Donald Harrell stresses the importance of full engagement for the successful manoeuver of critical components in large infrastructure projects. Loss prevention and loss control are the crucial factors for success in this line of business where the intrinsic value of the cargo is likely to be considerable, yet still only a fraction of the potential cost of business interruption and delay in start-up.
Multiple Drivers on a Global Stage
Project cargo entails the movement of large, heavy, valuable goods, usually on specialized trucks, trains, aircraft, or vessels across significant distances. It is often considered the “sexy” part of marine cargo given its propensity for great photo opportunities and global reach. It is a niche business within the estimated US$17 billion global premium income (2014) of general cargo trade.1 The average project size by needed capacity is over US$100 million but commitment to a US$100 million line size is required in order to be considered a lead underwriter for major projects and the largest projects to date have called for US$1.5 billion of insurance capacity. With an average policy duration of approximately three years, this is a substantial commitment and the underwriting of the risk is just the first step.
Clients of Project Cargo range from some of the world’s leading construction and engineering firms, global manufacturing companies to government entities. The geographical reach of this business lends itself to underwriting teams that can operate on a truly global basis. The risk covered includes loss or damage while the apparatus is shipped in addition to delay in start-up and advanced loss of profits for loss of income and profit arising from late or non-arrival of critical components due to a covered loss or damage. The safe arrival of this equipment requires multiple teams of highly trained professionals, including marine risk engineers, risk consultants, master mariners, and logistics and supply chain security specialists given the nature of the shipments, logistics and time table.
Demand is most strongly correlated to economic activity but is also linked to both the political environment and natural resources extraction. The latter factors help lessen the cyclicality of the business and the long lead-time on many investment projects encourages phasing notwithstanding the original commitment date. Examples of political drivers include the US$64 billion investment in Brazilian highways, railroads, ports and airports ahead of President Rousseff’s re-election in 2014 and the anticipated surge in investment in Argentina post the election of Macri and a resumption of a more market-led economy post the Kirchner era. In the U.S., heavy investment in the fracking industry has now spurred investment in the manufacture of plastics and fertilizers given the abundant supply of cheap natural gas. Elsewhere, India has taken the moniker of fastest growing global economy and is starting to witness a boom in power generation needs as the energy consumption of its 1.3 billion population increases. 2
Replacement, or Brownfield projects, are typically in developed regions that have existing infrastructure. In contrast, Greenfield sites may be remote and only accessible by air or ice roads. The level of difficulty increases exponentially with the inaccessibility of the project’s location.
On The Move
An interesting development in recent years has seen the increase in off-site manufacture where large structures such as bridges are built in modules and then shipped to the location. To date, one of the largest of these has been a fully assembled heat recovery steam generator for a power plant weighing over 2500 tons and measuring over 10 stories tall. The generator arrived in New York by ship and barge from Indonesia and, when rolled into position, the bolt holes lined up perfectly; proof indeed of the 10,000 mile collaborative effort. These fabricated units are intrinsically more valuable and challenging to move and insure. Moreover, it is not only about the value added through manufacture but the underwriter has to factor in the risk of delay. The transportation needed, for example heavy lift ship or aircraft, may not be available to meet the new completion dates. This could cause further delays beyond the re-fabrication and increase the likelihood of consequential loss of business.