“Insurers have been warning for years that the increasing size of vessels is leading to a higher accumulation of risk,” says Allianz.
The ever-growing size of ships continues to raise concerns in the insurance industry.
In the 2019 edition of its Safety and Shipping Review, released Tuesday, Allianz Global Corporate and Specialty highlighted the challenges big ships present to the industry, saying, “Insurers have been warning for years that the increasing size of vessels is leading to a higher accumulation of risk. These fears are now being realized, potentially offsetting improvements in safety and risk management.”
Over the past 50 years containerships have increased in capacity more than tenfold, said Allianz. It contrasted ships such as the 1968-build Encounter Bay with 1,530-TEU capacity with the 21,413-TEU OOCL Hong Kong built in 2017. Hyundai Merchant Marine has a dozen 23,000-TEU ships on order from Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries (SHI), and 24,000-TEU ships are under discussion.
“We’ve been talking for a while how the economy of scale for one portion of the industry, the marine asset, doesn’t necessarily equate to an economy of scale for the entire supply chain,” says Andrew Kinsey, senior marine risk consultant at Allianz. “We’re seeing this with the ultra large container vessels when we talk about port infrastructure — raising of bridges, dredging of harbors, raising of cranes. And that’s just to service them when they’re in good condition.”
When things go wrong, big ships create another set of problems.
Following a number of incidents in recent years, the shipping industry should question whether it is running acceptable levels of risk for large vessels, said Kinsey. “There is a push for efficiency and scale in the shipping industry, but this should not be allowed to give rise to unacceptable levels of risk.
“We continue to see the normalization of risk in the shipping industry. There have been welcome technical advances in shipping, but we do not yet see a commensurate safer environment. There is now much talk of automation and autonomous vessels and how this will be safer. But in truth, innovation will be driven by the bottom line.”
Chris Turberville, head of marine hull and liabilities for the U.K. at Allianz, said, “It is very clear that in some shipping segments, loss-prevention measures have not kept pace with the upscaling of vessels. This is something that needs to be addressed from the design stage onwards.”
Kinsey pointed to the 7,510-TEU Yantian Express, a Hapag-Lloyd containership that caught fire in January while crossing the Atlantic, as an example of how vulnerable large ships can be.
“There is testimony from the crew that that fire started in a single container and that led to the general average of the entire vessel,” he said. “It’s shocking and people don’t understand.”
General average requires shippers to contribute to the expenditures made to preserve a ship and its cargo.
“We can’t be worrying about putting out fires on ships,” said Kinsey, saying dangerous cargo has to be prevented from getting loaded aboard vessels.
Stricken ships may have trouble finding a place of safe refuge, since ports don’t want vessels in distress in their ports and tying up their infrastructure.
The Yanntian Express, for example, was coming from Sri Lanka and bound for Halifax, but when Hapag-Lloyd declared general average, the ship was towed all the way to Freeport, Bahamas.
General average is a complex undertaking, noted Kinsey, and when a shipping company has to decide where that work will be done, a big part of the decision is driven by availability. He explained that cargo has to be taken off the ship and inspected and there needs to be a holding area where that work is done.
With the increasing size of ships, “looking at the sheer volume of these vessels —it’s rewriting how general average is being looked at and conducted because there’s just so much real estate and infrastructure that these incidents are taking up.”
In another high-profile casualty, a 2018 fire aboard the even larger 15,226-TEU Maersk Honam, five seafarers lost their lives. General average work was performed in Jebel Ali. But Kinsey noted, “You don’t always get the situations where you can go into a United Emirates port equipped to handle those vessels and has extra capacity.”
According to a presentation by Tony Brain of Braden Marine, the Maersk Honam was carrying 7,860 containers (3,300 20-foot containers and 4,500 40-foot containers).
Damage was concentrated in the forward part of the ship, but still Allianz said “salvage and general average represented close to 60% of the cargo value. A high contribution has also been requested for the Yantian Express.”
Roanoke Insurance said its claims team historically saw general average and salvage security guarantee amounts ranging between 10% and 20%, “but lately as evidenced with the Honam, these amounts appear to be on the rise. This is why it’s so important to carry cargo insurance. Shippers interest cargo insurance protects a shipper’s merchandise from physical loss or damage, covers general average losses and facilitates the process of releasing a shipper’s cargo from the steamship line.”
While the Allianz report found the number of “total loss” casualties of ships decreased last year, Kinsey said another troubling trend is climate change and the effect that may have on shipping along the Mississippi River.
“We just saw the first of this month on Saturday hurricane season started,” said Kinsey. “This is the first time I believe any of us have seen a hurricane season start with a river running this high for this long.”
At the time of Hurricane Katrina in 2005, “I believe the river was at 4 feet; now we’re over 16 feet. So the levees are already, up and down the Mississippi, being pressured; the infrastructure is strained. If we were to look at a hurricane event coming up the Mississippi pushing water even more, I have no idea what would happen, but it would not be good. There’s a lot of people worried about it and we should be worried because we’re entering uncharted territory.”
High water is delaying grain and soybeans from being loaded on ships.
“You have ships that are at anchor in the Mississippi for prolonged periods of time, leading to machinery claims because their ground tackle — their anchors and their chains — are not designed to withstand these stresses. There’s so much silt and mud that they’re actually being buried There are situations where vessels actually can’t raise their anchor after standing by for two weeks.”