How to protect cargo during the 2020 hurricane season
Any cargo-risk mitigation measures undertaken during the current hurricane season must reflect ongoing threats to the global supply chain.
While tropical storms and hurricanes are perennial occurrences, the 2020 season is unique as it arrives during a global pandemic that has widely impacted the world’s population and disrupted the global supply chain.
As Brent Moritz, associate professor of supply chain management at the Penn State Smeal College of Business explains, with COVID-19, unlike a hurricane, the supply chain disruption is unprecedented in the scope of its impact on the entire world. In addition, the ultimate size and duration of the impacts of COVID-19 on the supply chain are not yet clear.
Severe storms, on the other hand, generally strike one place or region at a time and for relatively limited duration, according to the industry trade publication Modern Materials Handling. Consequently, as risk managers consider mitigating cargo risk during this hurricane season, they must consider those measures against a holistic backdrop of ongoing threats to the global supply chain.
Researchers have recently revised their forecast for the 2020 Atlantic hurricane season and are now predicting up to 25 named storms. As many as 11 of them are predicted to be hurricanes, with three to six packing winds of at least 111 miles per hour, according to the National Oceanic and Atmospheric Administration. Meanwhile, as markets reopen from closures during the pandemic, expect higher volumes of goods in transit.
How to protect cargo
What follows are some timely tips that cargo owners whose goods are transported through or stored in hurricane-prone areas should consider as they forge their way through the disruptions of a pandemic, while bracing for the likelihood of major storms.
- Expand your universe of potential vendors. To keep your supply chain viable during COVID-19 and hurricane season, flexibility is key. Expanding your ability to respond to evolving situations also is critical. For example, you may want to consider lining up trucking and rail capacity to give your company a better chance of accessing inland transit when a storm is imminent or normal options may be backlogged or unavailable.
- Leverage technology and real-time information. In addition to monitoring long-range weather forecasts from NOAA, local media and private services, companies should consider partnering with tech vendors that combine artificial intelligence, machine learning, and Internet of Things (IoT) sensors to detect and monitor the impact of events in real-time. (For example, if flooding is threatening warehoused goods.) When a storm is imminent, and with the ongoing unpredictability of the pandemic, companies should also keep current on available data from port websites and freight forwarders as well as industry bulletins and alerts that describe congestion and clearance backlogs that could delay shipment or release of goods and possibly create the need for alternative storage locations.
- Rethink cargo throughput to circumvent hurricane season. Severe storms can close ports, suspend maritime cargo movement, reduce truck transport hours and ground airplanes. Given that, importers and exporters may want to rethink logistics and, for example, begin storing critical items in a centralized location away from traditional storm paths, and staging lower-cost goods in locations that can serve local markets more efficiently and inexpensively.
- Assess the cost-benefits of different transportation modes. For example, is switching from longer ocean voyages to next-day airfreight worth the substantial extra expense? One COVID-related caveat to keep in mind is that certain express shipments may be delayed to make way for deliveries of essential goods. Similarly, during hurricane season, rail and trucking companies may be tasked to prioritize transport of building materials. Another alternative is to partner with ocean carriers and intermediaries, such as freight forwarders with dynamic routing capabilities — those nimble enough to discharge your cargo at an earlier or later port of call to dodge an approaching storm.
- Monitor accumulation exposure. Companies should carefully consider their accumulation exposure at warehouses, distribution centers, marine terminals and ports in vulnerable, low-lying areas and in other locations, too. Recent storms have underscored the unexpected but very real danger of inland flooding outside of traditional flood zones.
- Keep up to date on readiness all along the line. Cargo owners should ensure that their logistics partners are suitably prepared. Specifically, be sure that facilities with care, custody and control of your cargo have viable plans and practices in place.
- Conduct a thorough checkup of property and cargo insurance. Coverage should be carefully reviewed to ensure it encompasses all desired storm perils — from flood and windstorm to hail, and has adequate limits for your exposure. Business interruption coverage is typically not included in ocean cargo or marine policies, but you should review the business interruption insurance provided under your property policy in the context of storm season. Work closely with your insurance brokers to understand what’s covered and what’s not, and adjust accordingly.
What you should know about supply chain mapping
A useful exercise for cargo owners seeking to get their hands around their full exposure is supply chain mapping, which would include charting both upstream and downstream routes. Optimally, this allows cargo owners to identify the locations of their main suppliers’ facilities as well as locations of Tier II and Tier III providers that support them. Cargo owners can then overlay locations of ports, warehouses and distribution centers and assess exposure to storm-related shutdowns and disruptions. This data can provide the basis to rethink traditional practices and potentially align with alternative vendors that present less risk.
Now more than ever
We see how unpredictable the world can be. While cargo owners can’t control Mother Nature, they can develop preparedness and contingency plans to minimize supply chain disruptions due to damaged or delayed shipments.
For those that do it best, planning can be a sustainable, competitive advantage through all seasons.
Karen Griswold (Karen.Griswold@Chubb.com) is senior vice president of underwriting, NA property & specialty, Chubb.
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