A Consequence-Based Response Framework for More Resilient Shipping Amidst Growing Uncertainty

Abstract

The 2011 Fukushima disaster and the 2020 COVID-19 pandemic are two major 21st century events that were least expected while being highly disruptive, having an immediate as well as longer-term impact on shipping operations. However, while pandemics are a recurrent phenomenon of the “known-knowns” type, the combination of phenomena which led to Fukushima had no assigned probability; hence, no preparedness was in place, as this was practically a unique occurrence in shipping. Considering significant shipping incidents of various less or more uncommon etiologies, such as the capsizing of vessels, missile attacks on merchant ships or vessel-onto-bridge collisions, this conceptual paper puts forward a consequence-based approach for assessing and managing shocks in the maritime domain, especially the ones classified in the “unknown-unknowns” or “Black Swan” categories. In the context of preparedness theory, the authors propose the adoption by shipping businesses, in parallel to any other risk approaches and tools, of the Assessment-reaction-Recovery-Conversion (ArRC) framework for managing risk and of relevant key recovery indicators which may assist in (a) increasing resilience through focusing the recovery planning on consequence-oriented, root-neutral reactions and (b) in promoting a “bounce-back-better” frame of mind and action plan, contributing to faster and easier recovery after a shock of any type.

1. Introduction

Technological and regulatory changes in maritime transport have been impressive since the millennium; so has the number and variety of shocks leading to severe disruption in the normal operations of shipping. An array of surprising and disastrous events have combined with less exceptional ones, without their frequency, extent and combination being fully reflected in any changes in the way risk is perceived—and hence managed—for recovery purposes following a major disruptive event.

The omnipresence of uncertainty is a standard characteristic of shipping, with its sources ranging from the physical and the financial environment that the shipping industry operates in to the overall state of the world economy. In this context, increasing resilience is considered the main strategic antidote.

Even outside the strict field of shipping risk management, maritime accidents have for long been the object of extensive analyses and have even served as examples—e.g., the maritime tragedy of the passenger ferry Herald of Free Enterprise—in the process of developing generic frameworks, such as the Functional Resonance Analysis Method (FRAM) in [1]. Approaches to shipping risk remain, however, largely skewed towards addressing the root causes of probability-based scenarios for known hazards. Having a more generic vantage point becomes critical in a world of increasing complexity as an all-encompassing—and not necessarily Bayesian—perspective allows one to create a general framework independent of sources of uncertainty [2].

To complement classical Bayesian risk management approaches, the authors propose—building on an expanded basis from [3]—an Assessment-reaction-Recovery-Conversion (ArRC) conceptual framework to prepare shipping businesses for handling shocks, especially those of the “Unknown-unknowns” type [4]. ArRC allows the adaptation of elements from Bayesian approaches [5,6] to business environments, independently of probability, as well as the integration of engineering approaches used for addressing the consequences of natural hazards [7]. While various crisis management approaches have in common probabilistic starting points, as reviewed in [8], preposterous events—which have abounded since 2001—cannot be fully addressed through classic probabilistic approaches. Dealing with preposterous events is even more critical for international businesses such as shipping, where the production process requires combining global resources with rising complexity, which in turn increases uncertainty and risk [9]. This was exemplified during the COVID-19 pandemic, with research into global supply chain management turning into wider frameworks, such as the “3Rs”, where resilience and restoration constitute the foundation, together with responsiveness [10].

The aim of the ArRC framework is to facilitate responsiveness to the widest range of possible key impacts and to increase resilience and speed to reach recovery—restoration in [10]—or, alternatively, a conversion position whenever the “Build Back Better” action principle [11] is not a realistic prospect, since bouncing-back fully may not be feasible. The paper is structured in five sections. Following this introduction, Section 2 proceeds with a classification of main theoretical approaches to risk across industries and activities and with a review of related management frameworks. Section 3 focuses on shipping-specific risk management approaches and on related existing risk management tools, such as Decision Support Systems (DSSs). Section 4 advances the suggested ArRC approach emphasizing that root-cause-independent but consequence-based business preparedness can eventually contribute to bouncing back faster and easier from negative effects across more types of exogenous shocks, while also proposing the use of relevant key recovery indicators. The concluding section highlights the usefulness, as well as the limits, of such a generic approach in an environment whose outreach and complexity facilitate shock transmission from risk factors within the unknown–unknowns category.

2. Approaching Risk: Theoretical Vantage Points

Although omnipresent since the origins of shipping, the commercial and operational risks faced by businesses in this industry remain a subject open to update and exploration, as the number of related, potentially involved exogenous factors has continued to increase. In recent years, the need for an all-enveloping risk response framework has become even more apparent as the increased uncertainty and volatility of the world economy and shipping markets were followed by successive major geopolitical crises such as the open wars in Ukraine and the Middle East and by new external threats to ships, such as the Red Sea attacks by armed groups.

Earlier research has focused on the financial aspects of risk [6], a focus which has been well explored in the specific shipping setting [12,13,14], along with other shipping market risks.

As noted by [15] based on [16], risk identification techniques, risk assessment and risk reduction methods cover the risk management cycle phases. These stages, which encompass risk identification, assessment and mitigation, are essential for safe technical, operational and, most importantly in shipping, financial risk management [17]. They are also pertinent tools for securing business continuity through proactive risk avoidance and suitable preparedness for mitigation (cf. Figure 1).

The emphasis on a more generic approach, proposed here, taking a consequence vantage point and evolving from the middle stage of the risk management cycle in Figure 1, does not contradict nor intends to substitute classical risk management approaches. Underlying many of the natural disaster mitigation plans and the related research, a consequence-based approach satisfies both the classic Bayesian risk view and the concepts of unanticipated and unimaginable risks along the Rumsfeld and Taleb categorizations [4,18], i.e., risks which cannot be conceived beforehand.

The more classical risk approach was enriched by the introduction of the concept of “triplets of risk” by the seminal analysis in [19], placing emphasis on the third critical risk aspect beyond probability and impact, i.e., the risk setting/event itself. Addressing these risks, which is the final core stage of risk management frameworks, requires as a first step their identification in a maritime setting following the traditional risk management process [20,21].

In the absence of full knowledge and—most of all—of any previous experience with the nature or the potential consequences of an event in the “Unknown-unknowns” category, enhancing preparedness is the only alternative when facing an equally unknown distribution of probabilities. Preparedness can be defined as “the range of deliberate, critical tasks and activities necessary to build, sustain, and improve the operational capability to prevent, protect against, respond to, and recover from … incidents” [22] (p. 5). Apart from material equipment and operational procedures, it also involves the mindset promptly needed by the management team in a disaster context. Such situations seldomly allow for delving into root cause analyses [23], which are not present anyway in the case of preposterous events.

Figure 1. Risk management cycle stages. Source: based on [15,16,20,21].

Figure 1. Risk management cycle stages. Source: based on [15,16,20,21].

In an engineering context, a focus on impact is more common when addressing consequences of natural hazards [7]. In a shipping context, an example of a more consequence-based approach can be found in the scenario analysis of the impact of common hazards on cruise ships [24], yet this analysis remains well within the remit of a Bayesian approach. However, the unpredictable nature of phenomena such as the ones qualified as “Unknowns-unknowns” [4], alternatively termed “Black Swan events” in [18], does not allow for estimates of risk using probability and potential impact: when the foundational “what can happen” [19] is missing in the approach to risk, then none of its constituent elements can be simulated or calculated.

In such cases, turning towards consequences—along the lines of a framework that has been largely used for the assessment and recovery from earthquake disasters, permeating the actions of several related international initiatives [7]—can increase resilience through accommodating genuinely unpredictable events in a generic risk management plan. In an industry such as shipping, fraught with a large variety of disruptive events—ranging from periodic and expected incidents to entirely irregular ones—suffering occasionally totally unimaginable shocks, a focus on consequences can complement more root-oriented risk management approaches.

3. The Many Facets of Shipping Risks in an Era of Increased Uncertainty

The nature and combinations of the main risk factors that shipping businesses face—either on an individual or on an industry basis—keep on growing in number and complexity. The rise of average cargo and vessel sizes has boosted risk levels in terms of impact and related values. The resulting growth in total risk can be inferred almost directly from the doubling of world tonnage in about fifteen years [25] and from the increasing complexity induced by globalization and regional tensions.

All the aforementioned developments have enhanced, deepened and simultaneously amplified uncertainty (cf. Figure 2) with overall levels increasing due to the combined effects of globalization, the proliferation of “Unknown-unknowns” and greater global network complexity [9].

3.1. Risks and the Idiosyncratic Nature of Shipping

Shipping firms may choose their risk exposure or level by selecting what trades to engage in, their financial gearing and whether to trade in spot markets or on longer term contracts. However, such choices do not influence the wider or less-known risks faced by shipping businesses, a broader categorization of which is presented below in

Table 1. General types of shipping risk following the taxonomy in [4].

“Known-Knowns”	“Known-Unknowns”	“Unknown-Unknowns”
Market competition	Wars	Isolated hitherto unknowns and “Known-knowns” and “known-unknowns” in combinations unknown until then
New regulation	Embargoes/Frontier closures/Strikes
Financial risk	Epidemics
Operational and technical mishaps	Security and Cybersecurity threats

Source: adapted from [9].

.

In the recent turbulent decades following the Lehman Bros collapse in 2008, the vulnerability of shipping businesses has increased further. This is especially so since a wider range of exogenous factors are now threatening larger vessels and cargo parcels with “unknown-unknown” factors. Such factors potentially combine to form new types of complex risks and impacts that are difficult to accommodate in a Bayesian logic, considering the limitations already underlined in [19].

Several outcomes can originate from one initial event affecting just one single element of the system. However, the varying repercussions on any of the parties involved may originate from different causes containing various known exogenous or endogenous factors of any probability resulting in near-infinite scenarios. The Fukushima disaster of 2011, which was the combination of three well-known hazards regularly considered by risk management plans, namely an earthquake, a tsunami and radioactive leaks into the environment, constitutes a showcase of the potency of related permutations. Although none of the involved phenomena could be classified in the unknown–unknown category, as events unfolded, it became clear that the specific risk chain had never been anticipated. Even if the duration of the industry’s bewilderment was measured more in hours rather than days [26], the combined effect of three already well-known risks presented a clear example of a scenario of dire consequences that had not been even considered hitherto [27,28,29].

While none of the Fukushima sequential factors (cf. Figure 3) in this complex disaster could be classified on its own as a Black Swan or an “unknown-unknown” in the Rumsfeld typology, their combination was definitely one. For a short period, world shipping stakeholders found themselves in a totally uncharted territory. With maritime infrastructure in the area damaged and communication channels down, there was scant immediate information on potential radiation effects on crews, cargoes, ships and other maritime outfits either at sea or ashore [26].

In addition to the Fukushima disaster,

Table 2. Main impacts of 21st century shipping-related shocks of various origins.

MV Herald of Free Enterprise (1987)	Fukushima (2011)	EVER GIVEN (2021)	MV Tutor (2024)	M/S Dali (2024)
Loss of Life at sea	Loss of Life (onshore)		Loss of Life at sea	Loss of Life (onshore)
Loss of income	Loss of income	Loss of income	Loss of income	Loss of income
Partial loss of asset	Loss of assets onshore			Loss of onshore infrastructure Damage of asset
	Loss of communications

Source: Authors.

, below, lists shipping events that are very different in the kind of risks involved, in the degree of their predictability and in the scale of their impact. Together, they exemplify the sheer variety of root and secondary risk causes of these incidents, including the various roles the vessels themselves had in generating the main impacts.

Table 2 includes events ranging from the Fukushima disaster, which falls into the unknown–unknowns category of Table 1 caused by purely exogenous factors, i.e., factors with no links to the workings of the economy, according to the 1942 Zuellig definition in [30], to incidents due to known shipping hazards where both a Bayesian approach and classic risk management frameworks are directly applicable. The tragedy of Herald of Free Enterprise—the ferry than sank within minutes after leaving the port through the free surface effect following water ingress due to human-based operational error [31,32]—was a classic type of ferry accident, definitely avoidable, as it was predictable.

Much later in the timeline of the Table, in March 2021, the grounding of the container vessel EVER GIVEN involved no human losses but had very predictable global consequences similar—albeit of short duration—with the ones of previous Canal closures in 1956–1957 and from 1967 to 1975. While without any critical damage to the vessel or to the Suez infrastructure, the international media frenzy regarding the potential impact of that incident on shipping, world trade and on port businesses or the Canal authority itself underlined that at least some of the dimensions of the new uncertainty (cf. Figure 2) had become evident beyond just experts and the industry. The EVER GIVEN incident highlighted also the current global dimension of shipping risk and the increased dependence on world trade flow regularity due to the new international division of labor between older, declining industrial poles and the emerging and emerged industrial ones in Asia. However, although popularly conceived as a preposterous event, the EVER GIVEN grounding should be clearly classified in the “Known-knowns” category in the first column of Table 1. The root causes of previous Suez Canal closures mentioned, following hostilities in the region, would put those earlier events in the “Known-unknowns” category. Similarly, the extension of recent hostilities in the Middle East to armed attacks by Houthis on non-military vessels in the Red Sea put the MV Tutor sinking—with severe consequences such as loss of life—in that same “Known-unknowns” category.

The last column of Table 2 refers to the collision of M/S Dali in March 2024 onto the Francis Scott Key Bridge in the Baltimore area, which was also extensively covered by media. The accident had grievous repercussions due to the loss of life following the collapse of the bridge but clearly falls in the “Known-knowns” operational hazards of shipping operations, which may still be expected to occur despite continuous efforts to eliminate them.

The selected incidents and serious accidents in Table 2, which became well-known beyond the maritime scene, share common consequences, despite very different root causes and chains of events. It is from such a range of consequences that shipping businesses need to recover every time. However, in the case of shocks of the “Unknown-unknowns” category, where affected parties are put to additional tests in the often chaotic circumstances involving these rare disastrous events, root causes or fault trees may not even be possible to distinguish [23] or formulate, respectively. In such settings, the degree of embedded resilience becomes the critical element defining their ability to recover, and more generic approaches may prove to be the appropriate ones to increase preparedness.

3.2. Known Consequences of Unknown Causes: Reversing the Perspective

The critical consequences listed for each event included in Table 2 may be readily codified as Life, Income, Location and Communication (L.I.Lo.C/LILoC). They can also readily serve as key measures for assessment and recovery in a generic form of key recovery indicators (KRvIs), following the logic of key performance indicators, as reviewed by [33], and of key resilience indicators (KRIs), as reviewed and ranked in [34]. Applied in the follow-up of recovery of natural environments after disasters [35], critical levels of KRvIs can, as proposed in the present paper, be predefined by management teams, albeit as estimates, since simulation exercises cannot fully fit future realities, despite the progress in terms of related digital tools [36].

• Life

The first and foremost critical consequence is related to the impact on the health and safety of the human resource. This prioritization may be construed as being founded on ethical grounds, yet the life loss, health effects or other types of incapacitation of people through piracy, hostage taking, etc., not only put human lives at risk but have a tremendous impact on business continuity, which is in general largely affected by safety and security factors [37].

• Income

The cessation or drastic and sudden reduction in revenue streams is the second most critical consequence, as business continuity will depend on the balance between the extent and duration of this reduction, as well as on eventual company reserves and assets that can be easily transformable into funds to secure business continuity.

• Location

The integrity of assets and infrastructures at impacted locations and processes comes third, since outsourcing possibilities, which are more easily available on a global basis, exist for all types of production activities. Along with insurance, this may allow business continuity or provide funds for recovery. The level of production network integrity, including processes and their infrastructure, is critical for assessing recovery or determining conversion as the way ahead.

• Communication

In the context of global shipping supply chains and of increasingly digital-based shipping management systems, IT/communication breakdown emerges as fourth in severity for business continuity. While channels of communication have proliferated severe disruption due to natural phenomena, they may affect the survivability of critical business resources, including, above all, the safety of human resources.

4. A Consequence-Based Generic Approach in an “All-Inclusive” Risk Perspective

4.1. Resilience and Business Continuity in an Industry Exposed to Global Risk

There are many aspects on which the definition of resilience in shipping can be based. One such definition focuses on the key constituent elements of resilience, i.e., strength and flexibility [9]. On the one hand, strength is essential for the ability to substitute or draw on new resources to maintain or restore business continuity. On the other hand, when conversion is the inevitable outcome, flexibility is the key feature that an organization must exhibit, especially in the context of international business exposure [38] such as in the shipping industry.

Other recent analyses [39] refer to business continuity as the alternative expression to denote organizational resilience—following remarks on port resilience in [40]—commenting that resilience needs to have a broader perspective, which includes unanticipated types of threats. Ports have increasingly resorted to Decision Support Systems (DSSs) in the form of digital twins or through simpler systems in order to follow the best path of decision and action possible, especially in view of their vulnerability to the vagaries of climate change [41]. Ports may be just a nodal interface between ships and cargoes, but a critical one as well, as any disruption affecting operations reflects across parts or all of the maritime supply chain. The management of port vulnerabilities is compounded by the vast range of combinations of risk factors that may affect cargoes, vessels or both, as they visit or transit through terminals.

While the nature and number of risk sources, whether compounded or not, are difficult to contain across either the wider maritime supply chain or just shipping, critical factors for business continuity are commonly much more limited. Such factors involve mainly essential resources and processes for the production of maritime services. Classifying them by type and ranking them in order of importance allows one, even in the absence of formal DSSs and in the presence of “unknown-unknown”-type risks, to increase preparedness, independently of the root cause. Thus, one may proceed faster to identifying the nature and level of impact induced, as well as the recovery or conversion options that are still available, if any.

Whether originating from low-probability sudden causes or from high-probability cyclical ones, critical consequences for business continuity are well delimited and common across industries, with the outcome depending on how resilient the specific economic unit affected is at the time when it is struck by the shock.

Resilience in cyclical uncertain environments such as in shipping can be further broken down into several essential components. In terms of strength, resilience essentially refers to the elements which build it:

• Managing cash-flow appropriately through the cycles within which shipping historically operates;
• Creating a liquidity “war-chest” as cash reserves allows shipping companies not only to circumnavigate the most severe crises but also to proceed with asset-play moves on ships with lower leverage, a critical element for remaining strong in volatile markets.

However, in building a hierarchy, the foundation and foremost priority is human resources, which are the conditio sine qua non for business continuity. Human resources incorporate entrepreneurial, managing and production skills and embody the ability to develop, adjust, restore or convert the business in the presence of both business challenges and opportunities. In a nutshell, they define the degree of flexibility of the business whether to recover, convert or, if the assessment of critical consequences suggests so, even exit completely from the market following a significant shock.

4.2. An Assessment-Reaction-Recovery-Conversion (ArRC) Framework for Business Shipping Risks

An ArRC framework focuses on characteristics that are important for resilience, whatever the cause of the negative consequences. An appropriate level of redundancy in the system, alternate locations for transfer of operations, flexibility in the organization and operation and the building of financial risk management reserves are examples corresponding to the four LILoC areas of critical consequences described above.

Figure 4, below, highlights visually the independence of the overarching ArRC approach from the root cause of experienced shocks, as it turns the focus of the initial reaction toward identifying the number, nature and magnitude of critical consequences previously mapped. This allows a speedier immediate first-response remedial reaction, as it focuses the attention on the most critical consequences, allowing, in parallel, to gauge the odds of recovery versus conversion or exit at the end of the ArRC process as the potentially prevailing outcome.

The ArRC framework is compatible with the widest range of all available risk management approaches, including any functional Decision Support Systems, and can adapt toolkits such as the Risk-Based Planning Approach, which have been devised for natural hazards [42]. It is also compatible with any other suitable methods for immediate estimates/measurements of the magnitude of each critical consequence. However, the value of the framework’s adoption can increase when incorporating methodological resilience-related tools such as key recovery indicators (KRvIs). While reference to KRvIs—outside their uses in medical or engineering/natural disaster contexts—has been mainly for recovery of natural environments, it remains that critical KRvIs, transcribed here for a business environment in the form of LILoC, can prove suitable beyond “knowable unknown-unknowns” [43], as they cover generic critical areas of business continuity irrespective of root causes.

5. Conclusions

The major threats in terms of impact on an organization can be identified more easily than the combinations and permutations of factors that may shape risk. A generic approach can assist in focusing more on major negative consequences for business continuity, in the preparatory drawing of alternative plans to contain such consequences, and in addressing a wider range of risks, increasing resilience and reducing the time to reach a final recovery or conversion position.

A generic consequence-based approach to risk, using the easy-to-communicate and understand ArRC presented in the previous section, is suggested as the best starting point for increasing preparedness and understanding of the vulnerabilities of each business entity concerned. The ArRC approach being geared towards shock consequences—instead of root causes and event trees, which may not be possible to anticipate beforehand due to the potentially “unknown-unknown” root causes—allows for building a risk management culture of consequence prioritization and first-response reaction plans.

Shipping is a complex international industry, constantly interacting with the vagaries of both the natural and the human-made world. As uncertainty has risen to a new level in a globalized growing world network, preparedness can be maximized and the time to recovery minimized if risks of the genuinely unknown-unknown type are considered through the consequence angle. Such an angle prompts the need to build sufficient redundancy in the system to allow for either recovery or for facilitating conversion.

Preparedness can be assisted by a clear hierarchy of consequences and an internal ex ante estimate of critical levels of resources for operations to continue or cease. This assessment should consider, hierarchically, the state of human resources, income generation, the condition of essential assets and communication status, as captured by the Life, Income, Location, Communication acronym LILoC. ArRC and its components fit, in this respect, all sizes of shipping businesses, as its foundation is a simple crisis management exercise accessible to even the most basic management structures, an element that serves well a competitive industry with a large number of small and medium-size operators.

Further research can elucidate the degree to which consequence-based risk management is incorporated in contingency plans of shipping businesses and explore whether an open-risk and consequence-specific general framework such as the proposed ArRC may result in a more efficient, quick and robust response to sudden shocks, with management tools incorporating suitable key recovery indicators, such as the ones proposed within the LILoC context advanced by the authors.