5 minute read
IUMI
A recent dramatic rise in loss of containers overboard and the catastrophic explosion at Beirut port have re-focused attention on the accumulation of risks. Lars Lange, (right) Secretary General of IUMI, argues that proper measurement of new and growing risk, particularly in situations where accumulations occur is needed. This will significantly enhance underwriting performance and the level of service delivered to the assureds
Measuring emerging marine market risks
Accurately assessing risk is the bedrock of good underwriting and insurers are increasingly widening the net of available data and turning to more sophisticated tools to help them do that. But risk profiles change continuously as do the levels of risk inherent within a particular vessel, cargo, port or other entity.
A growing concern for marine underwriters is risk accumulation and this takes a number of forms.
Economies of scale have encouraged shipping companies to build ever larger vessels to move cargoes more efficiently and cheaply. Yesterday’s post-Panamax containerships of 10,000 TEU seem tiny in comparison with today’s Ultra Large Container Vessels of 24,000 TEU or greater.
At a newbuild cost of around US$150m, these vessels represent a sizeable risk on their own. Add in 24,000 boxes filled with finished goods with a rough value of $50,000 per container and the total value of hull and cargo could easily approach $1bn.
INCREASED VALUES
But the issue of risk accumulation extends much further. Modern container ports operate multiple terminals and each is capable of berthing multiple vessels – all carrying many thousands of boxes. Add this to the containers waiting in the stack or stored in adjacent warehouse facilities and the insured values skyrocket.
A single incident occurring in such a port facility has the potential to become an unprecedented insurance loss. Of course, a financial loss is nothing when compared with loss of life and injury. By their very nature, ever larger port facilities require more people-power and a more concentrated workforce will inevitably - and tragically – result in a higher death toll should the worst happen.
A recent stark reminder was the explosion at the port of Beirut in August 2020 which sadly left 178 people dead and a further 6,500 injured. It is too early to assess the financial impact of the blast and its effect on the insurance sector but
there is certainly a need for more work to be done to fully understand and assess the accumulated values at ports and terminals.
The similar, and equally tragic, incident at the port of Tianjin in China back in 2015 is estimated to have resulted in a loss of around US$3bn. And, of course, we must not forget the 173 people who lost their lives.
COMPELLING ARGUMENTS
Both these incidents are compelling arguments to urge terminal operators to manage and store potentially dangerous goods in a transparent, proper and safe manner. Interestingly, during the early days of the pandemic when cargo wasn’t moving, cargo assureds were reporting reduced values of goods in transit and correspondingly heightened values of goods at locations. Some commodities, particularly oil, was also being stored afloat. Therefore, momentarily, cargo insurers were exposed to more static risk than moving risk.
This, again, changed the risk profile for the cargo market. It also focused the sector on the reality that whilst there are several tools available to monitor accumulation (and therefore risk) at static locations, there is much less certainty and less available data to do the same for cargo that is moving on vessels or at port awaiting loading.
CONTAINER SPILLS
A more focused issue of risk accumulation is the seemingly increasing number of container spills from larger vessels. There appears to be a heightened issue with the integrity and stability of onboard container stacks, particularly in heavy weather. The very fact that these vessels are growing larger in size and therefore able to carry more boxes, exacerbates the risk in terms of sheer numbers of boxes lost overboard.
Between 2008 and 2019, the World Shipping Council reports that an average of 1,382 containers were lost overboard each year. But recent months have seen a massive increase.
In mid-February, 260 containers were lost from the 13,092 TEU Maersk Eindhoven off northern Japan. Two weeks earlier the MSC Aries (14,952 TEU) lost 41 containers in the Pacific. In the same month a further 750 containers were lost by the 13,092 TEU Maersk Essen, also in the Pacific; and in November last year a huge loss from the ONE Apus (14,026 TEU), also in the Pacific, amounted to around 1,800 boxes.
Engine failure leading to excessive rolling is thought to have caused the Maersk Eindhoven spill whilst bad weather was blamed for losses from the ONE Apus and Maersk Essen.
WEATHER PATTERNS
The root of the issue is multi-faceted but at its core is the fact that ships are much larger than when containers were first invented back in 1957 and weather patterns appear to be becoming more aggressive.
In this context, IUMI has identified a number of factors which individually or in combination are likely to cause a container spill or stack collapse: > Wrong declaration of container weights (VGM); > Poor packaging of containers not complying with the CTU Code requirements; > Insufficient stowing of containers on-board not complying with the CSS Code; > Non-compliance with ISO standards for container lashing equipment and corner castings; and, > Design problems of the container vessel.
Lashings are a particular problem. Containers are stacked and secured to each other with twistlocks at their four corners. Lashing rods and turnbuckles are then used to secure the containers to the deck of the vessel. Physical forces endured by the ship going through rough weather (such as rolling) are passed through the container stacks creating enormous momentum and often resulting in collapse or loss.
Cargo insurance underwriters have been and will continue to be impacted by these events and IUMI believes that, although this is not a systemic threat, every container lost is one container too many. Therefore, IUMI is working internally on proposals to avoid future losses and will discuss with its external affiliate partners and regulators how best to cooperate.
In the meantime, marine underwriters must be constantly aware of how the maritime sector is evolving and be ready to identify the associated change in individual risk profiles. Proper measurement of new and growing risk, particularly in situations where accumulations occur, will significantly enhance underwriting performance and the level service delivered to the assureds.
