Dutch risk managers focused on the fast-rising risk of containerships in light of the Ever Given catastrophe, during a recent online debate organised by Narim, the Dutch risk and insurance management association.
The UK P&I Club, lead P&I insurer for the vessel that blocked the Suez Canal, leading to global supply chain problems, announced early this week that it and the vessel’s owners had finally agreed a settlement with the Suez Canal Authority (SCA) to release the ship.
The vessel and its crew had been impounded in a lake beside the canal by the SCA while the negotiations proceeded. It is not clear how much was agreed or what the final cost of the incident will be but experts agree it will run into hundreds of millions of dollars, which will be borne by the UK Club, the International Group and mainly by reinsurers through the IG scheme.
The Ever Given incident is another example of how huge modern containerships present an ever-greater risk that needs to be managed more effectively.
Lars Lange, secretary general of the International Union of Marine Insurance (IUMI), warned of the escalating risk associated with containerships during its annual spring press conference.
He pointed to the annual report from the World Shipping Council (WSC), which reported that in 2019, the international liner shipping industry transported approximately 226 million containers. More than 6,000 ships carrying containers sailed around the world at that point in time.
Upon review of the results of the 12-year period (2008-2019) surveyed, the WSC estimated that there were on average a total of 1,382 containers lost at sea each year, he said.
Claims were already on the rise before the Ever Given incident and action is needed in cooperation with the International Maritime Organization, said Mr Lange.
“A number of recent incidents, starting with the MSC ZOE, indicate that these numbers are rising. The ONE APUS was 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 2021 on her way from Xiamen, China to Los Angeles, US… IUMI is working internally on proposals to avoid such losses in the future and will discuss with its affiliate partners and regulators on how best to cooperate,” he said.
The Netherlands is one of the world’s shipping centres, so Narim gathered a panel of marine claims experts to discuss the case of the Ever Given and rising containership claims in general.
Ivar Bol and Guido Jansen of Crawford & Company discussed recent claims and their consequences. Lawyer Jolien Kruit of Van Traa Advocaten focused on the legal aspects and general average, the principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.
Mr Bol identified three types of incidents related to containerships: fire, strandings (such as the Ever Given) and loss or damage to cargo, noting the same major incidents in recent times that IUMI’s Mr Lange referred to that had set alarm bells ringing before the Ever Given incident.
“On average, between 1,300 and 1,400 containers are lost at sea every year. Bad weather is often one of the causes. Containers are thrown overboard, but collapsed stacks (the ‘racks’ on board the ship between which the containers are stacked) also occur regularly. The speed at which these container giants sail also plays a role. The service speed of this type of vessel is above 20 knots (37 km/h),” he said, according to Narim’s report on the event.
Mr Bol said the causes of container stack collapse can almost always be traced back to errors in one of the following stages:
- Customer planning and packing containers
- Shipload planning and stability
- Loading and securing the containers onboard the ships
- Travel preparation, execution and management.
Bad weather almost always plays a role in the loss of containers. “The greatest risk lies with the voyage preparation, execution and management, and bad weather plays an important role in almost every container loss incident,” said Mr Bol.
“In addition, the volume of containers on board is increasing all the time, so the risks of incorrectly packed containers or containers with an incorrectly specified weight are also increasing. The margin of error on the ship’s loading and stability of the ship is greater,” he added.
Guido Jansen focused on how to deal with the increased risks and asked what can be done about it.
“First of all, look at the travel preparation, implementation and management. Watching the (expected) weather conditions, training the crew on how to deal with parametric roll, for example by changing the course and speed to adjust the roll time of the ship, or by making technical adjustments such as installing extra stabilisers and other technical systems such as those used on cruise ships. Of course, this requires an investment, but these kinds of measures do have a direct effect on reducing the risks of damage,” he pointed out.
The Narim group also agreed that fire onboard a containership is also more common than many people think.
“Due to heat development in containers, the stuff ignites and it is quite common that cargo stakeholders have not declared the cargo as dangerous in advance. Out of ignorance, but also consciously to save costs. Shipping companies pay a lot of attention to this aspect, but it is impossible to check more than 20,000 containers on a ship one by one,” said Mr Bol.
“If you want to send goods by container, make sure that you as a company are aware of the rules and pay attention to the correct loading of your container(s). Nobody wants damage and many damages can be prevented in a relatively simple way by paying enough attention in advance to planning, execution and management,” he added.
General average was declared with the Ever Given but this is a complicated phenomenon and is misunderstood by many, said Jolien Kruit of Van Traa Advocaten. Legally and contractually, it is complicated.
“Just look at the Christmas tree of all kinds of stakeholders: from the shipowner, the logistic service providers with whom contracts have been concluded by the shipowner, the cargo holders (who sometimes also have made agreements among themselves about the joint filling and transport of containers), parties who have suffered damage as a result of the delay that has arisen (the traffic jams, but also the cargo holders), up to and including the authorities involved in the stranding of the Ever Given,” said Mr Kruit.
“A tangle of parties and possible ‘claimants’. Which law actually applies? A simple, but complicated question to answer because, internationally, there is no binding legal framework with mandatory law. There are no supranational rules,” added the lawyer.
Mr Kruit explained that the principle of general average is that all parties involved bear part of the damage themselves and contribute financially to the total damage. But, he asked, who decides what?
“Initially this is the so-called dispacheur or average adjuster, someone who is usually appointed by the shipowner. Ultimately, it is the judge who decides. But which court in which country that is, the parties must also decide among themselves. A complex process with many involved parties,” added the lawyer.
What happens now with the Ever Given is the next question, said Mr Kruit, speaking shortly before the settlement was finally announced this week.
“This is without a doubt the biggest general average ever. It is not yet known how great the total damage is and what amount is ‘hanged’ on this average. In principle, there is an agreement with the Suez Canal Authority on compensation for damage to the canal and the delays that have occurred, but that is only a start. Based on the agreement on the amount of the security to the SCA, the Ever Given should soon be allowed to sail again. But again, this is just a start. Determining the final cost estimate and the claims settlement of all claims will take years,” concluded the lawyer.