Wednesday, March 29, 2017

Transportation Risks in Latin America: the Importance of Infrastructure

Cargo capacity and operation techniques have changed dramatically over time. Containers and “intermodalism” now allow cargo to be carried with minimum interruption by ships, trucks and/or trains. To boost efficiency, there has been a race to build larger means of conveyance capable of transporting more containers, thus making better use of transoceanic voyages or long road trips. In fact, container ships have evolved from 1,000-2,500 Twenty Foot Equivalent Units (TEUs) in the 1970s and 1980s to over 18,000 TEUs today.

Though the conveyance in which goods are transported will always be important, it becomes apparent that without proper infrastructure, the risk of loss may be higher than acceptable. Ports need facilities to accommodate large ships, including dredging, pilotage, and improved mooring, refueling and servicing capabilities. The additional cargo these vessels are capable of transporting require adequate discharge machinery, personnel and temporary storage facilities, and better land transportation to other destinations. Special cargo, such as refrigerated food for human consumption transported in reefer containers, needs an uninterrupted source of electric power to protect the cold chain.

No underwriting evaluation is complete without considering the available infrastructure on the transportation route, bearing in mind that unpredictable circumstances can force a ship to make an unplanned stop along the way (the three stools of cargo underwriting are “conveyance/voyage/commodity”). The Latin American region, comprised of over 20 countries in two continents, is vast, and infrastructure situations may differ immensely.

When infrastructure and logistics are inadequate, disaster can rapidly ensue. The grounding of the APL Panama in 2005 while trying to enter the Port of Ensenada in Baja California, Mexico, is a good example. The 874-foot ship was not assisted by tugboats and the port pilot was not on board the vessel as she attempted to enter port. Given the size of today’s ships, pilotage availability and sound, duly enforced service procedures for port maneuvers are increasingly important.

Other infrastructure and logistics problems include cold chain deficiencies caused by insufficiency or lack of power hook-ups for reefer containers while merchandise is waiting to pass customs or while stored in warehouses. Frequent power grid failures are also a very common problem in some countries.

The design and maintenance of roadways for ground transport, availability and reliability of communications and police efficiency against the risk of robbery should also be evaluated as prime infrastructure offerings, among other factors.  

Clearly, investments in infrastructure in Latin America as a whole are not at desirable levels today, which negatively affects insurable risks. The challenge is local circumstances combined with social and political objectives as well as the economy of that particular country. As a result, risk  can and will vary significantly depending on the route chosen, the countries and specific ports visited, and distribution centers or warehouses involved. Underwriters are advised to gather as much information as possible relating to available infrastructure in an effort to achieve acceptable results.

Posted by Daniel Baron* and Jorge Pecci

*Not licensed to practice law in Florida.  

Jorge Pecci is President and CEO of SafeWaters Underwriting Managers
SafeWaters Underwriting Managers is a series of RSG Underwriting Managers, LLC. RSG Underwriting Managers, LLC is a Delaware series limited liability company and a subsidiary of Ryan Specialty Group, LLC, specializing in underwriting management and other services for insurance products distributed through agents and brokers. In California: RSG Insurance Services, LLC License # 0E50879 ©2017 Ryan Specialty Group, LLC