As Hurricane Harvey barreled eastward from Houston, Port of Houston officials spoke of restarting operations by Labor Day (Monday, September 4) after its channels are checked for shoaling and obstructions. The eighth busiest container port in the U.S. reported no major damage to its terminals, warehouses or storage facilities, and traffic was diverted to other regional ports and processing facilities away from the storm’s path. Maritime officials, it seems, have learned lessons from Superstorm Sandy, where cargo was hastily unstacked in anticipation of high winds before a devastating storm surge caused extensive damage to cargo, chassis, and port warehouses.
While businesses have suffered increased shipping rates and logistical disruptions due to Harvey, initial reports indicate that transit-related losses have been limited. However, static goods at inland warehouses may not be so lucky. According to the RMS® Marine Cargo Model, damage is most likely to befall shipments whose commodities, packaging, or storage is susceptible to wind, rain, and flood water contamination. This includes automobiles (most vulnerable in open lots); pharmaceuticals — where any contamination can result in total loss; consumables and temperature-controlled goods (perishable); electronics — particularly those without water-resistant packaging, and bulk cargo in open lots.
Commentary from marine industry practitioners suggests that some cargo claims may be subject to separate wind and flood deductibles, depending on the wording of the policy form. Additionally, cargo written on a stock throughput form may be most susceptible to insurance claims given the breadth of its coverage, where any damaged raw materials, work in progress, finished goods, or even stock in retail stores, are deemed compensable.
Figure 1. Port of Houston – Jacintoport Terminal. Left image – Google Earth; right image RMS digitized marine port IED
Since its release in 2016, the RMS Marine Cargo Model is being actively used by (re)insurers to study, understand and quantify the risk to marine cargo exposures from earthquakes, hurricanes, and storm surges. The Marine Cargo model is accompanied by port exposure databases for over 150 major ports across the world.
Analysis of cargo exposures at the Port of Houston reveals bulk cargo, which can be particularly susceptible to damage when stored in open lots, represents a large proportion of the Port of Houston’s traffic. According to RMS estimates, an average daily value of US$2.4 billion in bulk cargo is at risk, consisting of break, dry, and liquid bulk commodities.
Considering cargo values and dwell times — how long cargo spends in port due to processing and customs — RMS estimates that the Port of Houston has an average of US$7.6 billion in cargo at risk on a daily basis. This figure can fluctuate with individual shipments, and peaks during the year-end towards the holiday season.
Figure 2. Daily exposure at risk (US$) at the Port of Houston, split by cargo type
Houston is a petroleum-heavy port, with more than US$3.5 billion worth of petroleum and related exposure at risk at any given time. However, most of this is stored in tanks designed to withstand significant wind loads and flood depths.
Assessing the full extent of the impact of Hurricane Harvey to the marine cargo industry may take several months. Marine cargo can move, inventory levels can change, and commodity values fluctuate on a near-daily basis. In time though, the industry will see if it has learnt from recent large marine cargo losses in Tianjin and Sandy, to introduce measures to improve packaging, risk mitigation and cargo protection.
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Chris Folkman is a senior director of product management at RMS, where he is responsible for specialty lines including terrorism, casualty, wildfire, marine cargo, industrial facilities, and builders' risk. He has extensive experience on both the broker and carrier sides of insurance, where he has led many aspects of property and casualty operations including underwriting, pricing, predictive analytics, regulatory affairs, and third-party commercial coverage and claims.
Prior to RMS, he was a managing director at CompWest Insurance Company, a workers’ compensation start-up that was acquired by Blue Cross Blue Shield of Michigan. Chris holds a bachelor's degree from Stanford University. He is a licensed insurance broker and a Chartered Property and Casualty Underwriter (CPCU).
