The recent explosions that rocked will be far worse than initially suggested by news analysts and Chinese officials. The logistical delays and other supply chain problems could continue for months, even after port operations return to normal.
Day-to-day operations largely resumed at Tianjin’s port, roughly a month after two explosions killed over 100 people and caused widespread damage. However, a recent Resilinc report found a number of factors that will have a lasting impact on companies with supply chains tied to Tainjin. The chief factor being the uncertainty over China’s response to an incident caused by the improper storage of hazardous chemicals which is still under investigation. In the meantime, shippers of hazardous materials should expect delays from the additional scrutiny of their cargo and much stricter regulations and punishments.
Contamination of the water or the air leaves a lasting environmental impact which may cause residents to abandon the area permanently, resulting in labour shortages. Further environmental implications include transportation disruptions and school closures, preventing people from going to work, and requires local truck resources be allocated to clearing debris.
A logistics centre which undertook much of the administrative duties of the port suffered damage from the explosions. Haulers, fowarders and other logistics parties are now forced to deal separately with individual terminals, putting a strain on those terminals’ capacity to handle the new duties. Meanwhile, blockages are preventing the delivery of in-bound raw materials, which impact local factories, with the Resilinc report stating: “Logistical delays should remain an expectation for the next several months.”
Fitch Ratings has said that insured losses could reach $1.5 billion, and others have estimated losses totalling several billion dollars.
Nader Mikhail, CEO of Elementum said:
“Only time will tell the true cost of the Tianjin disaster. But given the rapid approach of the holiday season, there isn’t time for a ‘wait and see’ approach. An event of this magnitude can have wide-ranging impacts, from higher chemical-sourcing costs, to delays in launching new consumer electronics products, to an even bigger drop in West Coast port traffic.”
However, the effects are being underestimated. The ripple will be felt well beyond the immediate regional economic zone, and may have global implications.
News media and company stakeholders may not understand fully the economic importance of the Tianjin commercial zone which is enormous. Close to 12 million people call Tianjin home. The coastal city, located 30 minutes by train from Beijing, is a vital logistics and manufacturing hub for northeastern China.
As stated, how long the situation lasts depends on China’s response. Chinese and trading partner government reactions could forever change the regulatory landscape for companies operating and utilising these chemicals worldwide.
Companies should expect and prepare to be affected by new regulations, audit requirements, and heavier fines for their supplier’s non-compliance. Public outcry and media criticism about irregularities in compliance and safety standards leads to a government crackdown and shutdown of hundreds of suppliers overnight. Perhaps this will lead to China no longer being the haven of the unregulated and see a sharp increase in workers’ safety standards across the country. Though of course, this could drastically impact China’s already declining exports.