To protect their crews, the public, the environment, and not least their operations and profits, carriers must have a ‘plan B’ in place for when things go wrong.
Even if ‘Plan A’ works for you 99.9% of the time, it is always worth having a ‘Plan B’. For any business worth its salt, taking a risk with the unexpected is simply not worth it as the results can be catastrophic. In the wake of a recent shipping incident that saw the Höegh Osaka car transporter run aground on Bramble Bank, off the south coast of the UK, not to mention the labour disputes on the US west coast that have snarled container unloading, the issue of how shipping and logistics companies plan and deal with risks such as accidents, strikes, power outages, environmental pollution, or failed communications, has risen to the top of the agenda.
The task of transporting vehicles and parts around the globe exposes logistics companies to a panoply of social, financial, operational and environmental dangers. To reduce these risks, carriers must implement contingency planning strategies for the ‘what-ifs’ that can cost more than just money.
Phil O’Reilly, marketing director, ro-ro division at NYK Group Europe, says that safety concerns remain at the top of the company’s agenda, and it has developed a well-defined and robust contingency plan to respond to emergency situations. “It is never worth taking the risk of not planning for the unexpected,” he says. “The company takes its duty of care for its staff, customers and environment very seriously. NYK views its emergency response planning as an essential part of good ship management and as an integral part of its responsibility to the conservation of the environment and its duty to its stakeholders.”
Costantino Baldissara, commercial, logistics and operations director at the Grimaldi Group concurs, adding that contingency planning is just as important as every other aspect of logistics. “Every potential risk needs to be assessed and addressed to the limit of its own possibilities,” he states. “Trying to establish procedures and solutions, even for risks [that are] not easily imaginable, can give some support in case they do materialise, by giving you at least a starting point [from which] to solve them, thus reducing time and money.”
In the case of financial and economic risks, Baldissara admits shipping companies are mostly covered by insurance. However, for other situations that could affect service continuity for customers, a company must rely on its own resources. “Service structures, service frequency, overall service capacity [and] external relations are all elements that enable operators to find better contingency solutions, which are, of course, planned well in advance,” he adds.
Steinar Løvdal, head of capacity management at Höegh Autoliners, confirms that a global business needs solid contingency plans “to secure people, environment, ship and cargo,” along with the more commercial and business-related nature of operations. “Considerable time and effort is being put in to making sure we think ahead and identify risks at an early stage, and that we are well prepared and able to take action immediately if an incident occurs,” he says.
Løvdal says Höegh’s contingency planning strategy covers a broad range of circumstances extending from operational incidents and situations involving the company’s own vessels and employees, to external events that could influence its operations. This can include anything from war and conflict situations, to port and canal closures, sudden changes in trade flows due to economic shocks, sanctions, or other factors.
“The first and most important must-have measures will always be the ones that, in the event of an incident related to our operations, involve securing the safety of our crew and other people onboard or ashore, as well as the environment, the ship and the cargo,” says Løvdal. “The potential consequences of the types of situations that can arise in our business are simply too great to leave to chance. It is, of course, impossible to be fully prepared for every single incident that may occur, but to plan and prepare for unexpected situations is an absolute necessity.”
Höegh takes several steps to reduce such risks. “Running vessels that are classified by reputable classification societies such as Lloyd’s and DNV GL is a first step in a risk mitigation programme for us,” begins Løvdal. “Secondly, ensuring that all ship management companies that work for us uphold the highest safety standards is essential.”
A more operational example of the company’s approach is its response to the increasing incidence of piracy, something the company has had several brushes with. This has required planning to avoid risk areas, such as areas prone to piracy, and being prepared in the event that pirates attack.
However, it isn’t only safety risks that require contingency plans. These days, trade flows are considerably more fragmented than they have been in the past. Major exchange rate fluctuations can result in the relocation of vehicle production and impact businesses significantly, and at relatively short notice.
“In terms of preparing for disruptions on the business side, we focus on identifying risks that either have a high likelihood of occurring, or particularly serious potential consequences. Identifying which risks fall into either of these categories is a constant process, as both the external environment and our own business constantly change,” Løvdal says.
In recent years, the company has also seen an increased interest in emerging markets, resulting in requirements from customers for services to countries where operational conditions can be more unpredictable; in such locations, civil unrest can quickly emerge and result in ports closing or causing congestion and delays.
“To cope in this fast-moving market place we follow developments closely both through our internal market intelligence department and from speaking to our customers. This way we stay alert, are prepared and can plan for various trade pattern scenarios,” says Løvdal. “Over the last [few] years we have also developed a trade and organisational structure which helps us to be agile should an incident occur that requires us to move ports, trades [and] vessels quickly.”
According to Baldissara, Grimaldi Group has “sharp” internal procedures to assess risks related to both current activity, and future activity. The company also holds regular internal meetings among security, quality and commercial personnel to help track assessments and evaluate potential new risks. “External advisors are also involved in these processes. The potential range of risks [discussed] is wide and goes from onboard activities to new commercial lines, handling equipment, and the impact of laws. In recent years a growing attention [has also been] given to climate change and environmental care matters,” he reveals.
At NYK Group, a Safety and Environmental Management Committee has been established, chaired by the company’s president, Yasumi Kudo, with the aim of maintaining and improving the company’s safety procedures. According to O’Reilly, the committee places particular emphasis on improving vessel safety procedures as NYK Group often operates in remote locations.
NYK Group also has an emergency response network based on four overseas regional blocs ready to handle maritime accidents and problems around the world. The company also provides regular training to improve its employees’ ability to respond to accidents. “Practising drills is an essential part of good ship management. For greater realism, each training exercise involves scenarios with different types of vessels and a variety of problems such as collisions, flooding, onboard fire [and] oil spills,” says O’Reilly.
“Vessel crews, ship management companies, government agencies, customers, and other interested parties all participate in the training exercises to thoroughly test the company’s emergency response procedures. A review is conducted after each exercise to discuss lessons learnt and how to further improve the company’s emergency response procedures,” he states.
Preparing for the unexpected certainly doesn’t come for free. Although Løvdal admits that putting a specific number on the cost of contingency planning is difficult, he says it does require investment onboard and ashore, and is “part of the cost of doing business.”
While investment is required, according to Andy Lane, partner at Container Transport International (CTI) Consultancy, there is only a minimal cost associated with developing contingency plans, and costs increase when dry runs, additional training or drills are needed.
“Risks will vary in terms of severity and probability, and a combination of these factors will highlight which risks should have standard operational contingency plans or emergency response manuals. It is not practical, or likely even possible, to identify and plan for every inconceivable incident,” he says.
Grimaldi’s finance team has a dedicated and consistent budget for contingency planning, and over recent years has increased staff commitment to the issue.
“In view of our growing attention to climate change [and] environmental care, a new dedicated team has been created under the name of the ‘Energy Saving Department’ in order to focus on new projects, as well as carry out risk assessments of any related topic,” Baldissara says.
All contingency measures that shipping companies adopt are a “must-have”, rather than a “might-need-to-have”, according to Baldissara, but a deeper evaluation may be necessary if a contingency measure could compromise the service it gives to customers in terms of flexibility and speed.
While the stricken Höegh Osaka – which has since been refloated – obviously wasn’t an ideal situation for the company, the ship’s captain was praised for his quick thinking in deliberately grounding the vessel. Moreover, during the three weeks the ship was stranded, no-one was injured during the incident, no pollution occurred and traffic around the port was mainly uninterrupted.
Without a doubt, contingency planning and extensive training helped turn a potentially deadly disaster into something less disastrous: a risk that was definitely not worth taking.
Andy Lane, partner at CTI Consultancy.When contingency planning, ro-ro handling in port is not so much affected by power outages, but may be more prone to disruption caused by labour issues, for example. “Being highly labour intensive, unrest can be an issue [for ro-ro carriers]. We have, however, experienced declines in situations of labour unrest over the past three to four decades,” Lane says.
Pure car carriers (PCC) and pure car and truck carriers (PCTC) might operate from one port to several, and not necessarily return directly to an origin port. PCTC vessels also do not generally run on fixed-day weekly sailings, as container ships do.
“If the origin [port] of the PCC or PCTC is not operating, then there is nothing to catch-up later, with the choice being between anchor, or reposition and redeploy,” he says. “That would likely depend merely on the expected down time. If a destination port is not operating, then the payload can be dropped at a scheduled one which is [operating], at an alternative port, or remain, pending re-opening.”
Lane points to one large Asian PCC that operates with a hub-and-spoke system in South-East Asia. The hub is then critical, as if it breaks, so does the entire supply chain. “This is very similar to container shipping,” he says. “You need to ensure upfront that hubs are in locations with political and labour stability, preferably not prone to prolonged or frequent severe adverse weather conditions, and which have a solid infrastructure.”
