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 $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 after 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.

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 2,500 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's 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 refabrication and increase the likelihood of consequential loss of business.

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

Managing complexity

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

Underwriting the risk calls for review of transportation modes plus the route chosen and identifying areas of focus together with the creation of an extensive list of questions. This entails assessing the suitability of ships, tugs and barges by inspections and by review of available vessel data bases for the quality vetting of vessels. Weather and climate related issues also form an integral 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 the quality 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 onsite attendance at ports of loading or discharge with pre-inspecting facilities and sites for loading or discharge.

Within this complexity underwriters focus their energies on the long lead critical items which could most affect the project timeline. The critical items are agreed and a plan for survey and monitoring of the items is agreed. The careful planning of each move is overseen by the insurers' in-house marine engineers.

Mobile devices can support the insured in these critical item moves through photographs and other documentation as occasionally a survey time changes so rapidly that an actual surveyor visit could delay transit. The biggest stumbling block is the non-involved and passive insured that fails to gain the co-operation of the contractor. It's important that all involved in the project are incentivized for success.

Communication

Marine risk engineering is the thread that weaves the project together. The role of the insurer risk engineering team is to assist the client in developing a comprehensive risk-engineering program. It is about time, money, probability, and contingency planning for the “what-ifs.” The marine risk engineer brings a second or third set of surveillance skills to the project.

It's all about the client, contractor and underwriter relationship. The better the communication, the greater the likelihood of success. When communication is clear the project can be well managed and the issues, in the event of a loss, can be quickly resolved. Given the potential cost of business interruption and delay in start-up, loss control and prevention are what make project cargo a valuable line of business.

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

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