Cyber Risks

Ports Need to Rethink Criminal Activity

Port computer systems are vulnerable to criminal organizations looking to steal, smuggle or commit espionage.
By: | June 6, 2016 • 5 min read

As the marine industry grows more automated, ports and related industries are increasingly vulnerable to cyber disruptions.

In the past, criminals would steal a container on the dock and drive away before anyone noticed. Today’s criminals are global. They don’t have to be in the same country to learn when a container arrives, when it clears inspection, what’s inside it, where it’s stored and when it’s moving out.

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Computer networks changed how ports are run. Ports now use fewer workers on the ground because computers can operate vehicles remotely and GPS-based systems track and move containers semi-autonomously.

The systems may have changed, but criminals continue to try to steal containers, smuggle drugs or engage in espionage.

Ports are the economic engine that drives the economy, said Jayson Ahern, principal at The Chertoff Group and former deputy commissioner of U.S. Customs and Border Protection.

He said they need to be better protected.

“Port operators need to be looking at security in real time and rethink the risks – not just meet the minimum requirement of their governing agencies – and that’s where port operators often fall short,” said Ahern.

“Criminal activity is going to continue. Every time we plug one gap and vulnerability, they go back and adapt and diversify their approach.”

Billions in Losses

About 95 percent of world trade is transported via ship each year, according to the U.S. Department of Homeland Security.

“When we saw the impact of closing ports right after 9/11,” Ahern said, “I saw firsthand what happens when you shut down trade at our borders.”

Following the 2001 attacks, container shipping lost $1 billion each day for months after the United States closed all ports and airports, Ahern said.

More recently, a months-long labor dispute at 29 West Coast ports resulted in work slowdowns and caused billions in losses, according to Vice News. U.S. agriculture lost about $2.5 billion, while manufacturers reported an aggregate of nearly $400 million in losses for each month of the dispute.

A cyber attack could cause the same type of economic damage.

In 2013, computer problems – caused by error, not sabotage – resulted in weeks of problems at the Maher Terminal serving the port of New York and New Jersey, including closing the terminal for up to six hours at a time, according to the “Consequences to Seaport Operations from Malicious Cyber Activity” a report by DHS.

DHS also reported that an organized crime group used hackers to control the movement and location of containers at the Port of Antwerp in Belgium between 2011 and 2013; and crime syndicates penetrated the cargo systems used by Australian Customs and Border Protection in 2012.

Matthew McCabe, senior vice president, FINPRO practice, Marsh

Matthew McCabe, senior vice president, FINPRO practice, Marsh

Not only are ports vital to the economy, they are a national security issue, said Matthew McCabe, senior vice president for network security and data privacy group with the FINPRO practice at Marsh.

“We need to see more cyber security assessments,” Ahern said. “We’re not seeing it happening sufficiently enough around the world. People need to always be asking: ‘What type of monitoring and disruptions of attacks are we seeing?’ ”

A comprehensive plan needs to encompass three areas: physical security, insider threats and cyber risks, Ahern said.

Putting Plans in Place

When Martin McCluney, managing director, U.S. hull and liability practice leader at Marsh, talks to marine clients about cyber risk, he says they weigh whether to retain, manage or transfer risk into the market.

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“We are in conversations with several operators now,” said McCluney.

“We are assisting them in their internal process to evaluate the cost/benefit of any additional insurance that may be necessary.”

Just the mere act of applying for cyber risk insurance normally sets the wheels in motion for businesses to begin a risk assessment of cyber controls, McCabe said.

There is value in going through the planning process and identifying who you would turn to in a time of crisis.

The insurance market is keen to not just provide pure risk transfer but to also provide loss prevention and post-loss advice, McCluney said.

“We ask, ‘How do you recover? What systems do they have in place to prevent and deter attacks?’ And, if systems have been compromised, what is the contingency plan once an attack has impacted them?”

Insureds should review in detail the way their existing marine and property casualty policies would respond to a cyber attack. The task can be complicated because port operators work with many third parties that ship and receive the goods on either side, so operators need to establish minimum codes of compliance with all additional parties.

Marine market policies that cover stevedoring (loading and unloading of vessels in terminal operation) do not consistently include a cyber risk solution.

The client is very likely exposed to risks that are outside the coverage, McCluney said.

For example, if handling equipment shuts down due to a computer problem but hasn’t suffered physical damage, the economic losses may not be covered under a property policy.

To prevent losses in a case like this, operators should consider a cyber program that would be in excess to a property program, or a difference-in-conditions policy that would fill gaps in the coverage, McCluney said.

The core benefit to cyber insurance is you are able to transfer some of the financial damage and coordinate your response plan, so there’s a mechanism ready at a time of crisis, McCabe said.

The growth of cyber insurance over the last three years bears that out. The number of U.S.-based Marsh clients purchasing stand-alone cyber insurance increased 27 percent last year compared with 2014. That followed a 32 percent increase in 2014 over 2013.

Cyber insurance growth is expected to continue apace as port operators understand the potential cyber risks they face, and conduct risk assessments in conjunction with the Maritime Transportation Security Act. The act was written after 9/11 to shore up port protections by requiring vessels and cargo-handling facilities to conduct vulnerability assessments and develop security plans.

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The U.S. Coast Guard made additional cyber strategy recommendations in a June 2015 report.

In that report, the USCG recommended organizations view cyber security as an ongoing process, and regularly re-evaluate mitigation measures and ensure personnel understand and follow good cyber practices.

Organizations should strive to incorporate cyber security into an existing culture of safety, security, and risk management, it said, and identify a senior person responsible for cyber risk management.

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

A Recall Nightmare: Food Product Contamination Kills Three Unborn Children

A failure to purchase product contamination insurance results in a crushing blow, not just in dollars but in lives.
By: | October 15, 2018 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: THE HEAT IS ON

Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”

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Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.

PART TWO: STRICKEN FAMILIES

“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.

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“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.

PART THREE: AN INSURANCE TANGLE

Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.

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But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.



Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]