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Mega-ships loss scenarios

The recent introduction of 19,000+ teu container ships – the largest ever built – demonstrates the remarkable innovation and growth in size of the industry. Cargo-carrying capacity has increased by 1,200% over the past 50 years and 80% in 10 years. With the prospect of even larger ships on the horizon, the increasing loss potential means risk management may need reviewing


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During the 1960s there was increasing recognition that containerization offered significant advantages for the transportation of non-bulk goods by sea. And so it was that four UK shipping companies, P&O, Blue Funnel, British & Commonwealth, and Furness, Withy, formed Overseas Containers Ltd (OCL).

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Container ship capacity is measured in 20-foot equivalent units (teu). Typical loads are a mix of 20ft and 40ft containers. Photo: Shutterstock.

On March 6, 1969 the 1,500+ teu capacity Encounter Bay (227m long, 30m breadth and 16m depth, 26,755 gross tonnage [gt]) undertook its maiden voyage from Rotterdam; traversing the Europe/Australia trade route.

Fast forward almost 50 years later and on January 25th 2015 a very different type of vessel departed Dalian in China, on its own maiden voyage, which would see it calling at Tanjung Pelepas, Malaysia and Algeciras, Rotterdam, Bremerhaven, Wilhelmshaven and Felixstowe on the Albatross trade route between Asia and Europe.

With a nominal capacity of 19,224 teu, the Mediterranean Shipping Co’s (MSC) latest vessel, the 395m long, 59m wide, 30m in depth, 193,000gt, MSC Oscar dwarfs the dimensions of the Encounter Bay and is the largest container ship in the world at the time of writing.

This colossal vessel has a deck area equivalent to four football fields laid end-to-end and in a single voyage could carry a cargo volume equivalent to 57.7million garments or 2.4 million microwave ovens, according to MSC. To put this into further perspective if the MSC Oscar was stood upright out of the water its total vessel length of 395m would make it taller than the Empire State Building (381m).

The “mega ships” are coming

Yet 19,000 teu is not expected to be the cap on container ship sizes. Indeed, many industry commentators believe ships as large as 22,000 teu are expected to be in service as early as 2018.

“Then the next stage will be 24,000 teu ships but there are many problems to overcome before we increase the size of container ships further,” Senior Marine Risk Consultant and Master Mariner, AGCS, Jarek Klimczak tells Global Risk Dialogue. However, the arrival of such “mega ships” is accompanied by concerns about increasing risk, safety issues, salvage difficulties and therefore the potential for higher losses if a casualty occurs. These ships test port and canal capacity, as well as the skills of their crews.

“From a technical standpoint, it is always much easier to increase the breadth or width than the length, as a wider vessel has better stability,” Klimczak adds. But on the flipside you then introduce a problem with torsion. Other obstacles include the deeper draft needed, which ports are not ready for and restrictions on cranes which do not currently have enough outreach.”

Senior Marine Risk Consultant at Allianz Risk Consulting, AGCS, Captain Andrew Kinsey adds that there are also issues with the wider logistics chain. “Yes, we can build 20,000+ teu vessels, but is it economically feasible for the supply chain to have those vessels? We have to look at the supply chain as an integrated system, which is only as strong as its weakest link.”

As Klimczak points out, operation of such vessels is limited to a small number of deep water ports – which means an increased concentration of risk. “There is also
a world-wide shortage of qualified seaman to command these vessels,” adds Kinsey. It has been estimated that 80% of marine casualties are down to human error.

Therefore, the industry should think long and hard before making the leap to the next size up, adds Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS.

“As much as I support technological advances and development we need to be careful how we go about this. If we are going to go bigger than 22,000 teu then
risk management needs to go back to the drawing board, especially in the light of the MOL Comfort accident.”


Loss potential

Another risk factor with ever-larger container ships is the loss potential. AGCS experts believe that the industry should prepare for a $1bn+ loss in the future. “For us, exposure is a concern, not just on the total loss, but also on a partial loss or general average claim,” explains Dr Sven Gerhard, Global Product Leader, Hull & Marine Liabilities, AGCS.

“A machinery claim or water ingress on such a large ship means that it will need to be unloaded, but where are the facilities to do it, how long will it take, and how much will it cost?”

There are many variances and factors to consider when evaluating the cost of a potential loss scenario resulting from an incident involving a mega ship. Most significantly, the average value of the contents of the containers and whether the vessel is completely laden or not, but also other influences such as shipping route/location.

In addition, if there is a salvage/removal of wreck situation, the major concern is that salvors do not have the equipment and resources to effectively deal with this. Such unchartered territory makes potential costs even more problematic to calculate, according to Kevin Whelan, Marine Claims Specialist at AGCS.

50 years of Container Ship Growth

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$2bn might be exceeded…

Is a $2bn container ship loss scenario possible? “It is not entirely unrealistic,” says Khanna. “We have already seen a passenger ship case (Costa Concordia) where the final loss figure is around $2bn. This is mainly due to the cost of wreck removal and if an equivalent wreck removal process is used in the case of two 19,000 teu vessels, then cost could exceed $2bn.

“This is quite a rare scenario but $2bn might be exceeded even if one 19,000 teu vessel and another smaller vessel is involved, if there is a wreck removal in a difficult location. It also depends on the response from the local authorities.”

According to Kinsey, the casualty incident would not have to be in a remote location in order to incur this level of loss. “Just the acreage required to stage all the containers in the event of a general average claim between two of these sized
vessels would be staggering. And if you combine that with a lack of adequate port infrastructure for fire-fighting, etc…”

      “Many industry commentators believe ships as large as
      22,000 teu are expected to be in service as early as 2018”

Kinsey cites the recent case of a collision between two container ships in Malaysia’s Port Klang in late October 2014 as an example. The San Felipe (8,700 teu) struck the moored Al Riffa (13,500 teu) while approaching its berth. The collision resulted in fires in the forward container bays aboard both vessels. Luckily, in this case the fire was brought under control.

Losses significantly underestimated

Klimczak says while a $2bn loss scenario may appear highly unlikely it cannot be entirely discounted and considered impossible.

“It’s a fact that vessel dimensions are growing. Not just for container vessels but also for very large ore carriers and very large bulk carriers, as well as specialized large floating offshore facilities which don’t have any predecessors. It is human nature to explore and test the limits; and existing maritime infrastructure and insurance will have to follow. In future, maximum exposure will not necessarily be limited by the value of a vessel and carried cargo but also environmental, social or business interruption costs. The cost of claims may be very difficult to estimate and, looking at the history of the most expensive shipping accidents, may be significantly underestimated,” he concludes.

 



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