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Never Too Big to Fail

In the age of the “mega ship” the ever-increasing size of cruise ships, containers and tankers is creating significant challenges for salvage operations when things do go wrong at sea.

 

More than two years after the grounding of the Costa Concordia, which resulted in the death of 32 passengers and crew, the total loss figure is approaching $2bn – making it one of the largest marine casualties ever.

As of the time of writing, the authorities have yet to figure out what will happen to the wreck of the vessel.

It is only natural that cruise ship disasters dominate the headlines, particularly when such a tragic loss of life is involved, but such incidents are not the only potential casualties that the maritime industry has to worry about.

According to the world shipping council about $4trn worth of goods is transported on the world’s oceans every year. This cargo is shipped by vessels such as container ships and tankers that are ever-increasing in terms of size, as shipowners strive to reduce operating and shipping costs through greater economies of scale. An example of this is the introduction last year of the Maersk Triple E generation cargo ships – the Triple E refers to Economy of scale, Energy efficiency and Environmentally-improved – which are the largest container vessels in the world, measuring 400 meters in length and carrying more than 18,000 teu (twenty foot equivalent unit). Four hundred meters in length is equivalent to the combined size of two basketball fields, two football fields and two ice hockey rinks.

Such vessels are so large that they exceed the capacity of the Panama Canal and the depth of many ports. For example, there are no ports in either North or South America which can handle the deeper drafts or they exceed the capacity of some of the traditional container cranes.

And should one of these supersized container vessels be unlucky enough to be involved in a significant incident at sea – as the Costa Concordia grounding has demonstrated – the salvage operation to remove the wreck can be increasingly complex and technically challenging.

Salvaging – a risky business

The ever-increasing size of ships, containers and cruise ships, means that costs for any salvage operation increase exponentially due to the need for different, sometimes more customized equipment, more specialized personnel and expertise, as well as heightened environmental requirements.

Escalating costs around salvaging and wreck removal have an effect on rates and deductibles for both hull and cargo insurance.


Tim Donney, Global Head of Marine Risk Consulting, AGCS warns: “The claims arising out of maritime emergencies of these 'mega ships' can be huge. For example, just think of the business interruption of ports and terminals if an accident were to block a port entrance or even one of the canals.

“Depending on the specific circumstances of the situation, salvage might require unprecedented efforts and complex operations – in some cases it may take many months, or possibly a year or longer, to remove all the containers from such vessels, particularly if the accident were to happen in a remote location, where all salvage operations are only able to operate seasonally.”

An example of this would be the container ship, Rena which grounded off the coast of New Zealand in 2011.

But how should the maritime industry deal with the increasing risks and costs of salvage operations? According to Paul Warren, Senior Claims Expert in London at AGCS, it needs to come together in drafting more binding standards and having solutions more readily available when another incident involving a large container ship happens. “We need a concerted effort to deal with this issue,” he tells Global Risk Dialogue.

An example for such an industry-wide initiative is the Marine Spill Response Corporation (MSRC) in the US, a not-for profit operation that works on behalf of the petroleum, transportation and energy industries.

MSRC was formed in the aftermath of the Exxon Valdez accident in 1989 to offer oil spill response services and mitigate damage to the environment. If the industry comes together in a similar vein for salvage operations this will enable the right kind of equipment to be more readily available in strategic locations, as well being much more cost-effective.

As Donney explains: “Usually this kind of heavy salvaging equipment, cranes and derrick barges are owned by marine contractors. They use it primarily for construction purposes, so the issue is often availability – it’s crucial for us to keep maritime salvage requirements in mind.”

Expert Commentary: Q&A Special

  1. Expert Commentary - Q&A Special

    Salvaging in Practice

    In a special Q&A, Global Risk Dialogue speaks to Lindsay Malen, Director Business Development at TITAN Salvage, an industry leader in global salvage, emergency response and wreck removal operations. Together, with Italian partner Micoperi it had the wreck removal contract for the Costa Concordia, resulting in its successful parbuckling and the biggest maritime salvage operation ever undertaken.

    Where do you see the main risks and opportunities in the salvaging industry at this point?


    Lindsay Malen:
    The increasing size of vessels but also their increasing complexities concern us. We as salvors are putting people at risk and often with these supersized container vessels no one can tell us exactly what we are exposing our people to.

    Additionally we are seeing increasing regulation in the US, for example, the OPA 90 (Oil Pollution Act of 1990) that originated after the Exxon Valdez casualty is now requiring all vessels to have a fixed contract (funding agreement) with an approved Oil Spill Response organization prior to being allowed to enter US waters. Obviously this is a good thing for a salvage company as it guarantees us business but it also means that authorities are requiring us to have the right equipment available at any point in time and that is very costly. Another interesting area is salvage in the Arctic conditions – a huge challenge that we need to address as shipping routes in these areas continue to get busier and busier.

    What are some of the main lessons learned from previous salvage operations?


    Malen:
    We have always known, but increasingly see, that logistics are highly important. As an effective internationally active salvaging company, we need to have the right network of partners to hand. For example, TITAN was working on the wreck removal of the Costa Concordia and about 30 other operations simultaneously. The transportation and coordination of equipment and personnel (including things such as visas) to remote areas of the world is a challenge. It is difficult to point to one lesson, every salvage operation is different – for example, a fire in the engine room is a completely different scenario from the grounding of a vessel – and we are learning from each and every one of these different incidents.

    Relationships matter: for instance it is important to have a relationship with the governmentalauthorities of any particular country. Another lesson we have learned is something that may be counter-intuitive but the threat of pollution can sometimes get in the way of getting the job done. Right now fuel removal is a huge issue in the industry.

    With the rise of 18,000 teu container ships, how does TITAN ensure that it has the right equipment for these increasingly challenging salvaging operations?



    Malen:
    TITAN is always investing in new equipment and not just buying it but rather “maritizing” it, meaning adapting it to the specific circumstances needed in a particular operation. TITAN does not own tugs internationally but rather deploys its personnel and expertise, knowing where to access the right equipment. The industry expects us to prepare for increasing ship size casualties but there is limited broader backing for the salvage industry. Just to put it into perspective, the largest Triple E ships are much larger than the largest cruise ships, so in our view, the entire industry needs to step up and see how we can handle these increased risks and they are.

    How are increasing environmental and regulatory concerns influencing salvaging operations?


    Malen:
    Both environmental factors and the public perception seem to be the largest factors in driving the costs of salvaging operations today. An example is the emergency response in the Farne Islands (Last year, TITAN successfully refloated the 262 foot container ship M/V Danio from its stricken position on England’s Northumberland coast).

    There was a lot of pressure amid huge environmental concerns.