Navigating climate risks: Maersk turns to Zurich to bolster port resilience

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Ports are among the most exposed sites in the world to extreme weather. Typically located along open coasts or in low-lying estuaries and deltas, ports are vulnerable to windstorms, flooding and storm surge. Operations can also be interrupted by fog and snow, while heatwaves can restrict working conditions.

These weather events can damage port infrastructure, from cranes to electrical substations. Not only does this cause physical losses, but it can also interrupt port operations as the terminal may not be able to operate at full capacity or be forced to close temporarily.

As the world heats up, these events are likely to become more frequent and intense. It’s no wonder, then, that climate risks are top of mind for A.P. Moller-Maersk (‘Maersk’), one of the world’s largest shipping and logistics companies with more than 67 port terminals, 300 inland facilities and 600 container ships.

“In the past decade, we have seen coastal flooding at our terminal in Port Elizabeth, New Jersey; flooding at our Salalah terminal in Oman; a cyclone hit our Pipavav terminal in India; and regular exposure to tropical windstorms to our terminals in Miami, Florida, and Mobile, Alabama,” says Lars Henneberg, VP, Head of Risk Management at Maersk.

Maersk’s ports are not alone in facing these risks. In fact, nearly nine in 10 major ports globally are exposed to damaging climate hazards.

But ports are also on the frontline of one of climate change’s most worrying long-term impacts – sea level rise. This will make many ports more vulnerable to storm surge and coastal flooding. And as sea levels rise, increasingly large areas in and around ports will be at risk of permanent inundation. According to the Environmental Defense Fund, climate change impacts could cost the shipping industry an additional USD 25 billion every year by 2100.

Given the critical role of ports in the global trading system – over 80 percent of world trade volume is carried by sea – enhancing port climate resilience is a matter of strategic importance for the global economy and society as a whole.

Climate’s risks to ports

Maersk has identified climate change – both physical and transition risks – as the biggest threat to its business following a recent enterprise risk management (ERM) exercise. This was followed by a study that analyzed 107 of Maersk’s most important land-based assets (port terminals, inland warehouses and data centers) to establish how and where its operations and businesses were most exposed to climate risks over the next 30 years.

“The study concluded that the average cost of physical damage and business interruption due to climate change hazards is expected to increase by 130 percent by 2050, compared to a 2020 baseline,” says Henneberg.

For the next step, Maersk engaged Zurich’s global risk consulting unit, Zurich Resilience Solutions (ZRS) It develops data-driven and science-based insights to create and implement risk management strategies across a range of risk areas, including supply chain, climate change and cyber risks.

Port risk assessments

Highly specialized risk engineers from ZRS’s Climate Resilience unit were tasked to undertake on-site climate assessments at five critical port terminals in Rotterdam, Netherlands; Port Said on the Suez Canal in Egypt; Aqaba, Jordan; Port Elizabeth, New Jersey; and Los Angeles, California. These site visits are supported by a team of climate data experts who use the latest climate science, data and modeling techniques to develop mitigation solutions tailored to each port.

Maersk selected ZRS, in part, due to its existing strong relationship with the Zurich Insurance Group (‘Zurich’). Zurich’s digital expertise in marine insurance supports Maersk’s online cargo insurance solution called Maersk Cargo Insurance. Zurich also provides risk transfer and fronting services to Maersk’s captive insurance company called Maersk Insurance, and has been providing risk engineering surveys on property and business interruption exposures since early 2021.

Peter Gede, Maersk’s Claims & Loss Prevention Manager, says it’s vital that Maersk has an overview of the current risk landscape, especially as it retains risks through its captive. “We need to understand if the threats we face meet our risk appetite. Then we can either mitigate the risks or transfer it out of the captive and find separate insurance cover.”

As well as highlighting its ports’ vulnerabilities to climate risks, Maersk also wants ZRS to provide actionable recommendations to mitigate these risks and improve climate resilience. And Henneberg believes ZRS has the right skillset to provide these insights.

“ZRS has the necessary scientific and technical risk engineering capabilities, combined with risk assessment and impact analysis expertise. This will ensure we have recommendations that are both practical and operational and will help us mitigate vulnerabilities and increase climate resiliency on our port terminals.”

After each on-site climate assessment, ZRS organize follow-up workshops at the port terminal to discuss the vulnerabilities and recommended mitigation actions. These are designed to feed into each terminal’s maintenance schedules and potential investments into upgrading physical resilience measures.

Beyond the port

Gede is also impressed with how ZRS’s climate assessments examine the resilience of the surrounding region. “Our business is no longer focused on port-to-port transportation, instead we provide end-to-end logistics solutions to our customers,” explains Gede.

“Our port terminals rely on a network of roads, rail and rivers to transport our cargo to inland destinations,” adds Gede. “It means we cannot look at the climate resilience of our port terminals in isolation, we need to have a big picture view of the risk. And ZRS provides this.”

Amar Rahman, Global Head of Climate Resilience at ZRS, says that close collaboration has enabled ZRS to develop a deep understanding of Maersk’s business and risk exposures.

“Our aim, as with all customers, is to couple our understanding of Maersk’s value chain with our end-to-end climate change analysis services,” explains Rahman. “This will help strengthen Maersk’s climate resilience by providing actionable insights and recommendations that will protect its business today and into the future.”

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