2022 Predictions: Surging warehouse demand fuels risks

Businesses that rely on warehousing space are currently under a huge amount of pressure. The pandemic-triggered boom in e-commerce sales is one of the issues. In 2021, Adobe forecast that global e-commerce sales would grow in 2021, reaching a staggering US$4.2trn. This boom has created an increased demand for warehouse space, as businesses have turned to e-commerce to match consumer habits. This situation has also been compounded by simultaneous worker shortages.

As a result of these pressures businesses may neglect risk mitigation, as they focus more on concerns they perceive to be more pressing, such as minimising supply chain and operational disruptions and maximising short-term profits. Likewise, in the rush to find space, organisations may inherit risk when using third-party warehouses without adequate protection and risk management practices.

Looking ahead, the e-commerce boom and worker shortages could continue to have an impact in 2022, as will the ongoing influence of Brexit in the UK. Many businesses are still updating and reassessing their usual supply chains to find the best suppliers to partner with in the new economic system. All this underlines the need to prioritise risk management best practice in warehousing.

Fire

Businesses should carefully consider the impact of fire risk on their warehouses, as year after year this is one of the most destructive risks operators may face. Fire risk is often exacerbated by insufficient risk protection within a warehousing facility. Whatever the cause – arson, equipment failure, human error or cyber attack – businesses should account for the impact of fires, as they could potentially destroy stock or take an entire facility offline.

FM Global’s statistics demonstrate how significant this risk is – fire was the second most impactful and fourth most frequent cause of loss between 2016-20 to affect the warehousing sector. These losses caused an average gross loss of US$1,618,007 per incident – and this figure doesn’t account for the reputational loss triggered when a business experiences a large loss event.

Climate

As business leaders become more aware of the growing impact of the changing climate, certain climate-related extreme weather events are becoming both more frequent and severe, making the need to deal with the risk even more pressing through 2022. Specifically, flooding is starting to become a more prominent risk in many regions, with increased rainfall increasing business exposures. The severity of these flood events should not be underestimated. For example, in Canada the province of British Columbia was forced to declare a state of emergency in November after widespread flooding ravaged the region. Not only was the personal impact on the population severe, but the event impacted many businesses operating in the area, disrupting supply chains and the local pulp and paper industry.

With shortages of space, it's vital that when businesses search for extra warehousing resources, they carefully consider the potential impact of climate risk on a storage or distribution facility. No company wants to be in a situation where they’ve failed to conduct a proper risk assessment and have stored critical supplies at a location which, unbeknown to them, is prone to flooding.

The role of data in risk management

When faced with these risks, businesses should take a proactive stance, understanding the benefits of proven risk management concepts. These strategies will be more important than ever in 2022 and beyond, as they can help to alleviate the ongoing pressure felt by companies that need warehousing space.

With fire risk, for instance, many simple measures can mitigate the threat. Data from the Business Sprinkler Alliance highlights the efficacy of sprinkler systems, as 96% of fires in sprinkler-protected buildings are controlled or extinguished. Beyond sprinklers, there are a number of solutions that can be put in place to limit fire risk. This includes, but is not limited to, making sure goods are stored in the right way, managing change/commodity hazard creep, training employees to ensure that they understand the risks involved, and making sure the right maintenance processes are followed.

Similarly, when managing climate risk, there are certain physical protective measures that can be put in place. Finding the right ones is key. To help with this, businesses should undertake a thorough risk assessment, assessing local flood and windstorm maps, to evaluate which present the greatest threats. At FM Global, we often directly help our clients with this process, for instance, using aerial imagery, digital mapping and direct site evaluations to assess the risk to a facility. Businesses can then implement the most fitting solutions for their operations, such as putting flood barriers in place to prevent water from entering a warehouse and damaging the goods stored inside.

If businesses couple these physical protective measures with effective businesses continuity plans, they are set up to better maintain resilience in 2022 as demand for space continues to grow. Using up-to-date data is a key part of this process, as this can guide decisions to properly prioritise risk. Be it investing in protective measures or moving goods to more appropriate facilities, businesses should feel empowered to build or demand resilient warehouses ensuring long-term continuity and profitability.

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