100 Days after Tianjin: Tallying the Supply Chain Damages

It’s been just over 100 days since catastrophic explosions rocked the Port of Tianjin, sending shockwaves throughout global supply chains. Upon the first word, it was apparent the disaster at the world’s 10^th largest port was unique and would deeply impact industries across the board. Though the media understandably focused on the environmental and humanitarian impacts, pertinent operational and industrial details were relatively neglected, exacerbating the situation for worried supply chain practitioners. Furthermore, the Chinese government censors made significant efforts to control the inevitable bad publicity, throwing smoke screens in front of a situation that desperately needed transparency. Soon after, our whitepaper entitled “The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis – It’s Worse Than You Think” predicted the disaster’s long-term supply chain disruptions and explained the difficulty of gauging its impact due to censorship. In this retrospective post, we look at a few of the lingering supply chain impacts that have since come to light. They range from impacts to insurers, automakers, government regulation, and censorship stakeholders.

A Huge Blow to Global Insurers

For global insurers, the Tianjin disaster was an event for the record books. According to the filings of 26 companies, the net loss incurred by international insurers reached nearly $2 billion, making the Tianjin disaster the fourth most costly man-made disaster ever incurred by the industry.²

While the disaster impacted insurance firms worldwide, European insurance firms faced the biggest blows. The Swiss insurance firm, Zurich Insurance Group AG, suffered the highest costs, losing nearly $275 million, a loss which partly led the firm to abandon its acquisition of Britain’s RSA Insurance Group PLC.²

In a world of globalized supply chains, the Tianjin disaster demonstrates how business interruption is one of the hardest risks for insurance companies to evaluate and assess.

Automaker Recoil

According to the Port of Tianjin website, around 40 percent of China’s imported passenger vehicles pass through the Port of Tianjin. Thus, numerous automakers – including Volkswagen, Hyundai, Renault, Ford, Toyota, and Jaguar Land Rover — suffered direct impacts from the explosions. The first photographs following the explosions show rows of charred cars mangled beyond recognition – an eerie juxtaposition of order and chaos.

British carmaker Jaguar Land Rover lost nearly 5,800 cars from the blasts, leading the company to post a pre-tax loss of 157 million pounds.³ Consequently, Tata Motors, Jaguar Land Rover’s parent company, posted a net loss for the period amidst falling sales in China.

Japanese automaker Toyota reported that over 50 of its employees were injured as a result of the explosions despite being located over a mile away from the blast site.⁴ Toyota also reported damage to two production plants and a research-and-development facility, as per International Business Times. However, Toyota’s implementation of supply chain mapping helped the company identify disruptions and tally losses quicker than others.

Lax Regulation of Hazardous Chemicals

Despite being one of the world’s most prolific chemical suppliers, weak enforcement of hazardous chemical regulations is a systemic issue in China that threatens supply chains on a day-to-day basis. Factory fires, explosions, and chemical spills are relatively common occurrences in China, yet the majority of these supply chain disruptions occur on such a small scale that they’re often undetected without the help of event monitoring services.

Investigations revealed the company responsible for the initial explosions, Ruihai International Logistics, illegally stored over 3,000 tons of hazardous chemicals including sodium cyanide, calcium carbide, and fertilizer nitrates.¹ Offering lower prices, minimal paperwork, and speedy government approvals, Ruihai International Logistics built a reputation as a simple solution for international shipments of hazardous chemicals by exploiting weak governance. Though enticing to a business looking to cut costs, companies like Ruihai International Logistics show how non-compliance can even lead to catastrophe.

In early October, state authorities declared all hazardous chemical companies in the Tianjin Binhai New Area were to be relocated to Nangang Industrial Zone, 19 miles from the blast area and 6 miles from the closest residential area.⁸ Whether or not the mass relocation does anything to ameliorate the situation, supplier relocations can present their own set of supply chain disruption risks. However, there has yet to be any public confirmation that this mass relocation has even taken place.

Censorship is a Supply Chain Risk

Censorship is nothing new in the People’s Republic of China. Yet, in the case of the Tianjin disaster, state censorship of emerging details made it nearly impossible for businesses and the global community to assess the disaster’s supply chain implications. Though information began pouring into the internet soon after the explosions, it didn’t take long for state censors to begin removing internet content mentioning the words “Tianjin” and “explosion.” Webpages critical of China’s lax governance were taken down with haste. Though careful Internet maneuvering allowed one to excavate details here and there, the entire picture of what happened remained out of sight for far too long.

Thus, businesses with supply chain operations in China must acknowledge censorship as a supply chain risk, especially in times of disaster. Censorship compromises the integrity of journalism and the passage of information from one avenue to another. When it comes to supply chain risk management, the proper inflow of pertinent details allows businesses to make conscious, money-saving decisions and avoid further supply chain risks. Furthermore, censorship leads to misinformation, and a misinformed supply chain can unwittingly sabotage its self.

Conclusion

Indubitably the most impactful black swan event of 2015, the Tianjin disaster was a wake-up call to the entire supply chain community, reminding businesses to not take sub-tier stability for granted. It’s been over three months since the explosions, and only time will tell how much additional impact will be felt. Though nobody could have expected such a catastrophic event, businesses that had implemented supply chain visibility measures and contingent business interruption insurance were much better prepared to mitigate supply chain impacts. Confronting the opaque tiers in your supply chain will help you to manage the unexpected. Don’t censor the inevitable – it’s only a matter of time before the next black swan lands on your supply chain.

References

1. Behind Deadly Tianjin Blast, Shortcuts and Lax Rules
2. From Berkshire to Zurich, Here’s What Insurers Lost on Tianjin
3. Jaguar Land Rover Issues Profits Warning after Tianjin Explosion and Investments
4. China Explosions: Tianjin Accident May Have Claimed 10k New Cars from Volkswagen, Renault, Hyundai, Ford, Others
5. VW Says 2,700 Cars Damaged in China Port Blasts
6. Tianjin Explosion Disrupts World’s 10^th Largest Port
7. China to Relocate Almost 1,000 Chemical Plants in Wake of Tianjin Blasts