Crumbling Great Lakes Ports Infrastructure Makes Port Insurance Even More Critical

April 4, 2024

© icholakov / Adobe Stock
© icholakov / Adobe Stock

The state of Great Lakes port infrastructure is one of the biggest issues facing the U.S. and Canadian maritime industries. According to the America Great Lakes Ports Association, “Due to years of inadequate funding, the U.S. Army Corps of Engineers has been unable to maintain Great Lakes navigation infrastructure. Over the next five years Great Lakes navigation channels will require $540 million of dredging to maintain authorized channel dimensions. Breakwaters and other federal navigation structures need $505 million in repairs.”

The Great Lakes St Lawrence Seaway navigation system is a critical trade artery stretching over five Great Lakes and 2300 miles from the Gulf of St Lawrence to Lake Superior. In 2023 around 32.6 million metric tons of commodity traffic passed through more than 100 ports on the seaway transporting concrete, grain, iron ore, break bulk as well as managing a bustling cruise trade.

However, while trade is brisk, most of the federal harbors on the U.S. side were constructed between 1860 and 1940 and are subjected to harsh and rapid changes in weather and wave conditions. According to the U.S. Army Corps of Engineers, waves of 10 to 24 feet in height, created by strong winds, are capable of moving large stones weighing many tons each. The Corps further report that more than half the coastal structures on the Great Lakes were built before WW1 and over 80% are older than the typical 50-year design life.

Failure of these structures to protect port facilities and coastal communities could be catastrophic and port owners and operators must be on top of the liability they face. In January 2020, for example, high winds and towering waves caused millions of dollars of damage to Port Milwaukee. Wind and water stripped off dock wall material and frozen floodwaters covered railroad tracks in a foot of ice. Meanwhile, in autumn 2023 materials arrived at the Port of Oswego as part of a $35 million project to repair its break wall, a project first started in 2018 following extensive storm damage in 2017.

In this climate it is vital ports take time to get their port insurance right. Not only could it save the port 5-25 percent of your insurance costs, and potentially hundreds of thousands on premiums, a thorough review can also secure more comprehensive coverage.

We have three core pieces of advice to secure the best insurance protection.

1) Show insurers you have a crisis management plan
It is important to show some form of business continuity plan to insurers to build confidence. While these can be expensive to produce, it is a cost worth paying. It is not enough to have an idea in the heads of the c-suite of what you will do and which suppliers you will call in the event of an accident or major storm damage. That is called a process. To drive down your premium you need hard evidence and a documented plan showing you are prepared for a crisis.

What does this mean? You need to demonstrate to your underwriters that the plan you have in place covers not just your people, who are covered under workers compensation legislation, but your property and your assets. That plan needs to show who is responsible on your team and what roles they have in a crisis.

Critically you need show you have you tested your crisis plan in case of property like cranes or cabling being damaged. Can you show you have suppliers contractually lined up to provide replacement equipment and you know what the lead-in time for parts will be? Or can you show, through testing, you have already bought the replacement equipment in case of an accident and you are ahead of the game?

And what if a port wall collapses, can you demonstrate you understand where your weak infrastructure points are and that you have a plan B in place for a ship to dock in an alternative location?

And what if your energy is knocked out? Do you have backup generators? You would think this is a super simple question to ask, but when was the last time you inspected and tested the capacity of your generators? If the generators were installed some time ago, can they still provide the power draw necessary to supply the entire port?

And what if one of your buildings is damaged in extreme weather? Do you have a contractor on hand who will prioritize your repairs at a time when many other businesses will also be looking for similar help? Where are you on the priority list?

If you can get all this in a documented, plan insurers will be much more willing to give you a better deal, saving you potentially hundreds of thousands of dollars on your premium.

2) Show evidence you are taking action and speaking to government agencies
If you have an issue with old crumbling infrastructure, you need to show what are you doing to address it. Insurers will look more favorably on you if you have documentation of meetings and engagement with local politicians who are supportive of your funding bids as well as the Environmental Protection Agency and U.S. Army Corps of Engineers. Show that you understand where your infrastructure weaknesses are, what funding you are applying for and what sub-contractors you are talking to and what their availability is. In addition, what are you saying in board meetings and how is this being reported as affirmative action rather than kicking the can down the road? In three words: document, document, document the action you are taking.

3) A disorderly and messy site will hurt you
Remember, port insurance inspections should take place most years, so take the time to clean up your site. Like an examiner marking your school work, sloppy copy and spelling mistakes will hurt your grades. If your site looks messy and is covered in debris and overgrown plants, it’s an easy way for an insurance inspector to hike up your premium. Don’t fall into the trap of thinking because you have a good safety record you don’t need to bother about appearance. You need to think like insurers think. If they see an untidy site, they will think you have an untidy business. An untidy appearance will make insurers think, rightly or wrongly, you are at a higher risk of mistakes and accidents. So, no matter who owns the site make sure it is cleaned up, tidy and safe. It will save you a massive amount of money on your premium and also give you better coverage, which means more generous pay outs when you really need it.

The author
Ed McNamara is CEO of Cleveland, Ohio-based global port insurance broker Armada Risk Partners.

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