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AON’s Guide to Securing the Load: Managing Complex Project Cargo Risks in Construction

Ensuring the safe delivery of construction materials along shifting trade channels is no simple endeavor. Learn how specialized insurance and risk management can support the transportation of construction cargo and help ensure project success.

Key Takeaways

1. Suppliers are increasingly taking control of transportation logistics and related insurance for project cargo in construction, upending traditional models.

2. Geopolitical disruptions underscore the importance of alternate routing strategies alongside the effective management of challenges associated with transporting materials critical to construction projects.

3. Early engagement is key in this environment, as is project cargo insurance, which can offer comprehensive risk management and risk transfer for construction owners.

Project cargo, which involves transporting large, complex and high-value equipment and materials critical to construction projects, brings unique challenges that require specialized risk management strategies.

As the risks faced and managed by the construction industry continue to evolve, organizations should consider project cargo insurance early on to protect against potential exposures.

The Importance of Project Cargo Insurance

In addition to their high value, construction materials can be difficult to obtain and may have long replacement times. A carrier's liability policy does not provide the same level of protection as project cargo insurance, nor would a supplier necessarily provide sufficient coverage for these items.

Project cargo insurance can help address these exposures. Policies are divided into two sections:

1. Physical Loss or Damage: This section covers any physical loss or damage to the cargo, similar to standard cargo insurance.
2. Financial Implications: This section provides coverage for the financial consequences of incidents covered under the first section. This includes increased costs, delay in start-up and penalties incurred due to project delays. 

Several emerging industries with robust construction pipelines are helping drive demand for project cargo insurance, including:

Renewable Energy 

• Hydrogen projects
• Carbon capture initiatives 
• Wind and solar infrastructure

Technology-Driven Sectors

• Data centers
• Modular construction
• Advanced infrastructure projects

Construction owners should be aware of the benefits of project cargo insurance and engage early with their broker to manage the associated risks via risk transfer and risk management.

"Specialist insurers can instill confidence and support through enhanced coverage to help ensure the safe arrival of equipment and protect the consequential loss attributable to a critical item that could take longer to replace."

Martin Danagher-Smith

Director, Marine Cargo, United Kingdom

Changing Dynamics in Project Cargo Insurance

Developments impacting how construction project owners manage transportation risks include:

1. Shifts in Project Control

Traditionally, project owners had primary control of transportation and insurance. However, the current trend shows suppliers are now increasingly taking more control, resulting in a diversified landscape of liability over transportation and logistics.

In turn, suppliers are offering integrated delivery and insurance solutions with potentially higher costs for comprehensive packages and reduced flexibility for project owners.

2. Evolving Insurance Models

With the move away from traditional insurance approaches, construction project owners must ensure that there is a focus on:

• Consequential loss coverage
• Delay in start-up insurance
• Comprehensive risk management

3. Geopolitical and Supply Chain Considerations

Geopolitical disruptions impacting trade routes, such as events in the Black Sea, Red Sea and Suez Canal, can lead to increased shipping costs and slowdowns in projects and insurance complications, underscoring the importance of alternate routing strategies.

Project owners should work with partners who can offer flexible transportation solutions to prevent significant project delays caused by critical materials not arriving on time.

Mapping Project Cargo Risks

In this evolving landscape, owners are likewise managing the typical risks related to the transportation of materials for construction projects, including:

• Complex Transportation Logistics

  Construction project materials are typically large, heavy and challenging to transport, necessitating specialized carriers and vessels with specific equipment, such as cranes and heavy-lift trucks, which may not always be readily available. In some regions, using inappropriate vessels like dry bulk carriers to ship smaller items can increase the risk of improper stowage and potential damage during transport as materials shift. 

  “An issue with one cargo can cause damage to many or all of the other cargo in that hold, making cargo claims large and complex,” explains Dr. Nick Chapman, Aon’s head of Cargo and Logistics in Asia.  

• Customized Transportation Plans

  Project cargo involves detailed route planning, infrastructure assessment, route surveys and special permits. 

  “Cargo of unusual size, dimensions and center of gravity requires specialist lifting, stowing and securing plans that are subject  to a specialist risk management process throughout,” says Dr. Chapman. “These are eventually signed off by a dedicated risk manager or marine warranty surveyor.”

  As a result, all project cargo should be handled by experienced specialist crews on specialist vessels with suitable decks and securing points to stow heavy and ungainly items safely regardless of size.

• Multi-Modal Transport

  Shipping construction equipment often requires using a combination of road, rail, sea and air transport. Construction policies tend to include some transit insurance but often won’t cover the marine aspect. Owners need to consider where materials are coming from and if they have adequate cover in place based on their planned routes.

• High-Value Materials and Time Sensitivity

  Construction equipment is expensive and crucial to project success, demanding extra care and security. Delays in the delivery of materials can lead to significant cost overruns and affect project schedules.

• Regulatory Compliance

  The transport of materials must adhere to various safety, environmental and import/export regulations. Compliance with health and safety regulations is also crucial to protect workers and avoid legal issues.

Unpacking the Broader Cargo Risk Landscape

• 01 - Weather Conditions

  Extreme weather can delay transport and increase accident risks.

• 02 - Safety Risks

  Improperly secured loads can shift, causing accidents or cargo damage.

• 03 - Economic and Market Factors

  Fluctuating fuel prices and tariff uncertainties can weigh on costs and timelines.

• 04 - Technical Failures

  Equipment malfunctions can lead to delays and added costs.

5 Strategies for Project Cargo Risk Management

The breadth of transportation and logistics risks that construction owners must manage today underscores the importance of early engagement, comprehensive planning and specialized project cargo insurance. This can be implemented using the following strategies:

1. Allow ample time for planning routes and sourcing logistics partners. Engaging early ensures that project cargo insurance is considered from the outset, simplifying the process and reducing the potential for future hurdles. Look for companies specializing in transporting and handling these items with the care to ensure they arrive at project sites safely and on time.
   “Relevant parties should be involved from the start, including suppliers and logistics partners. It’s also important that the right infrastructure is in place in terms of roads and routes,” says Michele Holmes, director for Aon’s Marine Cargo team in the United Kingdom. “The more planning and communication carried out at the outset of the project, the easier it will be to mitigate risks down the line.”
2. Use innovative technology solutions to help trace the source of damage. Shock sensors can address the challenge of effectively monitoring cargo during transit and identifying damage that may not be immediately detectable. Some logistics partners may also have real-time GPS tracking and other advanced technologies to monitor the cargo’s location, alongside enhanced risk assessment tools to ensure it arrives safely.
3. Collaborate with insurance partners, brokers and specialized marine surveyors that can navigate the complexities associated with project cargo. Experienced carriers can provide valuable insights based on historical data from similar projects, allowing owners to make informed estimates when budgeting project cargo costs. This step is key because the shipping schedule plays a fundamental role in determining project cargo insurance and calculating premiums for physical loss or damage. However, these calculations can only be made once shipping schedules are confirmed, making historical data essential.
4. Ensure compliance with all relevant regulations to avoid legal and financial penalties. Work with local experts to understand regional dynamics and best practices.
5. Develop contingency plans for unforeseen events, such as supply chain disruptions or geopolitical crises. If a trade route is disrupted, account for additional costs and time needed to transport items to the project site.

“Project cargo and cargo insurance are often overlooked, which is concerning given the multi-billion-dollar capital expenditures involved — nothing can progress on-site until the items arrive safely,” notes Danagher-Smith. “Discussions early in the process can help raise visibility and add value by addressing potential issues before they occur. This sets expectations and requirements, ensuring that route surveys are properly conducted and executed so that all complex and critical items reach the site safely.”

SOURCE: AON