As container ships get bigger, insurance becomes more complicated. Some rules changes may be needed.

By: | at 11:23 AM | Channel(s): Liner Shipping  

Last June, the MOL Comfort was underway from Singapore to Jeddah when it experienced a crack in its hull 200 nautical miles off the coast of Yemen. The ship eventually broke into two and sank. The vessel, carrying 7,041 teu, represented the largest cargo vessel loss last year.

A report by the classification society ClassNK suggests that structural weakness in the hull caused a fracture at the bottom of the vessel. Sister ships of the MOL Comfort were all structurally inspected and strengthened when necessary.

Because the ship sank, no definitive cause of the incident was ever reached. But experts also questioned whether the ship had been improperly loaded. Inaccuracies in container weights and problems with misdeclared cargo could have been a cause of the ship’s undoing.

The MOL Comfort comes from a relatively recent generation of container ships. But the Comfort’s capacity is dwarfed by the size of the latest classes of box vessels. Mærsk’s Triple-E class, launched in June 2013, can carry 18,000 teu. By 2018, industry experts say, capacities will grow to 24,000 teu.

The advent of these mega ships complicates the marine insurance picture. The larger the ship, the greater the potential risks and losses and the more difficult and costlier are salvage and wreck removal activities. In 2008 the largest vessel accommodated 14,000 teu, with a typical insured cargo value of $280 million. Future 24,000-teu vessels could take the insured cargo value up to $480 million, which, combined with the vessel value, takes the total exposure of a fully-loaded ship to over $700 million.

“The risk profile for large container vessels has changed in several ways,” said Tim Donney, Global Head of Marine Risk Consulting at Allianz Global Corporate & Specialty. “As ships get larger, the potential for losses are greater. The structural integrity of the vessel becomes more of a concern. The diminishing crew size increases the potential for operational error fatigue and ability to respond to fires and emergencies.”

Current large container vessels carry a crew of 18 or 19. Future mega ships may only carry only 14 personnel, Donney noted.

In addition to all of these problems, there is the issue of the cost of salvage or wreck removal of stranded or partially sunk ships. There is also the question of finding a port of refuge for disabled mega ships. Not every port can accommodate a vessel of that size.

The concern over structural integrity of mega ships is related to the longitudinal strength of the vessel and its vulnerability to sagging, especially when the cargo is not loaded properly. “The weight must be properly distributed over the length of the ship,” said Donney. “But there is a chronic problem with misdeclared cargo and overweight containers. These problems get exacerbated as a ship gets larger.”

Carriers generally have the only bill of lading or manifest to go by when scrutinizing the contents and weight of a container. As a result of misdeclarations of container contents, hazardous materials that should be carried on the deck could be stowed in the hold. Inaccuracies in container weight have an obvious impact on vessel load planning.

“As hull values get higher it is becoming more challenging to provide the level of coverage that a vessel owner might need,” said Donney. “In addition, the costs of salvage, wreck removal, pollution liability and cleanup for these size ships are staggering.”

Finding ports of refuge for disabled large container ships also pose a problem. In 2012, the 6,750-teu MSC Flaminia, on route from Charleston to Antwerp was disabled 1,000 miles from the European coast as a result of a fire and had difficulty finding a port that it could be towed to. “Ports didn’t want that size ship because they didn’t have the space or they didn’t want to create congestion or they didn’t want to deal with the possibility of pollution and liability,” said Donney.

The ship was eventually towed to Wilhelmshaven, Germany. Misdeclared cargo was thought to be the cause of the Flaminia’s problems. “Finding ports of refuge for mega ships will be a real issue in the future,” said Donney.

In order to anticipate these complexities, marine insurance companies are revisiting the concept of the general average. This old maritime concept holds that if the master of the vessel takes action and incurs additional costs for the benefit of the voyage, those costs may be assessed against the vessel owner and the cargo owners alike. Traditionally the steamship line won’t release any of the cargo until the general average is paid.

When the APL Panama, carrying 1,500 containers, went aground off the western coast of Mexico in 2005, it took over five years to resolve the general average claims, leaving the cargo, including undamaged containers, in limbo in the interim.

“The existing general average rules worked better when ships were smaller,” said Donney. “With mega ships, a more proactive response is required.” The industry is exploring the possibility of releasing sound cargo while general average claims are being litigated.

“The same applies to salvage or wreck removal,” said Donney. “This becomes very expensive for large ships. Salvors require posting of funds before getting started. These can take a while to collect, yet there is a need for a quick response.” Here, the idea is for vessel and cargo owners to post a salvage guarantee instead of cash.

Owners of mega ships, for their part, need to develop contingency plans for disaster scenarios along the routes their vessels are sailing, according to Donney. “They need to identify what resources are available along the route in the event a vessel runs aground and gets stranded,” he said. “The ships needs to be equipped with cranes off sufficient reach to help remove container if the ship runs aground. There need to be large tugboats in the vicinity which can tow a ship on the open ocean.” The MV Rena which struck a reef of the coast of New Zealand in 2012, was only able to remove one or two containers per day and eventually broke apart, losing much of the cargo.

“Ship owners who have contingency plans will be considered better risks by underwriters and will get better pricing,” said John Barnwell, Alianz’s Global Head of Marine Americas.

Insurers would also like to see rule changes that would require carriers to weigh containers before they are loaded. “But the regulatory process moves at a snail’s place and is very bureaucratic,” said Barnwell.

The good news, both insurers and their customers, is that, according to Barnwell, “there is plenty of capacity in the market” for insuring both hulls and their cargoes.

Peter Buxbaum's avatar

American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.