber attack could be catastrophic for a port or terminal operator," Marsh said. Ports are threatened by changing political risks, including politically motivated violence from strikes, riots, civil commotion, terrorism and sabotage. For example, the threat of a nuclear device, dirty bomb or conventional bomb being hidden inside a container could result in a port being shut down during a laborious search through thousands of containers. "Port and terminal operators should develop contingency plans against the risk of terrorists or a nation state hacking into and disrupting the electronic navigation systems that enable access to the port with the intention of bringing trade to the country/region to a halt," Marsh said in its paper. Accurately predicting the impact of a black swan event on ports and terminals is impossible, according to Marsh. However, improved horizon scanning and assumption testing are critical, enabling organisations to better prepare for these events, it said. "Where possible, a multi-stakeholder approach is recommended in order to understand the joint risk landscape, causes of risks, and shared accountability for controls. Business continuity and crisis plans should be exercised at strategic and tactical levels to ensure resilience and agility to respond," Marsh said in the paper. Insurance should not be considered a comprehensive risk treatment for black swan events, but there are steps that insurance buyers can take. "There is a need for enhanced insurance solutions to deal with potential black swans for ports and terminals. This includes broader policy wording and rapid settlement of claims through the use of parametric triggers where claims payments are made within set time frames based on pre-agreed terms," said Marsh.

Companies ill-prepared for Black Swan port events: Marsh

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