Project Cargo entails the movement of large, heavy, valuablegoods, usually on specialized trucks, trains, aircraft or vesselsacross significant distances.

It's often considered the “sexy” part of marine cargo, given itspropensity for great photo opportunities and global reach. It's aniche business within the estimated $17 billion premium income(2014) of general cargo trade.

The average project size by needed capacity is over $100million, but commitment to a $100 million line size is required inorder to be considered a lead underwriter for major projects andthe largest projects to date have called for $1.5 billion ofinsurance capacity. With an average policy duration ofapproximately three years, this is a substantial commitment and theunderwriting of the risk is just the first step.

Global construction and manufacturing companies

Clients of Project Cargo range from some of the world's leadingconstruction and engineering firms, global manufacturing companiesto government entities. The geographical reach of this businesslends itself to underwriting teams that can operate on a trulyglobal basis.

The risk covered includes loss or damage while the apparatus isshipped in addition to delay in start-up and advanced loss ofprofits for loss of income and profit arising from late ornon-arrival of critical components due to a covered loss or damage.The safe arrival of this equipment requires multiple teams ofhighly trained professionals, including marine risk engineers, riskconsultants, master mariners, and logistics and supply chainsecurity specialists given the nature of the shipments, logisticsand time table.

Demand is most strongly correlated to economic activity but isalso linked to both the political environment and natural resourcesextraction. The latter factors help lessen the cyclicality of thebusiness and the long lead time on many investment projectsencourages phasing, notwithstanding the original commitmentdate.

Examples of political drivers include the $64 billion investmentin Brazilian highways, railroads, ports and airports ahead ofPresident Rousseff's re-election in 2014 and the anticipated surgein investment in Argentina post the election of Macri and aresumption of a more market-led economy after the Kirchner era.

In the U.S., heavy investment in the fracking industry has nowspurred investment in the manufacture of plastics and fertilizersgiven the abundant supply of cheap natural gas. Elsewhere, Indiahas taken the moniker of fastest growing global economy and isstarting to witness a boom in power generation needs as the energyconsumption of its 1.3 billion population increases.

Replacement, or Brownfield projects, are typically in developedregions that have existing infrastructure. In contrast, Greenfieldsites may be remote and only accessible by air or ice roads. Thelevel of difficulty increases exponentially with theinaccessibility of the project's location.

On the move

An interesting development in recent years has seen the increasein off-site manufacture where large structures such as bridges arebuilt in modules and then shipped to the location. To date, one ofthe largest of these has been a fully assembled heat recovery steamgenerator for a power plant weighing over 2,500 tons and measuringover 10 stories tall. The generator arrived in New York by ship andbarge from Indonesia and, when rolled into position, the bolt holeslined up perfectly — proof indeed of the 10,000 mile collaborativeeffort. These fabricated units are intrinsically more valuable andchallenging to move and insure.

Moreover, it's not only about the value added throughmanufacture 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 couldcause further delays beyond the refabrication and increase thelikelihood of consequential loss of business.

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Underwriting the risk calls for review of transportationmodes plus the route chosen and identifying areas of focus togetherwith the creation of an extensive list of questions. (Photo:iStock)

Managing complexity

Successful underwriting is not only about identification of thelong-lead critical items that could most affect the project timebut also about establishing reporting requirements andcommunication chains. There needs to be close communication betweenthe insured's project engineers, traffic and logistics managers andkey contractors throughout the process to help promote efficiencyand timely completion. It's important that staff risk engineers notonly meet but also develop a rapport with the client's project teammembers and key contractors and ensure that the engineering team isfully empowered.

Underwriting the risk calls for review of transportation modesplus the route chosen and identifying areas of focus together withthe creation of an extensive list of questions. This entailsassessing the suitability of ships, tugs and barges by inspectionsand by review of available vessel data bases for the qualityvetting of vessels. Weather and climate related issues also form anintegral part of the assessment.

A rigorous check list should be maintained which considers,among other things, the following:

• Loading plans, including heavy lift inspections.
• Stow and sea fastenings.
• Inland transit routes — with particular reference to thequality and capability of the infrastructure.
• Port and transport security.
• Piracy.

There needs to be coordination of surveys, including packaging,loading and security inspections worldwide and necessary onsiteattendance at ports of loading or discharge with pre-inspectingfacilities and sites for loading or discharge.

Within this complexity underwriters focus their energies on thelong lead critical items which could most affect the projecttimeline. The critical items are agreed and a plan for survey andmonitoring of the items is agreed. The careful planning of eachmove is overseen by the insurers' in-house marine engineers.

Mobile devices can support the insured in these critical itemmoves through photographs and other documentation as occasionally asurvey time changes so rapidly that an actual surveyor visit coulddelay transit. The biggest stumbling block is the non-involved andpassive insured that fails to gain the co-operation of thecontractor. It's important that all involved in the project areincentivized for success.

Communication

Marine risk engineering is the thread that weaves the projecttogether. The role of the insurer risk engineering team is toassist the client in developing a comprehensive risk-engineeringprogram. It is about time, money, probability, and contingencyplanning for the “what-ifs.” The marine risk engineer brings asecond or third set of surveillance skills to the project.

It's all about the client, contractor and underwriterrelationship. The better the communication, the greater thelikelihood of success. When communication is clear the project canbe well managed and the issues, in the event of a loss, can bequickly resolved. Given the potential cost of business interruptionand delay in start-up, loss control and prevention are what makeproject cargo a valuable line of business.

Donald Harrell is Global Head of Marine and Chief OperatingOfficer/International Insurance at Aspen Insurance. Contact him at[email protected].

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