Nearly 2 months have passed since the Tianjin incident that had a significant impact not only locally, but on the supply chain of global companies.
In this blog we assess and evaluate what impact it has had and what do companies need to do in order to learn from this tragic event.
Around 11pm local time (3pm GMT), a fire was reported at the Ruihai Logistics site within the Binhai area of Tianjin Port. Firefighters attending the scene proceeded to control the fire using water sprays, however they were unaware of the dangerous goods on site. As a result, several chemical reactions took place causing an initial explosion in the area shortly before midnight local time (4pm GMT). Roughly 30 seconds later, a much larger secondary explosion had occurred with a blast equivalent to 21 tons of TNT. There were over 100 fatalities with more than 600 injured and many (mostly firefighters) remain missing. The blast radius had caused significant damage to businesses and properties up to 5km from the epicenter. The cause of the incident remains under investigation.
The site stored around 3000 tons of over 40 different hazardous chemicals which consisted of, but not limited to, calcium carbide, potassium nitrate, ammonium nitrate and sodium cyanide. Well over the limit that its license had permitted. Firefighters who arrived on scene first were unaware of the dangerous goods on site and were using water to douse the fire. It is likely that Calcium carbide (used in the manufacture of acetylene gas and fertilisers) reacted violently with the water, giving off flammable acetylene gas which intensified the fire and detonated the ammonium nitrate. 800 tons of ammonium nitrate were found, an oxidizing substance that can cause or contribute to the combustion of a substance. If involved in a fire, it decomposes explosively and detonates without warning which consequently produced the second explosion.
The incident had impacted people, property, business and the environment. This had led to claims totaling more than USD 1.5 billion for both national and international insurance companies and widespread global media coverage.
Death and personal injuries had an impact on productivity. At the time of this report, the death toll had risen to 135, more than 600 are injured and several remain missing. Families of the injured and dead will have been demoralized, as many protested against the company and the Chinese state government for the damages caused to their families, homes and community.
Significant damage caused many homes, businesses and public buildings to be rendered inaccessible and unsafe for work. Road/rail infrastructure and marine property at the port were also damaged by the fire which had an effect on operations. At present, the area is still being cleared of debris and it will be several months until the area is rebuilt and redeveloped for use. From pictures, there is a vast quantity of expensive equipment, shipping containers and cargo that had been affected. Owners of the cargo passing through Tianjin will be looking to determine if their cargo had been affected.
Interruption to all business in the blast zone will leave companies and families with significant losses, especially multinational corporations who trade in the area daily with high value goods and services. It is expected that production at manufacturing sites would be delayed until they can confirm the safety of its facilities and the surrounding areas.
The Tianjin port is the third largest in China and fourth largest in the world for total cargo throughput, and this incident will have caused major disruption to many services and operations. Such that terminal areas at the port had to divert vessels, which increased the cost for operators and caused customer dissatisfaction.
A vast quantity of harmful pollutants had entered the atmosphere putting the public at risk of experiencing breathing difficulties. It was confirmed that hydrogen cyanide, hydrogen sulfide, carbon monoxide, nitrogen oxide and other volatile organic compounds were present within 500m from the epicenter, which are toxic if inhaled. Many, if not all persons were required to wear face masks with firefighters wearing breathing apparatus’ to help deal with the fire and debris.
Sodium cyanide was also detected in sewers and some waterways, with results exceeding the limit of cyanide concentration in water. It was reported that hundreds of dead fish had washed up on shore, which raised the question of whether there will be traces of cyanide in water and food. The chemical is toxic to aquatic organisms and can bioaccumulate in the food chain. This will have impacted people in the longer term that will lead to health problems or worsen existing problems.
In addition to the immediate impacts of the explosion, there will have been many indirect impacts. The fact that companies and market analysts admit they did not know the extent of this impact, several weeks after the event, shows the complex nature of this large-scale accident. Aggravating factors may have included the host nation’s reluctance to give companies early access or release of information; and the event occurred against a backdrop of dramatic instability in Chinese markets. But we must accept that these major incidents will occur periodically, and that the ripples from such an event will impact companies in some way.
If there is a phrase being used more than any other in boardrooms across the region right now it will probably be ‘supply chain’. Perhaps the first thing companies can do is to understand their supply chains – all the dependencies, interdependencies, points of failure, redundancies – and to understand the quality of their supply chains. For example, investigating the nature of the organisations, linkages and relationships that make up supply chains. If companies genuinely do this, they will know how their supply chains work, both in business-as-usual mode and under stress.
It may be that the China regulatory environment is less mature than some other jurisdictions, but it is unlikely this will change fast. It is more likely that companies will need to understand and acknowledge the imperfect relationships they have in these cases, and work transparently to manage and improve them. It may be that threats to business appear to be growing - terrorism, cybercrime, extreme weather might suggest this trend – but actually major industrial incidents are no more likely to occur than before, and much has been done by industry to reduce their likelihood and consequence. What companies can influence is their resilience.
Whatever the eventual value placed on direct and indirect losses, the figures will be in millions and billions of dollars. Some companies will weather this storm better than others: they will have been more resilient and achieved continuity of business. They may just have been lucky, but more likely they will have achieved this by understanding how their supply chain works … and doesn’t work. Having this knowledge allows companies to make good decisions about risk transfer, risk sharing, risk reduction; and allows them to make contingency plans and recovery strategies that will work in the next crisis.
NCEC’s Emergency Responder had received a call from one of our private sector clients’ on their crisis notification line. They informed that many of their empty product tanks awaiting return to the USA had been affected by the explosion. The tanks were labelled as hazardous and contained residues and therefore needed to be treated as hazardous materials. NCEC’s responder relayed the information to one of the company’s dedicated contacts for the region who dealt with the issue.
Responders could have performed a more thorough risk assessment whilst in transit to the site. This would look at questioning civilians in the area or the initial caller to determine what materials were on-site, so they could identify the right firefighting material to use without putting more people at risk.
After assessing the risk associated, an initial evacuation of the immediate area would increase saveable life and assist those who are already injured.
Effective communication between multi-agency groups could have allowed better co-ordination of tasks and priorities in order to treat those injured, whilst being a considerable distance away from the site to reduce any risk to their own safety. More investment into emergency services for training would aid a more effective response in the wake of a disaster.