Packaged Chemicals by Sea: Risk Mitigation iii Endorsements This publication is endorsed by the following industry organisations: Associated British Ports (ABP) is the UK’s leading port operator, with a unique network of 21 ports across England, Scotland and Wales. Our ports include Immingham, the UKs busiest port, and Southampton, the nation’s second largest and most efficient container port, as well as the UK’s number one for cars and cruise. The group’s other activities include rail terminal operations (Hams Hall Rail Terminal), ship’s agency, dredging (UK Dredging Ltd), and marine consultancy (ABPmer). Each port also offers a well-established community of port service providers. The International Cargo Handling Coordination Association (ICHCA), founded in 1952, is an independent, not-for-profit organisation dedicated to improving the safety, security, sustainability, productivity and efficiency of cargo handling and goods movement by all modes and through all phases of national and international supply chains. ICHCA International’s privileged non-government organisation (NGO) status enables it to represent its members, and the cargo handling industry at large, in front of national and international agencies and regulatory bodies. Its Expert Panel provides technical advice and publications on a wide range of practical cargo handling issues. The RPMASA is the leading Southern African organisation for all in the supply chain of industrial and retail chemicals and products, providing various services for classification, packaging, labelling, safe transport and storage. It has links to various International Organisations through its participation in the UN Committee of Experts for transport of dangerous goods and the GHS. The mission of RPMASA is to promote the safe, efficient and environmentally responsible: yyManufacture yyPackaging, labelling & handling yyStorage & transport yyRecovery for re-use or recycle of used chemical packaging yyprovide a focal point for all organisations involved in the life cycle of industrial & retail chemical packaging’s through its various services, as well as to: y?promote responsible packaging and container management, y?encourage partnerships along the value chain together with government and interested parties, y?encourage industry’s commitment to the public to continuously improve its health, safety and environmental practice and performance, y?provide a voice to Government for responsible and practical regulations and standards. 50 years of established expertise The TT Club is the leading provider of insurance and related risk management services to the international transport and logistics industry. TT Club has single-mindedly served the international transport and logistics community since 1968, evolving alongside the industry to provide the highest quality comprehensive cover. v Acknowledgements Associated British Ports BDP International The Dow Chemical Company Flexitank Inc. Paul Gooch, The Logical Group GmbH ICHCA L&I Maritime (UK) Limited Pharox Automatisering B.V. RPMASA SASOL Tricon Energy, Ltd. TT Club Luc Van de Velde xiii Figures and Tables FigureTitle 2.1The International Safety Management Code 2.2The container ship on international trade between major ports 2.3Freight station activity 2.4The International Maritime Dangerous Goods Code 2.5Tank container, trailer and tractor unit 2.6The container terminal 2.7Port terminal activity 2.8Subcontracted road haulage 2.9The distribution supply chain 3.1Tolerability of risk 3.2Risk management cycle 4.1The Plan – Do – Check – Act cycle 4.2The integrated management system 4.3The safety and quality assessment system 5.1Carbon atom with 4 arms 5.2Carbon atom with each arm holding a hydrogen atom 5.3Two carbon atoms holding each other in addition to hydrogen atoms 5.4Flowchart for organic chemistry 5.5The distillation column 5.6The end products of petrochemical manufacturing 5.7The chloralkali process 6.1Ferries and ro-ro ships on short international voyages are not exempt 6.2The IMDG Code Volumes 1 and 2, and the Supplement 6.3Shipments by sea require mandatory compliance with the IMDG Code 6.4US tank container operations are subject to HAZMAT compliance 6.5Road transportation of shipping containers 6.6The inland waterways container barge operating across Europe 6.7Containerised transportation by rail 7.1The UN certification mark for packaging 7.2The marks and labels of a package containing dangerous goods 7.3Commonly used inner packaging for dangerous goods 7.4Standard 4G fibreboard outer packaging 7.5Tight head and removable head steel drums 7.6Jerrycan containers 7.7Marking of a dangerous goods bag 7.8The flexible intermediate bulk container 7.9Palletised units 7.10The overpack single handling unit 7.11Overpack IMDG marking for Limited and Excepted quantities 7.12Antistatic IBC for liquid products 7.13The result of inadequate securement 7.14The BK2 bulk container 7.15The three structural types of ISO tank containers 7.16Manhole entrance and spill box xiv Packaged Chemicals by Sea: Risk Mitigation 7.17Example of a cleanliness certificate 7.18Marking on a US tank container 7.19An operator’s cleaning station 7.20A bottom loading flexitank 8.1Rate of reaction over time 8.2The fire triangle 8.3The extended fire triangle 8.4Breach of primary containment within a CTU 8.5Oxygen content in hydrocarbon/air mixture 8.6Entry to the human body 8.7The IMDG hazard warning labels 8.8The marine pollutant mark 8.9The GHS hazard warning pictographs and consumer products 9.1The high visibility vest 9.2The chemical ‘protective’ suit 9.3Positive pressure-powered dust respirator 9.4The mask and canister filter 9.5Body canister-type respirator 9.6The self-contained breathing apparatus 9.7Decontaminated and stored PPE 9.8Examples of prohibition signs 9.9Examples of warning signs 9.10Examples of mandatory signs 9.11Examples of emergency signs 9.12Examples of fire-fighting signs 9.13Examples of obstacle and dangerous location tapes 9.14Explosimeter/oxygen, multi-gas detector and personal oxygen alarm 9.15Bellows pump and vapour detector tubes 9.16Standard first aid kit 9.17A decontamination shower and eye wash unit 9.18Diphoterine on station 10.1Broken sewer and dead fish downstream 10.2Waste mail packaging and printer consumables 10.3Wind turbines - renewable energy 10.4Rail transportation has the lesser carbon footprint over road transport 10.5Clean and energy efficient ships 10.6Sources of CO2 emissions across the distribution supply chain 10.7A national response centre 11.1Local emergency services responding to an incident 11.2Emergency response exercise 11.3Specialist emergency response 11.4Freight station spill response equipment 11.5The emergency control centre commandeered 11.6Basic firefighting equipment on station 11.7Damaged and perforated tank container 11.8The vapour cloud 11.9Medical emergency drill 12.1Overview of the distribution supply chain security considerations 12.2Methodology for conducting a security vulnerability assessment (API/NPRA 2004) 12.3Site access checks 12.4Automated electronic vehicle access control xv Figures and Tables 12.5Perimeter chain link fencing 12.6Perimeter fencing with secondary fence beyond access road 12.7Types of CCTV cameras and display 12.8City centre route 12.9Computer cabinet 12.10Typical employee workstation TableTitle 3.1Risk and consequence in the supply chain 3.2Five step risk assessment 3.3Risk scale 3.4Risk matrix 3.5Risk levels and priority 3.6Historical record of supply chain incidents 3.7Risk factor calculation 3.8Audit findings 3.9KPI values 4.1Core requirements of the three ISO standards 4.2Employee authority levels 5.1Comparison of boiling and freezing points for n-Hexane and Cyclohexane 6.1The IMDG Dangerous Goods List 6.2The structure of US HAZMAT 7.1Examples of UN packaging codes 7.2The chemical pallet system 7.3ISO shipping container dimensions 7.4The compatibility chart 8.1The SDS format 8.2Common chemical products - limits of flammability 8.3IMDG flammable packing groups 8.4 Minimum ignition energies 8.5IMDG toxic packing groups 8.6Rough guide to the pH range 8.7Control and emergency temperatures 8.8IMDG hazard classification 9.1Exposure risk areas and operations 9.2Level of protection matrix 9.3Product specific PPE matrix 9.4Colours used in safety and/or health signs 9.5Vapour detection instruments, principle of operation 10.1Simple example of environmental Aspects and Impacts evaluation 10.2Examples of emission conversion factors 10.3Examples of average gCO2 per tonne-km values 10.4Illustration of average gCO2 per tonne-km values for road transport 10.5Examples of waste and commercial value 12.1Supply chain – modes of transport CHAPTER3 UNDERSTANDING RISK AND CONSEQUENCE 15 3 Understanding Risk and Consequence What could possibly go wrong with a containerised shipment? The consignment is packaged correctly, stowed in a steel container and shipped on an ocean-going container ship; it all appears to be safe, presenting very little risk. However, after leaving the safe and secure environment of the manufacturer/shipper, the consignment is now subject to the diligence and competence of the many custodians that will transport the product through the distribution supply chain. The comprehensive and explicit application of risk assessment and risk management should be the foundation for all decision making within the company. 3.1 Risk and Consequence in the Supply Chain RiskConsequence Incorrect packagingyyPackaging damage or failure yyLoss of product yyHealth and safety of personnel yyPollution Incorrect labellingyyHealth and safety of personnel yyLiability Incorrect handlingyyHealth and safety of personnel yyDamage to product Incorrect container packing and securementyyMovement within the container yyDamage to packaging and product yyChange of centre of gravity yyHazard to the mode of transport yyHazard to adjacent cargo yyHealth and safety of personnel MisdeclarationyyIncorrect stowage yyHazard to the mode of transport yyHealth and safety of personnel Danger to adjacent container(s)yyHeat, fire, explosion yyContamination yyLiability DelayyyFailure to meet contractual obligation yyImpact on receiver/customer yyHazard of polymerising product yyLiability Transportation accidentyyFire, explosion, pollution yyHealth and safety of personnel yyCorporate exposure yyDamage to reputation yyLiability LeakageyyReaction, heat, fire, explosion yyPollution yyLiability Temperature/polymerisationyyProduct specification/quality yySelf-reaction, heat, fire explosion 16 Packaged Chemicals by Sea: Risk Mitigation Without exception, all consequences carry an element of cost which may amount to incidental or significant loss. It has been estimated that 13% of packed cargo incidents involve dangerous goods and 64% of these are the result of improper packaging, packing or careless handling, often incurring a yard shift and re-stow of the container. This process interruption delays the efficient distribution and incurs considerable loss for the container terminals and the ocean carriers. The re-stow of non-hazardous goods is a disruptive annoyance; but in re-stowing dangerous goods the costs can be multiplied by a factor of 10, usually requiring: response personnel, emergency services, clean-up and the disposal of contaminated residues. Additionally, it should be noted that 7% of dangerous goods cargoes are delayed at borders and terminals due to incorrect documentation, again amounting to further loss. One delay can impact on any number of parties (i.e. truck driver, port workers, customs authorities, vessel, etc.), thus increasing the impact of a single event. Application of a comprehensive risk assessment process can help reduce these losses and so improve safety and quality performance within the supply chain. It has been demonstrated in Chapter 2, that the distribution supply chain is both complex and enormous, and that the risk is compounded by the layers of subcontracting. Chemical manufacturers/shippers, and service providers need assurance that the package will be handled and forwarded correctly throughout the supply chain and confidence that the package will not create risk whilst in their custody. Responsibility is a key issue; contract clauses and loosely given signatures are effectively used to pass authority on to the next or back to the previous party. All too often the authority rests with the truck driver or the ship’s captain, even though these two persons have little to do with the packing of the container or assembling the accompanying documentation. 3.1.1 Duty of Care It is the responsibility of the manufacturer/ shipper to act towards others with the same diligence, competence, caution and stewardship as that expected of a reasonable person in similar circumstance. Failure to demonstrate that duty of care has been fully met, can be considered negligent and ultimately result in legal action against the shipper. 3.1.2 Demonstrating Due Diligence Most companies only purchase from “Approved” vendors, and in compliance with the procedures of their Quality Management Systems (QMS), they will carry-out routine audits and assessments of those approved vendors. This allows the companies to evaluate, measure and rate the performance of their vendors and identify where improvement is required. Supply chain service providers are vendors of transport, storage and distribution. Considering the potential risks and consequences, assessment and approval of service providers should be of the highest priority. Responsibility rests with the manufacture/ shipper; in the event of a supply chain incident, the shipper will be required to demonstrate the application of due diligence to avoid or minimise potential liability. 3.2 Risk Assessment In Table 3.1, the word “liability” reoccurs several times, however it is important to understand that risk assessment is not an evaluation of liability. Risk assessment is the start of a process which will reduce the risk of incidents in every day operation. Health and Safety of personnelyyLiability PollutionyyGround, water and air yyDamage to environment and eco systems yyLiability Fire/explosionyyHazard to the mode of transport yyHealth and safety of personnel yyPollution yyLiability Table 3.1 – Risk and consequence in the supply chain 17 Understanding Risk and Consequence Routine operational procedures contained within a company’s Occupational Health and Safety Management System (OHSMS) are written after applying a process of risk assessment on each operational task. For non-routine operations, specific risk assessments are carried out prior to commencing any work. Understanding the methodology of risk assessment and risk management will help in appreciating the risk assessment processes that can be applied throughout the distribution supply chain for chemical products. Some of the driving forces for the application of risk assessment are: yySafety issues and product custody yyprevention of injuries and health risks to workers and the public yyconcerns for the environment yysecurity yypolitical and social implications of accidents yyincreasing focus of public attention yymarketing and investor’s concerns. Risk Assessment and Risk Management are two different subjects. Without first assessing the risk, it cannot be managed. Risk assessment is identifying and quantifying the potential risks; it is the first step in managing risk. Risk Management is the implementation of mitigation actions to reduce or eliminate the risk of an incident occurring. There are two types of risk assessment, these are: 1. QUALITATIVE – a simple table top review to identify the potential risks and consequences, and to define the mitigation actions to be implemented. 2. QUANTITATIVE – a system approach identifying the risks and applying values based on experience and historic records. Qualitative risk assessment is carried out by using a simple pro-forma template for process application, this will include: 1. Identifying the risk 2. recording who or what may be harmed 3. recording how they or it may be harmed 4. specifying the mitigation actions to be implemented 5. review of the assessment. StepSupply Chain Sector/Service Provider: FREIGHT STATION 1.Identification of risks: a) damaged container – not fit for purpose b) incorrect packaging c) incorrect handling, packing and securement d) incorrect labelling e) erroneous dangerous goods declaration 2.Who or what may be harmed: a) packing station personnel b) the consignment c) other service providers, equipment and personnel d) the public, receivers and customers e) environment f) emergency responders 3.Potential injury/damage: a) injury to supply chain personnel and the public b) loss of consignment c) pollution d) reputation e) corrective action costs f) liability costs 4.Mitigation actions to be followed: a) use of third party (industry) audits for the selection process b) periodic audits of the QMS, facilities and personnel on an ongoing basis, with particular attention to corrective actions, training and refresher training of personnel c) shipper’s representative to be present, witnessing first consignment and follow- up with periodic visits throughout the contract period. 5.Review: a) are the mitigation actions practical and appropriate? b) will the actions reduce the potential risks? c) do the actions introduce any new risks? Table 3.2 – Five step risk assessment Products and volumes, transport schedules, personnel, and climatic conditions across the supply chain can change during the contract period; it is therefore essential to periodically review the risk assessment for new risks that may impact on the mitigation actions put in place prior to the first consignment. 18 Packaged Chemicals by Sea: Risk Mitigation RISK FACTOR RISK LEVEL PRIORITY 1 2 3 LOW Non-urgent No immediate action Warning sign 4 6 8 MEDIUM Action needed Eliminate or substitute Engineer a solution System change 9 12 16 HIGH Urgent Immediate action Stop shipment Improve controls Table 3.5 – Risk levels and priority Having calculated the Risk Factor and determined the Risk Level it is important to decide on which levels are acceptable, tolerable and unacceptable. The company’s risk assessment process, as well as providing the numeric values for risk and probability, will define Tolerability of Risk, usually in a graphic presentation: 1-3 <1 >6 ACCEPTABLE UNACCEPTABLE TOLERABLE IF MANAGED 3-6 Figure 3.1 – Tolerability of risk RISK SCALE ProbabilitySeverity 1EXTREMELY REMOTE – not foreseeable1NEGLIGIBLE – no loss, delay, injury or pollution 2REMOTE – could occur in a particular circumstance 2MARGINAL – incidental loss, delay, minor injury or pollution 3PROBABLE – could occur in any circumstance 3CRITICAL – severe loss, delay, injury, pollution, fire 4VERY PROBABLE – will occur imminently4CATASTROPHIC – death, explosion, extensive pollution Table 3.3 – Risk scale Quantitative risk assessment involves introducing numeric values to a simple formula. Risk is the chance or probability of an incident happening, and the consequence of that incident is known as the severity. Numerical values are awarded for each level of Probability and Severity to produce a Risk Scale, as shown in Table 3.3. The Risk Scale example uses values of 1 to 4 for probability and severity, this is purely to demonstrate the methodology; more complex systems often use larger scales. The Risk Factor is calculated by applying the simple formulae: RISK FACTOR = Probability of Incident × Severity The Risk Scale can be transposed into matrix form, which provides a rapid reference to illustrate the Risk Level: PROBABILITY SEVERITY 1234 1LLLM 2LMMM 3LMHH 4MMHH Table 3.4 – Risk matrix Completing the Risk Factor calculation allows for the Risk Level to be accurately determined and the priority for mitigation actions established. Risk levels are defined as: Low, Medium or High. 19 Understanding Risk and Consequence In conclusion, the risk assessment and risk management processes involve: yyIDENTIFYING the Risk yyASSESSING the Risk yyMANAGING the Risk yyREVIEWING the Risk. 3.3 The Application of Quantitative Risk Assessment It has been explained that quantitative risk assessment involves introducing numeric values. These values are based on the shipper’s past experiences of supply chain incidents. To accurately apply values for probability and severity, it is necessary to draw on historical data such as: yyAudit reports yynon-conformance yyincident and accident reports/records yydelays yyinvestigations yyclaims yyperformance reviews. Accident and incident reporting is the key to quantifying probability and severity. Collating archived data provides a continuous record of supply chain incidents to which the values for probability and severity (the consequence category) can be applied and updated. The record of supply chain incidents is a continuous synopsis of the shipper’s history, that can be updated following every incident, and periodically reviewed by the risk assessor(s) to adjust probability and severity values. Extending the table of probability and severity produces the Risk Factor for every supply chain segment and distribution activity where the shipper has been exposed to risk. Cat 4Cat 3Cat 2Cat 1Cat 4Cat 3Cat 2Cat 1Cat 4Cat 3Cat 2Cat 1Cat 4Cat 3Cat 2Cat 1 Personal injury Toxic exposure321211412194023 Burns222111150140 Bodily injuries01121130120 Deaths011011000 Consignment In-correct packaging32143121190243 In-correct stowage224312287100 In-correct labelling2111121150023 In-correct documentation211311132183122 Transport incidents Road32143121196210 Rail225311321107102 Marine21121121161113 Terminal3121131270232 Delay Stowage, labelling211411221181214 Documentation / declaration211311132183122 Processinterruption/restow112111143100 Transportation 2231232181250 Environment Product spill / release31232121184220 Ground pollution113211150131 Water pollution02112240310 Air pollution11111130111 Product quantity / quality Short on delivery223211160231 Specification (off-spec)311131112284211 Damaged packaging3111321311190243 Damage / loss of consignment022022000 Distribution Supply Chain Incidents Number of incidents on which 'PROBABILITY' is based Number of incidents Number of incidents Number of incidents Running total Category of consequence on which 'SEVERITY' is based 201520162017 ConsequenceConsequenceConsequence Table 3.6 – Historical record of supply chain incidents 20 Packaged Chemicals by Sea: Risk Mitigation Cat 4Cat 3Cat 2Cat 1 Personal injury Toxic exposure940233412.0 Burns50140224.0 Bodily injuries30120122.0 Deaths11000144.0 Consignment In-correct packaging90243326.0 In-correct stowage871003412.0 In-correct labelling50023212.0 In-correct documentation831223412.0 Transport incidents Road962103412.0 Rail1071024416.0 Marine61113212.0 Terminal70232326.0 Delay Stowage, labelling81214313.0 Documentation / declaration831223412.0 Processinterruption / restow43100248.0 Transportation 81250326.0 Environment Product spill / release842203412.0 Ground pollution50131224.0 Water pollution40310236.0 Air pollution30111122.0 Product quantity / quality Short on delivery60231224.0 Specification (off-spec)842113412.0 Damaged packaging90243326.0 Damage / loss of consignment22000144.0 Distribution Supply Chain Incidents PROBABILITY, number of incidents: 1 = 1 - 3 2 = 4 - 6 3 = 7 - 9 4 = 10 SEVERITY (category of consequence with highest number of incidents) RISK FACTOR Running total Number of incidents on which 'PROBABILITY' is based Category of consequence on which 'SEVERITY' is based Table 3.7 – Risk factor calculation The objective is to eliminate risk, therefore in selecting service providers, the risk assessment process involves applying the established risk factors to the findings of inspections, audits and performance reviews of supply chain partners. In Table 3.8, the audit findings of two competing service providers are assessed and Risk Factors calculated to establish the company which presents least risk, based on the shipper’s individual supply chain experiences. 21 Understanding Risk and Consequence No.FindingRisk Factor Risk Level No.FindingRisk Factor Risk Level 1.Examinationofincidentreportingfilesrevealed therehavebeenfiveincidentsresultingintoxic releasesatthesiteinthepasttwoyears. 12.0High1.Medicalrecordsshowthatthreeemployees sufferedtoxicexposureduringtheclean-upofa spillincidentinNovember2017. 12.0High 2.Customercomplaintsindicatetworecent incidentsinvolvingin-correctstowageon internationalshipments. 12.0High2.Personalinjuryrecordsindicatetherehasbeen onecrushinjuryresultinginhospitalisationofan employeeinthepastthreeyears. 2.0Low 3.Customercomplaintsindicatethreeinstancesof mis-declaration,resultinginshipmentsbeing refusedatthepointofexport. 12.0High3.Externalauditreports(ISO9000)showanon- complianceraisedforfailingtoinvestigate incorrectlabellingdiscoveredonaninternational shipmentinJuly2018. 2.0Low 4.Investigationsandfinesleviedbylocal authoritiesattachedtwoincidentsofwater pollutioninthelasttwelvemonthstowarehouse accidentsatthissite. 6.0Medium4.Customercomplaintsindicatetwoinstancesof incorrectpackagingmaterialsinthepast eighteenmonths. 6.0Medium 5.Inspectionofwastedisposalareaidentifieda largequantityofacustomer'spackaging.This wasexplainedasbeingduetore-packagingofa consignmentafterforklifttruckdamageduring stowageofacontainer. 6.0Medium5.Examinationofsub-contractorreviewsshow threeroadtransportdelaysinthelastyear.6.0Medium 6.Investigationintothespillofproductin November2016,foundtheincidentresultedin somegroundcontamination.Theaffectedsoil wasremoved/replacedandnoactionwastaken bytheauthorities. 4.0Medium 7.Investigationreportintospillofproductin November2017,revealsresultingairpollution impactingonlocalcommunity-thesiteowners paidcompensationfordisruption,howeverthere werenomedical/healthclaims. 2.0Low 8.AcustomercomplaintinJuly2016questioned shortshipmentonreceipt.Thesite's investigationfoundthattwopalletshadnotbeen shippedwiththeconsignment. 4.0Medium 9.Theauditorobservedtwodamagedsteeldrums containingnon-hazardousproduct.Thesite explainedthesehadbeendamagedduring outwardtransportationandwereawaitingreturn totheshipper. 6.0Medium 7.2Medium4.9MediumOverallRiskFactorOverallRiskFactor EastSideLogisticSolutions 44HarbourDrive Georgetown AuditDate:23rdNovember2017 Auditor:P.Duran WestHarbourInternationalLogistics 201HarbourDrive Georgetown AuditDate:22ndDecember2017 Auditor:P.Duran Table 3.8 – Audit findings failing; they are more often the culmination of several uncontrolled minor events. 3.4 Key Performance Indicators (KPI) Quantitative risk assessment is the proven method for identifying where mitigation actions are required, however it is reliant on collating information from experience to establish risk exposure, and acquiring audit data to identify where risks exist is essential to the process. This task can be an extensive exercise on an international distribution supply chain. As an alternative, some shippers measure the operational performance of service providers Whilst the audit findings for both service providers show an overall Risk Level of “Medium”, it is East Side Logistic Solutions which presents the highest risk. Even though the company has four less findings, three findings carry the highest level of risk, resulting in an overall Risk Factor of 7.2. The least risk choice would therefore be West Harbour International Logistics, however there is one “High” and five “Medium” Risk Levels that will need to be addressed through implementation of appropriate mitigation actions before engaging in business. High Risk is priority for mitigation actions, however the focus needs to be much wider. Disasters are seldom the result of a single 22 Packaged Chemicals by Sea: Risk Mitigation by using Key Performance Indicators (KPI). Using their experience of supply chain incidents, they develop a series of Performance Indicator (PI) questions which can be mathematically transposed to produce the KPI value for elements of performance, for example: Environmental Deficiencies PI-001Number of environmental related deficiencies 6 PI-002 Number of recorded external inspections 3 KPI Value = PI001/PI0022.0 Operational Deficiencies PI-003 Number of operational related deficiencies 9 PI-004Number of recorded external inspections 4 KPI Value = PI001/PI0022.25 Safety Deficiencies PI-005Number of safety related deficiencies 8 PI-006 Number of recorded external inspections 6 KPI Value = PI001/PI0021.33 Table 3.9 – KPI values External inspections can be: customer audits, ISO audits, industry inspections or inspections by national authorities. Audit reports, findings, non-conformances and statutory notices are all documentary evidence. A continuous review of the KPI, supported by internal audits and implementation of appropriate corrective actions provides the company with a system for continual improvement in operational performance. The weakness is that KPI are maintained and reported by the service provider either periodically or on a continuous basis; this is in effect a self-assessment process reliant on the judgement and honesty of the party being assessed. Therefore, in litigation proceedings, the practice is a difficult process to defend when endeavouring to demonstrate that due diligence has been applied. It is therefore necessary for the shipper to verify the accuracy of the KPI data; this can be achieved through a short specific audit of the service provider’s records, and review of the effectiveness of corrective and preventative actions implemented. Shippers may develop their own KPI or use established industry schemes which collect, collate and in some cases, provide verification of the data. 3.5 Risk Management As previously stated, risk assessment and risk management are two different subjects, and the focus of this Chapter is on understanding risk and consequence through the application of risk assessment, both to avoid loss and as a means of mitigation in the event of incident. However, the enormous subject of risk management requires an introduction. Especially when alternatives do not exist, it is necessary to manage the identified risk to modify or eliminate the consequence. A company should have in place a risk management policy, reflecting the company’s risk rationale and tolerance. The policy should be integrated with the management system and provide a generic framework encompassing all activities, and one that is suitable for universal application throughout the company. The policy should: yyBe formal, logical and systematic yyencourage proactive management yycomply with regulatory requirements yyaddress all identified risks yyconsider the source, accuracy and limitations of data yyrecognise the complexity of the risk yyprioritise corrective actions and avoid ineffective responses yyprovide a basis for decision making yymonitor and review the process to avoid creating new or secondary risk yymeasurably improve HSE&S performance yymeasurably reduce loss. Risk management involves implementing one or more solutions to modify or eliminate consequence, these may include: yyDiscontinuing the activity yyremoving the source of risk yymodifying the risk to reduce the consequence 23 Understanding Risk and Consequence yymodifying the probability through alternatives yy‘belt and brace’ contingency (extra precautions as a failsafe measure) yysharing the risk. Risk management is a cyclical process of evaluating the risk and consequence to decide on any action to be taken, implementing the action and reviewing the effectiveness in reducing the risk to a tolerable level. Evaluation of the risk and consequence, and reduction methods Risk Assessment Review of the effectiveness and avoidance of secondary risks Action Implementation of corrective action Figure 3.2 – Risk management cycle Within a company, managing risk is generally an internal process over which the company has full control in applying risk reduction methods and controls. However, when risk is identified within the supply chain, management of that risk will often require the acknowledgement and cooperation of external parties, to effectively implement corrective action. The cooperation will require understanding and acceptance of cultural, political and economic differences and perceptions, as well as international, regional, national and local regulations. It is in the interest of all parties to mutually work together to develop a corrective action plan to allow the commercial contract to continue. The corrective action plan should detail the actions to be implemented, specify the completion date and identify the party responsible for completing the actions. The impact of actions should be monitored to avoid any secondary risks developing. Progress and effectiveness should be constantly reviewed to achieve a successful reduction of the risk and consequence. In addition, contingency should be in place for actions to be taken, up to and including the stoppage of any high-risk activity that may not be safely evaluated and managed. 3.6 Obstacles Risk assessment and risk management require financial resource and commitment from the highest level of corporate management. Senior managers need to recognise the importance of only contracting suitable service providers that meet the company’s minimum performance criteria. The minimum performance criteria should be established and published to service providers tendering for distribution contracts, this ensures a level playing field and supports transparency. Successful and sustainable business is built on trust and long-term relationships, not short-term share price. Another major obstacle is the time required for risk assessment and risk management. Many programmes are based on audits, but completing the audit takes not only the time of the party conducting the audit, but also the time of the company being audited. In addition, when there is an urgent need, it may be a challenge to schedule an audit, conduct a thorough risk assessment and develop risk management plans. Industry audit schemes provide the solution for many chemical manufacturers and supply chain service providers. 3.6.1 Regional Responsibilities Regional managers have regional responsibilities and apply their regional expertise in utilizing regional solutions to deliver the consignment to the export terminal, or to deliver it from the import terminal to the customer. However, the responsibility of most regional supply chain managers stops and starts at the export/import terminal. It is critically important that supply chain managers in the region of export have a thorough knowledge of the IMDG Code, and fully appreciate the applicable regulations and standards in the country of destination. This can only be achieved through training and managerial interaction across the international supply chain. The modern trend of outsourcing and awarding global contracts to 3PL and 4PL service providers may delegate authority to manage the distribution supply chain, however contracts do not absolve blame or the responsibility of shippers. 24 Packaged Chemicals by Sea: Risk Mitigation International companies need globally consistent performance standards and to achieve this, regional managers need global management systems driven by corporate supervision. 3.6.2 Choice Limitations It has to be appreciated that whilst the commercial business of chemical tankers and liquid storage terminals are reliant on the chemical manufacturing industry, that of containerised logistics is not. Very often, the chemical manufacturer will be competing with other shippers for space, slots and availability. In international containerised logistics, it is common that choices are not always available; remote regions, infrastructure and transport availability may limit choice to a single service provider. The sole service provider may not meet the shipper’s performance standards, but the shipper is contractually committed to delivering product to the customer. These scenarios do not in any way negate the importance of applying the process of risk assessment and managing risks that may be present. Risks should be identified and appropriately managed to demonstrate due diligence, thus avoiding liability in the event of an incident. To blindly contract in the absence of choice is not a mitigation action and will result in litigation against the shipper. 3.6.3 Bottom Dollar Rates/the “Low Cost Bidder” Risk assessment is often challenged by commercial pressures. The bottom dollar rates of one service provider over another may be commercially attractive, but it is necessary to step back from the negotiating table and consider the consequences. Consider: yyDuty of care yydemonstration of due diligence yysocial corporate responsibility yyliability and risk to reputation. Contracting with a sub-standard operator may be financially viable in the short term, but ultimately result in loss, with potentially disastrous consequences for the shipper. Bottom dollar rates are a threat to long term, sustainable and beneficial relationships with supply chain partners; yielding to commercial pressure is not a mitigation action. Short cuts and random commercial cost cutting are always exposed in accident investigations and open doors to unwelcome litigation proceedings against the shipper. Chapter 3 Regulations, Codes, Standards and Industry Guidelines ISO 31000 – Risk Management, Guidelines on Principles and Implementation of Risk Management ISO 31010 – Risk Management, Risk Assessment Techniques