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Recent Developments: Tianjin explosion - Supply chain exposure and storage risks

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Supply chain and accumulation risk in the wake of the Tianjin explosion is an increasing concern. Photo: Voice of America, Wikimedia Commons


Supply chain issues were brought to the fore in 2015, after a series of explosions in a warehouse at China’s Port of Tianjin on August 13 killed 173 people and injured hundreds, revealing the pitfalls of a “just-in-time” supply chain (holding the right amount of inventory to meet both production process and customer demands).

Tianjin is one of the world’s top container ports by volume and the effect of the blasts was far-reaching. All ship calls to port were immediately suspended after the explosion, a ban that continued as authorities investigated the blasts. Calls from cargo ships had largely resumed by August 19, but with 285 of the Fortune Global 500 companies having facilities in Tianjin the potential for supply chain disruption continued[i].

Goods channeled through Tianjin before the explosions were diverted elsewhere, and access to value-add services and raw material imports was severely curtailed. Confirmed insurance industry losses via company announcements had already totaled approximately $2bn towards the end of 2015[ii]. However, the International Union of Marine Insurance (IUMI) has said the insured loss, including clean-up costs, damage to cars and other products stored at the site could total between $5bn to $6bn[iii].

“The supply chain exposure of the Tianjin explosions was fascinating,” says Kinsey. “It really highlighted the delicate balance we have in ‘just-in-time’ supply chains, which are only as secure as their weakest link.” Khanna calls for more transparency on accumulation risks and better information gathering on the back of the incident: “There needs to be a greater flow of information between the assured and the insured to understand these risks. Information flow needs to be improved, especially on storage risks. Once we improve information flow we can do more to prescribe best practice and guidelines.”

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[i]  http://www.chinaforgroups.com/Top_Ten_Business_Destinations_in_China.html

[ii]   www.agcs.allianz.com/insights/white-papers-and-case-studies/global-claims-review-2015/

[iii]  http://www.hampden.co.uk/hampden-agencies/client-resources/newsroom/2015/tianjin-update/