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Claims Arising From Maritime Emergencies Can Be Huge

According to the world shipping council about $4trn worth of goods is transported on the world’s oceans every year. This cargo is shipped by vessels such as container ships and tankers that are ever-increasing in terms of size, as shipowners strive to reduce operating and shipping costs through greater economies of scale. According to the world shipping council about $4trn worth of goods is transported on the world’s oceans every year. This cargo is shipped by vessels such as container ships and tankers that are ever-increasing in terms of size, as shipowners strive to reduce operating and shipping costs through greater economies of scale.

More than two years after the grounding of the Costa Concordia, which resulted in the death of 32 passengers and crew, the total loss figure is approaching $2bn – making it one of the largest marine casualties ever.

As of the time of writing, the authorities have yet to figure out what will happen to the wreck of the vessel. It is only natural that cruise ship disasters dominate the headlines, particularly when such a tragic loss of life is involved, but such incidents are not the only potential casualties that the maritime industry has to worry about. According to the world shipping council about $4trn worth of goods is transported on the world’s oceans every year. This cargo is shipped by vessels such as container ships and tankers that are ever-increasing in terms of size, as shipowners strive to reduce operating and shipping costs through greater economies of scale.

An example of this is the introduction last year of the Maersk Triple E generation cargo ships – the Triple E refers to Economy of scale, Energy efficiency and Environmentally-improved – which are the largest container vessels in the world, measuring 400 meters in length and carrying more than 18,000 teu (twenty foot equivalent unit). Four hundred meters in length is equivalent to the combined size of two basketball fields, two football fields and two ice hockey rinks. Such vessels are so large that they exceed the capacity of the Panama Canal and the depth of many ports.

For example, there are no ports in either North or South America which can handle the deeper drafts or they exceed the capacity of some of the traditional container cranes. And should one of these supersized container vessels be unlucky enough to be involved in a significant incident at sea – as the Costa Concordia grounding has demonstrated – the salvage operation to remove the wreck can be increasingly complex and technically challenging.

Salvaging – a risky business

The ever-increasing size of ships, containers and cruise ships, means that costs for any salvage operation increase exponentially due to the need for different, sometimes more customized equipment, more specialized personnel and expertise, as well as heightened environmental requirements. Escalating costs around salvaging and wreck removal have an effect on rates and deductibles for both hull and cargo insurance.

Tim Donney, Global Head of Marine Risk Consulting, AGCS warns, “The claims arising out of maritime emergencies of these 'mega ships' can be huge. For example, just think of the business interruption of ports and terminals if an accident were to block a port entrance or even one of the canals. “Depending on the specific circumstances of the situation, salvage might require unprecedented efforts and complex operations – in some cases it may take many months, or possibly a year or longer, to remove all the containers from such vessels, particularly if the accident were to happen in a remote location, where all salvage operations are only able to operate seasonally.”

An example of this would be the container ship, Rena which grounded off the coast of New Zealand in 2011. But how should the maritime industry deal with the increasing risks and costs of salvage operations?

According to Paul Warren, Senior Claims Expert in London at AGCS, it needs to come together in drafting more binding standards and having solutions more readily available when another incident involving a large container ship happens. “We need a concerted effort to deal with this issue,” he tells Global Risk Dialogue.

An example for such an industry-wide initiative is the Marine Spill Response Corporation (MSRC) in the US, a not-for profit operation that works on behalf of the petroleum, transportation and energy industries. MSRC was formed in the aftermath of the Exxon Valdez accident in 1989 to offer oil spill response services and mitigate damage to the environment. If the industry comes together in a similar vein for salvage operations this will enable the right kind of equipment to be more readily available in strategic locations, as well being much more cost-effective.

As Donney explains: “Usually this kind of heavy salvaging equipment, cranes and derrick barges are owned by marine contractors. They use it primarily for construction purposes, so the issue is often availability – it’s crucial for us to keep maritime salvage requirements in mind.”

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