The insurance industry has always supported the development of the shipping industry providing ship-owners are taking into account the risks that accompany any increase in size. Building ships for just economies of scale is not enough, says Allianz
Nearly one year after the Ever Given grounded in the Suez Canal (March 23, 2021), blocking the waterway for six days, another Evergreen ship, the Ever Forward is currently stranded in Maryland’s Chesapeake Bay.
At 334 meters in length and 12,100 teu capacity, the Ever Forward is much smaller than the nearly 400-meter-long, 20,000 TEU Ever Given—both of which are operated by Evergreen Marine, a Taiwanese container shipping company.
It is also a different situation to the Suez Canal incident. The Ever Forward is not blocking ship traffic in and out of Baltimore, let alone the Suez Canal which handles approximately 12% of global trade.
However, the amount of time it taking to refloat the Ever Forward demonstrates the complexities of such exercises.
Big ships can become stuck hard, especially on a soft mud seabed, meaning they need a lot of pulling power, favorable tide conditions or perhaps some dredging or fuel/cargo removal in order to refloat the vessel, if not all of the above.
Grounding statistics
As one of the leading shipping insurers, Allianz Global Corporate & Specialty constantly monitors and analyses risk scenarios in the shipping industry and annually publishes the Safety & Shipping Study.
Grounding is the second major cause of total losses of all shipping vessels over the past decade behind foundering (sinking), accounting for one in 5 of all vessels lost (172 out of 876).
There have been over 200 (205) reported grounding incidents involving container ships around the world over the past decade, accounting for around 1 in 10 of all incidents involving container ships. However, just 10 have resulted in total losses.
Chesapeake Bay is part of the US Eastern Seaboard maritime region. According to our analysis, losses of vessels are very rare on the East Coast of the US – just 9 across the whole region over the past decade (2011 to 2020) and only one in the immediate vicinity of this ongoing incident.
General commentary around risks for big ships/Suez Canal one year-anniversary
What are the challenges of mega ships in general? From a risk management point of view, what lessons can be drawn from the Suez Canal incident?
Insurers have been warning for years that the increasing size of vessels is leading to a higher accumulation of risk. These fears are now being realized, potentially offsetting long-term improvements in safety and risk management. Such ships generate economies of scale for ship owners but also a disproportionately greater cost when things go wrong.
Dealing with incidents involving large ships, such as fires, groundings and collisions, are becoming more complex and expensive.
Container-carrying capacity on ships has increased by 1,500% over the past 50 years and has doubled over the past decade and a 224,000-tonne, 400-metre-long vessel which can carry up to 20,000 containers like the MS Ever Given is in the top 1% in terms of size of vessels on the ocean.
In addition to groundings, fires on board large container vessels are now a regular occurrence and such incidents can easily result in large claims in the hundreds of millions of dollars, if not more.
The size of a vessel can significantly increase salvage and general average costs. For some time now many in the salvage industry have warned that container ships are getting too big for situations like this to be resolved efficiently and economically.
Mega ships require specialist tugs and finding a port of refuge with capacity to handle such a large ship can be difficult, which increases the salvage operation costs.
To give an example, the salvage and wreck removal of a large cruise ship vessel called the Costa Concordia 10 years ago, cost the industry around $2bn as there was a wreck removal involved, restoration of the sea bed and other costs for the huge amount of resources that went into that case.
It is clear that in some shipping segments, loss prevention measures have not kept pace with the upscaling of vessels. This is something that needs to be addressed from the design stage onwards. And with 24,000 TEU vessels on the horizon we are now seeing the implications of what might happen more regularly in the future.
Was the MS Ever Given incident a wake-up call for the industry? How can risk management and safety be improved?
First of all it is important to note that a waterway such as the Suez Canal has a good safety record overall.
Around 19,000 ships travel through this waterway every year and over the past decade there has only been an average of eight incidents a 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 too, driven by improved ship design and technology, stepped-up regulation and risk management advances such as more robust safety management systems and procedures on vessels.
Having said that, there is no doubt that this incident will encourage future learnings. 24,000 teu container ships are now on the seas.
The insurance industry has always supported the development of the shipping industry providing ship-owners are taking into account the risks that accompany any increase in size. Building ships for just economies of scale is not enough.
We need to look more closely at how we can minimize the risks of mega-ships, especially in ports or in bottleneck passages like the Suez Canal or the Panama Canal, given the disruption we have seen that grounding incidents can cause.
If a ship runs aground in one of these waterways, specialized tugs would be needed and the port and canals should have access to adequate resources in relatively short time. There may be valuable lessons to be learned around pilotage in such waterways especially when it comes to mega ships.
As an example it may be best to put additional restrictions on mega ships entering very narrow stretches of canals based on certain weather conditions.
Of course there are other risk for mega ships other than groundings. Insurers such as Allianz and the International Union of Marine Insurance (IUMI) have long warned of safety concerns surrounding fires on large container vessels, promoting improved ship design and fire-fighting equipment to prevent and extinguish fires.
It should be the industry standard that any vessel, including an ultra large container ship should have the capability built into its design to tackle most on board fires themselves. It is very clear in many cases that this is not currently the case.
What challenges do incidents involving large ships pose for claims practitioners?
Dealing with incidents involving large ships, such as fires, groundings and collisions, are becoming more complex and expensive from a claims perspective.
For example, data from the Nordic Association of Marine Insurers (Cefor) has previously shown that the most costly 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 shipping incidents involves being available 24/7 and working closely with the salvors – as a lead insurer in such an incident you even have to negotiate with the salvors in order to secure the best contract in a very short space of time, often in a highly-pressurized environment.
Will it become more expensive or even impossible to insure mega ships?
As a shipping insurer we want to support the industry and its growth. We have nothing against ships getting bigger but all the additional aspects that come with this increase in size need to be considered from a risk management perspective.
For many years regulations have not kept pace with the growth of vessels and regulatory modernization is urgently needed to ensure container vessels are sustainable and safe.
We expect the shipping industry to comply with the rules for safe operations on board and to continuously work on improving safety. We all need to think in more innovative ways.