Sam Pik Ying, Markel International

Navigating marine risks as more containers lost at sea

Sam Pik Ying, Markel International

March 30 2021

In 1956 the first containership the Ideal X carried 58 35-foot containers from Port Newark, New Jersey, sparking a transformation in cargo movement and helping reshape the global trade industry.

Since then, to achieve the economies of scale and to increase the number of containers delivered per voyage, liner companies have raced to build bigger, larger ships. Today, the largest containership in the world has a capacity of 24,000 TEU.

With the increase in global trade and the need for efficient and reliable modes of transport for goods around the world, “containerisation” has seen an increase in prominence and plays an ever larger part in the evolution of the shipping industry. However, such an endeavour is not without underlying issues.

Lost at sea
Containers lost at sea is an issue that continues to plague liner companies. Given the swelling size of container vessels, it is not surprising that loss of containers at sea will inevitably be greater too, especially when met with adverse weather and rough seas. Apart from having these containers lost overboard, there is also a risk of them collapsing on deck, raising the total loss of the vessel.

Just last year container carrier ONE Apus encountered heavy weather and 1,816 containers were lost overboard – some of which contained dangerous goods, pollutants and other products hazardous to marine life and the environment. The losses for the ONE Apus are phenomenal with claims expected to top US$200 million.

And in 2013, containership MOL Comfort completely lost all of its 4,293 containers on board in the Indian Ocean. Till now, many have coined this accident as the “worst shipping disaster in history”. Upon investigation, the International Union of Marine Insurance (IUMI) identified heavy weather, vessel design and failure to comply with marine regulations as the proximate cause of these losses.

While bad weather may be a huge factor for these losses, overloading due to mis-declaration and improper stowage play a role too – these losses could be mitigated if regulations are properly adhered to.

Compliance with regulations start prior to the departure of the vessel from port.

SOLAS regulations VI/2 came into force on July 1 2016 in an effort to reduce the occurrence of container stacks collapsing and containers falling overboard due to mis-declared container weight. Shippers, terminal operators, stevedores (those who load and unload ships) and shipowners need to collaborate closely to ensure operations remain incident-free. To achieve that, shippers must provide accurate cargo information and declare the verified gross mass (VGM) of the containers in advance to the shipowner.

Terminal operators are to flag out any variance in container weight and not load containers without the VGM clearly stated on the shipping documents. Lastly, ship masters and stevedores act as the final line of safety checks during pre-voyage preparations. Ship masters shouldn’t agree to load containers on their vessels unless they are provided with the VGM of the containers. Along with the stevedores and crew, ship masters must ensure that the containers are properly stowed and determine whether there is adequate lashing and securing equipment, which must also be checked and certified beforehand.

The key to good risk management is to ensure that all stakeholders are engaged and in compliance with the international conventions and good practices. These conventions include a Code of Practice for Packing of Cargo Transport Units, the Safe Container Convention, the Safety of Life at Sea convention and the International Organisation for Standardisation for certified lashing equipment and corner castings. Compliance with such standards help reduce risks for stakeholders and give a solid foundation for further risk analysis and management.

Unfortunately, accidents will occur despite best efforts and adherence to regulations and international conventions. The consequences of losing containers at sea should be of increasing concern to all participants in the transport chain, although principally they fall on the shipowners and operators.

The shipowner will always be the primary and easiest target for authorities to pursue following any loss at sea event, leading to hefty fines, penalties and claims for lost containers and cargoes. Secondly, there is an increasingly risk of reputational damage where pollution and environmental damage ensues.

Finally, there is the long-tail risk of liability resulting from free floating containers damaging other vessels which could give rise to surprise third party liabilities – frequently occurring many years after the container loss took place.

Mega risks 
Containers lost at sea are expected to become a growing risk with the rise of mega ships.

As these container ships became bigger over the past 50 years, there is a greater risk of instability onboard. Stakeholders should consider taking up further risk mitigation strategies, including the purchase of insurance. When purchasing insurance for specialised operations, the selection of insurers and brokers is an important process as they must be familiar with the operation and the risks it carries. The assured must also be clear about how much cover (in terms of quantum) they need to purchase.

An annual review prior to the renewal of an insurance policy is strongly recommended. The insured ought to conduct their own thorough risk analysis by identifying the risk element, risk factor and likelihood consequences. This enables them to identify any gap between their current insurance programme compared to the loss history for the past 12 months or longer, global incident loss trend, their own asset value, policy limit to cover potential liabilities or any future expansion plans.

Due to the inherent and increasing complexity of the marine industry, we can still rely on time-proven methods but must endeavour to adopt new, bespoke solutions that are best delivered through the cooperation of all stakeholders from large international bodies (IMO, ILO, classification societies) to experts (maritime lawyers, insurers, P&I clubs) to the people on the water/ground (ship masters, crew and stevedores).

It is only by getting everyone “on board” that the marine industry can progress to keep up with the demands of the present and the future in reducing losses and managing exposures.

This article is written by Sam Pik Yinga marine underwriter at Markel International Singapore.

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