Fourth Generation Modular Construction

Transcription

1 Allianz Global Corporate & Specialty Fourth Generation Modular Construction Marine Insurance Challenges: A technical report.

2 Foreword by Ron Johnson Modular Construction Trends Challenges and common problems Recommendation and conclusion

3 Foreword Availability of adequate insurance protection underpins the financing of major projects. The marine insurance industry plays a key role in this through providing insurance protection on critical components needing to be transported to site. The shift of resource based projects away from the traditional stick build to modular construction has created significant new challenges for the marine insurance industry. The size and complexity of the modules has escalated to the point of mega modules now being built. Super modules exceeding 2000 metric tonnes are now on the drawing board*. With many of the new resource projects being located in remote regions of the world some distance from the port, safe transportation to site of these modules is testing known limits for not only sea transport but also for road transport and associated infrastructure. Ron Johnson Regional Manager Marine AGCS - Pacific ron.johnson@allianz. com.au This paper is intended to outline some of the challenges to both project owners and/or their marine insurers created by what is now generally considered to be the 4th Generation of Modular Construction and touches on the risks created by even bigger and more complex Super Modules contemplated. Ron Johnson Regional Manager, Marine Allianz Global Corporate & Specialty - Pacific * Department of Commerce and Industry Capability Network, 2011, Dr Martin West.

4 Modular construction trends Traditional stick build construction involved procuring of equipment and materials worldwide and shipping them to site for assembly and fabrication. Over the past decade, the larger resource projects have increasingly turned to pre-assembled modular construction in lieu of the conventional stick build construction. The main drivers behind this shift are largely cost related but other influential factors include: lack of available qualified labour at site; reduced construction times; improvement in construction scheduling; better control of fabrication quality; and minimising any environmental risks. This is not all that somewhat surprising given many new global resource projects are located in remote regions of the world. There can be various levels of modular construction. Early modular construction tended to focus on prefabrication and assembly of a basic steel structure at an offsite fabrication yard and then shipped to site for fitting out and installation of critical components. The more complex 4th Generation of modules now being constructed tend to be shipped as largely complete units that often incorporate long lead time critical components that have been shipped by manufacturer to fabrication yard for inclusion in the module. Where such critical items are shipped at manufacturer s risk can create issues for project owners on the effectiveness of any cargo insurance arranged for the project in responding to coverage of such items. Modular construction techniques have been employed in the offshore energy sector for some time created by the necessity of working offshore, often in remote locations and the confined spaces of an offshore platform. This is not dissimilar to what many of the new significant onshore resource projects face in getting a mine operational in a remote location. The one significant difference is that the onshore projects will often involve significant overland transport that to date has limited the size of modules. With the emergence of the mega modules, logistics companies are now being expected to resolve the dilemma of how to get the larger and more complex 4th Generation modules to site having limited prior experience on which to plan and base assumptions on. The risk of a delay in completion of a project due to loss of one or more of the new 4th Generation complex modules during transportation to site is often overlooked when conducting a cost-benefit analysis when developing a feasibility study for a project using modular construction. Lead times for replacement of the more complex modules can often push out to some 24 months and result in a significant delay in completion if lost or significantly damaged during transportation to site. Whilst this exposure can be insured under a Marine Delay in Start Up Insurance cover, more detailed risk management planning should be the first step in minimising the exposure.

5 Challenges and common problems Challenges for marine insurers With traditional stick build construction, cargo underwriters would generally only be faced with one or a small number of key high valued critical components. The balance largely being made up of materials of lessor value shipped as conventional containerised or break bulk freight and easily replaceable within a short time frame. In such cases, cargo underwriters could reasonably rely on packaging and preparation of these materials being to an acceptable industry standard and overland transport would be by conventional road transport. The complexity and size of the new 4th Generation modules create exposures not previously contemplated by cargo underwriters when assessing a particular risk. The value of a single module will be significant and often incorporate some of the highly sensitive and critical items the cargo underwriter would be very concerned about. These items alone would generally qualify as critical and requiring a pre-shipment survey in their own right. Now they will have already been installed in the much larger module and potentially exposed to greater risk during the sea and/or land transport that can often be by barge. Transportation of modules from shore based fabrication yards over water offer their own unique challenges but with the benefit of sea buoyancy, steps can be taken to adequately support the module during the sea voyage. While the offshore energy industry has not been without its occasional disaster, lessons learned over time have enabled it to develop best practice models to follow. Risk management plans will generally include well documented procedures in planning for safe sea transportation of the modules covering lift, load, stow and securing procedures. These will: Generally be required to be undertaken in accordance with plans and method statements drawn up by suitably qualified naval architects and engineers that have been peer reviewed. Often form part of the lead EPC contract including the requirement for the appointment of a Marine Warranty Surveyor to attend and ensure the method statements are followed. The challenge for cargo underwriters of inland based resource projects is that all too often risk management procedures for the project tend to merely focus on risks at the construction site ignoring both sea & overland exposures created with 4th Generation modules. The logistics of transport of modules to site is generally outsourced to third party service providers who will have competing interests. The risk is that cost and time constraints may take precedence over the need to plan and arrange for safe arrival of modules at site in good order. Lead EPC contracts will often be silent on this subject leaving cargo underwriters with the challenge of having to effectively take over the entire risk management procedure to ensure safe arrival at site. The costs of such surveys has long been recoverable from Insured s under standard clauses in the cargo insurance wording but, with 4th Generation modules, the extent of the survey work required where the client has no other documented plans may be considerable and escalate even during the life of the project. In such cases, cargo underwriters of procurements for the project will ultimately pick up any losses arising above the deductible but these may have been avoided through better risk management planning of the sea and land transportation procedures in the first place. A further complication arises with 4th Generation modules when an Insured under a project cargo insurance program seeks to have the cover respond to critical components supplied at the risk of the manufacturer during shipment to the fabrication yard. In such cases, notification of shipment and control of the logistics process to the yard will be outside the scope of the lead contract often resulting in the work being undertaken largely unsupervised. For 4th generation modules project managers would be wise to address the risk and control of critical components during the tender process.

6 Heavy weather plans, Monitoring during voyage (temperature, moisture, etc.), Crane &/or SPMT capabilities, Piracy planning(bmp 4), Port facility capabilities to load & discharge cargo, and Quarantine. Marine surveying challenges A major challenge confronting cargo underwriters is that there are limited project cargo surveyors with the skill and experience to handle surveys of the mega modules now being utilised for many of the resource projects. The skill sets required are significantly different to those of the traditional cargo claims surveyor where the focus is on identifying cause of the casualty, subrogation and determining a course of action for repair/replacement of damaged interests. The project cargo surveyor s prime aim is to ensure all manageable risks the cargo may be exposed to during both sea voyage and overland transportation have been addressed in an effort to minimise the chance of something going wrong. Advance planning is the key in all this and the more detailed the planning by a project owner or EPC contractor, the less work that will be required by the project cargo surveyor. The areas that advance planning should address are: Planning & Preparation of Sea Voyages Vessel selection, Stability calculations, Above/Below Deck Stowage, Seafastening arrangements including cribbing and grillage and all assumptions, Cargo capability to withstand loads imposed during voyage, Wind draft & trim, Deck strength, Crew management, Water depths at berth, Sufficient freeboard space to enable protection of cargo, Planning & Preparation of Overland Transport Route survey to identify, height limitations (Bridges, Overhangs, etc.), Weight limitations(roads & bridges), Clearance (railway crossings/road cambers/road works), Emergency plans, and Traffic laws and regulations including permits, signage and escorts. Method statements for lift/load/secure on vehicle, Condition & Suitability of the vehicle, Experience of the crew, Unloading capabilities at site, Ground conditions at site to cope with the load, and Distance from unloading to laydown area. Common problems The sort of problems frequently encountered when undertaking surveys generally arise out of limited pre-planning. They can include such things as: Availability of a suitably experienced marine surveyor at load or discharge ports. Unsatisfactory lift, load &/or securing arrangements. (should be peer reviewed) Lifting points not identified. Weight not shown. No proper inland route planning. Lack of functional logistics risk management team. Lack of coordination of contractors and resources. Service provider s contracts do not meet needs of project. Poor communication and escalation procedures. No plans for pro-active loss prevention and periodical reviews. No road permit. Unstable ground conditions.

7 Recommendation and conclusion Recommendation Successful on time completion of a project relies heavily on safe arrival at site of key procurements. Marine insurance can only meet the cost of repairing or replacing damaged or lost items and not on time completion of the project. Thus, the key to on time completion of a project is heavily reliant on proper risk management planning to minimise the risk of loss during sea and/or overland transportation of the key procurements to site. Project owners and/or EPC contractors would be wise to address the following matters in advance of finalising contracts: Ensure the EPC contract addresses both sea & land transport risk management plans. Make a decision early about the need to appoint a MWS surveyor and for what. Assemble a functional logistics risk management team during planning stages. Draw up a documented escalation procedure early and include in contracts. Select a logistics manager for the project with a tried and proven track record in managing shipment of modules including overland transport. Select a lead cargo insurer with strong in-house marine risk management capabilities that can support project managers in planning the safe arrival of cargoes rather than relying on external parties with conflicting interests. In the era of mega modular construction where lead times for replacement of critical modules can stretch out up to 24 months, project owners would be well advised to consider the purchase of Marine Delay in Start Up Insurance. Conclusion Advancement in modular construction techniques for resource projects continue with Super Modules now under consideration for onshore projects involving significant overland transportation to site. These are likely to test the known capabilities of current road transport and associated infrastructure. In the era of 4th Generation of modular construction, lead times for the replacement of new mega modules are increasing significantly. Marine cargo insurance will not replace the need for extensive risk management planning of transportation of critical components for a project to site to minimise the risks of delay in completion of a project that may arise from events during transportation. As the lead times for replacement of the new more complex modules increases, the demand for Marine Delay in Start Up Insurance is likely to increase driven by both project owners and financiers seeking to protect their interests in the project.

8 Copyright 2013 Allianz Global Corporate & Specialty SE. All rights reserved. The material contained in this publication is designed to provide general information only. Whilst every effort has been made to ensure that the information provided is accurate, this information is provided without any representation or warranty of any kind about its accuracy and Allianz Global Corporate & Specialty SE cannot be held responsible for any mistakes or omissions. All descriptions of coverage are subject to the terms, conditions and exclusions of the individual policy. Allianz Global Corporate & Specialty SE Fritz-Schaeffer-Strasse 9, Munich, Germany Commercial Register: Munich, HRB