Climate change increasing cargo risk

Shippers need to understand that climate-change related weather events are increasing the risk of cargo loss.

Freight transport and logistics insurance specialist TT Club is sharing data from its last three years of claims to help shippers understand where these new risks are greatest. “Global supply chain as a whole must take adequate steps to prepare for isolated severe weather events,” TT Club said in a statement.

Meteorological events, particularly in British Columbia’s Lower Mainland recently, highlight the increasing incidence of extreme weather such as unprecedented rainfall, tidal surges and wind microbursts. 

Typically wind strength is most ferocious in coastal areas. However, it is often the surge and flood risk that can cause greater problems, both on the coastline and further inland.

Incident data compiled by TT illustrates that the traditionally wetter summer months in the northern hemisphere are when cargo is at greater risk; extreme flooding across broad swathes of continental Europe during July and August 2021 corroborate this as an emerging (or emerged) risk. Further, recent months have seen extraordinary volumes of rainfall over short periods in various parts of the globe, including B.C., resulting in flash flooding and causing significant damage. 

“Water is unforgiving”

“The associated losses of such incidents can be far reaching; water is unforgiving and has the ability to penetrate and cause significant damage. Flood water is inevitably dirty, increasing damage and in many instances creating health challenging situations,” said TT Club’s risk management director, Peregrine Storrs-Fox.

“Extreme weather events can be challenging to predict but operators of warehouses, terminals and port areas need to keep ‘fresh’ their assessment of the changing risk profile in relation to climate experience.”

TT Club found in its past three years of claims that locations near a coast are more susceptible to weather-related incidents (68 percent of cases) with 16 percent of claims involving heavy rainfall causing flooding. Property damage from strong winds and microbursts featured in 74 percent of weather-related claims through the period.

Ocean freight accounted for 65 percent of claims in the three year study period, TT Club said this is explained by the length of time cargo is in transit and exposed to variable climatic zones while aboard ships. Road transit is the next most risky mode, accounting for 14 percent of claims.

Wet damage while in storage accounted for 13 percent of reported claims, with 31 percent of these as a result of flooding.

TT notes that understanding of meteorological trends, particularly in light of global warming, is advancing.  The capability to monitor, record and predict weather patterns will continue to develop. This understanding will not physically protect property, equipment and operations but, when used as an integral component of thorough risk assessment, it should inform operational decision-making.

Cargo packing

The insurer also found that 65 percent of cargo damage incidents are attributable in part to the way that goods are packed within a container or cargo transport unit (CTU). In 2020, 25 percent of wet cargo damage was caused by water entering the CTU through pre-existing damage that probably should have been identified as part of the cargo packing process.

Many claims can be avoided with a robust pre-loading condition checking procedure and correct packing processes, TT Club recommends.

“Climate change is a fact of life. Risk assessment exercises by supply chain stakeholders must necessarily take account of extreme weather events, as unpredictable as they may be,” Storrs-Fox said.

“However, sensible operational measures and the employment of best practice procedures pertinent to individual organizations’ functions will go a long way towards avoiding disastrous consequences when the next rainstorm hits.”