Keeping the Lights On
The COVID-19 outbreak has been causing a huge impact on people’s lives, families and communities. As the international response continues to develop, organizations are operating in uncharted waters. Critical information on the characteristics of this new virus and its impacts on global business activity is difficult to assess and is changing overnight.
In these unprecedented times, the ability of shipping services to continue undisrupted to transport food, energy and medical supplies across the continents will play a critical role in overcoming this pandemic. In parallel, shipping operations face great challenges such as: - Onboard safety: Crew must prevent at any cost an infection from being transferred on board and should bear in mind that depending on the vessel’s location, there may be limited medical support in case of an incident - Crew: Due to travel restrictions, the crew is likely to be unable to travel to join a vessel or be repatriated following the completion of their contract - Supplies: There are difficulties in finding medical and other supplies for the vessel and its crew as well as likely a shortage in mechanical and electronic parts for vessels - Onboard inspections: At many ports, specialized staff such as inspectors are restricted from accessing vessels and thus conducting the legally required inspections (safety, environmental, training, etc.) and other operations may be severely disrupted - Onshore support: As head offices, ports and shore authorities operate with emergency staff or remotely, vessels will likely experience delays as well as reduced levels and quality of support from shore
Senior management should now be focused on a Response Strategy Plan and ensure that this plan is capable of keeping the lights on today, in the weeks and the months ahead. A Response Strategy Plan requires first of all planning for the worst-case scenario, that is how the crisis will evolve over time, which is the baseline to work out, what will be the biggest possible impact for the organization. For example, does management expect that government measures will manage to contain the virus spread? Which locations are likely to come online and back to business first? How soon does management expect that travel and people-gathering restrictions will be lifted?
Does management expect the virus-spread to worsen in countries that are key to their supply chain or the regions in which it operates? The evaluation of the worst-case scenario is an ongoing process as the crisis continues to evolve and new insights and facts will become available. For the shipping industry, below are key areas that are vital for the continuity of the organization and should be part of the considerations of a Response Strategy Plan: Seafarers
Relevant policies and procedures must be put in place to address the risks identified by the scenario planning process as well as any legal or regulatory requirements. For example, shipping companies should make sure that comprehensive policies, which comply with regulatory guidelines, have been communicated onboard to minimize any risk of infection and any such cases are timely detected and isolated. Other considerations may include: - Keeping full visibility of their officers and crew and especially supporting those on-board vessels who cannot repatriate due to travel restrictions - Identifying critical voyages whereby crew may not be able to get on board due to port lockdowns; - Identifying cases of seafarers who will extend their onboarding period beyond the eligible timeframes, and evaluate regulatory implications - Developing programs for the wellbeing of seafarers spending an excessive amount of time onboard the vessels
Operations & Supply Chain
As vessels must remain operational in order to continue transporting critical cargo across continents, it is necessary to maintain business continuity and ensure the replenishment of critical spares, provisions, and stores. Areas of consideration may include: - Identify via clustering the most critical components and their spares, the most essential dry provisions as well as the crucial stores, e.g. rags, plastic bags, etc. - Estimate desired safety stock levels and consolidate demand in 3-Month replenishment cycles to avoid stock-outs due to disruption - Identify previously convenient ports which might be subject to lockdown and try to pre-build stock-onboard, should voyage planning allow it - Assess business continuity status of forwarders and discuss with them the option to stock stores and common spares in convenient locations - Liaise with key third parties (i.e. shipyards, agents, forwarders) and vessel suppliers (i.e. original equipment manufacturers, makers, shiphandlers, etc.) to ensure that they will be able to continue to deliver the minimum allowable service levels to keep critical voyages operational. This is exceptionally critical in case of Scrubber and Water Ballast - Treatment Systems retrofits due to the limited slot availability and impending class surveys - Identify how the operational departments, e.g. technical, purchasing, operations, safety & quality can adapt – i.e. to ramp up or down – to the evolving market conditions and the fluctuations in the Tanker TCEs, that might shift focus from cost minimization to zero time off-hire and back again if the Russia – OPEC+ price war subsides - Evaluate available strategies for alternative sourcing of bunkers, in tandem with the IMO 2020 regulations (provided Scrubber retrofits are pending), alternate voyage planning options, switching to makers of spares due to their stock availability versus OEMs or buying the majority of supplies locally to ensure on-time and in-full forwarding deliveries - Reassess the need to retrofit vessels with Scrubbers given the currently projected 4-year ROI, the shipyard availabilities and the logistics challenges imposed - Identify alternative options for the interim for Seafarer availability from nationalities where time offboard is in excess of 4 months - Run scenario planning exercises to understand the operational implications, both financial and non-financial, of various scenarios Communications Strategy
It is important to ensure that all stakeholders of the business, such as employees, suppliers, customers, investors, banks, etc. remain fully updated and engaged as organizations’ operations are transitioning to a crisis management mode. Areas of consideration may include: - Internal and external stakeholders are mapped for key communications - There is a clear communications strategy to protect the reputation and maintain the trust of stakeholders - Communication channels with stakeholders are operational - Communication with stakeholders is regular, clear, consistent and reassuring - There is active and open communication with the regulators to explore areas for aligning regulatory obligations with the current situation, such as extending deadlines or providing industry knowledge and support where needed
Head Office Functions
Head office operations must find the right balance in order to continue to support critical operations of the company, particularly voyages and seafarers while maintaining the safety of the workforce and complying with health and safety as well as legal guidelines. Areas to consider may include: - Updating working capital plans and forecasts and look for access to emergency funds - Timely identifying contractual options which can be either used against the company as a supplier or are available to the company as a customer - Identifying insurance policies in place that may provide coverage under the company’s response plan scenarios and how these can be activated if needed - Activating teleworking capability to employees or as a minimum to critical staff and single point of failure - Evaluating cybersecurity risks emerging from the wide and extended use of remote access and teleworking of staff
Currently, nobody knows what the next few weeks and months could bring. As the spread of the virus expands, so are the national restrictions on movement and the gathering of people and therefore organizations will need to become agile and adaptable to this changing situation. Effective Response Strategies will be crucial for the survival of all organizations across all sectors. It is perhaps time to remember a well-known quote on the theory of evolution: “It is not the most intellectual of the species that survives; it is not the strongest that survives, but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.”