Executive Briefings

How Technology Is Boosting Risk Levels at Ports and Terminals

Without question, technology has been a boon to global trade. But it's also responsible for raising the risk factor at every stage of the supply chain - and especially at ports and terminals.

How Technology Is Boosting Risk Levels at Ports and Terminals

Marine terminals have long been viewed as "the weak link" in international supply chains, according to Julien Horn, director of TTMS (Gulf) Ltd., the Middle East network partner of global transportation and logistics insurer TT Club. And it's no surprise why: busy, sprawling ports are particularly vulnerable to theft, fire, labor disruptions, worker injuries, cargo damage and the effects of natural disasters.

Now, however, ports are faced with a whole new series of risks, related to the impact of technology. Start with the fact that ports and terminals are getting bigger, to match the new breed of gargantuan containerships, which require deeper water, longer berths, more yard space and better systems for transferring containers to trucks and trains.

In the process, says Horn, ports are relying more heavily on information technology than ever before, for container tracking, communications with connecting modes, equipment management and maintenance. And with every flashy new I.T. application comes the possibility of system failures.

An increasing number of those failures are the result of cybercrime, a threat that’s just beginning to be taken seriously by port directors. Horn has heard of attacks affecting thousands of computers, seriously inhibiting terminal operations for months at a time. In 2013, the Port of Antwerp suffered a major hacking attack by drug smugglers who were seeking passwords and security codes that gave them access to containers carrying illegal narcotics.

Terrorists, too, could utilize hacking techniques to bring port operations to a standstill. And business must be aware of the potential cost. Horn cites a PwC report from 2013, revealing that 11 percent of companies around the world had lost more than $50,000 due to cybercrime. “There is evidence that the peril has become much worse over the last two years,” he adds.

A technology-related attack on a port can take many forms. It might involve the mere interruption of electricity, the loss of which is yet another growing threat to energy-reliant terminals. It could be triggered by employee sabotage, or a breach in I.T. security, or an incident involving the misdeclaration or mishandling of hazardous materials.

Disasters can be caused by willful action, lax management or outright incompetence. Exhibit A is the explosions that occurred in August of last year at the Port of Tianjin in Northern China, possibly triggered by an overheated container of nitrocellulose. The disaster resulted in an official death toll of 173, with charges of government corruption and woefully inadequate safety measures in the port area.

The Tianjin explosion “was about knowing what’s in your yard,” says Horn. “Also, who is your next-door neighbor.” A complex such as that of Tianjin can consist of multiple terminals, logistics centers, adjacent businesses and even residences. Port managers need to look beyond their own gates in order to properly assess their levels of operational risk.

The Middle East, which has been experiencing rapid trade growth and port expansion, is in particular need of strict security and awareness measures, Horn. But the threat is everywhere. Shippers and carriers the world over all want three basic things when seeking port and logistics facilities: climatic and political stability, and consistent performance.

That last criterion is especially important to companies that have been rocked by natural disasters such as the Japan tsunami and Thailand floods. But ports are equally affected by events that are nominally within their control to avoid, or at least mitigate. And many of those incidents are caused by failures of technology, whether intended or otherwise.

Diligence starts with the shipper. Horn says many European and American companies entering less-developed parts of the world attempt to impose responsibility for security on local partners or agents. “That’s all very well if an American company has good procedures, and can force them to do that,” he says. “But it’s got to be followed through operationally.”

Insurance, of course, is always available to mitigate the impact of a disruption. But it can be expensive, and ports that regularly encounter problems can find themselves bypassed by shippers and carriers looking for safety and supply-chain continuity.

“There’s a wider cost than just the bill the insurance company is going to pay,” says Horn. “It won’t cover the intangible risk or loss of profit.”

He advises ports to examine their procedures on a regular basis, breaking down claims into operational, maintenance and weather-related categories. The first two, which are largely preventable, are responsible for around 89 percent of claims paid out by TT Club. But even the damage from unexpectedly bad weather can be mitigated to a degree – for example, ports can take care to tie down container cranes in anticipation of high winds.

Bottom line, says Horn: “Over 90 percent of claims are preventable by operators if you have good procedures.” Yet new threats posted by the growing complexity of port technology are widening the scope of prevention to an unprecedented degree.

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Marine terminals have long been viewed as "the weak link" in international supply chains, according to Julien Horn, director of TTMS (Gulf) Ltd., the Middle East network partner of global transportation and logistics insurer TT Club. And it's no surprise why: busy, sprawling ports are particularly vulnerable to theft, fire, labor disruptions, worker injuries, cargo damage and the effects of natural disasters.

Now, however, ports are faced with a whole new series of risks, related to the impact of technology. Start with the fact that ports and terminals are getting bigger, to match the new breed of gargantuan containerships, which require deeper water, longer berths, more yard space and better systems for transferring containers to trucks and trains.

In the process, says Horn, ports are relying more heavily on information technology than ever before, for container tracking, communications with connecting modes, equipment management and maintenance. And with every flashy new I.T. application comes the possibility of system failures.

An increasing number of those failures are the result of cybercrime, a threat that’s just beginning to be taken seriously by port directors. Horn has heard of attacks affecting thousands of computers, seriously inhibiting terminal operations for months at a time. In 2013, the Port of Antwerp suffered a major hacking attack by drug smugglers who were seeking passwords and security codes that gave them access to containers carrying illegal narcotics.

Terrorists, too, could utilize hacking techniques to bring port operations to a standstill. And business must be aware of the potential cost. Horn cites a PwC report from 2013, revealing that 11 percent of companies around the world had lost more than $50,000 due to cybercrime. “There is evidence that the peril has become much worse over the last two years,” he adds.

A technology-related attack on a port can take many forms. It might involve the mere interruption of electricity, the loss of which is yet another growing threat to energy-reliant terminals. It could be triggered by employee sabotage, or a breach in I.T. security, or an incident involving the misdeclaration or mishandling of hazardous materials.

Disasters can be caused by willful action, lax management or outright incompetence. Exhibit A is the explosions that occurred in August of last year at the Port of Tianjin in Northern China, possibly triggered by an overheated container of nitrocellulose. The disaster resulted in an official death toll of 173, with charges of government corruption and woefully inadequate safety measures in the port area.

The Tianjin explosion “was about knowing what’s in your yard,” says Horn. “Also, who is your next-door neighbor.” A complex such as that of Tianjin can consist of multiple terminals, logistics centers, adjacent businesses and even residences. Port managers need to look beyond their own gates in order to properly assess their levels of operational risk.

The Middle East, which has been experiencing rapid trade growth and port expansion, is in particular need of strict security and awareness measures, Horn. But the threat is everywhere. Shippers and carriers the world over all want three basic things when seeking port and logistics facilities: climatic and political stability, and consistent performance.

That last criterion is especially important to companies that have been rocked by natural disasters such as the Japan tsunami and Thailand floods. But ports are equally affected by events that are nominally within their control to avoid, or at least mitigate. And many of those incidents are caused by failures of technology, whether intended or otherwise.

Diligence starts with the shipper. Horn says many European and American companies entering less-developed parts of the world attempt to impose responsibility for security on local partners or agents. “That’s all very well if an American company has good procedures, and can force them to do that,” he says. “But it’s got to be followed through operationally.”

Insurance, of course, is always available to mitigate the impact of a disruption. But it can be expensive, and ports that regularly encounter problems can find themselves bypassed by shippers and carriers looking for safety and supply-chain continuity.

“There’s a wider cost than just the bill the insurance company is going to pay,” says Horn. “It won’t cover the intangible risk or loss of profit.”

He advises ports to examine their procedures on a regular basis, breaking down claims into operational, maintenance and weather-related categories. The first two, which are largely preventable, are responsible for around 89 percent of claims paid out by TT Club. But even the damage from unexpectedly bad weather can be mitigated to a degree – for example, ports can take care to tie down container cranes in anticipation of high winds.

Bottom line, says Horn: “Over 90 percent of claims are preventable by operators if you have good procedures.” Yet new threats posted by the growing complexity of port technology are widening the scope of prevention to an unprecedented degree.

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How Technology Is Boosting Risk Levels at Ports and Terminals