Cargo risk in-depth: An interview with Phil Pavey

Shipping delays and freight costs continue to plague the industry and present new risks to our insureds. In this environment, we thought it was necessary to catch up on the latest trends in cargo risk.

We sat down with Phil Pavey, GCube’s Senior Underwriter in London, to get his thoughts on the current cargo risk landscape and recommendations for people looking to secure their supplies and avoid losses.

What is Cargo risk, and what is GCube’s current Cargo offering?

While GCube has now moved towards quota sharing across its core business areas, one area that the company still underwrites at 100 percent is cargo. This means that we cover all the risks associated with cargo – physical loss or damage to goods during transit, imports and exports, and domestic carriage, including any incidental storage.

GCube has been underwriting cargo risk for many years now, and we’ve got a dedicated, expert team that fully understands Marine Delay in Start-Up (MDSU). If our clients are experiencing difficulties or have complex claims, we’re not only prepared to help solve them, but we can also include the loss of tax credit revenue as well as the loss of business revenue in the coverage.

Our experience in cargo risk, combined with these added benefits and the fact that we’re underwriting the risk at 100%, makes us confident that we’re providing the best cargo risk offering in the market.

Why is it important for us to be looking at cargo risk right now?

As we know, supply chain issues are continuing to cause delays and adding costs to renewables projects across the world. There are now many bottlenecks in transit that are having major impacts on the commercial operation date of new projects. Parts for projects are also rapidly increasing in size, which increases the risk of something going wrong.

We’re also seeing major workforce shortages in ports, railroads, and trucking. Shortages are placing extra pressure on the current workforce to get things done on time, which has increased the risk of human error as well as the cost of transiting goods globally. Ultimately, we’re seeing a general slowdown in supply chains, with risks increasing on multiple fronts and parts taking longer to move, resulting in significantly lengthier delays and operational downtime for our insureds.

Can you give any examples of any big losses resulting from cargo risks recently?

As I’ve mentioned, project components are getting bigger, which is combining with longer transiting and lead times. On top this, bottlenecks have caused freight costs to significantly increase. So, if something goes wrong, like a blade being lost overboard, it’s much more expensive to deal with and takes a longer time to replace.

Power transformers and wind turbine blades are causing noticeable issues. The main problem with the power transformer is that it’s a much more expensive and complex piece of equipment. Power transformers require more care in transit, take longer to manufacture, and are a critical part of project operation. Wind turbines, in general, are getting a lot larger. This is causing issues as freighting technologies try to catchup in their ability to move these bigger components.

Fortunately, many people are recognising these ongoing issues. We are seeing all parties working closer together on solving them. Both insureds and insurers are equally concerned about cargo risks, particularly in terms of delays cargo issues can have on projects. It’s now just as important for the owner or developer of a project to have good risk management as it is for the insurer who is taking the risk.

What can project owners and developers do to ensure they are staying on top of these increased risks and limiting the additional costs that they present?

If you’re a risk manager moving components and parts, get yourself a shock recorder. It’s an amazing piece of kit that costs a few hundred dollars and attaches to the component or part that you’re moving. It will record any shock or bang along the way, and when it gets to the project site, you’re able to figure out, using its GPS tracker, where exactly a shock occurred.

It’s massively important to have this information. You can often get the delivery of a power transformer and, from the outside, it looks fine. But then you look at the shock recorder, and you can see it’s suffered an 8G shock while getting discharged from a port in Karachi. You then immediately know that you need to start checking if the coils are still working. You will also be able to tell who the guilty party is for this damage!

My second recommendation is getting a surveyor. Surveyors can be hired anywhere in the world, and they carry out a physical study of any damaged property. While insurers normally hire surveyors, having your own surveyor to monitor the load / discharge and transit of key equipment will give you the peace of mind that insurers are abiding by their own obligations. Surveyor costs are minimal when you consider that the daily indemnity for a delay in start-up can be well in excess of 100k per day, and that averages on delays are around 30 days. Therefore, hiring a surveyor is a no-brainer.