Protecting project cargo

03 June 2015

Project cargo is the transit of very large or heavy equipment around the world, such as blades for wind turbines, equipment for power stations or sections of rail track. On average, around 10% of these items are critical, bespoke pieces of equipment that would severely delay a project if they were damaged in transit.

“The process for transporting such equipment is complex because the items can be large and/or have unusual centres of gravity,” says Jay Payne, Senior Partner, “plus they may require assembly or disassembly during the transit, all of which present increased risks.”

A Buyers Market

Project owners can mitigate the financial risks by buying project cargo insurance, which usually includes delay in start-up (DSU) cover for expenses such as loss of profits, fixed costs and debt service.

The London market currently has plenty of capacity for such cover – it has increased by a third in recent years. “Project owners can now buy up to circa USD 1.3 billion of combined physical damage/DSU insurance,” says Payne. “As DSU indemnity amounts tend to be far higher than physical damage losses, a typical project owner might buy USD 100 million of physical damage cover each and every loss and six or seven times as much DSU cover.”

The availability of capacity – along with the sector’s good reputation for managing risks – has contributed to rates falling to almost half of what they were in 2010.

Honing your cover

A project cargo policy covers items during their transportation; as soon as they are delivered to the project site, the client’s construction cover takes over. “Therefore, it is crucial that the project cargo policy dovetails with the Erection All Risks policy to ensure seamless coverage,” says Payne.

An important element of this is agreeing a ‘loss sharing’ system for any losses that are discovered after delivery, where it is unclear whether they have been caused in transit or on site.

Some project owners also extend their insurance to include Blocking and Trapping cover. “This is useful for those whose normal shipping routes may become blocked,” says Payne. “In one example, the port of loading was blocked by a stricken vessel which prevented a ship from sailing resulting in additional chartering expenses.”

Effective Risk Management

Despite the range of unusual risks involved, the sector has gained a reputation for effective risk management. Payne says: “For example, while normal cargo is shipped all over the world often without surveys,multiple project cargo surveys are carried out throughout the process, and there are always specialists on hand to ensure items are being handled correctly.”

In addition, for critical pieces of equipment, an independent marine warranty surveyor is employed to undertake the load, stowage and discharge surveys.

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Further information please contact, Jay Payne, Senior Partner, Cargo, Specie and Fine Art +44 (0)20 7466 6236