The Connection Between Modular Construction And Project Cargo Insurance

Modular construction continuous to grow in popularity as more people move into the cities, the demand for affordable, high-quality housing has increased. Additionally, the increasing investment in the development of healthcare and commercial infrastructure around the globe also contributes to the growing demand for alternative building methods.

The modular construction market size is estimated at $63.76 billion in 2024 and is expected to reach $97.13 billion by 2029. ¹

How does modular construction work? It is a process in which standardized, repeated components of a structure, also commonly referred to as prefabricated units, are built in an off-site facility and then transported to the site where they are assembled. The modular construction industry has been experiencing significant growth in the Asia Pacific region, but the increase in logistics costs and risk in transportation is expected to affect the overall process.

One of the key drivers for the growth in modular construction projects is urbanization. A global housing crisis fuelled by high interest rates, inflation, supply chain issues and labor shortages continue to be a burden for many construction projects. And modular construction is a cost-effective way to meet this demand. Modular construction methods have significant advantages from a safety, time control, budget and sustainability perspective, all leading to increased productivity. That's precisely what the construction industry has been focusing on, implementing more sustainable processes which reduce wastage and increase safety measures. Modular construction is also a great solution to the labor shortage the industry has been experiencing on a global scale.

However, there are certain risks associated with modular construction that require preparation and a robust strategy to help mitigate them.

Transportation risks

• Concentration of value – The value of a single module can be significant with values of $400 million being known. With smaller valued module units there could still be multiple module units shipped on one vessel leading to a high accumulated value. As a result, care needs to be taken to ensure that any Project Cargo Insurance policy has adequate limits.

• Transport implications – The weights and dimensions of module units can result in a complicated transportation process to the project site. Specialist heavy lift vessels or barges may be required and therefore possible adverse weather conditions become a higher risk factor, particularly for barging. Care and attention in the form of a good transportation method statement (frequently including a route survey) is needed to help reduce/minimise the risk of loss/damage during the transportation process.

• Replacing the goods and delays – Loss or damage to a module unit during transportation may result in a delay to the project completion date. With modules usually shipping late in the project build schedule the time to resource, refabricate and reship modules can result in delays. Project Owners need to consider extending the Project Cargo Insurance they purchase to protect against delay risks. Traditionally some project sectors, such as residential, hospitality and infrastructure haven't always considered a delay insurance extension, perhaps because the individual goods involved have had shorter replacement times; modular construction methods mean this insurance extension becomes of much more importance.

Technology risks

• Building management – implementing technology that allows the manufacturer, the contractor, the engineer, the site main contractor to share information on the same platform has become a popular form of communication. But it's crucial for the communication to be effective and to involve the suppliers as well. Because all stakeholders should be aware of the project developments to avoid miscommunication between the factory where the units are being built and the site where development work is taking place.

Production risks

• Quality control – with the large number of prefabricated units' part of the same structure, it is crucial for all units to be produced to the highest quality because if one of them is incorrect then it can't be installed into the construction site. Or if you have a high number of units where the same mistake has been replicated, it can be time consuming and expensive to replace them causing further project delays.
• Installation – if the project involves installing a large number of units, then heavy lifting will be required, but that doesn't come without its own challenges because it needs additional contract work such as infrastructure considerations, heavy lifting techniques depending on the location and the implementation of a safety strategy.

Ultimately, if there is a good plan to mitigate risks and the right policy structure is in place to protect clients, modular construction projects can be delivered successfully with no significant delays.

You can listen to the Modular Construction and Project Cargo Insurance episode of our Construction Blueprints podcast series for the full conversation.

Footnote

1. "Modular Construction Market Size, Mordor Intelligence.,"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.