Monthly Archives: August 2010

Building Better Bridges

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San Francisco Bay Bridge

Yesterday, an engineering firm that consulted on the Interstate 35W bridge that collapsed in Minneapolis in 2007, killing 13 and injuring 145 others, agreed to pay out $52.4 million to the victims. The company, URS Corp, did not admit any liability for the disaster, but the plaintiffs’ attorney believes the company agreed to a settlement because it “is a much swifter resolution than facing a jury trial, and it concludes the last remaining legal obstacle,” said Chris Messerly, an attorney with Robins, Kaplan Miller & Ciresi, the law firm representing the plaintiffs.

URS added its own rationale in the following statement, despite the state of Minnesota’s presentation of evidence noting that URS classified the part of the bridge that failed as in “good condition” and that a failure would not be “catastrophic,” according to the Business Journal of Milwaukee.

“URS was not involved in the design or building of the bridge, nor was it involved in any of the later construction work, including the resurfacing work being done when the bridge collapsed. URS believes it is in the best interest of the company and its shareholders to resolve this matter and avoid the cost and distraction of protracted litigation.”

In addition to all the tragedy and legal fights the collapse caused, there was one positive result: it provoked a renewed interest in the nation’s deteriorating infrastructure.

In the weeks and months that followed, many politicians, publications and other media outlets highlighted the “structurally deficient” or “functionally obsolete” grades that inspectors gave more than 150,000 American bridges in recent years. The more and more reports that surfaced (like this, this and this), the more it seemed that those driving on U.S. highways and byways were putting themselves at risk every time they traversed a body of water.

Today is an apropos time, then, to point out the tremendous work being done to rebuild the route between San Francisco and Oakland. The Bay Area is building a new, earthquake-resistant bridge to replace the damaged portion of the San Francisco-Oakland Bay Bridge.

More than 250,000 vehicles pass over this bridge every day, carrying people and freight between San Francisco and the east side of the bay. You can’t exactly ask that much traffic to wait patiently while you tear down the existing bridge and replace it with a new one.
Complicating matters is the fact that the San Francisco Bay Area is one of the most seismically active regions of the United States. Any bridge built here has to be able to withstand a massive quake — since some big shaker is almost certain to hit sometime during the bridge’s expected 150-year lifespan.
In fact, engineers are designing the new Bay Bridge segments to withstand the largest earth movements predicted for the next 1,500 years. The specifications call for the bridge to be open to traffic within hours after such a massive quake, with minimal repairs required.

More than 250,000 vehicles pass over this bridge every day, carrying people and freight between San Francisco and the east side of the bay. You can’t exactly ask that much traffic to wait patiently while you tear down the existing bridge and replace it with a new one.

Complicating matters is the fact that the San Francisco Bay Area is one of the most seismically active regions of the United States. Any bridge built here has to be able to withstand a massive quake — since some big shaker is almost certain to hit sometime during the bridge’s expected 150-year lifespan.

In fact, engineers are designing the new Bay Bridge segments to withstand the largest earth movements predicted for the next 1,500 years. The specifications call for the bridge to be open to traffic within hours after such a massive quake, with minimal repairs required.

Many have noted that renovating all the nation’s bridges would be such an expensive undertaking that it is unfeasible. Well, the endeavor currently going on in the Bay stands it sharp contrast to such criticisms, rightly bringing safety, innovation and public trust back to the forefront of bridge construction.

For more on the current state of the construction, check out this great video from Wired. Of the “only about 20” self-anchored suspension bridges that exist in the world, it tells us, this will be the largest.

And also the safest.

“These aren’t small earthquakes that we’re designing for,” said Bart Ney, public information officer for the California Department of Transportation in the video. “These types of earthquakes that we’ve designed this bridge for will potentially level the surrounding areas’ international airports. So we’ve built this bridge to a ‘lifeline criteria’ that basically states that not only will it not fall in the water, but after a massive-level earthquake, it will stay up and be immediately available to emergency services … This bridge is designed to last twice as long as any normal bridge you would build in the United States today.”

Kudos.

Was a Bad Egg Behind the Egg Recall?

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380 million eggs have now been recalled from an Iowa egg production facility in what some are calling the largest egg recall in history.

Unfortunately, as one of the nation’s top food safety advocates predicts, the outbreak will likely grow over the coming weeks. So far, close to 2,000 people have been sickened with salmonella from the bad eggs, with that number pretty much guaranteed to grow.

At the center of this massive recall is the family-run egg farm Wright County Eggs, based in Galt, Iowa. The owner of this company is Jack DeCoster, 75, who could be labeled a bad egg if one reads the litany of lawsuits and plant health violations he’s had filed against him in the past. Let’s take a look at two complaints:

One of the more egregious was filed in the summer of 1996 when DeCoster was made to pay more than $3 million in fines after the U.S. Labor Department found dead chickens being picked up by workers with bare hands. The complaint also stated that DeCoster’s workers also lived beside manure and rat-infested trailers, according to the Associated Press. The complaint led to a boycott of DeCoster’s eggs by several major supermarkets. In 2000, the Iowa attorney general dubbed DeCoster a “habitual violator” of the state’s environmental laws and ordered him to pay a $150,000 fine. DeCoster had failed to properly dispose of the hog and chicken manure and had let it run into a nearby creek.

Add to that the 10 counts of animal cruelty DeCoster pleaded guilty to in regards to his company’s treatment of its chickens. Then, in June, he was ordered to pay “more than $100,000 in fines and restitution, a ruling that is considered one of the landmark animal cruelty cases in history.”

In seems ironic that new egg safety rules were put into place July 9 by the FDA to help reduce the risk of salmonella outbreaks. This risk management proposition:

Addresses several aspects of egg production, particularly spots where chickens and egg production seem most vulnerable to infection by Salmonella enteritidis. While the new regs only immediately effect the largest of the nation’s egg producers, those producers also account for the overwhelming number of eggs produced.

The average person would say Wright County Eggs failed to successfully implement this, and other, risk management measures. The outcome for any company that fails in this aspect is, most times, lost earnings, lowered market share and tainted reputation. Not a good mix.

European Insurers Pass Stress Test

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europe's health

A report published today by Fitch Ratings claims its stress-testing of European insurers based on their euro-zone sovereign exposures has resulted in no ratings actions. Fitch used the hypothetical scenario of a default on Greek government debt to carry out a stress test on its rated European insurance portfolio.

The agency believes that all companies in this portfolio would be able to withstand an external shock derived from a hypothetical Greek sovereign default, including an assumption of ancillary stress for other key euro zone nations.

And by “other key euro zone nations” Fitch is referring to the troubled economies of Portugal, Ireland, Spain and Italy, whose “sovereign risk may be a particular concern.” Taking this and other economic factors into concern, the ratings agency followed a two-step stress test process.

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First, Fitch identified insurers where sovereign risk may be a particular concern — those insurers with exposure to Greece, Portugal, Ireland, Spain and Italy.

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Second, the agency considered the impact of the implications of sovereign risk — meaning, they applied their stress test to selected companies/groups. Fitch considered the Greek default scenario from two perspectives: economic viewpoint and market value viewpoint.

Direct and indirect (realized and unrealized) investment losses are viewed by Fitch as the primary risks for insurers from sovereign debt. Any insurer rated above Greece’s current ‘BBB-‘ level should be expected to be able to cope with the impacts of a hypothetical Greek default scenario. This was confirmed by the outcome of the stress test: all selected companies/groups passed the test.

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Since Fitch believes the insurers in its portfolio can withstand the economic stress and the impact from potentially more severe mark-to-market movements, they have not taken any rating actions on its European insurance portfolio.

This good news comes on the heel of other optimistic European news that was publicized recently. After the European bank stress tests, only seven out of 91 banks were shown to need additional capital in a worst-case scenario — a shocking surprise. We must keep in mind, however, that these tests, though they consider deleterious situations, may not be rigorous enough and therefore, not the end-all be-all of the economic outlook.

Creating Value Through Risk

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Understanding how value is created and destroyed and the role that risk plays in this process is the key to any successful business operation. But achieving this understanding is easier said than done. In a new, online-exclusive Risk Management article, Jorgen Ellingson, a risk manager with Dubai-based TECOM Investments, offers a useful way to simplify the process through the use of a value and risk management framework.

Managing value and risk is generally an intuitive skill and learned by experience. By applying a discipline to this inherent process you can better manage value creation and avoid destruction from both a quantitative and qualitative perspective. It is a balancing act between risk mitigation and risk exploitation and the winners will be those companies that understand the market and their value proposition better than their competition.

For more, read the rest of his informative article only on RMmagazine.com.