Navigating Grey Rhino Events: Strategies for Preparedness in the Shipping Industry

Michele Wucker popularised the concept of a grey rhino while addressing the World Economic Forum in Davos in 2013. Three years later, the American author published ‘The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore'’ In it, she details how a grey rhino, unlike a black swan, is something you can see coming—but only if you are willing to look.

It was well-timed advice, asking first to identify and then safeguard against specific risks, however unlikely they may seem. The message resonated because it reflected the trend towards a more judicious approach to managing an organisation's operational exposure and the broader shifts in society's attitudes and opinions, especially on topics relating to the safety and wellbeing of personnel and the protection of the environment.

Grey rhinos are characterised by predictability and high probability. Metaphorically, seen from a distance, many organisations frequently underestimate their potential threat until it causes a significant impact.

Since Grey Rhinos are identifiable and probable, organisations and policymakers have the opportunity to prepare and mitigate these risks before they escalate. To ensure organisations within the shipping industry prepare themselves for a grey rhino, they must look at the scenarios they may face and evaluate the risks in anticipation.

Anticipated grey rhino risks in the shipping industry could include accidents when transporting goods across the water or while navigating a harbour or port and other incidents during bunkering and with oil terminals.

1. Port Congestion and Infrastructure Bottlenecks

Port congestion is a persistent issue in the shipping industry. Data suggests that the increasing global trade volume has affected ports and highlights the need to implement a more fluid infrastructure to help the shipping traffic pass through the ports more easily. This congestion can lead to significant delays, increased shipping costs, and disrupted supply chains, which was prevalent during the COVID-19 pandemic when demand surged unexpectedly.

2. Aging Fleet and Maintenance

Maintaining a fleet requires a great deal of investment to ensure vessels are kept in good working order to reduce the risk of mechanical failures, accidents, and pollution events of all types like oil spills that can be associated with older vessels. In particular, the Dark/ Shadow Fleet vessels where maintenance is often questionable. Shipping industry bodies will recognise the potential impacts of an ageing fleet and how crucial it is to adequately maintain and update technology to improve the risk of oil spills. Keeping up to date with maintenance can also reduce the risk of severe environmental and economic consequences. 

3. Piracy

Piracy has been a well-known threat for decades, particularly in regions like the Gulf of Aden and the Strait of Malacca. Many ships that travel in areas where piracy is a threat often invest in protective measures – from armed security guards on board to developing safer shipping routes. A lack of protection can lead to hijackings, cargo thefts, and even crew kidnapping, all of which impact the safety and profitability of maritime operations. Recognising the threat of piracy and investing in preventive measures is essential, as incidents of piracy can lead to vessel damage and the subsequent risk of oil spills.

These are just a few examples of recognising the potential impacts of grey rhino events and their interconnected risks, which are crucial for the shipping industry. Failure to anticipate and prepare for these events can disrupt operations and increase the risk of oil spills. 

First of all, What is a Black Swan Event?

For those unfamiliar with the term, 'black swan' first appeared in 2007 when statistician and former trader Nassim Nicholas Taleb published his influential book: 'The Black Swan: The Impact of the Highly Improbable'. Instantly popular, its release preceded the start of the 2008 financial crisis and meant the book's timely message resonated with the finance community and beyond. Specifically, the term' black swan' gained global recognition as a simple description of an event that you cannot predict in advance but can have a significant impact.

As the author's choice of metaphor suggests, black swans are genuinely quite unusual, making spotting one almost impossible to plan for. Black Swan events, defined by Nassim Nicholas Taleb, are unpredictable, have a massive impact, and are only rationalised retrospectively. These events are typically random and impossible to foresee, making them much harder to plan for or mitigate directly.

Be cautious not to regard these examples as Black Swan events, as they were not inconceivable and each had prior indications, albeit with low probability, of occurring.

In the shipping industry, black swans—those rare, unpredictable events with significant consequences—pose unique challenges that necessitate comprehensive and proactive planning. While inherently unpredictable, industry stakeholders must expand their thinking and anticipate various scenarios to ensure sound planning and preparedness.

Potential black swan events in the shipping industry could encompass a variety of disruptive occurrences. For instance, a significant regional military conflict could obstruct key shipping lanes, increase the risk of piracy, or impose strict maritime security measures, which would profoundly impact the global shipping network. An unprecedented climate event, such as a massive hurricane or flood, could damage critical infrastructure like ports and shipping facilities, resulting in mass casualties, waves of migration, and famine, further straining the industry. In either of these scenarios, the potential risk of an oil spill further compounds the impact of the black swan event.

However, one question to consider is how many business-impacting events are black swans compared to the number that could be better classified as grey rhinos? If we really think about it, true black swan events are extremely rare; it can even be argued that COVID-19 was a grey rhino rather than a black swan, as the signs were there. And if this is true, is there ever really a justification for not being well prepared for the multitude of grey rhino events our ever-changing context can throw our way?        

Difference between Black Swan and Grey Rhino Events

Differentiating between Grey Rhino and Black Swan events is crucial in risk management and strategic planning due to their distinct characteristics and the varying approaches required to handle them.

The distinction between Grey Rhino and Black Swan events informs how the shipping industry should prepare for and respond to different challenges. Preparedness for grey rhino events is crucial in maintaining operational resilience within the shipping industry. Though foreseeable, these highly probable and impactful events often catch companies unprepared, leading to significant disruptions and costly consequences. 

One of the most critical aspects of preparedness is an effective spill response strategy. Oil spills have significant financial, legal, and environmental implications, encompassing direct costs associated with clean-up operations and indirect costs related to fines, legal battles, and long-term environmental damage. 

Moreover, oil spills pose severe hazards to individual health and safety, potentially leading to injuries or illnesses among crew members and local communities. The reputational damage from an oil spill can be irreversible, tarnishing a company's image and eroding stakeholder trust.

To mitigate these risks, organisations in the shipping industry must be proactive about the risk of oil spills. Being proactive involves asking key questions such as whether they have an effective plan, the correct spill resources and equipment, and whether employees have the skills to manage spills effectively.

Proactive preparedness for grey rhino events enhances operational resilience and underscores a commitment to safety, sustainability, and corporate responsibility. Recognising an impending issue as a Grey Rhino enables stakeholders to mobilise resources, enact regulations, and implement strategic plans that pre-emptively mitigate potential negative impacts. This approach ensures that risks are managed effectively before evolving into full-blown crises.                                                                                 

The good news is that indicators usually precede grey rhino events, and shipping professionals can mitigate risks by continuously monitoring these signs. 

It is essential that shipping companies actively monitor external risk factors in real-time to identify potential threats. Active monitoring involves keeping a close eye on the progression of outbreaks, their impact on the economic environment, responses to policies, and threats from competitors. Real-time tracking enables businesses to avoid potential disruptions and implement timely measures to mitigate risks.

Analysing trends of external uncertainties allows shipping companies to adjust scenario parameters and goal factors within their emergency risk assessment framework. Risk management professionals can better identify potential grey rhino events by examining patterns and trends and making informed, responsive, and accurate decisions.

Scenario analysis is vital for making grey rhino risks tangible and delineating their potential impacts on strategic, tactical, and operational targets. For the shipping industry, scenario analysis can help professionals understand how geopolitical tensions, economic shifts, or climate change could disrupt shipping routes, increase costs, or necessitate changes in strategy. 

The shipping industry also needs to consider emerging risks and regularly assess these risks to identify potential grey rhino events. This process focuses on plausibility and impact rather than probability, which is challenging to determine for emerging risks​​. By integrating these assessments into the strategic planning process, shipping companies can enhance their preparedness for foreseeable risks that they might otherwise neglect. This proactive approach helps allocate resources effectively and ensures that risk management practices evolve in line with emerging threats.

By challenging assumptions and "thinking the unthinkable," shipping companies can identify vulnerabilities and develop robust mitigation strategies, including identifying where the risk of an oil spill is most significant.

The shipping industry develops robust methodologies to assess and mitigate the lasting consequences of grey rhino events. To counter these impacts, the companies are required to create solid emergency risk plans and responsive risk recovery measures that align with their strategic goals and tailor them to the shipping industry's unique challenges. 

Levels of Risk Management Planning

1. Preventative Risk Management

Preventative measures are the first line of defence against grey rhino events. These measures should be continuously in place to anticipate and mitigate potential risks before they escalate. Regular risk assessments and updates to risk management protocols ensure that preventative measures remain practical and relevant.

2. Crisis Management

Crisis management involves immediate response mechanisms activated when a grey rhino event occurs. The shipping industry have detailed crisis management plans that include protocols for quick decision-making and communication. For example, in an oil spill, it is essential to rapidly mobilise a response team to contain the spill, minimise environmental damage, and communicate with relevant authorities and stakeholders. Effective crisis management reduces the immediate impact of the event and sets the stage for recovery efforts.

3. Incident Management

Incident management encompasses broader strategies for dealing with the ongoing effects of a crisis. Incident management involves deploying resources to manage the continuous impact of the event and ensuring that business operations can continue or resume as quickly as possible. For the shipping industry, this might include rerouting vessels, securing alternative ports, or implementing temporary operational adjustments to maintain supply chain integrity. Incident management plans should be regularly tested and updated based on past experiences and emerging threats.

Issues can escalate faster than ever with the proliferation of social media platforms and the rise of online social activism. Equally, 'cancel culture' means the damage done to a reputation in 2024 could be considered more challenging to recover from than in the past and incur a higher cost. Consequently, there's more sensitivity to reputational risk, especially in the context of societal shifts. Today, when predicting the cost of any future event, grey rhino or otherwise, calculating the potential reputational cost is a crucial criterion for determining the likely long-term business impact.

If these trends don't concern you, they should. They are a direct reflection of the views of society today – driven by consumers' increasingly critical focus on the brands they interact with and those they don't. For them and the next generation of young adults, environmental protection and sustainability represent central pillars of a responsible organisation, and they will not align themselves with any business they decide is not in lockstep with their worldview. These decisions are often driven primarily by emotion and don't always reflect the facts, so it's worth remembering that once a narrative is in place, it can be almost impossible to reposition the story to reflect the realities of the situation.

Another emerging dynamic is also at play, one that is very specific to the shipping industry. Cargo owners increasingly expect tanker owners to demonstrate to the cargo owner the preparedness and other initiatives they have enacted to ensure the safety of personnel and the protection of the marine environment, often exceeding legally mandated standards. This increased level of interest is motivated almost entirely by the cargo owner's reluctance to accept the risk of reputational damage through the activities of the tanker operator.

Since the 1970s, the shipping industry has made huge strides towards safeguarding its people and the environment. According to ITOPF, over the past five decades, we have witnessed a significant reduction in oil spills, from more than three million tonnes a year in the 1970s to less than two hundred thousand tonnes a year by 2010.

As the shipping industry rightly celebrates this remarkable feat, we shouldn't overlook that the downward trend in oil spills from ships has plateaued over the past decade. Several other risk factors have notably increased in the same period. Those shifting factors have already driven several businesses to make bold statements about sustainability. For example, global investment giant BlackRock announced in 2018 that it would put sustainability front and centre of its investment decisions – a position driven, at least in part, out of fear of exclusion from the growing number of pension funds and other institutional investors that will only invest if the organisation's behaviour, activities and sustainability credentials stand up to scrutiny.

Closer to home, the Sustainable Shipping Initiative represents a cross-sector coalition of companies and non-governmental organisations, including several shipping owners, charterers and operators. They work together to drive a sustainable agenda within the industry, with 'proactively contributing to the responsible governance of the oceans' recognised as one of its top-level objectives.

Much attention was paid to the United Nations General Assembly when it revealed its 2030 Agenda for Sustainable Development. Implementing that commitment continues at pace, with the recent IMO2020 regulation limiting sulphur content in marine fuels a prime example.

Whilst meeting current and emerging regulations is a given, the universal commitment of shipping owners and operators to invest the required resources to identify and negate potential grey rhino events is still to be evident.

Negating the risks associated with these types of events requires a more proactive mindset, one willing to go beyond minimum legal requirements and display a commitment to the highest possible levels of preparedness and environmental protection.

This trend is manifesting through more progressive players within the shipping industry, those looking to augment existing levels of incident response, fill any perceived gaps in coverage and ensure the shortest possible response time should a spill-related incident occur. In turn, response organisations are supporting new and existing shipping members and stakeholders in their journey to improve all oil spill preparedness and response readiness metrics and to increase the response resources available to them in the event of a spill.

Plan for the best, and prepare for the worst.

Overall, embracing the adage, 'plan for the best, prepare for the worst' is vital. The unpredictability of a spill and its impact on the environment and the responsible party's business now calls for a more prudent approach to regularly reassess potential risks and their consequences and apply commensurate levels of risk mitigation. Grey rhinos may be challenging to spot, but the cost of not preparing for them is undoubtedly greater.

Effective preparedness for grey rhino events requires comprehensive planning and strategic foresight. In the shipping industry, developing robust preparedness plans can mitigate the adverse impacts of such events and ensure operational resilience. Key strategic elements include contingency planning, crisis communication strategies, and scenario-based drills.

Contingency planning is a proactive process that involves preparing for potential emergencies before they arise. This preparation entails envisioning all possible scenarios that could disrupt operations, from natural disasters and geopolitical conflicts to cyber-attacks and oil spills. By considering a broad range of scenarios, shipping companies can ensure they don't overlook any potential threat, enhancing their readiness for unexpected events.

After identifying potential scenarios, contingency planning involves establishing policies and procedures to guide the organisation through a crisis. This planning includes creating detailed guidelines for response actions, responsibilities, and resource allocation. Simulated exercises, or scenario-based drills, are crucial for testing these plans in real-world situations. These drills can reveal weaknesses in the crisis management procedures, allowing adjustments to improve the organisation's overall preparedness.

Contingency planning and crisis management work in tandem. While contingency planning focuses on the preparation and proactive measures, crisis management executes these plans during an emergency. Effective contingency plans ensure that the organisation can respond quickly and efficiently when a crisis hits, minimising the impact and facilitating a swift recovery.

Scenario-based drills are simulated exercises that put the crisis management team in real-world situations to test their preparedness and decision-making capabilities. These drills are essential for identifying contingency plan gaps and training staff on their roles and responsibilities during a crisis. For example, an oil spill drill could involve activating emergency response teams, coordinating with environmental agencies, and communicating with affected communities.

After each drill, a thorough evaluation is necessary to assess the effectiveness of the response and identify areas for improvement. This feedback loop is crucial for refining the contingency plans and ensuring that the organisation is better prepared for future incidents. Regular drills and evaluations help build a culture of preparedness and continuous improvement within the organisation.

Scenario-based drills also serve to build confidence and competence among employees. By regularly participating in these exercises, staff members become more familiar with the procedures and more capable of handling the pressures of an actual crisis. This readiness is critical in the shipping industry, where quick and effective responses can prevent significant environmental and financial damage.

No organisation is invulnerable to grey rhino events. These highly probable, high-impact threats can disrupt even the most well-prepared businesses, emphasising the necessity for comprehensive preparedness plans. In the shipping industry, where the stakes are exceptionally high, proactive measures are crucial in safeguarding operations and maintaining resilience.

Effective preparedness involves a multifaceted approach that includes robust contingency planning, clear and consistent crisis communication strategies, and regular scenario-based drills. When an emergency occurs, the importance of a well-structured contingency plan becomes evident. The protocols and lessons from proactive planning enable the organisation to address the crisis effectively, coordinating an organised response that minimises impact and facilitates a swift return to normal operations.

I encourage readers to assess their readiness and proactively enhance their preparedness for grey rhino events. By investing in comprehensive risk management strategies and fostering a culture of preparedness, shipping companies can protect their operations, assets, and reputation from the inevitable challenges posed by these foreseeable yet often overlooked threats. Ensuring operational resilience is not just about mitigating immediate impacts but also about securing the long-term stability and success of the organisation in an increasingly uncertain world.