By Michael A. Moore
The transportation of project cargo is a risky business by its very nature. The sea is dangerously capricious, as well as unforgiving of mistakes and carelessness. Combined with the perils of the ocean, the infamous Murphy’s Law stalks seafarers with unrelenting vengeance as things can and do go wrong at the worst possible times.
The marine transport of over-dimensional (ODC) and out-of-gauge (OOG) cargo – often bound for remote destinations with no port or infrastructure – exponentially compounds the risks facing cargo owners, shipping companies, freight forwarders and insurance underwriters. Rogue waves, inclement weather, poorly charted waters, pirates, contagious diseases and human error are but a few of the difficult-to-predict and even harder to quantify risks that lie in wait, ready to ambush time-sensitive project cargo.
“The loss of a ship and cargo can cost tens of millions of dollars,” said Kevin Stone, Senior Vice-President of marine practice at Marsh Canada. “On project cargo shipments, the physical loss of the cargo can often be the tip of the iceberg with the (bulk of) loss of revenue stemming from the delayed start-up of a mine, or a power or cement plant, which can easily exceed $1 million a day. “If a critical production item of capital equipment such as a stator or a mill is lost, it can take a year or more to replace from the manufacturer, combined with more time to secure the space, or the charter of a suitable ship for transport is that cargo has heavy lift requirements necessitating the need to use a specialty vessel,” he said. “Lost revenues from delayed operations can easily run into the billions of dollars, not to mention the potential impact on a company’s shareholder value.”
Marine insurance against delayed start-up losses, known as DSU, is separate and more costly than coverage against loss of ship and cargo, Mr. Stone said. He emphasized that marine DSU policies are distinct from DSU insurance covering a project’s contractors. The extremely high potential liability for cargo loss and DSU has forced everyone involved in the supply chain to increase the level of discipline they practice in risk management. Owners and their engineering, procurement, and construction management (EPCM) contractors along with shipping companies and logistics providers have each developed their own – often proprietary – hands-on, risk management protocols that frequently kick in before the cargo is even designed.
“There are three main steps to risk analysis and management,” said Gonzalo Valdes, Director of Logistics for the Vancouver office of Fluor Corp., a major global EPCM firm and leader in the design and construction of billion-dollar mining projects in some of the most rugged parts of the world. “Each project is unique,” Mr. Valdes said. “The first step is to identify the risk – heavy or super-size is where you run into the most risk. The second step is to assess the severity of the risk. Then you prioritize the risks.”
Equipment availability is at the top of Fluor’s risk-priority list. “We have to predict when is the best time to book a ship capable of moving the equipment, especially when we are dealing with special ships designed and built for heavy haul and over-dimensional modular cargo” Mr. Valdes said. “When the market is busy, we have to book as far as 18 months ahead. The problem that confronts us is – do we book right away or do we wait, hoping prices will go down?”
Customs and paperwork are additional potential problem area high on Fluor’s risk radar. “Customs always represents a risk factor,” Mr. Valdes said. “You have to take into account the local language, and you need translators who understand the language of logistics. “Then you must take into account cultural differences, know what the rules are and adapt the timeline and process to allow time to meet those conditions, while remaining in strict compliance,” he said. “You cannot assume anything, you have to keep asking questions. “The worst situation you can have is for the ship to arrive and the cargo does not clear customs.”
Fluor’s focus on facilitating customs clearance and remaining in compliance is in alignment with a shift in expectations for transparent business practices when billion-dollar projects are built in countries with traditions of government corruption and “facilitating fees.” However, the choice to take the high road on issues of compliance is becoming less risky for timely delivery of project cargo as more countries comply with modern, integrated systems for dealing with customs and permitting.
“Our greatest challenge is in maintaining a constant flow of information to make sure all the components are listed and the customs paperwork is meticulous,” said Beverly Waldron, Senior Vice-President and head of Panprojects Canada. “We find that by making sure every form is correctly filled out and all the rules are met and proper permits granted, we can smooth the customs process even in countries with reputations for being difficult.”
Beyond the potential chokepoints of customs and compliance are the true minefields of risk – especially for ODC and OOG cargo – true Murphy’s Law territory where even small errors can trigger project-killing accidents. “You have to look at risk management across the whole logistics supply chain,” said Chris Beringer, Operations Manager of Bertling Logistics Canada. “I tell my clients there are two ways to approach risk management – you can be reactive or pro-active. The reactive option means we limit our options when dealing with heavy lift or over-dimensional cargo. “We have to be pro-active,” Mr. Beringer said. “If you are not considering risk management at the design and fabrication stages, it’s too late; you probably have the risk baked in. “Small tweaks in design can affect the center of gravity and turn a dual crane into a single crane pick, as well as avoid spreader beams with extra cables and shackles. The fewer pieces involved in a lift, the less risk.”
Transport risk is incorporated into the design because everyone views the equipment through their own narrow lens, Mr. Beringer said. He cited an instance when large pressure vessels had to be transported and the design was entirely focused around the install at the final site. As a result, it was impossible to move the pieces without expensive field welding at the discharge port and acceptance of a very unnecessary level of risk. “Risk management is out the window at that point,” he said. “There is a big disconnect between engineering and the owner. You need to take a wide-angle view of how to manage risk from end to end.
“The disconnect is in the middle,” Mr Beringer said. “Someone has to be looking at risk management and safety from engineering through fabrication and all the way to the site. Special attention has to be paid to loading and stowing.”
Sometimes it does not matter how much work goes into managing and minimizing the risk of transporting high and heavy cargo. Murphy’s Law can strike when oceans have been crossed and the voyage is almost over. The difference between success and disaster can boil down to a matter of inches. “The classic case that illustrates that details matter, that the journey is not over until the cargo is safely at the site, is the case of the two huge rotors destined for the New Brunswick nuclear plant,” said Marsh Canada’s Stone. “Each rotor weighed 107 tonnes, and had successfully made the ocean journey from the Siemens factory in the U.K. to St. John. “The rotors were being loaded from the ship onto a barge. The first rotor was placed onto the barge, but it was not placed exactly right. When the second rotor was placed onto the barge, it flipped. The rotors ended up at the bottom of the harbour.”