More than 200,000 gallons of oil have been released daily into the Gulf of Mexico, following the offshore oil drilling rig explosion on April 20.

Federal, local, and industry efforts are underway to control the release, burn off oil, and otherwise clean up the area.

The local currents and weather conditions have, thus far, precluded significant amounts of oil from reaching land. However, the fishing, marine, and hospitality industries have already been affected—and other industries may be affected, as the situation may change from day to day.

The extent of the business impacts from this event depends on a number of factors, including wind direction and weather conditions, the Gulf currents, the effectiveness of the containment and control solutions being implemented, and the types of civil actions taken to not only protect the Gulf coast, but also ensure that any boats and barges that may come into contact with the oil do not further disperse the oil into navigable waterways.

Supply Chain Implications

"It is not just the flow of goods that could be impacted, but organizations' bottom line and reputation," noted Gary Lynch, Marsh Global Supply Chain Risk Consulting Practice Leader. "Organizations may also need to account for financial risk such as for price fluctuations in commodities and services."

To ensure a continuous flow of products and parts if there is a transport bottleneck due to shipping slowdowns or port closures, organizations needs to account for not only inventories of products destined for their ultimate buyer, but also inventories of component parts or ingredients/materials used in intermediate production or by suppliers several steps removed.

"Throughout the supply chain and for the end customer in particular, the disruptions and price volatility could result in extended delivery times and higher prices for finished goods and services," Lynch added. "Organizations should consider whether their end product or service will be impacted by unforecasted demand or supply fluctuations, the potential effect of volatile transport prices or shortages on budgets and revenue, and who they rely on to create value for their business."

Environmental Impact and Insurance

While the oil release is also a catastrophic environmental event, until the oil migrates to properties that are owned or operated by insureds that have purchased environmental insurance (typically shoreline properties), any discussions with regard to insurance matters will be relegated to the marine insurance risk practices. It is not until the oil release reaches those properties that environmental insurers will view this as a potential environmental insurance matter.

"Although environmental insurance products are not off-the-shelf solutions to clients with environmental exposures, with more carriers in the marketplace than ever before, there is more capacity within the marketplace and more leverage to offer clients creative solutions to their environmental exposures," said Chris Smy, Global Environmental Practice Leader. 

Clients who are concerned with the potential for direct impact from oil reaching their properties, should review their risk management protocols (including contingency plans) as well as their insurance programs, in order to understand what is available to them in response to this unprecedented event.