Finding Cure for Project Cargo Risk

By Lori Musser

In a world of razor-thin margins and vast uncertainties, each partner in a highly complex project want to minimize risk. Industry experts at a Breakbulk Americas session shared their thoughts on how much risk they can bear, and how to manage it.

Forwarders say they are taking responsibility for their share, but are working hard with all supply chain parties to minimize end-to-end risk.

Jake Swanson, global sector head for engineering, procurement and construction for DHL Industrial Projects, said that project forwarder contract negotiations may be complicated by the fact that terms of draft EPC contracts are often more suited to materials purchases than complex transportation services.

Joye Runfola, senior project logistics specialist with Americas’ procurement for multinational Air Liquide USA, said it is important to identify risks in advance. “If we don’t understand ahead of time, and it isn’t clearly defined, then who is going to take that risk?”

Corey Henry, regional senior logistics manager America (NCSA) for the EPC McDermott, said, “If I submit a scope, I expect to collectively figure out how to mitigate a risk on both sides … It’s an education process. Educating people upstream, downstream.” Because a massive project shipment from China to the Americas requires far more complex logistical solutions than simply ordering on Amazon to ship a stapler, Henry said, the details and definitions of scope have to be well understood by all from the outset.

Corey cautioned that the task of defining risk in itself can be onerous. For example, “There is definitely a difference between a reimbursable environment versus a lump-sum environment.”

“We really try to have an open relationship,” said Leandro Brusque, supply chain manager for Ocyan, a service provider to the oil and gas industry. The company also sees value in working with its partners to decrease risk, and that means developing risk profiles on those partners and engaging its customers in new and meaningful ways. “We definitely need to change the game. The market is not good for anyone. We need to sit together at table and have a clear discussion, a transparent discussion … otherwise we all will sink,” Brusque said.

Dennis Devlin, director of industrial projects USA and the Houston branch of transport and logistics giant Geodis, said, the current trend of pushing as much risk on forwarders as possible is not sustainable. And, when the market becomes more robust, project forwarders will be able to pick and choose business and will pick work with a more reasonable risk profile and better margins. That will leave some businesses hanging.

However, in the down market today, most forwarders don’t have that luxury.

Pat Roche, vice president of projects and energy services for Expeditors, listed a number of factors impacting risk levels, including mitigation strategy and quality of work. He agreed that, as the market improves, there will be motivation to take on the “more profitable work where the risk is more mutual.”

Roche also said that, in a market where payment terms seem to be getting longer, “a robust program of vetting the financial health of your customers,” may be critical.

The market unknowns are plentiful, and also include such factors as interest rate volatility, rate validity, tariff and trade sanction changes, and regional anomalies.

Solutions, according to the panelists, may include incorporating risk discussions early on in a project, mutual indemnification considerations, removal of irrelevant terms and conditions from contracts, and adept handling of performance bonds and cargo lien waivers and indemnification clauses. Retention clauses, the definition of force majeure, breaches of law that are uncapped, warranty provisions, an offsetting capability that allows short payment on an invoice, and even rust clauses – all of these are common but problematic issues in logistics.

Many of these solutions can be provided for contractually. As Roche said, “A well-negotiated contract is a healthy contract.”

Photo: Breakbulk Americas set another attendance record in 2018.