Capt. Rahul Khanna, Senior Risk Consultant – Marine and Chris Turberville Head of Marine Hull and Liability UK
At 400 metres long, 59 metres wide and 73 metres high, Maersk’s new Triple-E class containership, expected to enter service in 2014, is a record breaker in every sense. With the ability to carry 18,000 twenty foot containers – if they were stacked on top of each other, end to end, they would break through the Earth’s stratosphere –capacity will be 16% greater than its predecessor, the Emma Maersk. Increased size of course brings real commercial advantages as these Leviathans ply the world’s oceans in an effort to satisfy an insatiable appetite for raw materials and manufactured goods. With this increased size however, comes a greater challenge not only to the ship operators themselves but also to the port authorities who have to safely handle these large vessels. For the marine insurers underwriting the hull, cargo and liability risks, the need to understand the changing risk profile and work closely with owners, technical experts and third parties such as the Classification Societies, is essential.
Big gets bigger
Ship sizes have grown exponentially across every class over recent years whether it’s containerships, bulk carriers, tankers or passenger ships. In the 1950s for example, the tanker Spyros Niarchos was the largest ship afloat at 46,000 deadweight tonnes. By the 1970s, the first of the ultra large crude carriers (ULCCs) of 550,000 deadweight tonnes had come into service. The Titanic, the biggest passenger ship of her day, held 2,500 passengers, while the MS Allure of the Seas, along with her sister ship, the largest passenger vessels ever constructed, can carry more than 6,000 passengers and over 2,000 crew.
Much of this growth in ship size is being driven by a huge spike in the worldwide demand for raw materials. Fast growing economies such as China are calling for vast quantities of coal, oil and iron ore, and in return are churning out equally vast quantities of manufactured goods for sale in global markets. Big ships play an essential role in satisfying both import and export demands while delivering significant economies of scale in terms of fuel use and the sheer volume of what they can carry.
Managing the risk
The safe operation of such vessels is not without its challenges however when it comes to managing an accident like fire, grounding or collision. Salvage and removal costs, due to the complexity involved, increase significantly for bigger vessels reflecting the additional resources salvage companies need to mobilise. While salvors have the proven expertise to deal with the recovery of containerships like the MSC Flaminia, which caught fire in July while crossing the Atlantic and was reported to be carrying less than 3,000 units, the size and scope of the salvage challenge for ships with up to six times the number of units on board, moves them into unchartered territory.
In addition, many of these ships will be carrying as much as 15,000 tonnes of heavy fuel oil on board just for their own power, a similar quantity to that carried as cargo by a small tanker. This could be a major problem in the event of a spillage, particularly when navigating in the proximity of environmentally sensitive areas and further away from the appropriate salvage resources.
To provide trading opportunities in this challenging economic environment, charters might also be accepted to ports in developing economies where the safe handling of such ships, with their much deeper drafts reducing room for manoeuvre, has not been proven. Comprehensive information and risk assessments on a port’s suitability for a larger ship might not always be available, a problem which can be further exacerbated by language barriers.
Understanding the complexity
In this safety context, the underwriters who provide insurance cover for these huge ships are placing an increasing emphasis on understanding the growing complexity of the machinery and technology on board to really understand their clients’ risk, which explains the trend to recruit both former captains as well as marine engineers. To understand the risk in detail from experts who have first-hand experience of operating and running these vessels is a valuable resource and integral to the underwriting process.
A question of relationships
A close working relationship between insurer and ship owner/operator is seen as a priority where both can share lessons learnt from past experiences to head towards the common goal of safer ships. Underwriters look to understand the relationship between the ship owner and the vessel’s crew as part of their understanding of the overall safety management system on board ships of the insured. The technology and increased complexity means crew need more training and support from shore side and more autonomy to take decisions in the interest of safety. If a master thinks a port is not safe, does he have the ability, unaffected by commercial pressure, to refuse to enter that port? Understanding management structures is important and knowing what the corporate culture is towards safety is a key part of the underwriting process.
Insurance capacity available
Despite these challenges, there is still plenty of insurance capacity available for the hull and cargo risks for the new generation of largerships. To an extent this is due to the market having become more international than it was say twenty years ago which, while helping capacity, does raise questions as to whether the appropriate experience is available. An insurer must bring value to an operator whether it’s in sharing loss prevention resources or claims statistics to spot trends, or by physically getting on board and seeing safety management systems for themselves, in addition to offering good quality cover.
If you think safety is expensive...
While the overall trend is towards longer, higher, wider, we have seen some tapering off in the growth in size of some types of ship. ULCCs for example are no longer being built simply because the parcel size of 500,000 tons is not commercially attractive and the limited operability in shipping lanes such as the English Channel or the Singapore Straits. That said, the continued construction of containerships such as Maersk’s Triple-E class proves that the appetite for size is still there in some classes and underwriters, regulators and the shipping industry are continuing to work closely and collaboratively to understand the changing risk profile and manage the safe operation of these giant ships. The saying ‘if you think safety is expensive, then try an accident’, has never been as applicable as it is in today’s shipping industry, where safety standards can never be compromised.