Modularization Increases Risk Exposure
While frequently delivering cost and efficiency benefits, the burgeoning practice of modularization is adding to risk exposure related to oversize shipments for energy and petrochemical plants and other industry megaprojects.
“As an underwriter, because of the way these things are fabricated now, we have much more exposure while these full modules are in transit than we did when things used to be stick-build,” Kevin Wolfe, global head for project cargo at Allianz Global Corporate & Specialty, told Breakbulk.
“When the components got shipped to the site, a loss of any one of those components wasn’t a big issue to us, specifically to the physical damage portion, but also especially to the delay in startup issue,” Wolfe said. “Now that these full modules are built offshore and are then in transit to a project site, we have much greater exposure, first in the physical damage, but tremendous exposure sits in the delay in startup.”
Wolfe said a complex module that might take as many as two years to fabricate presents a tremendously high value for a single shipment. Also, because a limited number of self-propelled vessels in the world fleet are able to accommodate such massive units, there is a likelihood of movement by barge, which underwriters see as riskier.
“There’s a lot more risk involved to us as underwriters if you have something that’s worth US$300 million or US$400 million on a barge being towed across the ocean versus something on a semisubmersible or a heavy-lift under its own power,” he said. “There’s much more exposure for us.”
Challenges Faced
Wolfe’s loss mitigation partner on the lead New York-based Allianz marine insurance team, Capt. Andrew Kinsey, senior marine risk consultant with Allianz Risk Consulting, concurred with Wolfe that challenges accompany the modularization trend. Each man has more than four decades of industry experience.
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“Modularization is really in many cases defining our project cargo approaches for loss control,” Kinsey said, noting that, in early advance evaluations, one consideration is the location and number of module fabrication facilities, sometimes called mod yards for short, as well as the number and size of modules to be assembled. Infrastructure at and on the way to jobsite, transit routings and anticipated weather conditions are other key considerations.
“There are a lot of challenges,” Kinsey said. “In many cases, from a loss control side, the size and scope of modularization, or the mod yard approach, is defining our follow-on actions throughout the whole life of the project.”
Wolfe said concerns mount when “a breaking point” is reached, when a module is so large, heavy and/or tall that clients may be counseled on worries that the big unit may not survive the rigors of waterborne transport. That may lead to discussions with naval architects about gravitational forces, deflection issues and other such engineering factors.
“You need to make sure long before they start the first rivet in anything that it’s even able to make that transit safely, forget heavy weather or anything, just the normal transit move,” Wolfe said. “A lot of early discussion takes place regarding how big these things can get. It’s a challenge, and we try to get involved as early as possible.”
If it appears too risky to move a super-huge and/or not-sturdy module, it may have to be broken down into multiple units for shipment, Wolfe said. Also, by so doing, the share of the global fleet of vessels suitable for providing transportation increases.
Kinsey said greater use of technologies such as augmented reality in early planning stages is proving helpful in determining optimum minimal-risk approaches even before any modules are assembled.
Wolfe emphasized the importance of collaborating with clients, saying: “The earlier you are in that connection, the better off you’ll be.”
The risk-related concerns are also acknowledged by engineering, procurement and construction firm leaders, including Andy Young, logistics manager for Bechtel Oil, Gas & Chemicals.
“We are seeing higher single insurable values which attract greater scrutiny by insurers and their marine warranty surveyors,” Young said. “Modularization of general cargo makes it critical cargo.”
Image credit: Shutterstock
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