Claims and loss prevention in sharp focus for marine community during pandemic

Despite the interruption of global trade brought about by Covid-19, the international maritime sector has experienced a worrying level of claims activity during this period and the International Union of Marine Insurers’ (IUMI) recent annual press call was dominated by the topic of claims and loss prevention.

The pandemic has had a direct impact on marine claims trends, with stockpiling of goods at ports leading to accumulation concerns and an apparent shift in theft trends. A spike in container losses and fires appears to be more related to the ongoing increase in the sheer scale of container ships, more aggressive weather and inadequate improvements in loss-prevention activity.

Lars Lange, IUMI secretary general, focused on the particularly concerning area of container losses that have shown a sharp rise in recent times.

He pointed out that the World Shipping Council (WSC), which represents about 80% of the total global vessel container capacity, has highlighted the container problem that appears to have escalated further this year.

According to the WSC’s 2020 report, in 2019 the international shipping industry transported approximately 226 million containers aboard some 6,000 ships around the world at any point in time. During the period 2008-2019, the WSC estimates that there were on average a total of 1,382 containers lost at sea each year.

However, a number of recent incidents have shown a worrying trend that strongly suggests that ever larger container vessels and reduced stability of container stacks onboard, particularly in heavy weather, is a problem that the industry needs to tackle.

In January 2019, the MSC Zoe lost approximately 340 containers overboard off the coast of the Netherlands and northern Germany in one incident alone. More recently, the One Apuswas reported to have lost approximately 1,800 containers in rough weather in early December 2020 on her voyage from Yantian, China to Long Beach, US. The Maersk Essen lost about 750 containers in January this year on her way from Xiamen, China to Los Angeles, US.

Mr Lange explained in the latest issue of IUMI’s monthly newsletter that the loss of containers and subsequent insurance claims can have different root causes that sometimes combine. These are:

  • Incorrect declaration of the weight of containers
  • Poor packaging of containers that do not comply with the Code of Practice for the packing of Cargo Transport Units
  • Insufficient stowing of containers onboard that do not comply with the Code of Safe Practice for Cargo Stowage and Securing
  • Non-compliance with International Organization for Standardization standards for container-lashing equipment and corner castings
  • Design issues of the container vessel.

IUMI said that it is working internally on proposals to avoid such losses in the future and will discuss with regulators on how best to cooperate with solutions. The International Maritime Organisation (IMO), for example, will discuss a proposal for a new mandatory reporting system for containers lost overboard at the Maritime Safety Committee Meeting 103 in May. “This debate will provide an opportunity to discuss this important topic with the IMO, flag state representatives and industry stakeholders as well,” said Mr Lange.

Another significant area of concern for marine insurers from a claims perspective is risk accumulation.

Isabelle Therrien, senior vice-president – Canada, Falvey Cargo Underwriting, and IUMI cargo committee chairperson, pointed out that last year created an “interesting conundrum” for cargo insurers.

“When the pandemic momentarily all but halted global trade, we saw our assureds report a reduction in values shipped and a corresponding increase in values at locations. This resulted in some cargo insurers having more static risk than moving risk. Thankfully, this was only a temporary blip but it did bring into sharp focus the growing accumulation of risk on vessels, at ports and at other static locations,” explained Ms Therrien.

The cargo expert pointed out that while there are several tools available to monitor accumulation at static locations, there is more uncertainty and less data available for cargo that is moving on vessels and while cargo is at the port awaiting loading.

The Tianjin explosion in 2015 and the catastrophic blast at the port of Beirut in 2020 reinforces the sense that more work needs to be done on assessing values at terminals and port facilities, and rising accumulation problems, stressed Ms Therrien.

“But all that pales into relative insignificance when set against the tragic loss of life – 178 people died and more than 6,500 were injured in Beirut. Surely that death toll alone is reason enough to urge terminal operators to manage the storage of dangerous goods to include proper and sufficient safety measures,” she said.

There is a growing risk accumulation onboard too, particularly for the containerships focused on by Mr Lange. The problem is not just about losing containers overboard but also fires, pointed out Ms Therrien.

Ms Therrien referred to the One Apus and Maersk Essen events, pointing out that the ever-bigger scale of the ships and changing weather patterns are fuelling ever higher claims. Even seemingly basic factors such as the types of lashings used to secure the containers on board can have a major impact on claims levels and costs, she explained.

“These events perhaps highlight engineering complications when it comes to moving boxes on ships that are significantly larger than when containers were invented in 1957, and where weather patterns are constantly getting more aggressive. The recent events on both these voyages have also brought to light the lashing system on board. Containers are stacked on top of each other and secured to each other with twistlocks at their four corners. Lashing rods and turnbuckles are then used to secure the containers to the deck of the vessel,” said Ms Therrien.

“Physical forces endured by the ship going through a storm at sea are inevitably passed on to the containers, which, as they are being stacked ever higher, creates an enormous momentum, sometimes resulting in containers overboard or a container stack collapse. Cargo insurance underwriters have been and will continue to be impacted by these events, and IUMI believes that although this is not a systemic threat, every container lost is one container too many. Therefore, we argue that adequate stowage techniques and proper container packaging is critical to having safe and secure ventures at sea for all parties involved,” continued the cargo expert.

The onset of the pandemic also appears to have caused a shift in cargo theft trends, according to TT Club’s recently published annual report on cargo theft, produced in association with business improvement company BSI.

Insurance Marine News reported that thefts of cargo in transit remained the highest percentage of the total, though the 71% share is down from 2019, when it was 87%.

TT Club said that 2020 was atypical because of the supply chain threats caused by the pandemic, adding that the trend will likely continue well into 2021.

New high-value targets had emerged, such as PPE, face masks and anti-bacterial gel. The vaccine supply chain was also likely to come under threat as the rollout expanded. The food and beverage sector remained the largest target, at 31%, reported TT Club.

The club said the most significant trend highlighted by the report was the relative shift in the location of thefts. In-transit incidents and those involving vehicles showed a decline, as theft from storage facilities rose.

Mike Yarwood, TT Club managing director, loss prevention, said: “The effects throughout 2020 of the Covid-19 crisis threatened supply chain security, continuity and resilience. Not only did newly created high-value commodities such as PPE become targets for theft, but bottlenecks in the logistics infrastructure at ports and warehouses brought increased potential risks. Temporary overflow storage facilities added to the dangers of loosening the grip on existing security systems.”

In Europe, the stockpiling of goods meant that these inventories came under particular threat, with 48% of 2020 reported thefts coming from warehouses and production facilities. That compared with only 18% from such locations the previous year.

Commercial Risk is hosting a Claims Management Conference on 27-29 April 2021. We have worked with a number of European risk management associations to bring together a group of experts in a virtual forum to discuss how best to adapt to emerging long-term risk trends and explore the type of claims patterns that these new exposures are generating. Click here to secure your seat at the event.

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