Supply Chain Security

BSI recently released its latest quarterly review and outlook of the top global supply chain security, business continuity, food safety and fraud, and corporate social responsibility threats and trends.

BSI’s Supply Chain Risk Exposure Evaluation Network (Screen) Intelligence found that while Covid-19 matters remain a primary concern, the impacts created several additional disruptions and risks which are affecting supply chains, including cargo theft, smuggling, and child labor.

Specific insights include:

  • An increase globally of illegal drug smuggling and cargo theft of pharmaceuticals and medical supplies specially in Mexico
  • A global rise in warehouse and facility theft, particularly throughout Europe as the world approaches peak shipping season
  • A continuation of transportation disruptions due to climate change and natural disasters
  • Ongoing issues with food fraud due to global movement restrictions as a result of the impacts of Covid-19 on transportation. Food and non-alcoholic beverages were the top commodities stolen in Asia.

Corruption by government officials was also a highlighted issue during Q3. In Mexico, the military took over customs administrations due to the high risk of corruption, although this is predicted to be a temporary fix for the problem. Similar issues of corruption occurred in supply chains in Brazil and Thailand, with supply chain workers at ports as well as border officials participating in trafficking illegal drugs.

Climate change and natural disasters create ongoing transportation disruptions and business continuity challenges. Natural disasters posed a significant risk to supply chains disrupting utilities, halting operations, and creating ground transportation delays. Persistent dry conditions in the northwest region of the U.S. will likely continue to contribute to the risk of wildfires throughout Q4. The formation of La Nina in the southwestern U.S., and a significant hurricane season, may exacerbate disruptions to supply chain transportation in these regions.

Exceptional flooding has impacted South Asia this year, following a record setting year in 2019. Several countries, Vietnam, in particular, has experienced extensive flooding beyond seasonal norms resulting in port disruptions, submerged railways and roadways, and extensive agricultural damage.

2020 has been most challenging; when we look back it will be the year of the pandemic but Covid-19may be masking some of what is taking place as many of these issues were present before and unfortunately likely to continue unless suitable measures are in place.

Yachts accumulation issue

During its annual conference the International Union of Marine Insurance (IUMI) raised concerns about increased accumulation of yachts. COVID-19 has forced many owners to return their vessels to their home port or to a local yard for maintenance. While this is positive in terms of vessel up-keep, the growing concentration of high-value pleasure-craft in a single location is increasing the risk of a major claim.

With many vessels tied up next to each other an onboard incident such as fire due to hot work operations or even a lightning strike could wreak havoc of neighboring vessels. There have been several fires in marinas, boat yards and repair facilities over the past 12 months where they were either in berths or drydock. Reports connecting these casualties with lithium battery charging have surfaced.

Aside from increased fire and accumulation risk, the sector is also suffering from a reduction in overall underwriting capacity. The first half of 2020 saw a radical exit from the yacht underwriting sector, and this has impacted the US$250k-US$2million coastal yacht market. IUMI is encouraging close cooperation between the smaller craft industry, classification societies and marine underwriters to help mitigate these growing risks and ensure they remain insurable.

Of course, we would also see some of the mega-yachts staying in place such as in South Florida and the Caribbean exposing them to loss/damage during the hurricane season.

Supply chain for the vaccines

The International Air Transport Association (IATA) yesterday urged governments to begin careful planning now with logistics and life sciences industry stakeholders and international agencies to ensure full preparedness for when vaccines for COVID-19 are approved and available for distribution, warning of potentially severe capacity constraints in transporting vaccines by air.

IATA believes it will likely take 8,000 of 747 cargo freighters to transport just a single dose of COVID-19 vaccine to the 7.8 billion people around the world with the association of airlines calling the task “the mission of the century for the global air cargo industry.”

The distribution would require temperature-controlled equipment, facilities and handling in line with international regulations as well as stringent in-transit security protocol; further, calling for careful advance planning by governments and all industry stakeholders.

IATA’s observations are broadly consistent with some analysis published earlier this month by DHL. Working with McKinsey & Company as its analytics partner, its white paper highlighted that with the first emergency use authorizations for COVID-19 vaccines expected to be effective in the last quarter of 2020, logistics providers and their customers face a challenge to rapidly establish medical supply chains to deliver serums of unparalleled amounts of more than ten billion doses worldwide. It notes that currently, more than 250 vaccines are being developed and in various phases of clinical trials. Some demand stringent temperature requirements (as low as -80°C) are likely to be imposed for the vaccines to ensure that their efficacy is maintained during transport and warehousing. This may pose logistics challenges to the existing pharma supply chain that traditionally distributes products under cold chain (+2 to +8°C).

From an insurance perspective the firms developing immunization formulations almost certainly have insurance in place; what may be of some concern is that the sheer scale of the manufacturing, transportation and distribution may involve trucking companies, freight forwarders and warehouse operators new to pharmaceuticals yet alone vaccines. Much like we have seen with PPEs, some entrepreneurs who saw market opportunities and started importing surgical masks, gloves, gowns and even ventilators but lacked the requisite knowledge and skills, will ill-suited logistics providers venture into unfamiliar territory?

Environmentally friendly containers floor

The Institute of International Containers Lessors (IICL), the trade association for ocean container leasing companies, is promoting a new floor design to the global container manufacturers. After a dozen years of real-world testing, the IICL is ready to introduce something that is rugged, lightweight and environmentally friendly for full-scale production.

Ocean container floors are traditionally composed of hardwood lumber and plywood, which offers a flexible and durable platform for loading and securing cargo. Initiatives by other parties to use steel continue to be evaluated and tested in the market for functionality and acceptance. With the migration of container manufacturing to Asia during the past 20 years, hardwood timber has become scarcer and more expensive to legally source. Organic composites made from bamboo recently have become an abundant substitute but labor-intensive manufacturing processes and premature wear and tear during service remains challenging.

IICL’s Flooring Working Group settled on two container floor patterns: one that uses wood planks separated by a steel strip that runs the length of the container, called the “omega,” and the “tunnel” pattern that includes a wide steel strip through the middle of the container with wood planks on both sides. Both use up to 45% less wood than standard floors.

In 2008, 400 test containers were constructed: 200 20- and 40-footers with the omega floor and 200 20-and 40-footers with the tunnel floor and immediately placed into international trade. After reviewing the results of the trials, it was decided to focus on the omega design going forward due to its advantages in the manufacturing process and for in-service repairs.

The current omega floor design adds 100 kilograms to the 2,100-kilogram tare weight of a 20-foot container and 140 kilograms to the 3,700-kilogram tare weight of the 40-foot container with conventional wood floors.

The service data collected on the containers proved to the IICL that the omega pattern exceeds performance and durability expectations over traditional container floors. In fact, the omega floor is five times less prone to damage than current all-wood designs. Since floor repairs account for nearly 20% of the maintenance costs per container, this is noteworthy.

It will likely take years before the omega design becomes an industry standard. There are about 23 million ocean containers in the world fleet, primarily 20-footers and 40-footers, which have traditional all-wood floors and a 12- to 15-year operational lifecycle. The IICL hopes the Chinese container manufacturers will begin introducing their first production runs using the omega floor next year. One thing to consider is whether this new floor design will adversely affect cargo securement.

Refrigerated containers – Hot zinc process

More on ocean containers, importers of foodstuffs: fresh fruits, vegetables, seafoods and meats take great pride in the quality and appearance of their products. Similarly, they expect the first thing that arrives at their or their customer’s loading docks, the refrigerated ocean container to look just as fresh. Food producers undoubtedly are also uneasy when loading their products into reefer containers blemished by rusted steel framing.

Refrigerated containers are expensive, with new ones costing between $16,500 and $17,500 compared to a new 40-foot dry box running about $3,400. Lessors of reefers expect a 15-year lifecycle for these pricey assets.

Among the key factors for sustaining the appearance and longevity of reefer containers are the protective coatings used on the metal surfaces. Traditionally, manufacturers have protected steel frames in the highly corrosive marine and rough-and-tumble terminal environments with hot zinc

sprayed coatings, which cost $60 to $80 per 40-footer. However, the galvanization process for coating metals has health and environmental risks if not performed correctly. Stiffer government regulations have pushed investment in new hot zinc spray equipment or abandon the process altogether for cheaper and lighter protective applications using zinc-rich primers.

Last year, the China Container Industry Association warned that some of its members may be forced to abandon hot zinc sprays due to regulatory pressures. The IICL launched a study in December 2019 to better understand the wear-and-tear conditions of hot zinc-sprayed containers versus those coated with zinc-rich primers. Random inspections of 500 reefer boxes in major ports around the world showed what experience and previous analysis indicated — that the frame of refrigerated units treated with hot zinc spray had an overall significantly better performance than the ones using zinc-rich primer. Moreover, the difference in condition of containers that used hot zinc spray vs. zinc-rich primer was especially noticeable by the sixth and seventh year in service.

This study has operational and financial relevance. Frame repairs and refurbishing due to premature corrosion are significant expenses to owners and may lead to an early retirement of the containers and suitable repair facilities do not exist in every port. The IICL states that “it makes long-term economic and environmental sense for container manufacturers to fully automate the hot zinc spray process, including investing in the necessary air filtration systems, to continue providing these containers with lower maintenance requirements throughout their lifecycle.

US truck drivers shortage

An overwhelming number of U.S. truck drivers with drug and alcohol violations have failed to complete the federal return-to-duty process, a trend that could have trucking capacity implications down the road.

Statistics released recently by the Federal Motor Carrier Safety Administration (FMCSA) reveal that of the 28,445 drivers registering at least one drug or alcohol violation in the agency’s Drug & Alcohol Clearinghouse, 93% – are in “prohibited status” because they have not completed the steps required to allow them to get back behind the wheel. In fact, 80% of those in prohibited status have not yet even started the return-to-duty (RTD) process.

According to federal regulations, if a driver has a drug and alcohol program violation recorded in the commercial motor vehicle, until he or she has completed the RTD process, which includes evaluation, treatment and follow-up testing.

Clearinghouse data has also revealed that over a two-month period, roughly 13% of drivers are attempting to cheat the urinalysis test, a statistic that could renew calls for hair testing because it has been shown to find evidence of drug use in drivers who have passed urinalysis tests.

On a positive note, full, pre-employment database queries increased between May and June (by 28%) and again between June and July (by 13%) meaning companies are using the clearinghouse to check for driver violations as required when drivers begin the hiring process with a carrier.

Smart shipyard

Taking another step forward in the development of the smart shipyard, American Bureau of Shipping (ABS) has granted class approval for the first ship designed entirely using a 3D modeling process developed by Samsung Heavy Industries. Previously, the class society was requiring separate two-dimensional drawings for the review needed to complete a safety verification and other steps in the design approval process.

Commenting on the future opportunities for the smart shipyard, Ho-Hyun Jung, Head of Technology Development Division, Samsung Heavy Industries said, "Digitalized design information certified by the Society can be easily connected to artificial intelligence (AI), augmented reality and virtual reality (AR/VR) technologies without any additional data processing.”

“Smartization” will be accelerated in the overall shipyard business including design, production, and purchasing designed to maximize efficiency by connecting all areas of business to create the smart yard. The goal is to achieve the highest productivity with technology.

Cyber-attacks on the maritime industry

According to Naval Dome, cyber-attacks on the maritime industry’s operational technology (OT) systems have increased by 900 per cent over the last three years with the number of reported incidents set to reach a record number (500) by year end with more going unreported.

Recalling recent attacks their head of North America Operations pointed out the first ports affected, were Barcelona and San Diego with Australian shipbuilder Austal hit followed by the attack on COSCO which took down half of the shipowner’s U.S. network. In 2020 a gas pipeline operator and shipping company MSC have been vexed by malware, the latter incident shut down the shipowner’s Geneva HQ for five days.

Reports of this attack have gone some way in raising public awareness of the potential wider impact of cyber threats especially on ports saying entire infrastructure is vulnerable- RTGs, STS cranes, traffic control and vessel berthing systems, cargo handling and safety and security systems. “Hackers can access the cranes, they can access the storage systems, they can penetrate the core operational systems either through cellular connections, wi-fi, and USB sticks. They can penetrate these systems directly.”

Additionally, as the maritime industry moves towards greater digitalization and increases the use of networked, autonomous systems, moving more equipment and technologies online, more openings and loopholes, will be created.

Watch the presentation by clicking at:

More on cyber risks

More on the same topic; according to Nettiude, the cybersecurity arm of Lloyd’s Register, the confusion surrounding the COVID-19 pandemic has created new opportunities for cybercrime, particularly cyberattacks targeting the human element. Fraudulent “phishing” attempts and similar deceptive tactics are an omnipresent cyber threat, and they can be even more potent in times of heightened uncertainty and stress. They estimate about 80 percent of current email-based threats attempt to exploit COVID-19-related communication.

Here are some of their guidance:

  • Be aware that threat actors will use current affairs as means to target people with increased success. We see this every time there’s a natural disaster, national security incident or similar event.

Awareness is the first step.

  • Are you expecting the suspicious communication? If not, proceed with caution.
  • If it purports to come from a known source, e.g. your own organization, be aware that this can be forged.
  • Are you being prompted to download and open or run a file, visit a third-party website, or submit information of any kind? If so, proceed with caution and speak to your line manager or other internal authority to verify the legitimacy of the communication. Don’t be afraid to report.
  • Only use your work laptop for work purposes.

Bulk Carrier Casualty report 2019

INTERCARGO has published its Bulk Carrier Casualty Report 2019 providing an analysis of casualty statistics covering the years 2010 to 2019. Thirty-nine bulk carriers with 173 seafarers were reported lost over that period, based on available reports of total losses and constructive total losses from public sources and IMO’s Global Integrated Shipping Information System (GISIS).

Cargo shift and/or liquefaction is one of the greatest concerns for the safe carriage of dry bulk likely to be the main reason behind eight of these casualties. The most common reported cause of ship losses has been grounding, with 17 losses followed by flooding accounting for five ships, and four ships were lost due to unknown causes.

The report highlights the loss of the bulk carrier Nur Allya in August 2019. The 52,000 dwt Nur Allya while transporting a cargo of Indonesian nickel ore. Although the cause of the sinking is unknown, following the incident INTERCARGO reiterated its warning to industry to use extreme caution when loading nickel ore due to its tendency to liquefy and cause cargo to shift.

Location seems to matter. The total losses have consisted of six bulk carriers carrying nickel ore from Indonesia, one vessel with iron ore fines loaded with high moisture content from Malaysia, and one vessel with bauxite from Malaysia.

The report also asserts the prompt publication of casualty investigation reports is a key objective of the bulk shipping industry. Only 24 of a total of 39 bulk carrier losses have had their investigation reports made available on the GISIS database at the end of January 2020. In fact, the average time from incident to a report becoming available has been 32 months. “Lessons learned from past incidents play an important role in determining where additional safety improvements are necessary both at an industry and an international level, INTERCARGO believes “It is vitally important that casualty nvestigation reports are submitted to the International Maritime Organization (IMO) in a timely manner so that the root causes of serious incidents can be properly identified and the appropriate corrective actions taken.”

The IMO is expected to consider additional measures for bulk carrier safety in Safety of Life at Sea (SOLAS) chapter XII, and the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers (2011 ESP Code). These measures are aimed at closing gaps that were identified and reducing the potential for similar very serious marine casualties involving bulk and ore carriers.

The entire report is available at:

The information for much of the content was taken from a number of public sources that, to the best of the undersigned’s knowledge, is accurate. The views expressed in this document should be regarded as the personal opinion of the undersigned and not necessarily of the Chubb.

If anyone wants additional information on any of the topics covered contact the authors.