Sailing in a hard maritime cargo insurance market
Rough seas, improperly declared cargo, fires and rising container loads are among the factors driving the hard insurance market for cargo.
On Jan. 16, 2021, an A.P. Moller-Maersk A/S ship sailing out of a Chinese port lost 750 containers in the Pacific, one of a spate of such incidents in the recent past. Potentially among the containers foundering and floundering in the sea was cargo belonging to Allianz Global Corporate & Specialty (AGCS) clients.
Speaking to PropertyCasualty360.com on Jan. 27, Ryan O’Connor, AGCS North American regional head of ocean cargo, explained losses couldn’t be determined until the ship is off-loaded.
“We’re not sure what insured had which containers or where they are on the vessel. There are 13,000 containers on the ship and 750 were lost,” he said.
About three years ago, this market began to see conditions hardening, a trend that has continued into subsequent years, according to O’Conner. He explained that maritime cargo insurance had enjoyed a continuously soft market for the preceding 25 years before this.
Among the factors leading to losses is “extra heavy weather in the Pacific this year,” he explained.
Additionally, the use of “mega-ships,” which can hold as many as 24,000 containers, is leading to a few issues.
For example, a byproduct of mega-ships’ streamlined designs (large bow flares and wide beams) is the increased chance of severe parametric rolling (side-to-side, or port-starboard, tiling). Design features that aim to decrease friction as bows pass through water can also cause flare immersion in waves as they crest along a hull. This brings the bow down and causes stability to vary, which leads to rolling, according to Marine Insights. The process repeats itself through the next wave cycle, resulting in a synchronous motion that can intensify the angle of parametric rolling up to 30 degrees in a few wave cycles.
Parametric and synchronous rolling combined with environmental elements such as “green water,” large quantities of water on deck left by massive waves caused by severe storms and heavy winds are combining to exceed the ability of the cargo security systems, according to O’Conner.
Despite the use of mega-ships, capacity out of major ports are seeing supply outstrip demand. CNBC reported a 300% lift in shipping costs for freight sailing from Chinese ports. While freight costs do factor into the overall cost insureds must consider when looking at policies, O’ Connor said they don’t figure all that prominently when it comes to cargo insurance rates.
Fires incidents rise
What is playing some part in the tightening of this market is the number of fires on container vessels.
In its 2020 Safety and Shipping review, AGCS reported 40 cargo-related fires in 2019, roughly one every 10 days. Compounding the issue is the fact that smaller fires and near misses are unreported. This makes the actual rate of fire incidents likely much higher.
AGCS reported that while ships have grown vastly larger since the 1970s, their crews have been reduced by about a quarter, and the average number of onboard firefighting hoses only increased from one to two.
Another issue pushing up incidents of fire are improperly declared and stowed containers.
As seen in Beirut this past summer when 2,750 metric tons of ammonium nitrate, which was stored for six years in the city’s port without proper safety measures, detonated, The event caused around 200 deaths, 7,500 injuries and an estimated $15 billion in property damage.
The National Cargo Bureau (NCB) studied the issue and found a majority of containers it inspected had issues with “mis-declared or improperly stowed” cargo.” In 500 containers NCB studied, more than half failed with one or more deficiencies, with nearly 70% of import containers holding dangerous goods not passing. Export containers with dangerous goods saw a 38% failure rate. Deficiencies found include problems with the way cargo is secured, labeled and declared.
“The NCB analysis of cargo inspections makes for somber reading, to say the least. In fact, the findings are frankly shocking. We know cargo mis-declaration is a problem; now we have empirical data that shows the true extent of the situation,” Captain Andrew Kinsey, senior marine risk consultant at AGCS, noted in the report.
Kinsey told PC360 that while mega-ships bring with them economy-of-scale benefits, they also have the downside of concentrating risk.
“Whether it is mis-declaring cargo, fire or an issue with properly securing, we have to look at it holistically and consider the overall accumulation of risk with the size of these vessels,” he said. “It is incumbent on all stakeholders to address these issues. It is not just on the loading and securing workers, it is going to take the people at the terminals and cargo owners themselves making sure the containers are properly stowed, weighed and declared.”
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