Weighing the Risk in the Asia Pacific

John F. Kennedy, who served in the Asia Pacific during The Second World War, was our first president to fully appreciate the risk/reward balance in the region.

“The Chinese use two brush strokes to write the word ‘crisis,’” he observed. “One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognize the opportunity.”

U.S. multinationals engaged in Pacific Rim commerce also appear to have a high threshold for risk, notes recent research done by Resilinc, a cloud provider of supply chain resilience and risk management intelligence and analytics.

Home to more than 80 percent of the world’s disaster events, the Asia-Pacific region is continuously plagued by droughts, floods, earthquakes, cyclones, and tsunamis, a Resilinc whitepaper states.

However, Asia also experienced its fair share of man-made disasters, some of which were a result of business non-compliance with regulations and standards, or insufficient safety measures or plant procedures. And the numbers are “staggering,” researchers add. Indeed, industrial accidents in China claim about 70,000 lives annually.

According to Resilinc’s chief marketing officer, Wayne Cacamo, China in particular, has a significant “transparency problem.”

“But at the same time, a command economy like theirs can react immediately to shut down any corporate violators without due process of law or red tape. It’s a mixed blessing.”

Might it also be a “mixed curse”? The whitepaper is fairly agnostic on this question, but it does strongly encourage U.S. logistics managers to ramp up diligence before increasing their dependence on Far East sourcing.

Tianjin disaster
Late last year catastrophic explosions rocked the Port of Tianjin, sending shockwaves throughout global supply chains. Upon first word, it was apparent the disaster at the world’s 10th largest port was unique and would have a profound impact on industries worldwide.

Though the mainstream media understandably focused on the environmental and humanitarian impacts, pertinent operational and industrial details were relatively neglected, exacerbating the situation for supply chain practitioners. Furthermore, Chinese government censors intensified efforts to control the inevitable bad publicity, “throwing smoke screens” in front of a dire situation.

Soon after, Resilinc’s whitepaper – The Aftermath of the Tianjin Explosions – predicted the disaster’s long-term supply chain disruptions and explained the difficulty of gauging its impact due to censorship.  Researchers have since then begun to examine a few of the lingering supply chain consequence that have come to light. These range from the major blows to insurers, automakers, government regulators, and other “censorship stakeholders.”

Measuring mitigation
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.

According to the filings of 26 companies, the net loss incurred by international insurers reached nearly $2 billion. 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.

Meanwhile, global car makers like Volkswagen, Hyundai, Renault, Ford, and Jaguar Land Rover absorbed tremendous damage due to explosions and fire. Only Toyota’s implementation of supply chain mapping served to identify disruptions and tally losses quicker than the others.

Investigations revealed the company responsible for the initial explosions was Ruihai International Logistics, which illegally stored over 3,000 tons of hazardous chemicals including sodium cyanide, calcium carbide, and fertilizer nitrates.

Censorship as risk
Offering lower prices, minimal paperwork, and expedited 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 this one demonstrates how non-compliance can even lead to catastrophe, the whitepaper points out.

In conclusion, contend researchers, censorship is the main culprit. Though information began pouring into the internet soon after the removing internet content mentioning the words “Tianjin” and “explosion,” notes Resilinc.

Such an event is unlikely to make logistics managers rethink their long-term strategies in the Asia Pacific, but it appears that most will be demanding far more disclosure and timely reporting before taking on any more risk. Brand erosion and shareholder value are also being worked into the equation, security experts contend, and obfuscation as a tolerated tactic