How safe are global supply chains from terrorist attack?

The recent Paris attack reminded the world that terrorism can hit at any time, any place. The response of governments has been to increase security in public spaces – and rightfully so. But what if these same terrorists would attack supply chains instead? Hitting just a few strategic targets in the energy trade, for example, could bring the entire global economy to a halt. To avoid such disaster, companies and governments should be more aware of this perceived “low probability threat”, and develop the tools to protect their economic interests and those of the world.

The attacks in Paris, the bombing of a Russian plane in Sharm El Sheikh, and most recently, a disability center in San Bernardino, shook the world. With hundreds of innocent civilians dead, governments all over the world responded by increasing security measures in public spaces. It is a much needed response, as our safety is of utmost importance.

But while focusing on public spaces, we should not leave another important flank SCSucurityBlogunprotected: our infrastructure and supply chains. Ports, waterways, roads: they all play a vital role in supplying our needs. When left neglected, the consequences on the economy and our society could be disastrous. Two risks are of particular importance: an overshoot of public safety measures affecting supply chains, and a negligence of securing supply chains, leaving them vulnerable to attack.

The first risk is for supply chains of goods to be disrupted because of public safety measures. We have seen this before. “After the September 11, 2001 terrorist attacks, the U.S. government closed the country’s borders and shut down all incoming and outgoing flights. The impact on many supply lines was immediate,” wrote Yossi Sheffi and James B. Rice Jr. in a MIT Sloan article. “Ford Motor Co. had to idle several assembly lines intermittently as trucks loaded with components were delayed coming in from Canada and Mexico. Ford’s fourth-quarter output in 2001 was down 13% compared with its production plan.” Although not directly hit, the disrupted flow of goods caused significant damage to business and delayed supply.

But there is a potentially much graver danger from neglecting supply chain safety: terrorist attacks aimed at precisely those lifelines of our economies. For now, such attacks have been limited: according to Daniel Ekwall’s review of the official terrorist statistics from MIPT Terrorism Knowledge Base transport activities represent only 4% of the targets in 2006 and 5% in 2007 – as low a number as one can find. But the number of supply chain related attacks has increased steadily over the past decade, reaching 3299 attacks in 2010, a recent PwC report found.

And when terrorists do attack supply chains, the consequences could be disastrous. Seventy to 80% of the world’s oil flows through only three major check points: the Suez Canal, the Strait of Hormuz, and the Straits of Malacca (see the chart below). The closing of one or more of these passages would significantly disrupt the global energy supply chain. The Strait of Hormuz is a particular cause for concern: situated between the Arabian Peninsula and Iran, almost 20% of global oil trade passes through there.

Oil transit chokepoints

Oil transit chokepoints

Major freight hubs might be targets for terrorist attacks, as well. 14.8% of containerised and air freight traffic moves through the Hong Kong – Shenzhen freight cluster. The Port of Shenzhen is one of the most important ports for China’s international trade and therefore key to the supply of many factories and customers in the world.

Highway computer networks and traffic management systems are also vulnerable to terrorist attack, and could be hacked and disrupted to create chaos. This could make the transport on national road systems and in cities impossible. Planes could collide. Each time they enter an airport aircrafts are at risk because of the sharing of information across a number of electronic systems. Tracks in rail traffic could also be re-set to cause trains to crash.

What matters then, is to recognize supply chains as a target, and take adequate measures to protect them. Some governments have understood that message. In 2009, president Obama declared digital infrastructure a strategic national asset. Another example is the Government of Canada, which has formulated a counter-terrorism strategy stressing the need for an integrated approach by all levels of government, law enforcement agencies, the private sector and citizens, in collaboration with international partners and key allies, such as the United States of America. It is to be expected that after the Paris attacks, governments will tighten these measures, with possibly significant negative consequences for the global supply chain.

The private sector should follow suit, and the first necessary step is to accept the likelihood of such attacks. That is not often enough the case. A report prepared by the Supply Chain Management Faculty at the University of Tennessee found that while two thirds of supply chain companies employed risk managers, but virtually all of those internal functions ignored supply chain risk. In light of the current global developments that is a risky position to take.

Terrorist threats, sadly, have become a part of our life. We should do all we can to avoid another Paris or San Bernardino attack. But while public safety is paramount, we should not lose sight of our supply chain safety either. Being aware of the risk and potential impact is a first step. Taking action within our own countries and companies to prevent such attacks is the next.

This blog was originally posted on the World Economic Forum Agenda.

Image: Workers watches sacks of imported Vietnam rice as it is lifted by a crane from a ship docked at a port area in Manila June 8, 2015. REUTERS/Romeo Ranoco

Working smarter – innovative port solutions

The world’s most innovative ports are using ‘smart’ solutions to improve revenue sustainability, explains CVA’s Wolfgang Lehmacher

Every professionally run company aspires for value creation through revenue increase, new growth engines, cost reduction, heightened efficiency and sustainability.

In the constant search to boost profits they continuously seek a competitive advantage through product and behaviour differentiation, an aim increasingly compatible with carbon footprint reduction and other green initiatives.

PavelKavalenkauBildagentur123RF

In terms of their general aims and ambitions ports are not at all different to any other business.

Managers seek to maximise strengths and minimise weaknesses. But the unique position of ports as facilitators of global and regional trade and often also as integral parts of cityscapes, makes the simultaneous improvement of efficiency, revenues and environmental performance even more desirable.

Meeting these varied goals, opening new markets and securing the long-term viability of ports and the employees, traders, cities and areas that rely on them in a rapidly evolving global economy can be driven via the application of smart thinking and processes. In this sense, smart stands for different and responsible behaviour enabled by new, at best holistic, concepts and modern technology.

Ports must be efficient enough to fit into the modern world, and into modern global and just-in-time supply chains. This can mean customers need multi-modal interconnectivity with a port’s hinterland, or with a certain geographic region or even an entire economy.

 

Trend setter

The smart concept can be rolled out so ports can become the pivotal point of a region. This can be as the core part of a bonded logistics park as we have seen in Yantian, China, for example.

More efficient container yards, better rail access and taking steps to ensure full integration with regional and national transportation plans are just some of the smart moves port businesses and local governments can examine to ensure they are offering the services and facilities their customers – businesses and people – need. And that they are offering them where they are needed.

Many port customers also have increasingly sophisticated niche requirements. A smart solution could mean the port supplying special temperature-controlled storage, handling and personnel for cold chain products such as pharmaceuticals and food stuffs. Or it could mean facilitating sea-air onward shipments options for cargoes that need to be shipped at least part of their journey as air freight, a solution that involves close cooperation by port managers with customs, quarantine, airports, forwarders and airlines.

Customer shareholders and the port’s own management – particularly for ports near cities – may need increasingly to prove show their sustainability, which can mean implementing green port solutions to meet stringent noise, water and air quality standards. Shippers and other port users and stakeholders need not only to be reassured, but need jointly to reassure civil society that adequate risk mitigation and security procedures are in place to ensure business continuity and safety for humans and the environment.

Indeed, there is no reason why ports cannot manage the total water cycle not only in relation to ships docked in port, but also in relation to the surrounding community through better ballast water treatment, desalination of sea water, water purification for potable water etc.

 

Healing hands

Ports could also act as facilitators of medical services. At present most commercial and passenger vessels have their own medical services, often entirely disconnected from global medical ecosystems. If someone gets sick or ill on board, instantaneous connection with medical doctors located off-site via a ‘virtual clinic or hospital’ could speed diagnosis and better enable preparation of the correct medical treatment before the vessel arrives at port and the patient is whisked to a local hospital.

For a port manager, all of these customer and stakeholder demands can easily be viewed as a regulatory burden, or an unnecessary drain on finite resources. Smart managers should instead view them as opportunities, opportunities that can sustain a port business over the long-term. Professional port managers should determine the smartest ways of meeting these changing requirements to maximise returns within budget restrictions. The world’s leading port managers are already grasping this truth.

In the port of Sydney in Australia, for example, various actions have been taken to illustrate just how important the port takes its green credentials. This has seen the installation of leakage proof technology, improved supervision of dangerous goods, waste reduction initiatives and a collection system for flushed water.

On the US West Coast, the ports of Los Angeles and Long Beach have been leading the way in reducing emissions by both trucks and vessels, while in Germany the port of Hamburg has introduced railcars with noise-reducing ‘whispering brakes’. These efforts benefit both the local community and customers keen to demonstrate their embrace of carbon footprint reduction initiatives while also differentiating each port’s product.

The port of Antwerp has embraced many of these smart ambitions to establish its position as one of the world’s leading ports. Rail, waterway, pipeline and road connections guarantee hinterland transport options, while the port’s future-oriented energy policy includes a biomass power station and wind turbine.

In Sweden, the city port of Stockholm has taken the green and sustainable end goal a step further and is differentiating itself in a highly competitive market by pledging to become fossil-fuel free by 2030. The Royal Seaport project will see systems installed that carefully manage and preserve energy across the port using an automated grid to improve asset utilisation and a cold ironing solution that will enable vessels to plug into the local grid while at dock.

As well as appealing to port users, city planners and regulators, many of these measures can help grow revenues and reduce costs in the long-term by minimising at the same time the environmental burden, for example in the area of energy consumption and safety at work.

The lesson from the world’s leading ports is simple: Smart strategic actions can help port managers thrive in an ever changing world.

Wolfgang Lehmacher is partner and managing director (Greater China & India) at CVA, a global strategy business.

Image: Pavel Kavalenkau, Bildagentur: 123RF

This article was originally published on 12 February 2013 in Port Strategy.