Until recently, the global economy has been driven by continuous growth and prosperity through optimization of production and trade processes. At the same time, efforts were made to achieve efficiencies and cost reductions as well as greater market penetration. Just-in-time and globalization are just two key concepts in this context.
These business models have been eroded by several events in recent years, like the increasing damages due to climate change and growing political uncertainties leading to conflicts and global tensions. Examples include the war in Ukraine, increasing tensions between the U.S. and China, and the Covid pandemic and related lockdowns. Also notable is that local events and damages can increasingly have global impacts and implications. Typical examples are the flood in Thailand in 2011,1 the blocking of the Suez Canal due to a shipping accident in 2021,2 the fire at a semiconductor plant in Asia in 2021,3 and bottlenecks in the availability of containers and means of transport in 2021/2022.4 One of the main reasons for this is the ever-increasing global interlinking and automation of production and trade processes, especially in recent decades, triggering complex chain reactions and cascade effects in the event of disruptions.
The consequences of these events are rising inflation and recession trends, leading to changes in consumer purchasing behavior, supply bottlenecks for raw materials and intermediate products, rising prices for economic goods, and more and more corporate insolvencies.
These situations are causing many companies to rethink their previous strategic and operational goals and to look for new solutions. A wide variety of solutions are being discussed, such as de‑globalization through greater geographical differentiation in the procurement of goods, reduction of the default risk for a company through diversification of the business model, improved transparency in production and trade processes, and resilience in the supply chain. Increasingly, the realization that process optimization and cost reductions lead to a stronger increase in risk is gaining ground, i.e., in the event of a disruption to processes, there are no or only insufficient alternatives available to compensate for the potential consequences of a loss. One way to strengthen the resilience of companies from disruptive events can be an improved risk management and preventive measures. One such measure is to reduce dependence on raw materials and intermediate products by increasing stockpiling.
This article will discuss some of the challenges for Property insurance associated with increased warehousing and highlight possible alternative courses of action.
Warehouses are premises for the storage of goods (materials and merchandise) that will be needed later, e.g., to produce goods (raw materials warehouse) or to deliver to customers (finished goods warehouse). They can be part of a production plant, but they can also be independent facilities.
According to the respective main function of the warehouse, a distinction can be made between procurement, forwarding/transshipment, intermediate, finished goods, sales, and distribution warehouses. Warehouses can be single or multi-story and have storage areas of more than 100,000 m² and storage heights of up to 50 m (e.g., high-bay warehouses).
Knowing their properties and functions, warehouses can be classified by:
- Type of storage (e.g., bulk, block, shelf storage)
- Type of product stored
- Type of building (open air storage, halls, basements, silos or depots, cold storage, clad-rack warehouses)
- Material flow (warehouse for raw materials, components or semi-finished products, finished products, intermediate storage, depot warehouse, distribution warehouse)
- Location (e.g., central warehouse, regional warehouse, transit warehouse)
- Degree of automation (manual, semi-automated, fully automated)
Typical activities in a warehouse include receiving and inspecting goods, storing, commissioning, and shipping goods to customers.
In January 2023, a fire occurred in France in a warehouse complex with three storage units of approximately 6,000 m² each.5 According to press reports, the fire started in a unit that stored 12,500 lithium‑ion batteries for automobiles. From there, it spread to the other two storage sections; in one, approximately 80,000 tires were stored, and in the other, textiles and wooden pallets. Extinguishing the fire took the combined skills and efforts of 137 firefighters with 60 emergency vehicles.
Back in 2021, a fire involving lithium‑ion batteries occurred in the U.S.,6 which took firefighters about two weeks to completely extinguish using 20 tons of Portland cement. Batteries for “uninterruptible power supply systems”, telecommunications systems, renewable energy, utilities, and emergency lighting systems were stored in the warehouse, a total of approximately 90 tons, including approximately 45 tons of new and used lithium‑ion batteries and approximately 22 tons of defective, damaged, or recalled lithium‑ion batteries.
The fire at a modern robot-operated distribution warehouse for an online grocery retailer in the United Kingdom caused a stir among experts.7 One of the robots, equipped with lithium‑ion batteries, started to burn and set fire to other vehicles and to the warehouse. Ultimately, 200 firefighters were needed to extinguish the blaze. The warehouse suffered a total loss.
Furthermore, the scale and associated value of the warehouses continues to increase. In 2022, for example, a U.S. warehouse of approximately 112,000 m² storage space was completely destroyed in a fire despite an existing sprinkler system.8 Three hundred and fifty firefighters were unable to prevent losses in the high triple-digit millions. Several other disastrous warehouse fires occurred in Russia (2022),9 Taiwan (2022),10 Korea (2021),11 and the U.S. (2021).12
There is limited usable statistical data for property insurance on losses in storage areas. In the U.S., there was an average of approximately 1,400 fires in stand-alone warehouses from 2016 to 2020.13 In the UK, approximately 300 warehouse fires occurred in recent years, with an increasing trend during the 2020 to 2022 observation period.14
In Germany, warehouse fires are registered by the German Insurance Association (GDV).15 Currently, only data from claims until 2020 are available. Since a peak in 2020, the number of fires has dropped from about 400 fires to about 220. However, if one follows the press closely, we can expect that, like in other countries, the number of losses will rise again.
In the following section, some of the challenges for property insurance and possible preventive fire protection measures will be described, i.e., the success of automatic storage systems, in particular so‑called TL‑ASRS (top-loading automatic storage and retrieval systems), the increasing storage of lithium‑ion batteries, and the growing value of stored goods in general.
Warehouse technology has changed significantly in recent years. Warehousing costs are usually seen as reducing profits for companies (“dead capital”), which is why people started looking for ways to minimize these costs. For example, just-in-time concepts were implemented to reduce warehouse space. Additional efficiency gains were achieved by optimizing packaging and warehouse management as well as centralization and outsourcing to warehouse service providers. At the same time, this increased the dependency of companies on the required goods being delivered on time and in sufficient quantities.
More specifically, warehouse management was automated in order to reduce costs. Another cost-saving measure was to increase storage density by changing warehouse designs. One example is the development of automated, robot-operated warehouse concepts known as auto storage retrival systems (ASRS), which initially were used predominantly in small parts warehouses but have increasingly found their way into general warehouse management.
In the top-load system (TL‑ASRS), one of the best-known concepts,16 a base frame made of extruded aluminum profiles forms the framework for the storage system. Four supports form a storage shaft into which plastic containers can be stored on top of each other, accessed from above. The removal and storage of the plastic containers from and into the storage shafts is carried out by battery-powered robots that move along a rail system forming the upper edge of the base frame. The robots lift the required containers out of the respective storage shaft via a lowering and lifting mechanism. The robots then take the plastic containers to workstations where the goods can be stored or retrieved. As a rule, system containers made of polypropylene or polyethylene plastics are used. They are available in various dimensions (width 445 cm x length 65 cm x height 22 cm, 33 cm or 42.5 cm, suitable for a maximum load of 35 kg). Currently, the industry is pursuing improvements to further increase the height of a storage container.
Figure 1 – Schematic diagram of an ASRS storage concept