Tianjin port blast hits supply chains and insurers

Initial estimates put the insured cost of the two explosions at $1bn to $1.5bn, mostly from property damage and business interruption. There were also workers' compensation and life insurance claims. Ratings agency Fitch warned that the loss could end up higher than initial estimates. "The high insurance penetration rate in this area could make the blasts one of the most costly catastrophe claims for the Chinese insurance sector in the last few years. While the incident is still developing, Fitch expects the number of reported insurance claims cases to surge further in the coming few weeks," it said in a statement.hideAccording to the rating agency, insurance losses are likely to be material for Chinese insurance companies, potentially undermining the financial performance of some regional players and those property and casualty insurers with high-risk accumulation in the affected areas. Chinese insurers will have covered most of the property damage. However, it is likely that some of the loss will fall on specialty insurers, international reinsurers and multinational carriers exposed to corporate business. Within days of the incident, Allianz and Zurich Insurance both said that they have been notified of potential claims from clients and are currently assessing the damage. Over 114 people died and some 700 were injured by the series of blasts on 12 August. The explosions have raised serious questions over industrial safety standards and their enforcement in China. Officially, the cause of the blast is unknown. However, the fire is believed to have started in a warehouse storing hazardous chemicals, including calcium carbide. One theory is that fire fighters reacted to the first explosion by tackling the resulting fire with water, which then reacted with the calcium carbide to create a highly explosive gas acetylene. Tianjin is an important transport hub and manufacturing centre. It is the fourth largest port globally in terms of total cargo throughput, the tenth largest container port and is a gateway for shipments of iron ore, coal, automobiles and crude oil to northern China. Many multinational companies operate in the city and port including Deere & Co, Caterpillar Inc, Airbus Group, Wal-Mart, Motorola, Toyota, Samsung, Nestlé, Honeywell, Coca-Cola, Bridgestone, Lafarge and GlaxoSmithKline. Cargo losses are still unknown, but a large number of containers were affected by Wednesday's explosions. The port is also one of the main importers of cars into China. Around 5,000 vehicles are said to be damaged, a figure that could double according to some estimates. Volkswagen, Hyundai Motor Co, Renault, Ford, Nissan, Toyota, Land Rover, Daimler and BMW all confirmed that their vehicles were affected. Dieter Berg of Munich Re told Reuters that transport insurers are assessing damage to containers, warehouses and new cars, as well as the port's infrastructure of trains, cranes and rail tracks. Warehouses, port buildings and equipment, road and rail infrastructure and real estate have all reportedly been damaged by the fire. Even four helicopters at a near-by heliport were reportedly damaged. Container and port operators have reported delays in unloading container and cargo ships. Large parts of the port were said to be undamaged and much of the disruption has been caused by damaged infrastructure and restricted access. Initially the port was closed to all vessels, but this was quickly relaxed with only oil tankers and hazardous cargos remaining banned. Danish shipping company AP Moller-Maersk A/S said it expected delays in the short term but is returning to normal operations. Iron ore deliveries have reportedly resumed after one of the port's unloading areas reopened on Friday. However, one logistics firm told employees that its operations had been 'heavily damaged' and that ocean freight cargo will be delayed dramatically in the coming weeks. Law firm Holman Fenwick Willan (HFW) said that the explosion at Tianjin port could lead to massive supply chain disruption. "The significant property damage at Tianjin will lead to major supply chain disruption and will trigger business interruption coverage for those impacted directly, and contingent business interruption coverage for those whose suppliers and customers are impacted by the blast," it said in a briefing. Entire supply chains could be affected by the closure of industrial and processing facilities within the port, according to HFW. The impact on imports and exports could cause considerable loss of revenue and supply chain problems, it said. "No business operates in isolation. Companies are regularly part of a complex value chain involving global suppliers and customers," said Caroline Woolley, Marsh's Global Business Interruption Centre of Excellence Leader. "The impact of disruption at a port, particularly such major explosions as happened at Tianjin, will have a direct impact for those suffering damage, and indirect impact for those using the port for logistics and supplies," she said. Many US and European companies have reported damage or disruption. Deere said it temporarily suspended Tianjin operations while UK pharmaceutical firm GlaxoSmithKline said one of its manufacturing sites had been affected. Japanese carmaker Toyota said it suspended production at its Tianjin factory because of disruption to local component suppliers. It also said that more than 50 employees were injured in the explosions. Electronics group Panasonic and container manufacturer Singamas Container Holdings also experienced disruption. "The number of multinationals operating in the area will no doubt mean that global programmes written out of other jurisdictions, notably Europe and US, will be triggered on a CBI basis, so aggregation issues will arise, but not necessarily on a regional location basis," said HFW. According to Ms Woolley, incidents like the Tianjin explosion highlight the limitations of existing property damage/business interruption policies. "They were never designed for the business operations and structures we see today, or for the risk landscape businesses now face," she said. "Some of the direct impact-where there is direct damage-may be covered for own locations, direct suppliers/customers, or through denial of access policy extensions," according to Ms Woolley. "However, many [companies] may be left with no cover where there is no direct link to damage. We are yet to see the true impact of the event, or the extent of such losses, on global supply chains and logistics activities," said Ms Woolley.

Tianjin port blast hits supply chains and insurers

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