Issue 11. The Marine Insurer: 'Technology transforming claims experience'

The Marine Insurer

NAVIGATING NEWS & ANALYSIS IN THE MARINE

Technology transforming claims experience

l Health and welfare: Marine market steps up on crew welfare

l Geopolitics: Shipping sector responds to global tensions

l Fuels: Clean fuels set to change claims arena

l Risk landscape: Fast evolving threats resulting in new claims

l Arbitration: Latest ruling provides clarity for market

Highlights

04 Digitalization and sanctions

How digitization can help with sanctions compliance

06 In search of the right balance

How the customer experience in marine insurance can be improved through digitalization

09 Personal injury claims

Fixed premium P&I and maritime employers’ liability coverage

12 Seafarer wellbeing

What the industry is doing to improve crew health and wellbeing

14 State of the market

How tumultuous global events have affected the marine sector

17 Crew welfare

Looking after the health and welfare of ship crew in an uncertain world

20 Hydrogen propulsion

Hydrogen based fuel is potentially the way ahead for a greener maritime industry

22 Green shipping

Could hydroelectric be part of the solution to ‘green’ shipping?

24 Liability risk

How the rapidly changing risk environment is impacting liability exposures for the shipping sector

26 Digital claims

How technology is disrupting the pre-and post-claims process the pre and post-claims process

30 Salvage and pollution

Could the answer to improving the global shipping industry’s carbon footprint be blowing in the wind?

Comment

Claims: a promise delivered

IT GOES without saying that claims is a crucial part of the insurance process: for insureds it is the sharp end at which they get delivery on a promise made; for insurers it is proof of that promise but also critical to their own profitability and sustainability.

In this issue, we look at claims in myriad ways from the changes being brought by technology to the details of recent legal judgments. Technology looks set to transform the way claims are handled, from drones conducting site visits through auditing and monitoring of costs.

Costs have become another issue in themselves this year as supply chain disruption continues to dog the sector and add cost to any claim – the marine market is not immune from that. However, there are two sides to every story and the recent events in Europe have resulted in some changing trading patterns for the marine market but also the opportunity for huge profits to be made.

The flip side of that, in turn, is that ships may well be sailing when, in normal times, they would have been undergoing repairs. Those across the market continue to keep a wary eye on the potential fall-out from that.

And the marine market is not immune to the upheaval caused by the Ukraine-Russia war, with vessels still trapped and the markets far from certain. Better signs that some vessels have been able to sail but not at anything like the numbers of pre-war days.

Another key issue for the market remains its personnel. No matter who you ask, from whatever industry, the concern is the same: we don’t have enough people to do all the jobs we have available.

Set off by the Covid-19 pandemic, one wonders where they have all gone. But whatever has happened the consequence remains the same – the marine market has insufficient numbers and real concerns around the low numbers of younger people joining the sector.

32 Lithium-ion battery risk

Lithium-ion batteries carry specific risks when being transported

34 War Risk & PI

The conflict in Ukraine has brought into focus the interaction between P&I risks and war risks

38 In search of clarity

The legal implications for cases taking in the calculation of performance warranties

Editor Liz Booth liz@lizbooth.co.uk

Assistant Editor

Adrian Ladbury ladburya@gmail.com

Art Editor

Rob Crotty rob@greenlightpartners.co.uk

Commercial Director Daniel Creasey daniel@cannonevents.com tel: +44 07702 835831

Publishing Director Grant Attwell grant@cannonevents.com tel: +44 07905 933252

It is good to see that shipping companies are stepping up and increasing their focus on the health and welfare of their workforces. While it might result in more claims, it is also likely to result in a happier more productive workforce and make the sector more attractive to new entrants.

And bringing the conversation full circle, it might be that technology has a role to play here. The marine market does not just need shipping experts but it will also need those techsavvy youngsters who can maximise the many opportunities that technology can bring.

Liz Booth Editor, The Marine Insurer

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Benefits outweigh risks with digital compliance

Evaluating and accepting the impact of digitization in the maritime industry has proven to be a difficult task. Within the world of maritime trade, digitization is perceived as an obscure term mostly related to the future of the shipping industry rather than the present. However, digitization has evolved into an integral part of the marine insurance market, as it plays a key role in terms of innovation and business transformation.

Hence, through the digitization technology (ie artificial intelligence, blockchain), marine insurance entities are in position to access data and information which is valuable in ensuring the proper functioning of their core activities. Marine insurance companies can reap the benefits of

digitization. One of the most significant is the vital role digitization plays with compliance and the complexity of sanctions regulations.

The benefit of digitization for a marine insurance company regarding sanctions can be categorized in three areas: (a) when a new marine insurance contract is being negotiated; (b) when the impact of sanctions on an existing P&I cover is examined; and (c) during the obligatory monitoring process.

However, the ease of digitization comes at a price as innovative ways of sanctions’ evasion are becoming the norm thorough technological instruments and methods which facilitate financial crime activities.

NEW INSURANCE POLICIES

When a new marine insurance contract is being negotiated, an initial risk assessment is undertaken by the underwriting department. While hull and credit risks are based on facts accessible to the underwriter (ie claims history, credit risk controls), a risk assessment in conjunction with sanctions regulations is a challenge because of lack of detailed information and data.

Digitization offers a tangible means for the insurer to identify the sanctions perils which will impact whether the insurance policy should be offered or not.

Specifically, a marine insurer can identify a list of

Aristeidis Papaioannou , Compliance and Claims Executive in the Piraeus Claims Liaison Office for the managers of The American P&I Club, explains how digitization can help with sanctions compliance

potential red flags such as AIS disabling, ship-to-ship activities, vessel’s registry, to name just a few, solely based on the information extracted through databases which use Artificial intelligence and blockchain technology. The detected red flags should be enough for the underwriter to allocate the risk and accept a new entry by complying with sophisticated due diligence standards.

LEGALITY OF FIXTURES

Following the outset of war in Ukraine, and the respective sanctions against Russia, the shipping industry was forced to embrace essential and important digitization to comply with sanctions regulations.

As of this moment, the shipping industry faces a shifting, and often complex, sanctions regime where lists with individuals and entities that are subject to asset freezes are constantly updated, where prohibited cargoes and activities are regularly revised, and where sanctions legal instruments are continuously amended.

Digitization offers marine insurers access to all these new sanctions regulations issued by different jurisdictions and regulators. The convenience afforded by digitization has created a win-win situation.

Specifically, it allows marine insurance providers to identify the impact of sanctions on the existing insurance policies and to detect the legality of the prospective fixtures of members and insureds.

Simultaneously, digitization is beneficial for the sanctions regulators too, as it enables them to ensure compliance by marine insurance providers with regard to economic measures.

MONITORING PROCEDURES

Apart from new marine policies and prospective fixtures, marine insurance companies are obliged to monitor the activ ity of their member vessels as outlined in recent OFAC (the US’ Office of Foreign Assets Control) advisories.

According to the advisories, marine insurance providers should implement internal due diligence procedures to identify compliance red flags and perils by acting proactively. know your customer (KYC) or/and know your customer’s cus tomer (KYCC) procedures should be implemented, AIS gaps of existing members and insureds should be identified, and loading, discharge and transhipment operations in sanctions targets countries should be closely monitored by the marine insurer, to name just a few.

Thus, because much is at stake, the marine insurance provider should have a more active role by using its best endeavours to obtain useful information and data. Although the supervision regime for marine insurance providers is not equivalent to that for financial institutions, shipping compliance is gaining momentum.

All things considered, advanced digitization procedures, using AI and Blockchain platforms and data, will allow marine insurance companies to respond to the challenges of the new sanctions’ era.

DIGITIZATION PERILS

As implied above, digitization comes at a price. The main challenge is that technology has significantly increased the methods of evading sanctions. The problem is compounded because sanctions success depends mostly on the dominant role of the US monetary system and dollar.

As a result, sanctions target countries are using an alternative monetary system through cryptocurrencies which enable them to proceed with illicit shipping activities.

The main reason that digitization could be handy for sanctions evaders is the mere fact that there is not a full inclusive list of legal instruments and/or global supervisory bodies which would monitor and ascertain the risks of global cryptocurrency use.

In addition to that, due to the blockchain technology, the cryptocurrency users remain anonymous and, at the same time, can avail themselves of the primary free market exchanges.

On a more positive note, though, such sanctions evasion can be tackled using more technological tools. Sanctions regulators including OFAC and OFSI (the UK’s Office of Financial Sanctions Implementation) are gradually including in their asset freeze lists more virtual currency addresses that are linked to sanctioned persons.

In the same vein, financial institutions have implemented internal procedures through AI and Blockchain databases to identify cryptocurrency risks. There is a lot yet to be done to minimize the risk of cryptos but “where is a will there is a way.”

CONCLUSION

The benefits of digitization in the marine insurance industry outweigh the costs. Since sanctions have morphed into complicated and sophisticated targeted economic measures, information and data are crucial for prevention and compliance.

Digitization remains the main source of data and information. The latter will assist the marine insurer in detecting sanctions risks and therefore, to comply with the strict obligations issued by the sanctions’ regulators. In the meantime, it goes without saying, the human element is vital during this process. Hence, consistent with OFAC advisories, marine insurance providers and the shipping industry at large should be staffed with competent professionals with expertise in compliance.

“Digitization offers marine insurers access to all these new sanctions regulations issued by different jurisdictions and regulators. The convenience afforded by digitization has created a win-win situation.’’

In search of the right balance

Eric Newman , Senior Vice President of Claims, Loss Prevention, and Recoveries at Falvey Insurance Group, explains how the customer experience in marine insurance can be improved through digitalization and technology. But the right balance between digital advances and maintaining the human touch must be found

The insurance industry is ever-evolving as it strives to keep up with changes in society, such as technological innovations and customer expectations. The traditional method of processing claims, which was once characterized as paper-driven, impersonal and time-consuming with a lack of transparency, has now become a more digital, personalized, and seamless experience with more transparency than ever.

But what exactly has been driving these changes and what does the future of claims look like? In many ways, advancements in technology have played a big role in the improvements we’ve seen with the current claims process and how it’s taking shape.

However, the insurance industry continues to place a strong emphasis on creating a positive customer experience,

which means it must strike a balance between relying on technology and maintaining a human element.

From this, we can assume the future of claims will involve innovations in technology that enhance the customer experience while creating more visibility and better communication with the customer.

Below, we’ll address some of those innovations and what we can expect from the insurance industry in the coming years.

DRONES

Believe it or not, drones have become a major contributing factor to the transformation and future of claims. Many insurance companies have begun using drones to survey areas, conduct risk assessments, monitor natural disasters and assess damages. These drones can capture high-

quality images and data that provide valuable (and timely) insights, which in turn, can make the claims adjudication and claims process run more efficiently and effectively.

For example, instead of sending specialists out into the field to inspect sites, which often can be dangerous and challenging, insurance companies are now deploying drones, which can quickly and safely assess the area.

So, if a cargo ship catches on fire in the middle of the ocean, a drone can fly above the incident to determine the full extent of the damage, without putting a specialist at risk or delaying until the blaze is under control. With this real-time aerial assessment, the insurance agents can get straight to work, processing the claim in record time.

Drones can also provide a bigger picture when it comes to risk engineering. The drones can survey the area and identify any concerns that could impact pricing and quotes. This takes the guesswork out of it all, as insurance companies can use this information to make more precise, data-driven decisions and estimates.

DATA COLLECTION

Insurance actuaries rely on data to identify risks and make predictions, but their assessments are only as good as their data. And that’s why improvements in data collection and analysis have become such a priority in recent years.

The insurance industry is focusing on new technologies and even artificial intelligence to help organize and source data, which it uses to build models and create algorithms that can lead to more accurate assessments and policies.

For instance, insurance companies can tap into third-party sources, such as environmental data and governmental data, to build advanced data analytics models.

This is an ongoing process, as they continuously update these models with the most current and relevant data. With access to the most up-to-date information, they can make better decisions and more calculated predictions, which helps them avoid risks.

ADVANCED PLATFORMS AND SYSTEMS

Realizing that insurance customers have different communication preferences is another key to understanding the

“Analysis by Costamare found that container ships have more than doubled in size since 2000. Today’s largest container ship can carry about 24,000 20-foot container units (TEUs), enough carrying capacity from about 650,000 cubic metres (equivalent to 260 Olympic swimming pools).’’

future of claims.

Gone are the days when telephone and mail were the only ways to interact with customers regarding inspections, quotes and claims. Now, customers expect multiple avenues of communication, whether that’s requesting a quote through an online chat, receiving claims information via text messaging or speaking with a live professional to resolve a conflict.

This suggests that the insurance industry will invest in more robust communication platforms that provide customers with various channels of communication in real-time. It also means that the industry will need to prioritize training insurance professionals to ensure they are available and capable of assisting customers at every point of contact.

This improved line of communication can help strengthen relationships, increase transparency and build trust between the insurance professionals and their customers.

We can also expect that these more advanced platforms will move more heavily toward digitalization and automation.

For example, in the past, when processing a claim, a customer submitted paperwork for an insurance adjuster to manually review but now, insurance companies are turning to robotic process automation (RPA) to help speed up processing time. These advanced systems can scan claims and interpret data, automatically approving claims or flagging potentially fraudulent activity for an insurance adjuster to review. This not only helps customers receive their claims sooner, but it allows insurance professionals to move away from some of their mundane or monotonous tasking.

Finally, mobile apps are another gamechanger in the technology realm. These platforms make it easier than ever for customers to access their insurance information, report incidents, file claims and connect with insurance professionals. The apps provide customers with resources and all their insurance details right at their fingertips, helping to create more transparency and visibility.

STRIKING A BALANCE

Cutting-edge technology is certainly at the forefront when it comes to the future of claims, but that’s not to say the industry is looking to completely cut out the human side of insurance.

On the contrary, insurance companies understand that building relationships and making human connections with customers is integral to their success. The industry strives to introduce technology that will create efficiencies and improve productivity without compromising customer engagement. In fact, many of these technologies are aimed at improving and personalizing the customer experience.

For instance, introducing digital platforms that allow customers to receive the claims support they need in real-

time, can lead to faster resolutions, which, in turn, can contribute to higher customer satisfaction.

As we see with many industries navigating the digital age, the insurance sector is focused on finding that sweet spot where technology enhances—not hinders—the customer experience. The future of claims will likely continue to adopt and experiment with technology while still focusing on providing a personalized human element.

“The insurance industry is focusing on new technologies and even artificial intelligence to help organize and source data, which it uses to build models and create algorithms that can lead to more accurate assessments and policies.”

Eric Newman, Falvey Insurance Group

Up, Up and Away

It seems that everything has become more expensive. The cost of personal injury claims has certainly risen. “Shock” or “nuclear” jury trial verdicts reported on by the media certainly grab our attention.

According to a recent report published by Swiss Re entitled US litigation funding and social inflation, in a sample of cases taken in the US from 2010 to 2019, the share of verdicts that resulted in awards of more than $5m rose from 29% to 37% for general liability and from 22% to 29% for vehicle negligence cases.

These trial awards are often ascribed to a general tendency of juries to be more sympathetic to an injured party, viewing a corporation or insurance underwriter as a cold, faceless entity.

While not as extreme as motor vehicle negligence and trucking verdicts, undoubtedly, general damages awards, such as pain and suffering, mental anguish, and disfigurement, have risen in the context of maritime claims.

SETTLEMENT INFLATION

The vast majority of maritime personal injury claims result in a settlement and recently, we have begun to hear the term “settlement inflation” discussed by private mediators and US magistrate judges handling settlement conferences.

While talk of higher trial awards has crept into settlement negotiations, general damages are not always the driver of

claims inflation. In fact, sometimes general damages are the “cherry on top” for a serious personal injury claim.

Factors such as rising labour costs, rising medical costs (including third-party litigation funding) and rising costs of litigation are fueling claim costs.

Unlike “shock” verdicts, these types of inflation and rising costs are present in nearly every maritime personal injury claim, resulting in a “death by a thousand cuts” to marine insurers.

Claims for economic damages, such as loss of past and future earnings and benefits, are rising and often drive claims. This is a direct result of real inflation and higher labour costs.

For example, a 40-year-old OSV captain working a 20-day on/10-day off hitch earning a day rate of $700 earns approximately $170,000 per year.

The captain injures his or her lower back, can no longer work in the offshore maritime industry, and substitute earnings going forward are $60,000 per year.

With 20 years of expected work life remaining, the post-tax present value (discounted at 1.5%) of the injured worker’s future economic loss claim is approximately $1.25m. In a case of liability, the excess layer of a fixed premium P&I programme is already implicated by the economic loss claim alone.

The reality is that the costs of labour are rising in the maritime industry and we have heard from several operators that it is becoming difficult to find and retain workers. If that same captain were to earn a day rate of $800, the future loss of earnings claim rises to approximately $1.53m.

RISING MEDICAL COSTS

Medical care costs are also rising. This is not only because of

Aaron Greenbaum , a founding member of Pusateri, Johnston, Guillot & Greenbaum, LLC in New Orleans, Louisiana, asks whether the primary limits of fixed premium P&I and Maritime Employers’ Liability coverage should be raised from their current $1m level due to fast rising levels of personal injury claims in the maritime sector

injury claims In association with Pusateri, Johnston, Guillot

Claims for economic damages, such as loss of past and future earnings and benefits, are rising and often drive claims. This is a direct result of real inflation and higher labour costs.

inflation, but also increased litigation tactics arising from the further use of third-party litigation funding.

As noted by Swiss Re in its report, of the $17bn investment into litigation funding globally in 2020, more than half was deployed in the US.

Importantly, Jones Act and general maritime law claims are not subject to Longshore (USL&H) and state workers compensation medical billing schedules. In the context of maintenance and cure claims, however, cure is subject to audit for reasonable and customary expenses.

Thus, cure costs can be partially controlled. Other types of general maritime law claims, such as passenger claims, are susceptible to third-party funding, leading to increased MRIs, CT scans and ultimately procedures. Future medical costs are, of course, also recoverable and must be considered.

Extensive and often inflated life-care plans are becoming more common in litigation and must be vigorously defended against.

LITIGATION COSTS

The rise in claims values in turn causes litigation costs to rise. More and more, vessel owners are filing complaints in federal court invoking the US Limitation of Liability Act of 1851, which allows vessel owners to limit their liability to the post-incident value of the vessel, so long as the alleged negligence was not within the “privity or knowledge” of the owner or management.

This is particularly the case with respect to smaller watercraft, such as inland and offshore tugs, OSVs, and crew boats, where a worker’s back-injury claim now implicates the value of the vessel.

In addition to the complexity of this litigation, expert costs and medical discovery have seen a noticeable uptick in recent years, adding to the costs of claims.

For instance, a personal injury claim may require the retention of five experts — liability, vocational rehabilitation, life care planning, economist and an independent physician.

Thus, while “social” inflation and “shock” verdicts are playing a role in the increased value of personal injury claims, other factors present even in less-serious claims are driving increases in value and litigation costs. In the end, the question should be asked — should the primary limits of fixed premium P&I and maritime employers liability

“The reality is that the costs of labor are rising in the maritime industry and we have heard from several operators that it is becoming difficult to find and retain workers.”

trade,

Jason

Swaim,

Medisea: Improving seafarer health and wellbeing

As a market leader with more than 160 years of experience in providing Protection and Indemnity (P&I) cover, Legal Costs Cover and associated insurances to more than 34,000 vessels globally, the Shipowners’ Club firmly believes that a good and effective claims service is one of the cornerstones of a reliable and efficient P&I insurer.

Similarly, periodic analysis of the root cause of the claims experienced is pivotal towards identifying existing and developing claims trends. Using this valuable statistical information, each year, the Club develops strategic initiatives and works closely with members to help mitigate avoidable claims.

Similarly, the Club recently undertook a review of seafarer illness claims it had handled in a five-year period. The annual average number of illness claims during this period was significant and highlighted areas of concern regarding the overall standard of seafarers’ physical and mental

wellbeing, which the Club understands to be vital towards having a safe and happy environment on board.

HEART RELATED CLAIMS

Further analysis of the claims revealed that heart related problems and strokes accounted for most of the illness claims. These situations were further exacerbated by the need to often repatriate these ill seafarers and the ensuing anxiety (for everyone, including the seafarer, their families, fellow seafarers on board, shore management etc) associated with probable life-threatening situations.

Repatriation can often be complex because of the difficulties involved owing to the trading patterns of vessels. It can also affect the morale on board as well as everyone involved in the process and can certainly result in escalated costs of claims. Although not numerous or costly in financial terms, cancer, high blood pressure and kidney problems also account for a large proportion of the claims.

When analysing the data, it became apparent that many of the illnesses recorded were of a type that would have been detected and investigated if an enhanced preemployment medical examination had been carried out prior, indicating a very good possibility that many of these

Captain Hari Subramaniam , (left) Regional Head – Medisea and Business Relations and Steven John , (below) Claims Manager – Personal Injury, at Shipowners’ P&I Club explain what the Club is doing to improve seafarer health and wellbeing to the benefit of all

claims could have been avoided.

While it would be naive to say that such an enhanced medical examination would prevent all illness claims, there is no doubt the number of such occurrences would have been significantly reduced.

Using the illness claims statistics as a starting point, it became apparent that more focused initiatives were required towards the health and wellbeing of Indonesian, Filipino, Indian, Ukrainian and Malaysian seafarers.

This comes as no surprise since these nations are amongst the largest global providers of seafarers. (Seafarer Workforce Report, 2021 Edition by International Chamber of Shipping/Bimco).

COMMITTED STEPS

To continue taking positive and committed steps towards improving seafarer wellbeing on board, as well as help miti gate our Members’ exposure to crew illness claims, the Club has created its own bespoke Medical Enhancement Scheme for Seafarers (Medisea).

This tailored Medisea programme is currently available to Filipino, Indonesian and Indian seafarers employed by our members. In due course, the scheme will be rolled out

further to seafarers/regions of all nationalities serving onboard entered vessels.

The Medisea scheme commences with an enhanced pre-employment medical examination followed by seafarer health and wellbeing benefits delivered by the Club and its strategic partners.

The Club is acutely aware of the need to avoid exposing our members to higher operating and insurance costs and therefore Medisea is available at no additional cost to the existing statutory medical examinations. Demonstrating positive commitment towards taking this initiative to the seafarers, the Club absorbs all the added costs arising from the additional medical tests of the enhanced scheme.

Medisea medicals are valid for 24 months and can be undertaken concurrently with the statutory MLC medicals. This has been specially aligned to ensure minimal inconvenience to the seafarer and thereby preventing them from having to undergo unnecessary frequent medical examinations which can also have a detrimental effect on their health and wellbeing in the long run.

To ensure the Club and members can be assured of consistency with the scheme, the Club has accredited medical clinics that go through careful auditing by a trained medical practitioner who is well experienced in this field. The clinics are further subjected to rigorous annual audits and only clinics on the Club’s list of accredited clinics may be used.

The Medisea scheme strives to promote greater health and wellbeing for seafarers enrolled in the scheme and also aims to reduce members’ exposure to both claims reported to the Club and those that fall under the deductible but still have to be paid for directly by the member.

TAILORED WELLBEING

To deliver this tailored wellbeing initiative to seafarers serving onboard entered vessels, the Club has partnered with leading seafarer charitable organisations.

To name a few, the Club supports Sailors’ Society’s Wellness at Sea, The Mission to Seafarers (MTS) Family Support Network and the Club has also partnered with the International Seafarers’ Welfare and Assistance Network (ISWAN) to launch ISWAN for Seafarers - a free mobile app for seafarers and their families worldwide.

“Repatriation can often be complex because of the difficulties involved owing to the trading patterns of vessels. It can also affect the morale on board as well as everyone involved in the process and can certainly result in escalated costs of claims.’’

Marine market faces up to geo- political strains

World events are having a severe impact on the insurance industry with the pandemic, the microchip shortage, the Russia/Ukraine conflict, climate change, and the cost-of-living crisis coming together in a perfect storm.

Jamie Adams , Claims Manager at International General Insurance Company (IGI), looks at how these tumultuous events have affected the marine sector

While the West is opening after two years of lockdown, delays caused by Covid-19 in other parts of the world where restrictions still apply are still causing major headaches for the marine re/insurance industry.

Delays can affect the ability to carry out regular vessel servicing and maintenance as parts, oil and fuel are stuck in container and shipping backlogs. This can also result in damaged engines and machinery if alternative or inferior

parts are used.

Meanwhile, relieving and repatriating a ship’s crew is more challenging due to travel restrictions. Vessels are delayed and overworked crews can mean an increase in human error – one of the main causes of marine claims.

According to the United Nations Conference on Trade and Development (UNCTAD), there is also a shortage of containers and container ships because of port closures and backlogs.

This would have caused problems pre-pandemic, but the increase in demand for consumer electronics, textiles and furniture – usually shipped from Asia – has been stronger than expected while not being met with enough shipping capacity.

CONTAINER SHORTAGES

There has been a shortage of available empty containers to move exports from China to destinations abroad and the cost of returning the empty containers to China has been passed onto consumers, resulting in an astonishing increase of 443% in freight rates from China to South America.

Ports are having the same problems. At IGI, we have had some heavy weather damage claims from Asia and encountered challenges with:

•Surveyors being able to fly into the different countries to examine the damages;

•Engineers being unable to attend to specialist items such as cranes and machinery damages;

•Ports being closed because of the spread of the virus;

•Ships missing destinations where lockdowns were in place resulting in cargo and containers being discharged in the wrong locations; and,

•Shipping replacement parts.

The war in the Ukraine and lockdowns in China have thrown shipping containers into disarray with logistics firms appealing to every link in the supply chain to co-ordinate better in the face of these disruptions.

Last month in July, Reuters reported that more than 2% of global freight capacity is at a standstill in the North Sea, with no end in sight to the congestion, and that traffic jams outside Chinese ports are also growing.

There are also around 20% fewer container ships in the Red Sea, which is the most important trade route between Europe and Asia – a figure not seen since the outbreak of Covid-19 in 2020.

The situation in the Ukraine is sending shock waves through the world’s economy, according to a statement by UNCTAD, with particularly damaging effects on developing countries already hit by the pandemic with rising debt and climate change and now facing soaring food and fuel prices.

CHIP CRISIS

While oil and gas prices have rocketed because of the lack of supply from Russia, the war has also had a further detrimental effect on the supply of semi-conductor chips, affecting almost every industry including the automotive sector, with car production taking a huge hit across the world.

At the start of the pandemic the demand for cars fell and carmakers’ orders for chips dropped accordingly. Meanwhile tech firms were still buying chips to manufacture phones, laptops and games consoles.

“At the start of the pandemic the demand for cars fell and carmakers’ orders for chips dropped accordingly. Meanwhile tech firms were still buying chips to manufacture phones, laptops and games consoles.’’

Jamie Adams, IGI

The situation in the Ukraine is sending shock waves through the world’s economy, according to a statement by UNCTAD, with particularly damaging effects on developing countries already hit by the pandemic with rising debt and climate change and now facing soaring food and fuel prices.

When carmakers were ready to resume regular operations, they faced severe delays in the supply chain with microchip manufacturers taking up to six months to re-start production of specific types of chips. The result is widespread supply problems for new vehicles and the skyrocketing of used cars prices.

Storms in Texas, where most of the 12% of the world’s microchips are made, brought power cuts that shut down several factories, causing up to 12-month delays in production.

Fires in a Japanese factory, the Renesas plant, caused further delays, according to online car trading site carwow, that does not foresee an end to shortages this year. In fact, the war in Ukraine may spark another microchip shortage, says motoring publication thedrive.com.

Furthermore, Ukraine is home to nearly 70% of the world’s neon gas supply. The gas plays a crucial role in the manufacturing of nearly all semi-conductor foundries around the world, and if the Ukraine supply is shut off, it could result in skyrocketing manufacturing prices or component shortages.

Ukrainian companies also make small components for the auto industry, building around 7% of all wiring harnesses, already in short supply for European carmakers such as BMW, Audi and Volkswagen.

Meanwhile, an early “pessimistic outlook” from research firm IHS Markit expects the global impact this year to be about 3.5 million fewer vehicles in connection with semiconductor chip constraints.

Carmakers have tried to clawback losses by focusing on high-profit vehicles such as SUVs and trucks, but with fuel prices soaring because of the war in Ukraine, this will result in, consumers being less likely to buy these big-ticket items with their high fuel consumption.

These challenges with vehicle manufacture and supply collectively have a knock-on effect on the marine industry. There are also the problems with major car companies no longer shipping cars to Russia because of the sanctions that have been implemented. For example, Volkswagen and its subsidiaries sold approximately 200,000 cars in Russia during 2021, which will have a major effect on trade routes in the area.

There are also the Ukraine’s shipments on grain crops, that have come to a standstill because of the war. Ukraine is the second largest exporter in the world after the US in total exports of all grain crops.

CLAIMS INFLATION

In the marine industry, the costs of settling insurance claims often goes way beyond the initial estimate for repair or replacement as the costs of parts, machinery, fuel and labour have soared. Delays related to getting people out to the site caused by Covid-19 and by supply problems mean these costs will continue to rise, hitting the pockets of insurers.

If you have a $1m reserve, for example, that was calculated two or three years ago, that will have been based on the price and availability of parts at that time. The cost of meeting the claim has increased significantly adding hundreds of thousands to the initial reserve and in some instances reserves have doubled in the intervening period by the time repairs are completed.

The insurer is still liable for the initial estimate for repairs, replacement and business interruption, plus the extra amount to indemnify the insureds and returning them to the position they were in prior to incurring the loss.

To offset the spiralling costs, insurers should finalise claims as quickly and as economically as possible. One solution could be to stipulate that the insurer can organise the manufacture of replacements while the insured takes care of the cost of shipping themselves, but all the correct releases would need to be place. This solution is not common practice.

Until the shipping backlog eases, the conflict in Ukraine is resolved, and inflation is brought under control, there is no immediate end in sight to these problems and we must weather the perfect storm as best we can through efficiently dealing with claims and looking for alternative suppliers where possible.

“There has been a shortage of available empty containers to move exports from China to destinations abroad and the cost of returning the empty containers to China has been passed onto consumers, resulting in an astonishing increase of 443% in freight rates from China to South America.”

Jamie Adams, IGI

Look after seafarers and they will look after your ship

SUPPORTING THE SEAFARER

Seafaring is characterised by a unique set of features that sets it apart from other occupations: demanding physical working conditions, potentially hazardous tasks, long hours of work and high levels of stress and fatigue.

Good work processes onboard where the safety of the crew is paramount and risk taking well managed, go a long way towards preventing accidents.

The mental health of seafarers has received much focus.

In Gard, although the level of cases involving deaths due to injuries and illness has declined in recent years, the num ber of cases for mental illness and suicide have remained somewhat unchanged or increased in recent years.

For the past two and a half years the world has faced unprecedented worldwide lockdown and severe restrictions as a result of the Covid-19 pandemic. For seafarers the impact of the pandemic has been even more severe and continues to be felt by seafarers today.

Thousands were asked to extend their contracts beyond their normal tours of duty, with the accompanying stresses faced by them and their families, whilst others encountered challenges in being repatriated from the vessel in a medical emergency.

Although some of the pandemic impacts have lessened, the need to look after seafarers and their families should be at the forefront of the maritime industry at any time.

As a leading marine insurer with a large volume of crew cases in our portfolio, we can see that there is a certain correlation between the level of support provided to seafarers and the level of crew claims.

Where seafarers are well looked after and supported, with good onboard culture and work processes, we see to a certain extent lower levels of claims.

There are many factors that may be seen as undermining their mental health and wellbeing. Some of these are generic

It is important to accept that seafarers have the same challenges, feelings and motivations in their day-to-day life as anyone else.

Kunal Pathak , Loss Prevention Manager, Gard (Singapore) Pte. Ltd. advises shipowners to look after the health and welfare of their crew more than ever in this uncertain world. A happy and healthy crew a safer crew

across the occupation, others may be more related to specific ship types/trades, shipboard positions and company culture.

Certain factors that may be regarded as inherent to the seafaring profession overall including isolation and loneliness, lack of shore leave, fear of criminalisation, fear of job loss and separation from family all predispose seafarers to an environment that can be mentally stressful.

In addition, various ship specific factors such as too much work and poor food, and crew related factors such as bullying and harassment, discrimination, scapegoating after an incident and strained relationships with superiors and other colleagues, have been reported as triggers for seafarers to feel anxious or depressed while onboard.

An increasing degree of automation onboard ships has led to smaller crews and crew members may have very different cultural and ethnic backgrounds. This requires the shipowners and managers to support crew social cohesion on board.

In the absence of social cohesion amongst the crew, the workforce may be regarded as particularly vulnerable to mental ill health.

It is important to accept that seafarers have the same challenges, feelings and motivations in their day-to-day life as anyone else. In addition, they have the challenge of operating in a 24/7 environment on board a ship for long periods of time and far away from friends and family.

HEALTHY DIET

Seafarers’ diets very much depend on the food provided on board. Poor eating habits can lead to lack of sleep, digestive problems, depression and difficulty in staying awake and alert whilst on duty as well as serious illness in the longer term.

In addition to providing a nutritious and balanced diet, shipowners are also encouraged to provide information and support on healthy eating habits and to ensure that there is always good, healthy and safe food available to the people on board.

Where the shipowner encourages and facilitates a healthy lifestyle, the people on board may better look after their own mental and physical health leading to fewer accidents and illnesses and thereby fewer claims.

SUPPORTING THE FAMILY

From here on it is not about healthy diet but the crew members family. Seafarers’ families are mostly invisible to the wider world. Their stresses, concerns and realities often unreported and only coming to the fore in connection with large casualties involving the loss of lives.

A key element of our crisis drills held jointly with Members, is the involvement of the next-of-kin during a casualty. We expect the crewing department to have con siderable empathy as they deal with people who may have either lost their loved ones or are simply anxious for their well-being.

The pandemic situation has demanded the same level of care and empathy, not just for those at sea but also for their families back home.

And, it is not only in a pandemic in this is important. Simple calls with relevant information from the crewing managers to the family would be appreciated in any situation.

CREW ABANDONMENT

The number of cases of abandoned vessels and crew is growing, and in some instances the crew are left on the ships

for months or even years with no support and no income.

The Maritime Labour Convention, 2006 (MLC) establishes minimum working and living standards for all seafarers working on ships flying the flags of ratifying countries and provides protection for seafarers in the event they are abandoned by a shipowner.

Under the MLC, a seafarer is considered abandoned when the employer fails to cover the cost of the seafarer’s repatriation; or has left the seafarer without the necessary maintenance and support; or has otherwise unilaterally severed their ties with the seafarer, including failure to pay contractual wages for a period of at least two months.

The abandonment provisions of the MLC were introduced to prevent seafarers being stranded in port for long periods. Unfortunately, this does not always happen in practice as exemplified by the Eide Trader case handled by Gard.

We believe that this problem should be fixed at source, rather than just dealing with the consequences, and we have been addressing the matter with the International Group of P&I Clubs.

Abandonment does not only affect the seafarer. During this period, the seafarer’s family will often be without financial support and with little information as to the whereabouts and wellbeing of their seafaring family member.

GLOBAL VALUE CHAIN

In the last couple of years, the voices of seafarers and their supporters have grown louder. The plight of seafarers during the pandemic was widely reported also in mainstream media. This was accompanied by a realisation of the important role they play in the global value chain and in the movement of goods and the vulnerability of global trade to disruption.

The demands and stresses on seafarers are not decreasing. Ships are operating with ever-tighter schedules. Crew abandonment is on the increase with record numbers having been abandoned in the last 12 months and Covid-19 restrictions are still very much at play in some parts of the world.

In the midst of all this are sea farers. Looking after them and their needs; supporting them in their day-to-day work and beyond is not just the right thing to do, it is also the best possible loss prevention.

“Where seafarers are well looked after and supported, with good onboard culture and work processes, we see to a certain extent lower levels of claims.”

Kunal Pathak Gard (Singapore) Pte. Ltd.

Hydrogen: Clean energy and even cleaner claims records?

Hydrogen based fuel is potentially the way ahead for a greener maritime industry. Franco D’Andrea , Legal Director, Clyde & Co LLP urges the industry to start looking closely at the potential risks involved in its use so that its potential can be fully realised

In 2018 the EU estimated the global shipping industry accounted for approximately 3% of global greenhouse gas emissions. The same figure was widely reported in 2021 and 2022.

The International Maritime Organisation (IMO) has set a target to reduce the shipping industry’s greenhouse gas emissions by at least 50% by 2050 and to reduce the carbon intensity of emissions by 40% by 2030.

This accords with the recent global focus on the reduction of carbon emissions at the UN’s COP26 Conference.

The use of “green” hydrogen (ie, hydrogen that is produced from renewable energy sources) is widely regarded as one of the most significant alternatives to fossil fuels, for use in boilers to cars and even aeroplanes.

But what about the shipping industry? And what could hydrogen’s use in the shipping industry mean for marine claims in the future?

WHY HYDROGEN?

Hydrogen propulsion is seen by many industry experts as the holy grail of future transport because, when used in a fuel cell, it is carbon free, emitting only water. It is also a helpful alternative to pure “electrification” of propulsion using batteries.

As construction and agriculture manufacturers JCB put it, “batteries… weigh too much, cost too much and there would not be enough time to charge them.” If it takes around eight hours to fully charge an electric car it is not difficult to foresee why businesses are not keen to “charge” a 15,000 TEU containership.

JCB say that they have managed to convert some of their diesel engines to hydrogen engines. Assuming that such conversion is technologically and commercially viable for

shipping, the immediate question is how such conversion will be done and how quickly shipyards can adapt to provide such conversion services.

If we assume that hydrogen becomes the clean fuel of choice for shipping it might also become the clean fuel of choice for other industries. For this reason, expertise and component availability are likely to be wider challenges than simply a competition for shipyard space between shipowners and operators.

POTENTIAL CLAIMS DRIVERS?

As long as commercial shipping remains powered by fossil fuels, the potential claims scenarios relating to hydrogen are hypothetical. That said, key issues relevant to both the use of hydrogen as a fuel as well as to its carriage as a cargo include the following:

DIFFICULT TO CONTAIN

Hydrogen as an element is extremely small and light. It is also very difficult to contain. Tolerances for seals and other components in engines (or in cargo storage) will need to be managed very carefully to prevent leakage. Additionally, there is the issue of hydrogen embrittlement of metals. Embrittlement is the process by which hydrogen atoms are absorbed by a material, which then weakens the material and increases the chances of stress cracking. It is therefore not difficult to foresee the coverage issues that might arise where components that are in contact with hydrogen begin to degrade over time. Embrittlement may be specifically excluded in future hydrogen policies but if not, issues may arise as to

Hydrogen propulsion is seen by many industry experts as the holy grail of future transport because, when used in a fuel cell, it is carbon free, emitting only water.

when “damage” can be said to have occurred; whether such “damage” is inevitable or fortuitous; or whether it falls within other standard exclusions.

HARD TO DETECT

Hydrogen is also difficult to detect. It would therefore be critical that any vessel using or transporting hydrogen has strong detection systems in place. In 2019 a silicone factory in the US suffered an explosion as the direct result of a failure to detect a hydrogen leak. The factory was destroyed

in an instant. Onboard monitoring at sea will be important given the threat that an explosion poses to the lives of those onboard. It is likely that insurers will want to have a very clear understanding of detection procedures at the time of placement and will need to carry out a very thorough investigation at the claims stage as to whether procedures were adequately followed.

OBSOLESCENCE CLAUSES

While the use of hydrogen is by no means new (it has been traditionally used in the production of ammonia) its anticipated use in propulsion is new. Such new technology risks components (or entire propulsion concepts) becoming obsolete quickly. It may be that, by the time the first prototypes suffer insured events, replacement parts for those prototypes may be obsolete and/or unavailable. This is a known concern for industrial hydrogen production and storage processes. The clear allocation of risk between insured and insurers, will be important and may be managed by the incorporation of obsolescence clauses.

STORAGE ISSUES

Storage is a further issue. Hydrogen has a very low density. Existing storage technology requires cryogenic tanks that will be unsuitable for large vessels. An alternative being trialled by some shipowners is the use of ammonia, however, ammonia is toxic to humans and aquatic life. While toxicity is something that the maritime industry is used to dealing with, if ammonia becomes the dominant fuel then pollution prevention standards and compliance will continue to be relevant for liability insurers, in particular if new ammonia pollution regimes are put in place by national and supra-national bodies. This would be less of a concern with true “green” hydrogen fuel cells.

DEFECT AND/OR DAMAGE

A final word on the fuel cell, in which hydrogen and oxygen particles pass through a membrane to produce an electrical current. The only emission in this process is water. Currently, the way to scale up fuel cell technology (for more power) is to “stack” more membranes to create a greater electrical output. From an insurance perspective, defect type issues may arise, for example the question of whether problems within fuel cell stacks (whether isolated or affecting numerous stacks) are simply the manifestation of defect(s) or whether there has been “damage” to hull or machinery.

THE FUTURE

The purpose of this article is not to cast doubt on a very exciting future for hydrogen, but to try to raise awareness of some of the key issues that might arise in marine claims. It is hoped that early conversations between stakeholders to raise awareness of the opportunities and risks will allow for a smoother energy transition for all.

“The International Maritime Organisation (IMO) has set a target to reduce the shipping industry’s green house gas emissions by at least 50% by 2050 and to reduce the carbon intensity of emissions by 40% by 2030.’’

Could Hydroelectricbe part of the solution to ‘green’shipping?

Millions of dollars’ worth of goods are being lost every year, with far-reaching consequences for supply chains and the envi ronment. Part of the problem is the ever-growing size of vessels and all this adds to environmental concerns. Greg Davis , Senior Claims Specialist - Marine & Aviation, Liberty Specialty Markets, argues that hydroelectric vessels could provide part of the answer to this global challenge

The Bastø Electric charges incredibly quickly on local hydro power while docked and can make 24 crossings per day. Upscaling this technology could make it viable for global commercial use.

The recent World Shipping Council ‘Containers Lost at Sea - 2022 update’ revealed that a total of 1,629 containers fell from their shipboard perch into the sea each year, on average, between 2008 and 2021. However for the two-year period (2020-2021) the average loss rate was 3,113, a material increase from the experience of the prior 12 years.

The rise is attributable in part to major, unpredictable spikes in 2013 and 2020 caused by the loss of the MOL Comfort and the severe weather-related loss of more than 1,800 containers from the ONE Opus. But even when these extreme losses are stripped out, the trend is clear and upwards.

The increase adds another noticeable strain to the world’s supply chain, to the environment and therefore to marine operations across the globe.

While we cannot hope to deploy a solution overnight, we as industry professionals have an obligation to consider the root causes of this rising risk, and to determine how we can work with insureds, brokers, and international maritime organisations to improve the situation.

SUSTAINABLE AGENDA

As part of the United Nations, the IMO has developed its 2030 Agenda for Sustainable Development (SD) flagging the need for a sustainable transport sector supporting world trade.

An intricate web of factors contributes to the container

losses currently suffered by the shipping sector, its clients and insurers. Perhaps the most significant of these is the relentlessly increasing size of vessels, which continue to grow bigger on average to meet the growing demands of consumerism.

Analysis by Costamare found that container ships have more than doubled in size since 2000. Today’s largest container ship can carry about 24,000 20-foot container units (TEUs), enough carrying capacity from about 650,000 cubic metres (equivalent to 260 Olympic swimming pools).

The growth in size, which is accelerating, makes economic sense. Larger vessels cost less to build and operate on a per-container basis. If vessels continue to grow, we risk overwhelming ports and harbours, as well as clogging the finite width of shipping corridors.

Although they may be cheaper per container to operate, when large vessels with greater loads go wrong, they go drastically wrong. The entire globe realised this when the ultra-large container ship Ever Given blocked the Suez Canal in 2021 and caused worldwide supply chain disruption, stressing the advantage of sourcing locally versus globally and the impact of consumerism.

Even when things go right, large vessels need bigger crews and expert stevedores. Unfortunately, staffing issues arising from the pandemic have greatly impacted this area. The need to catch up after Covid-related delays is another factor. New staff, shipboard or shoreside, have the industry required training but are by definition inexperienced. Given the strain these combined factors create; it’s unsurprising accidents unfortunately occur.

For example, misdeclaration of cargo (a well-known industry issue) can mean containers are stacked in inappropriate environments, thus increasing risk. In addition, the container stacks themselves are at maximum capacity which in turn can see them plunge overboard into rough, choppy waters.

Arguably ships are now more likely to sail through weather that captains would like to avoid, which in theory increases the chances of a peril occurring. Ironically, ships that make it through with their cargoes intact often end up in queues at ports crowded to the limits of their capacity, adding to delays, congestion, pollution, and spoilage.

ENVIRONMENTAL IMPACTS

The rising environmental impacts of our world’s increasing reliance on the international shipping ecosystem compounds and even fuels these factors.

Many studies link the pressures of globalisation to the effects of global warming. As the imbalance between temperatures on land and in our oceans grows, so too does the prevalence of high and low-pressure systems which make storms stronger and, as we have seen, more storms results in more container losses.

The construction of additional ports and the extension of existing facilities at key shipping hubs is a partial solution. But that requires deeper dredging into the seabed, harvesting materials,

disturbing wildlife, and the extensive burning of fossil fuels to power tools, equipment and the harbour facilities themselves. And such projects take years to initiate, fund and complete. Since it risks irreparably tipping the balance between commercial need and environmental harm, port extension is not an ideal fix.

HYDRO POWER

A more unconventional solution is to expand the global fleet by adding vessels which are smaller, built from recycled scrap material and fuelled by hydroelectric power. Promisingly, the number of new vessels being built has decreased relative to the number being scrapped, providing a wealth of material inputs. Some 704 vessels were scrapped in 2021, up 20% from 2020 and 26% from 2019, according to Vessels Value.

Hydroelectric ferries operational in Norway provide proof of concept to green shipping and have been plying local waters since 2015. Last year the country entered into service the world’s largest all-electric, battery-powered ferry, on a route across the Oslo Fjord. The Bastø Electric charges incredibly quickly on local hydro power while docked and can make 24 crossings per day. Upscaling this technology could make it viable for global commercial use.

Like many green technologies, hydroelectric transport has not yet grown out of infancy. The world requires tens of thousands of vessels the size of Bastø Electric to make a viable alternative to the global fleet of traditional vessels now working international routes. However, with CO2 emissions reductions of around 95% compared to a conventional diesel ferry, conversion to hydro would be a fantastic leap towards a more sustainable, environmentally friendly shipping ecosystem.

Change will not happen overnight, and collaboration between governments, ship owners, and the insurance industry will be essential. The sustainability of the marine industry is bigger than any single factor alone – and the transition to a low-carbon economy touches all sectors of the economy. As we at Liberty focus on the resilience of our clients, we are here to support mitigation and adaptation to a changing world. Ultimately the efforts we all make will undoubtably be worth it. Together we can make sustainable improvements, with the happy side-effect of drastically reducing the rate at which containers are lost at sea.

“Analysis by Costamare found that container ships have more than doubled in size since 2000. Today’s largest container ship can carry about 24,000 20-foot container units (TEUs), enough carrying capacity from about 650,000 cubic metres (equivalent to 260 Olympic swimming pools).’’

Understanding the headwinds

External forces and global events have significantly impacted global supply chains in the last two years. Everything from pandemic induced lockdowns and fluctuating consumer demand variations, soaring commodities markets and the increasing security threat of the Russia-Ukraine war, through to the rapid adoption of artificial intelligence and demand management technology, has impacted shipping.

The pace and nature of this change has created liability risks which need to be dealt with on a daily basis and in increasingly nuanced ways.

As we head into the final months of 2022, the shipping industry should be aware of how these trends are developing and be prepared to deal with the impacts, both in the short- and long-term.

Hardening insurance markets, the global inflationary environment and the risk of recession add additional challenges to calculating risk in this environment.

COST-OF-LIVING CRISIS

Shipping is a lifeblood of global society. In parallel with the data

whizzing along deep water cables on the seabed, the ships sailing above, while much slower, are equally as fundamental to our lives, whether supplying vital IT equipment or powering industry and securing food supplies.

It is still unclear how the “work from home” revolution and the ongoing adjustment to a ‘hybrid’ way of physical and digital life will change societal habits long term. This creates demand and supply risk for both the shipping industry and businesses using their services.

One thing that is clear is that this uncertainty is |contributing to the cost-of-living crisis currently being experienced across the world.

According to research conducted by the United Nations Conference on Trade and Development (UNCTAD) rising freight charges are expected to increase consumer price levels by 1.5% through 2023. The research also states that the cost of items such as furniture, textiles, clothing and leather products is expected to grow by 10.2%.

The shipping industry has made a diligent and concerted response to these changes to push costs and delays as low as possible.

Alicia Leong , Marine Liability Underwriter, Munich Re Syndicate Singapore explains how the rapidly changing risk environment is impacting liability exposures for the shipping sector

The Federal Reserve Bank of New York’s supply chain pressure global index  is down 57% as of July from its pandemic peak. While some of this is likely because of decreasing demand in the face of inflation, it is also a result of heightened investment in artificial intelligence and ‘smart’ logistics management technologies.

GEOPOLITICAL UNCERTAINTY

In an ideal world, the post pandemic adjustment could lead to freight prices reducing and the insurance market softening. However, geopolitical risks created by the Russia–Ukraine war and tension in the Taiwan Strait add

risk layers in terms of both the transport of goods and the cost of fuel.

For example, sanctions placed on importing Russian oil resulted in the price of US oil jumping to a  13-year high of $130 per barrel. In turn, rising fuel prices led to increased freight charges. There have also been impacts from Russian forces shutting off shipping routes to and from Ukrainearound 70% of their exports were delivered by freight.

Parts of the Black Sea and Sea of Azov have also been affected by missile attacks and ship arrests, creating particularly stringent shipping risks in those environments.

As a consequence, insurance premiums for shipping companies have increased and it is becoming difficult for them to operate as before.

The rise of freight charges comes with its own set of impacts. In the short term, there will be disruptions to the supply chain as shipping companies - already navigating pandemic-related uncertainty - are now also having to find solutions to manage the impact of Russia’s invasion of Ukraine. Long term, volatility in the cost of fuel makes accurate demand projection particularly challenging.

As these examples show, building an accurate risk profile of the shipping industry requires unpacking these interconnected webs of systems which connect our day-today lives with the goods we use and the geopolitical events occurring around us. It also illustrates why building accurate projections of long term ‘big picture’ trends is equally as important for insurers.

LONG TERM TRENDS

As with all walks of life, global warming will undoubtedly increase freight charges because of increasing risks resulting from extreme weather events and infrastructure failures.

One prominent example close to home is the transport and logistics disruption the UK experienced during the recent mid-July heatwave.

As railway tracks and ports were badly disrupted, logistics companies had to rapidly find alternative solutions to shift goods from A to B, often at additional cost and complexity.

The increased use of technologies such as AI and digital tools in the shipping industry also means cyber security resilience will become ever more important as a risk factor to consider.

Building an accurate understanding of exposure to cyber risk is a trend which will be important for every industry in the coming years. But shipping in particular, as a comparatively new adopter, will face both execution and security risks across operational portfolios.

The bottom line is that freight shipping is crucial to the global economy, with  more than 80% of the world’s traded goods being carried by sea. With an ever-changing global landscape, players in the shipping industry must take the necessary steps to ensure that they are ready for any developments and adequately protected from risk.

“Shipping is a lifeblood of global society. In parallel with the data whizzing along deep water cables on the seabed, the ships sailing above, while much slower, are equally as fundamental to our lives.’’

Alicia Leong, Munich Re Syndicate Singapore

How technology is disrupting the pre and post-claims process

Ronny Reppe , co-founder of Noria, explains how digitalisation is being used to improve both the pre-claims and post-claims and improve communication

It is hard to say who benefits more from technological disruption in marine insurance – the insurers or the insured. From data analytics enabling claims prevention to drone-based claim analysis, risk monitoring, increased safety, automated settlements and improved customer service, technology is helping create efficiencies and slash costs at multiple points in the claims process.

Below, we explore some of the technological benefits being leveraged both before and after the claim.

PRE-CLAIM

Technologically savvy ship owners are using IoT (Internet of Things) to streamline and optimise operations ranging from cargo and vessel tracking to crew safety and predictive maintenance that will prevent potential failures and subsequent downtime.

The massive increase in data means operators can gain valuable insights that inform data-driven (and therefore better quality) decision-making.

Here are some of the ways insurers are adding further value in this technology-enabled environment.

DATA ANALYTICS AND CLAIMS PREVENTION

Data analytics is nothing new in marine insurance. Insurers have always analysed risk, based on known data such as a vessel’s age, its flag and incident history.

The industry has amassed decades of historical knowledge that help us gauge future risk. The emergence of exciting new data points provides us with the ability to assess risk with much greater accuracy. But this does not mean our historical data sets should become obsolete.

Instead, we can adopt AI to use existing data better by uncovering insights, trends and correlations that were previously impossible to spot using human analysts and spreadsheets.

Then there are the new data points that can create a much richer profile for insurers to size up potential risks and protect clients.

Alongside the information flowing endlessly from ship-toshore connected IoT, behavioural data such as location, mileage, speed, port inspections and more can be used to gain a better picture of risk, calculate more accurate pricing and

build better relationships based on trusted data.

An increased range of data sources and AI-driven analytics enables dynamic pricing, in which algorithms change the price of insurance based on various potential factors.

This enables marine insurers to estimate risk more accurately and generate price quotes based on different risk levels and tailored to specific sales.

Ultimately, data analytics insights can be communicated back to operators, educating them on ways to reduce risk with the aim of reducing the number and severity of future claims.

“Technologically savvy ship owners are using IoT (Internet of Things) to streamline and optimise operations ranging from cargo and vessel tracking to crew safety and predictive maintenance that will prevent potential failures and subsequent downtime.’’

Technology has also proven vital in monitoring risk in dangerous areas. For example, DNK has automated the reporting process when ships journey into war risk zones through sophisticated sensor and geo-fence technology.

Similarly, Concirrus enables operators to set zones in the Black Sea and Sea of Azov to monitor live exposure via satellite as the Russia-Ukraine conflict continues to evolve.

POST-CLAIM

Insurers are leveraging technology to improve the post-claim process in multiple ways including remote claims investigations, automated processing and enhanced customer communication.

REMOTE CLAIMS INVESTIGATIONS

Video-equipped drone technology has been available for a long time, but it was the Covid-19 pandemic that drove marine insurers to use drones when they could not send a claims handler or surveyor on board.

This technology has huge potential to slash claims processing times and is extremely cost efficient when compared with a surveyor travelling to the ship. In addition, using drones can remove inspectors from harm’s way, especially when inspecting confined spaces or underwater.

Most claims require a visual inspection, but in cases such as equipment failure, a complete picture of the incident may be gleaned through the continuous stream of IoT data and not require a drone at all.

AUTOMATED CLAIMS SETTLEMENT

As McKinsey reports, digital attackers in insurance are using digital applications to turn the claims process into a fast, simple and satisfying experience, bypassing the frustrations of dealing with a traditional insurance process.

McKinsey found that end-to-end digital claims transformation increased customer satisfaction by 20%, reduced claims expenses by 25-30%, and improved claims handling accuracy (reducing both overpayments, underpayments, and subsequent disputes and litigation).

In marine insurance, for example, an operator may use a self-service platform to report damage to the insurer.

Automated, intelligent case management will analyse the claim and categorise it as a simple claim (requiring no further investigation) or a complex claim (requiring a drone or surveyor assessment).

The final steps involve a digital loss assessment, then repair, followed by automated invoice verification and automated payment processing.

At present, full front-end and back-office automation for claims handling processes is best suited to clear and simple cases in marine insurance.

CUSTOMER COMMUNICATION

Digitising and automating the end-to-end customer journey can greatly improve transparency and customer access to information on the progress of their claims without adding a manual burden for the insurer.

A well-built self-service solution will include a dashboard that enables customers to understand the status of their claims at a glance, along with providing access to their claims history.

Implementing a self-service solution will dramatically reduce the number of status request calls to your customer service team, particularly if a chatbot is employed.

McKinsey recommends that insurers shift simple, routine transactions from claims handlers to the customers themselves.

For example, a ship operator should be able to use a self-service tool to schedule a surveyor appointment if required. Necessary information such as policy numbers should be easy to find within the tool, while support (online chat or FAQs) should be readily available.

Customers who decide halfway through their journey to speak with a human customer service agent should be able to do so without having to repeat previously-entered information. Finally, be sure to gather and action customer feedback to continuously improve the user experience.

DIGITISE NOW

No matter what your priority may be – reducing the number of future claims, increasing efficiency or improving customer communication – there is little time to lose in launching your digital transformation in marine insurance. Digital attackers with pure-play digital business models are fast reshaping the claims process and will leave analogue insurers behind unless they act now to connect, integrate, digitise and automate.

“Video-equipped drone technology has been available for a long time, but it was the Covid pandemic that drove marine insurers to use drones when they could not send a claims handler or surveyor on board.’’

Ronny Reppe, Noria Software

As a leading global marine insurer we know the risks businesses face. Our global solutions and expertise help our clients to face them with confidence.

AIG’s marine team has decades of experience in underwriting, loss prevention and claims handling across the globe. We put our experience and expertise to work every day for our clients, assisting them to protect their assets, maintain business continuity and retain their customers’ loyalty. To let us help you to face your risks with confidence visit aig.com

Navigating potentially choppy Turkish waters

Turkey is a country situated between the Black Sea and the Mediterranean, and also a bridge from Asia to Europe. Most of the trade and commercial activities are carried out through maritime transportation in Turkey where there are many major ports with a high volume of cargo handling capacity. Shipyards in Turkey are major places for both repairs and new building and employ tens of thousands of people.

In addition, the Turkish Straits, a unique system of water ways consisting of Istanbul and the Çanakkale Straits and connecting the Black Sea to the Marmara and Mediterranean Seas, are considered one of the most significant sea passages as a main trading route for transit sea traffic linking the Black Sea countries to the world. Even the war in Ukraine did not substantially affect the number of ships passing through the Turkish Straits which remains almost the same as before the war.

UNPLEASANT CLAIMS

Given the scale of maritime activity, all sorts of marine claims are expected to occur in Turkey. However, there are two types of claims that are considered the most unpleasant to insurers: salvage claims in the Turkish Straits and pollution fines.

Such claims fall into the scope of different types of insurances but the common part is that, once they occur, they are costly although the claim itself may not be serious.

For pollution fines, the level of each fine is calculated based on the gross tonnage of the vessel regardless of the quantity of the discharge. It may be just a bucket of grey water. Liability insurers face many incidents of sea pollution fines every year and total exposure could be extremely high.

There are certain multipliers that increase the level of pollution fines. For example, the amounts will be tripled when the fine is imposed against a business that owns the vessel. Another multiplier is that the level of fines for marine pollution caused by vessels in a ‘Specially Protected Area’ are doubled. These protected areas are mostly popular with

Caglar Coskunsu , co-founder of leading Turkish maritime law firm CAVUS & COSKUNSU, argues that more investment in loss prevention efforts could avoid sometimes costly and complex salvage and pollution claims in Turkish waters

tourists and are aggressively protected. The Marmara Sea, in which the majority of Turkish commercial sea traffic takes place, is included in the list.

In salvage cases, the Directorate General of Coastal Safety, a Turkish state-owned company with monopoly rights for salvage operations in the Turkish Straits including the Marmara Sea and some adjacent waters at the entrance of Bosporus and Dardanelles, sometimes makes large claims although the services being rendered are limited and for just a short period of time.

Since these salvage claims have a percentage approach against what was actually done as salvage services and what would be paid at the end, the costs can be extremely unreasonable.

ENGINE PROBLEMS

In a few cases, such as with a major fire on board, this percentage approach may work in favour of the hull and property insurers. However, most of the salvage cases in the Turkish Straits are triggered by engine problems that are often resolved within a very short period of time. But these cases can lead to high value salvage claims subject to the values of the vessel and cargo on board if the master accepts the “salvage”.

It is widely known that the Directorate General of Coastal Safety, as state salvors, uses a standard form called the “Turkish

Salvage Agreement (Turks) 2015” and this should not be signed if possible. Turks 2015 is very unfavourable to the shipowners.

There are many provisions that protect salvors, but, there is a controversial arbitration clause under which the arbitrators are paid on the basis of 12% of the sum awarded and shall be equally distributed between the arbitrators.

Another issue for shipowners is that once they sign Turks 2015, shipowners have to provide security for all salvaged values (cargo, bunkers and freight) assuming liability for all property on board.

Normally, if Turks 2015 is not signed, each party needs to settle its share separately and there is no joint liability for shipowners. Ship masters do not sign Turks 2015 in most cases, but they are put under pressure in cases of engine problems by the vessel traffic services - tugs and pilots - to accept salvage assistance. Unfortunately, usually ship masters accept salvage assistance via the VHF and this usually leads to expensive salvage claims.

Masters can be criticised for accepting the salvage but the more important questions to ask is why there are many engine breakdowns in the Turkish Straits? Why uneventful voyages end up with a salvage claim? It may be a reasonable approach to alert shipowners and managers to give extra caution against engine and slow speed problems in the Turkish Straits.

POLLUTION CLAIMS

Pollution fines are covered by the P&I Clubs/P&I insurers and every year we see circulars advising of new fines and how they have increased with new multipliers.

Perhaps, these circulars should contain reminders of how to avoid these expensive fines. We currently live in a world of global events requiring notices to shipowners every week because of pandemics, wars and the like.

Therefore, it would be useful to keep reminding of how critical loss prevention is including simple measures such as alerting the masters, shipowners and managers not to wash decks, not to discharge treated water into the sea, not to de-ballast and the like.

Pollution fines and salvage cases may seem very different in many aspects. The legal regimes are different including legal remedies that are available under separate procedures of Turkish law.

The common problem is that significant values are paid for relatively small incidents. These claims can be managed carefully with the help of experienced experts but it remains regrettable that there are losses for avoidable salvage cases and pollution fines every year. As ever, it makes sense to invest more time and effort in loss prevention efforts to prevent the claims in the first place.

“The Turkish Straits, a unique system of waterways consisting of Istanbul and the Çanakkale Straits and connecting the Black Sea to the Marmara and Mediterranean Seas, are considered one of the most significant sea passages.’’

Transporting lithium-ion batteries: Know your risk

Lithium-ion batteries are being used more and more worldwide and carry specific risks when being transported, not least explosion and fire. Stephen Harris , (left) principal marine insurance technical trainer, and Todd Hohlweck , US Marine Industry Technical Leader at Marsh Specialty explain how to manage this risk

Lithium-ion (Li-ion) batteries power many electrical devices, from children’s toys and mobile phones, to laptops and vehicles and are shipped around the world. They are one of the most energy dense batteries available on the market, deliver large amounts of current, are comparatively low maintenance and have a low self-discharge rate.

However, these batteries do have a tendency to overheat, explode and catch fire. The risks of transporting Li-ion batteries need to be analysed and prepared for. We argue that there are three key steps to help cargo owners to manage these risks.

HOW LI-ION BATTERY FIRES START Li-ion batteries have the potential to ignite and explode because they contain a flammable liquid electrolyte. This risk is compounded when batteries are damaged, either due to improper storage, use, or while they are being charged.

Additionally, counterfeit batteries - that are widely in circulation - may be missing protective seals between the terminals or are too weak to work effectively.

Regardless of manufacturing quality, if a Li-ion battery short circuits for any reason, the terminals heat up and the electrolyte liquid begins to boil. If the electrolyte steam cannot escape the battery, thermal runaway occurs, causing the battery to swell and may ultimately lead to explosion and fire.

Li-ion battery fire is extremely hot and difficult to extinguish. Because it is self-sustaining, it will continue to burn even without an external source of oxygen to feed it.

Attempts to extinguish Li-ion battery fires with water may produce even worse conditions, given that lithium reacts vigorously with water and forms toxic gases.

Furthermore, Li-ion battery fires may appear to be fully extinguished when they are not, sometimes reigniting days later.

Because of the specialized equipment and knowledge required to safely contain and extinguish such fires, many vessels may not be appropriately prepared.

KNOW YOUR RISKS

The increased volume of products powered by Li-ion batteries being shipped around the world has highlighted the risks that these batteries pose not only to the vessels carrying them, but also to the crews on board. Additionally at risk are the cargo owners of goods with Li-ion batteries, who may be held liable for injuries or loss to other parties caused by a Li-ion battery fire.

Today’s car carrying vessels are able to carry more than 6,500 car equivalent units (CEU), with ones designed to carry more than 9,000 CEUs expected to enter service by the end of next year. It only takes one electric vehicle to catch fire and start a furious blaze with the potential to engulf the whole ship.

There have been numerous examples where Li-ion batteries are suspected of having ignited and leading to fires on board pure car carrier (PCC) vessels.

Container ships are exposed to similar risks when carrying goods that include Li-ion batteries. Although shippers are required to itemize any dangerous goods, these descriptions may be inaccurate, either intentionally or because of a lack of knowledge about the dangers associated with Li-ion batteries.

THREE ACTIONS TO REDUCE FIRE RISK

Considering the potential fire hazard of shipping electrically powered vehicles or quantities of Li-ion batteries, it is crucial for cargo owners to secure the appropriate insurance coverage and take action to manage their risks. These include:

1. Work with your broker or insurance advisor to confirm whether your policy covers the potential liabilities that could arise during the transportation of Li-ion batteries, such as loss or damage to the carrying vessel or vehicles, or to the property or goods belonging to other parties. Some of the consequences may not be covered, or may actually be excluded, such as resultant pollution, demurrage (the cost of delaying the vessel), and general average declarations;

2. Ensure that the description of cargo given to carriers specifically mentions electric vehicles or goods containing

Li-ion batteries, and that these goods are packaged in compliance with the International Maritime Dangerous Goods (IMDG) code. These actions help promote safer carriage of dangerous goods aboard the vessel, and help protect you against accusations of “misdeclaration,” should a fire be caused or exacerbated by the Li-ion batteries within your shipped goods. When dangerous goods, such as Li-ion batteries, are not properly declared, they are unlikely to be handled with the appropriate care. Additionally, if a fire breaks out, the crew might not be aware of how to tackle the blaze correctly; and,

3. Find out whether cargo owner’s liability insurance can fill the gaps between your traditional general liability insurance and a standard cargo insurance policy, help eliminate ambiguity and respond to third party damage and its consequences, thereby offering the necessary insurance protection to prudent cargo owners.

“Li-ion battery fire is extremely hot and difficult to extinguish. Because it is self-sustaining, it will continue to burn even without an external source of oxygen to feed it.’’

When war and P&I meet…

North’s Class 1 P&I cover is subject to Rule 24 –headed “War Risks” – which, broadly speaking, excludes from cover liabilities, costs or expenses arising from a war.

The conflict in the Ukraine could lead to losses

qualifying as war risks. We would consider in any particular incident whether a loss fell within the exclusion but, where it does apply, cover for the loss may alternatively be found in a separate owner’s war policy (subject to Class 1 P&I providing an excess layer of cover beyond the war policy limit or proper value).

North may provide the primary war risks cover through an entry in Class 3, or it may have been placed by the owner with another underwriter.

So, if, for example, a vessel was to become trapped in a port because of the conflict in Ukraine, and cargo onboard deteriorates, then any legal liability incurred by the owner in relation to the cargo would fall first to war risks cover and not Class 1 P&I cover.

Personal injury claims (arising from a missile strike, for example) falling to P&I would equally be borne by war risks insurers.

North’s Class 3 war risks cover is subject to its own set of rules and should be read in conjunction with any Class 3 terms on the Certificate of Entry.

Class 3 is a mutual provider of cover for war hull & machinery as well as primary P&I war risks. Reinsurance security is A-rated along with UK government security for UK-flagged vessels (in the event of a war involving the UK). Some of the benefits of Class 3 cover over standard market policies are as follows.

Mutual cover, including the discretionary element;

•Ground-up cover (no deductibles barring a few exceptions);

•Fixed limit of US$500m for primary P&I risks as opposed to declared hull value;

•Fewer or more narrowly defined AP Areas;

•Longer lead times before changes to AP Areas take effect;

•Lower annual and AP rates with discounts for armed guards, K&R and block breaches.

•Detention/diversion expenses in the form of daily

The conflict in Ukraine has brought into focus the interaction between P&I risks and war risks. David Richards , (left) Director (Claims) and Sanchit Dutta , (right) Director (Underwriting) at North P&I Club, examine that often complex but important interaction

additional running expenses plus a proportion of entered value per annum pro-rata but subject to a deductible;

•CTL can be declared in the event of detention lasting six months;

•$50m aggregate biochem/nuclear buy-back;

•War loss of hire also available; and,

•War PLR Certification

Members with Class 3 entries should speak to their Club and their other war risk underwriters before trying to enter or leave any defined AP area which may include Ukrainian ports, the northwestern part of the Black Sea or the Sea of Azov.

Members with entries outside of Class 3 should also be careful about any attempt to exclude P&I risks where war policies are required to be reinstated.

CHARTERERS ENTRIES

A charterers entry may contain a war inclusion clause which covers the member on a primary basis for liabilities, costs and expenses otherwise excluded by Rule 24(1) but on additional terms set out in the Certificate of Entry, including the policy limits and deductibles.

The war inclusion clause will have the effect of covering a charterer for P&I and, depending on the terms of entry, damage to hull (DTH) risks caused by war perils arising from the conflict in Ukraine subject to Class 1 Rules.

In addition to setting out exclusions, the additional terms under the war inclusion clause will define the circumstances in which

cover may be terminated automatically or upon notice.

North’s DTH cover responds to physical loss or damage to the chartered vessel. DTH is unlikely to be engaged where a charterer member becomes liable solely as a result of blocking or trapping, due to a lack of physical damage.

DTH cover also excludes liabilities which arise solely by reason of a contract, indemnity or guarantee made by or on behalf of the member, nor does it cover operating expenses. So, for example, under Conwartime 1993 the charterer agrees to reimburse additional premium and additional crew wages/ bonuses arising as a result of a port call involving defined war risks but these additional costs would not be claimable from North.

OWNERS’ FIXED PREMIUM

Section 52 of the Owners’ Fixed Premium Terms and Conditions (OFP T&Cs) excludes war risks in a manner similar to Class 1 Rule 24. Part IV of the OFP T&Cs contains terms providing P&I war risks cover either ground-up (similar to how Class 3 Rule B operates) or on “P&I excess” basis.

The latter covers certain P&I risks above the policy limits of the insured’s war risks cover. These are optional/additional covers to the core P&I fixed premium product. Details may be found in the terms of the certificate of insurance for the relevant insured vessel.

Part IV (P&I war risks) of the OFP T&Cs also sets out a mechanism to cancel, vary or restrict the terms of cover specifically in respect to P&I war risks. Cover will be subject to a policy limit or sub-limit under the certificate of insurance arising out of one event, accident or occurrence.

CERTIFIED LIABILITIES

North may face direct claims in respect of certified P&I liabilities (ie under “blue cards”) even though the risk is excluded under Rule 24 or under the OFP T&Cs.

However, there are often exceptions under the conventions which underpin those certificates relating to incidents resulting from an act of war or hostilities.

Where North incurs a certified liability which falls outside the limit of cover, the member/insured will be responsible for indemnifying the insurer or the insurer may pursue a subrogated recovery against the war risks insurer (see for example Class 1 Rules 20(3)(b) and 31(1) and OFT T&Cs Section 59).

Sanctions risks

North’s P&I and war risks are all subject to an exclusion related to liabilities, costs or expenses arising from prohibitions and requirements of any economic, financial or trade sanctions administered by any state or international or supranational organisation or the risk thereof.

Cover will automatically cease if the entered ship exposes the Club to the risk of violating or becoming subject to any sanctions. New sanctions are emerging constantly and members must exercise the utmost due diligence to avoid sanctions risks.

If, for example, a vessel was to become trapped in a port because of the conflict in Ukraine, and cargo onboard deteriorates, then any legal liability incurred by the owner in relation to the cargo would fall first to war risks cover and not Class 1 P&I cover.

Forward Thinking™ Foreign Exchange

Ballinger &

specialist

Exchange.

In search of clarity

A common problem encountered between vessel owners and charterers is, when there is an allegation that a vessel has underperformed, how that alleged underperformance is to be calculated.

The starting point will be the speed and consumption warranties which are inevitably found in most time charterparties.

In these clauses, the owners will warrant the speed and fuel consumption of a vessel however they will also inevitably only give that warranty on a ‘good weather’ day. They do not wish to be exposed for claims when the vessel encounters heavy weather. Further to that, a charter

will inevitably specifically set out what constitutes a ‘good weather’ day, eg “no adverse currents, Douglas Sea State up to level 3, Beaufort force up to 4”.

SPEED AND PERFORMANCE CLAIMS

How aspects of speed and performance claims are to be treated was recently considered by the High Court in  Eastern Pacific Chartering v Pola Maritime EWHC 2095 (Comm) in a decision which provides some clarification on what, until then, had been slightly contradictory reported arbitration decisions.  Useful commentary was also provided in relation to performance warranties generally.

The reason why the law has been at times somewhat unclear with respect to how speed and consumption warranties are to be interpreted is that in most cases, these matters are subject to arbitration and it is rare that there might be an appeal in respect of them which might place them before the courts where a decision can then become binding. Arbitration reports, which are not binding, have led to differing decisions.  However, in  Eastern Pacific, the charter somewhat unusually, provided for High Court jurisdiction.

Among a number of issues in the case, Ms Clare Ambrose sitting a Deputy Judge of the High Court (but also well-

Michael Biltoo , Partner, Kennedys discusses the implications of Eastern Pacific Chartering Inc v Pola Maritime Ltd [2022] on the calculation of performance warranties

known maritime arbitrator) considered the effect of currents within the meaning of a ‘good weather’ description.

To provide some background, charterers will often ask specialist weather routing companies to assess the vessel’s speed and performance (as it was in the current case). They are required to evaluate the vessel’s speed and consumption only on good weather days but are then entitled to extrapolate that data to apply it to the whole charter. This is done on the basis that if the vessel was underperforming to a certain level on good weather days, it was probably doing the same to that level on bad weather days (The Didymi [1987] 2 Lloyd’s Rep. 166).

NO ADVERSE CURRENTS

When it comes to ‘no adverse currents’, such companies frequently would include days where there were adverse currents as good weather days but would add in a ‘current factor’ to negate the effect of the adverse current in their calculation.

Moreover, where nothing was said the charter about favourable currents, such companies might use that as a factor in the performance of the vessel (eg if the vessel was performing at a certain speed with a favourable current, the actual performance would be deemed less). On these points, there have been conflicting arbitration decisions.

On the question as to whether any day with any adverse current should not be deemed a ‘good weather day’, the general view has been that they should not (eg  London Arbitration 12/14; London Arbitration 6/19) but other reported decisions have suggested that current factors could be used in calculations (eg  London Arbitration 4/12).

Equally, when incorporating favourable currents into speed and performance calculations, various arbitration decisions had allowed that (eg London Arbitration 15/05) but generally it was deemed not appropriate unless specifically provided for in the charter (eg  London Arbitration 15/07; London Arbitration 26/19).

On the first question, while not directly a question for the High Court, the strict adherence to what the charter provides was endorsed.

Referring to previous decisions, Ms Ambrose stated “where the parties have adopted a performance warranty based on good weather performance then applying the warranty will be the primary method for assessing any claim since it reflects the chosen benchmark for performance” (para. 93) and also that “The authorities show that the warranty is tested against actual performance at sea during the charterparty rather than a paper calculation of the engine’s capability” (para. 100).

She went on to endorse the fact that where there was agreement for ‘no adverse currents’. This meant “that time spent sailing with adverse currents was not to be treated as good weather against which the performance warranty was agreed” (para. 102).

This reasoning in turn led on to the more direct question for the Court, which was, in the absence of anything stated about positive currents, how they should be dealt with when

assessing performance.

While the Court acknowledged that where the charter might provide for ‘no adverse currents’ (to the benefit of owners), the ‘dramatic’ effect of positive currents (which, it was suggested could be as high as 25% on a ballast voyage) should not also be to the owners’ benefit, this was ultimately rejected by the Court. Ms Ambrose stated at para. 100:

“If the master maximises the weather or currents (or fails to do so) then that is part of the vessel’s capability as much as the capability of its engine or the condition of the hull during any period of review. The vessel’s better performance is for the benefit of the charterers (as well as the owners). In the absence of wording excluding the benefit of positive currents (or weather that is better than “good weather”) such benefit is not to be deducted in measuring the vessel’s speed for the purpose of the performance warranty.”

The judgement therefore makes clear that, unless the charter says otherwise, the common usage by weather routing companies of current factors in speed and performance calculations is not permissible.

PRIMARY METHOD

However it will be noted above that Ms Ambrose, in paragraph 93, referred to the application of the warranty as the  primary method for assessing any claim. That means that there remains other methods to calculate the vessel’s speed and performance but on the basis that “any alternative method must be established as reliable and consistent with the express performance warranty, especially in circumstances where the conventional method has been adopted for many years in an area of significant expertise, resources and innovation” (para. 94).   Eastern Pacific Chartering v Pola Maritime  is a useful summary of the status of English law when assessing performance warranties. They remain bound, primarily, to the performance on good weather days which are to be construed strictly.  This can mean that even the smallest deviation from the minimum requirements of a good weather day will exclude that day from calculation. That can mean that assessment of the vessel’s performance might be difficult at times but a ‘current factor’ cannot be used to address that problem.

“The reason why the law has been at times somewhat unclear with respect to how speed and consumption warranties are to be interpreted is that in most cases, these matters are subject to arbitration’’

Assigning water damage to glass cargo onboard a general cargo vessel

A cargo of glass recently created some interesting issues, Dr Sophie Parsons , Principal Associate, Hawkins, explains how the company was called in to investigate and decide whether it could be salvaged

During its second day of discharge, the parties involved in port operations observed that the cargo hold of a general cargo vessel had been flooded with sea water to a depth of approximately 1.5m, whilst a significant portion of a large glass cargo consignment was still inside. Hawkins was instructed to attend at port as soon as possible during continued discharge operations, to assess the condition of the glasscargo and to determine its general salvageability.

Examining the evidence

The consignment was transferred to a nearby warehouse for our inspection, where a representative amount was examined. The cargo presented as wooden cases, in which

glass panes were fixed and covered with plastic packaging. Desiccant packs (for absorbing moisture) were placed in the spaces between the glass and external plastic packaging. We observed that there were trace amounts of coconut husk flour lining the glass sheets, which acted as a protective layer, preventing the glass surfaces from mechanically abrading against each other. The flour, in combination with the desiccant, was used in transit to preserve the integrity of the glass.

The representative samples of glass cases that we examined all showed evidence of sea water ingress. The external plastic packaging was noted to be sticking to the glass panes held inside the frame of the wooden cases. On removal of this packaging, the desiccant packs were completely saturated, and water droplets were noted on the internal layer of the plastic packaging. In some cases, water cascaded out of the plastic packaging when torn open.

Glass

Hawkins

“The representative samples of glass cases that we examined all showed evidence of sea water ingress.”

The glass panes showed obvious moisture ingress along their height, due to capillary action, and, in general, showed an approximate 1m ingress line, with water trails stretching upwards. The water ingress caused general discoloration to the surfaces of the glass and the affected glass panes tested positive during the silver nitrate test, which indicated the presence of chlorides (from sea water).

Having established sea water ingress among the samples, we attempted to separate the glass panes from each other at the warehouse, using industrial suction cups and a lifting machine.

However, it was not possible for the glass panes to glide over each other, as they would routinely do once received at the warehouse in a dry condition. This evidence was consistent with the sea water having migrated in between the sheets and wetting the coconut husk flour, which once dried, had created sufficient adhesion to prevent the glass panes from being separated. The wet coconut husk flour effectively behaved like a glue. As such, a great deal of the consignment was not fit for use, as it was adhered together.

Aside from the adhesion, there was also an aesthetic issue regarding the cargo. When glass is exposed to acid or alkaline solutions, it is more susceptible to chemical degradation/corrosion, especially if the exposure is under static conditions (ie the solution is retained on the surfaces of the glass). Alkali solutions, such as sea water, with an approximate pH of 8, can dissolve a glass surface by attacking the silica within its structure, leaching it out and dissolving it.

This process continuously exposes a fresh surface, which in turn is dissolved. As long as the supply of alkali is sufficient,

this type of corrosion proceeds at a uniform rate. However, this rate can increase if the local temperature is increased. The glass cargo that we examined showed evidence of sea water retention between its various layers and was heavily discoloured on its surfaces as a result of this leaching process. Glass cargo has very strict aesthetic requirements and the panes had suffered both corrosion along their surfaces as well as adhesion of the sheets to each other. As a result, the full consignment of 1,400 cases of glass panes were rendered unfit for use and could only be used for recycling purposes.

How Hawkins can help

At Hawkins, we have the experience and expertise to consider and analyse each of the factors that contribute to cargo-related incidents. Our services include pre-loading assessment of the cargo, real-time advice, forensic investigation following an incident, through to post-loss advice to reduce the risk of recurrence and improve processes. Losses in the marine industry can have substantial financial implications and Hawkins have the expertise to identify the cause of an incident, understand whether it could have been prevented, and to establish missing liability.

Glass cargo In association with Hawkins

“Aside from the adhesion, there was also an aesthetic issue regarding the cargo. When glass is exposed to acid or alkaline solutions, it is more susceptible to chemical degradation/corrosion.”

“Alkali solutions, such as sea water, can dissolve a glass surface by attacking the silica within its structure.”

Ukraine – Cost of War Comes Home to Roost for Marine Insurers

Some 90 vessels have been trapped in Ukraine waters since February and many of them have already been written off as total losses, with more to come. In this breakfast briefing, we explore the impact of those claims hitting the marine insurance market and the likely consequences for the Nordic region.

Inflation – Up, Up and Away

Inflation is affecting every element of daily life. In this keynote we consider how the marine market is impacted from claims and premiums, to recycling and repairs. We also consider how rising costs might dampen enthusiasm for innovation and the drive towards sustainability.

State of the Nordic Market – A Perfect Storm?

Just as the Nordic Insurance Plan undergoes a revision, the marine market faces some of its toughest challenges as claims costs rise across the board. What will this mean for the upcoming renewals, and how big a part will reinsurers play in any market shifting?

Sustainability – Why the Poseidon Principles Matter

In this discussion, we will review the Poseidon Principles and ask whether insurers as well as owners have a responsibility to embrace this new approach to sustainability. What are the Rules and how do they work? How much of this is talk and how much is action? Will insurers back ship owners as they invest in new, but greener, technologies?

Marine Insurance – Keeping Pace with Demand

In this session we will ask if the insurance industry has really kept pace with what their clients need from a product prospective. We also ask, how does the insurance sector create new products that are fit for purpose, and is the data revolution part of that process?

Cyber – An All Inclusive Approach?

Owners would like to see cyber included in their existing policies, while the insurance regulators are insisting on stand-alone solutions. In this session, we ask why the insurance industry is not moving on and embracing cyber as one of the everyday risks facing business?

Cargo Claims – Cargoes Putting Lives at Risk

Cargo fires continue to dog the market, but are there practical solutions that owners can adopt, with the blessing of their insurers? How can owners of ferries protect their vessels as more drivers bring electric vehicles on board.

Sanctions – Travelling Through

For Norway and other Nordic countries, the recent sanctions against Russian entities has been particularly difficuly to monitor and manage, thanks to so much local traffic transiting the region. In this session we look at the fast-changing rules and how owners and their insurers are being forced to adapt.

Fines – Are Fines Effectively Another Tax on Shipping?

Fines and even confiscation of vessels have been increasing in frequency in certain parts of the world and have almost become a taxation of trade. In this session, we hear of the latest hotspots and what whip owners and their insurers can do to alleviate the problem.

Salvage Update

Supply Chain: Can Globalisation Ever be Truly Green?

In this session we analyse the just-in-time supply chain model and question whether it remains fit-for-purpose in a more sustainable world. Does it sate consumer demand at the expense of too many lost cargoes left rotting when a delay occurs or, indeed, at the expense of the environment the world is striving to protect?

Digitilisation: What’s New?

We often hear about digitlisation, but what is actually new right now? Is it truly paying dividends for owners and their insurers, or is there simply too much useless data clouding the picture? Does the marine market merit bespoke solutions that can properly support underwriters in separating good risks from bad?

New Technologies: Changing the Risk Profile

How are insurers supporting innovation and change? In this session we ask whether insurers do enough to support their insureds as they adopt new technologies? We also look at how owners can help crews adapt to a new way of working.