Insuring the risks associated with mega ships

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A year after MS already administered ran aground in the Suez Canal, blocking the waterway for six days from March 23, 2021, another Evergreen vessel, MS always aheadis currently stranded in Chesapeake Bay, Maryland, USA.

With a length of 334 meters and a container carrying capacity of 12,100 twenty-foot equivalent units (TEUs), always forward is much smaller than the 20,000 TEUs nearly 400 meters long never given – both operated by Evergreen Marine, a Taiwanese container shipping company.

It is also a different situation from the Suez Canal incident. always forward does not block maritime traffic to and from Baltimore, let alone the Suez Canal, which handles about 12% of world trade. However, the time it takes to bail out always forward demonstrates the complexity of such exercises.

Big ships can get stuck, especially on a soft mud seabed, which means they need a lot of pulling power, favorable tidal conditions or maybe a bit of dredging or removal of fuel/cargo in order to refloat the vessel, otherwise all of the above.

Grounding Statistics

Grounding is the second leading cause of total losses for all transport vessels in the past decade behind sinking (sinking), accounting for one in five ships lost (172 of 876).

There have been 205 reported grounding incidents involving container ships worldwide in the past decade, which is about 1 in 10 incidents involving container ships. However, only 10 resulted in total casualties.

The Chesapeake Bay is part of the East Coast Maritime Region of the United States. According to our analysis, vessel losses are rare on the US East Coast – only nine in the entire region in the past decade (2011 to 2020) and only one in the immediate vicinity of this ongoing incident.

What are the challenges of mega-ships in general? From a risk management perspective, what lessons can be learned from the Suez Canal incident?

Insurers have been warning for years that the increasing size of ships is leading to a greater accumulation of risk. Those fears are now coming to fruition, potentially offsetting long-term improvements in safety and risk management. These vessels generate economies of scale for shipowners, but also a disproportionate cost when things go wrong.

Managing incidents involving large vessels, such as fires, groundings and collisions, is becoming increasingly complex and costly. Container carrying capacity on ships has increased by 1,500% over the past 50 years and doubled over the past decade and a 224,000 ton, 400 meter long vessel that can carry up to 20,000 containers like never given is in the top 1% in terms of ship size on the ocean.

In addition to groundings, fires aboard large container ships are now commonplace and such incidents can easily result in large claims of hundreds of millions of dollars or more.

The size of a vessel can significantly increase salvage and general average costs. For some time, many in the salvage industry have warned that container ships are getting too big for situations like this to be dealt with efficiently and economically.

Mega-ships require specialized tugs and finding a port of refuge with the capacity to handle such a large ship can be difficult, increasing the costs of salvage operations. For example, the salvage and removal of the wreckage of a large cruise ship called Costa Concordia 10 years ago it cost the industry an estimated US$2 billion due to wreck removal, seabed restoration and other costs for the huge amount of resources that have been invested in this case. It is clear that in some segments of shipping, loss prevention measures have not kept pace with the upgrading of vessels. This is something that needs to be considered right from the design phase. And with 24,000 TEU ships on the horizon, we now see the implications of what could happen more regularly in the future.

Was the MS Ever Given incident a wake-up call for the industry? How to improve risk management and security?

First, it is important to note that a waterway like the Suez Canal has a good safety record overall. Around 19,000 ships use this waterway each year and over the past decade there have been an average of only eight incidents per year. It is also important to note that the shipping industry has also seen a long-term improvement in its safety record over the past decade, thanks to improvements in ship design and technology, increased regulation and advances in risk management, such as more robust safety management systems and procedures on ships.

That said, there is no doubt that this incident will encourage future learning. Container ships of 24,000 TEUs are now at sea. The insurance industry has always supported the development of the maritime industry on the condition that shipowners take into account the risks that accompany any increase in size. Building ships for economies of scale is not enough.

We need to take a closer look at how we can minimize the risks of mega-ships, especially in ports or at bottleneck passages like the Suez Canal or the Panama Canal, given the disruptions we’ve seen that grounding incidents can cause.

If a ship ran aground in one of these waterways, specialist tugs would be needed and the port and canals would need access to adequate resources at relatively short notice. There can be valuable lessons to be learned about piloting in these waterways, especially when it comes to mega ships. For example, it may be best to impose additional restrictions on mega-ships entering narrow stretches of canals depending on certain weather conditions.

Of course, there are risks to mega ships other than grounding. Insurers such as Allianz and the International Marine Insurance Union have long warned of safety concerns surrounding fires on large container ships, promoting improved ship design and fire-fighting equipment. fire fighting to prevent and extinguish fires. The industry standard should be that any ship, including a very large container ship, has the capability built into its design to fight most fires on board itself. It is clear in many cases that this is currently not the case.

What challenges do incidents involving large vessels pose to claims practitioners?

Managing incidents involving large vessels, such as fires, groundings and collisions, is becoming increasingly complex and costly from a loss perspective. For example, data from the Nordic Association of Marine Underwriters has previously shown that the costliest 1% of all claims account for at least 30% of the value of total claims in any given year. For claims teams, working on such large marine incidents means being available 24/7 and working closely with rescuers – as the primary underwriter in such an incident, you must even negotiate with the rescuers in order to obtain the best contract in a very short time. space of time, often in a highly pressurized environment.

Will it become more expensive, if not impossible, to insure mega ships?

As a marine insurer, we want to support the industry and its growth. We have nothing against the enlargement of vessels, but all the additional aspects that come with this increase in size must be considered from a risk management perspective. For many years, regulations have not kept pace with the growth of ships and regulatory modernization is urgently needed to ensure the sustainability and safety of container ships.

We expect the shipping industry to respect safety rules for onboard operations and to work continuously to improve safety. We all need to think more innovatively.

This The article is provided by marine insurer Allianz Global Corporate & Specialty, which monitors and analyzes risk scenarios in the shipping industry and publishes the Safety & Shipping study annually.

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