Traversing over 225 miles, the Red River Waterway has become a strategic cargo and customs hub for the South. It is linked to the Mississippi River and Gulf Intracoastal Waterway and it also sits amidst a Louisiana Highway system, major interstate highways and Louisiana’s railway system, which can deliver cargo to any city in the United States within 7 days. Along the River, there are a series of 5 lock and dam structures that perform a stair step effect on the river, creating controllable pools and passageways for river traffic. There is also a network of public and private ports and surrounding industrial complexes that heavily rely on barge transport of oversized cargo that would be impossible to move by land or air.
The Lindy C. Boggs Lock and Dam experienced a mechanical gate failure on April 2, 2012. The Red River Waterway system schedules maintenance waterway closure typically for 1-2 days per year, but the unexpected failure trapped five southbound vessels with tows until its reopening on April 17, 2012. The costs of closing the Red River Waterway in Louisiana for 15 days haven’t been fully totaled, but they’re adding up to millions of dollars.
The Insurance Journal recently published an article from the Shreveport Times:
Since the lock near Marksville reopened, Red River Valley Association Executive Director Richard Brontoli has been collecting data from affected companies and compiling information about the closure’s impact to the waterway economy. The data is still incomplete, pending shipping firm reports.
However, the costs are many and varied, Brontoli told The Times and they affect the shipping and user companies and Red River Waterway entities like the Port of Caddo-Bossier. They include costs associated with unavailable equipment, crew and cargo maintenance, and tow rental costs.
Some of the stalled barges were empty and on the way to be reloaded, Brontoli said. Others carried petroleum, scrap metal and other commodities.
He said demurrage, the cost associated with delay of cargo, averages about $250 per day per barge. Each of the six tows held up on the waterway was pulling six barges — for a $135,000 total impact.
Barges carrying cargo bound overseas must arrive on time, or the cargo must be replaced and delivered from a different source, Brontoli said. That can be a huge expense — at least $1 million for stalled petroleum barge, he said.
Stalled equipment earns no revenue, but, worse, disrupts companies’ scheduling for weeks, Brontoli said. Shipping companies couldn’t meet pending contracts, requiring them to send other assets or contract with other companies or divert other assets. There are also losses due to missed opportunities because the equipment is unavailable for potential future deals and contracts.
Are these losses insured and recoverable? It depends. Cost and Freight insurance as well as Machinery in Transit or Project Delay Insurance, if purchased, may help offset the costs of the product delivery delay. However, the estimated cargo delivery losses is minimal ($135,000) compared to the economic losses sustained as a result of the waterway shut down. Depending on the language of the commercial policies in effect during the two-week shut down, these losses may be covered by some Difference in Conditions (DIC) policies, Extra Expense Provisions or even Contingent Business Income policies. However, the definition of “damage” under these potential coverage forms (whether “physical” or “loss of use or functionality”) will be the topic of controversy for months.