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Report : Loss drivers in the shipping industry- larger vessels

Large vessels continue to drive ever-higher exposures, with fires, container and carrier losses, hazardous cargo, costlier salvage operations, and issues with a port of refuge leading to oversized losses and general average becoming more frequent.

While the number of serious shipping accidents worldwide has declined over the long term, incidents involving large vessels – namely container ships and roll-on roll-off (ro-ro) car carriers – are resulting in disproportionately high losses. In the past year alone, fires on board the car carrier Felicity Ace and container ship X-Press Pearl both resulted in total losses.

Just a few weeks after the sinking of the Felicity Ace in March 2022, ro-ro car carrier Al Salmy 6 capsized and sank in the Persian Gulf in rough seas. Meanwhile, the large container ship Ever Forward ran aground in the Chesapeake Bay on the US Eastern Seaboard and was stuck for over a month, almost a year to the day after its sister’s vessel the Ever Given ran aground and blocked the Suez Canal for six days in March 2021.

“A number of recurring themes have emerged in major incidents in recent years, many of which are a consequence of the increased size of vessels,” says Justus Heinrich, Global Product Leader Marine Hull at AGCS“As vessels have grown larger, values at risk have increased, while the environmental bar has been raised. However, regulation, safety management systems, and salvage capabilities appear to have not always kept pace.”

Container-carrying capacity has increased by around 1,500% since 1968 and has almost doubled over the past decade. Ever larger vessels are on order.
Cargo fires, in particular, are of growing concern. Mis-declared and dangerous goods are a recurrent issue for container shipping, while lithium batteries are an emerging risk for both container ships and car carriers, which are transporting growing numbers of electric vehicles, given existing counter-measure systems may not respond effectively in the event of ablaze.
Cargo fires onboard such large vessels can spread quickly and be particularly difficult to control, often resulting in the crew abandoning the ship.

Cargo ship loses 270 containers near German island in North Sea | News | DW | 02.01.2019

When in trouble, emergency response and finding a port of refuge can be challenging. Large vessels require specialist salvage equipment and port infrastructure, which all add time and cost to a response.

The experience of the container ship X-Press Pearl, which eventually sank after it was refused refuge by two ports following a fire, is a case in point. Too often, what should be a manageable incident on a large vessel ends in a total loss.

Of particular concern is salvage. Re-floating or wreck removal for large vessels is a complex task, requiring specialist equipment, tugs, cranes, and barges.

The salvage operation for the car carrier Golden Ray, which capsized just outside the US port of Brunswick in 2019, took almost two years and cost in excess of $800mn.

Environmental, social, and governance (ESG) concerns are also helping drive up costs of salvage and wreck removal as ship owners and their insurers are expected to go the extra mile to protect the environment and local economies.

Higher salvage costs, along with the burden of larger losses more generally, are a cost increasingly borne by cargo interests. General average, the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture, has become a much more frequent event with the growth in container shipping and the increased size of vessels.

Values at risk continue to rise with the size of vessels and inflation, while the costs of responding to incidents and clean-up are now typically many multiples of the ship’s value, explains Captain Khanna, Global Head of Marine Risk Consulting at AGCS. “Larger vessels mean larger losses.

An incident involving a workaday container ship or car carrier – like the Golden Ray – can now cost as much as $1bn, once salvage and environmental considerations are factored in. A major incident involving two mega container/passenger vessels in an environmentally-sensitive region could cost in excess of $4bn.”

Cargo fires – a burning issue for shipping

Fires on large vessels remain a key cause of major losses, requiring urgent action to improve vessel safety.

A fire onboard car carrier Felicity Age [1] , beginning in February 2022, led to the vessel sinking in the Atlantic Ocean, along with its cargo of 4,000 vehicles. The incident occurred less than one year after a fire led to the sinking of the large container ship X-Press Pearl [2] in May 2021 off Sri Lanka.

“Fires onboard large vessels remain the top issue for the shipping industry. We continue to see major incidents involving fires on large container ships, and now the emphasis is also shifting to car carriers and ro-ro vessels,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

Catastrophic fires on large vessels typically begin with combustible cargo, which then spreads rapidly and outpaces the firefighting capabilities of the crew. The size and design of large vessels make fire detection and fighting more challenging than traditional shipping, and once the crew is forced to abandon ship, emergency response and salvage operations become more complex and expensive, and the risk of a major or total loss increases.

Profile photo of Randy Lund

“The size and design of large container ships and ro-ro car carrier vessels makes fighting fires extremely challenging. Fires need to be contained quickly, yet it may take several hours to get to the base of a fire on a container ship with as many as 20,000 containers on board, stacked ten high,” says Randy Lund, Senior Marine Risk Consultant at AGCS.

“Fires that result in the capsizing and sinking of a vessel leave a learning void in terms of determining the root cause of the incident, which can help avert similar occurrences in the future,” explains Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Once a vessel has capsized or sunk the forensic fire investigations cannot be conducted and valuable information is lost forever.”

No let-up in container ship fire frequency

Fires onboard large container ships are a top concern for marine insurers as a growing number of incidents continue to generate large losses. 

Safety & Shipping Review analysis shows there have been over 70 reported fires onboard container ships alone in the past five years, including incidents such as the 

Yantian Express (2019), and the Maersk Honam(2018), made headlines around the world. More recently, a fire broke out onboard the large container ship Zim Kingston in October 2021 after a container of dangerous goods was damaged in a storm.

There have also been many near misses. In 2021, a container of flammable products caused a large fire and explosion at Dubai’s Jebel Ali [6] port. Protection and indemnity insurer Gard estimates that there was at least one fire involving containerized cargo every two weeks in 2020

Fires can take hold quickly and spread rapidly, yet container ship crews are relatively small in number while detecting, locating and accessing a fire within a stack of containers is time-consuming. Fire-fighting equipment currently required under the International Convention for the Safety of Life at Sea (SOLAS) means the crew faces considerable risks when tackling a container fire, and are often unable to do so successfully.

“The X-Press Pearl sinking (off the coast of Sri Lanka in May 2021) demonstrates how a relatively small fire can escalate and result in a total loss,” says Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Despite efforts by the crew to extinguish the fire and previous attempts to discharge the cargo at several ports, fire services were unable to save the vessel.”

Reducing the risk of fire on board large container ships will require a combination of regulatory action and industry initiatives, and there are encouraging signs that these are underway. Following proposals by insurers ( IUMI ), ship owners’ associations, and the flag states of Germany and the Bahamas, the International Maritime Organization’s (IMO’s) Maritime Safety Committee agreed last year to amend SOLAS with the aim of enhancing fire detection and fighting capabilities on new container ships. Although the review was held up by Covid-19, the amendments are expected to enter into force on January 1, 2028.

However, with the regulatory changes some years away, the emphasis will be on the shipping industry to tackle the issue in the short term, says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS: “We now have ships that are almost too large for the crew to fight fires effectively. There needs to be an urgent review of fire detection and fighting protections and equipment onboard large container ships. We hope the IMO will soon come up with revised safety regulations with enhanced fire protection measures for large container ships.”

Cargo mis-declaration at the heart of the problem

Addressing the root cause of fires onboard container ships is key to solving the problem.

A number of blazes at sea in recent years have been traced back to combustible or mis-declared cargos in containers, including batteries, charcoal, and chemicals such as calcium hypochlorite, an ingredient in cleaning products.

In March 2022, the US Coast Guard [10] (USCG) issued a safety alert about the risk posed by lithium batteries following two separate container fires caused by mis-declared cargo. The first, saw a shipping container waiting to be loaded onto a container ship bound for China catches fire. According to the USCG, the bills of lading indicated that the container was carrying ‘synthetic resins’ when, in fact, it held used lithium-ion batteries.

In a similar incident in August 2021, a container full of discarded lithium batteries caught fire while being transported by road to the Port of Virginia, where it was due to be loaded onto a container ship. The cargo was is-declared as ‘computer parts’. These incidents would have been potentially “catastrophic” had the containers caught fire after being loaded aboard the container ships, the USCG said.

It is estimated that around 10% of all containers loaded onboard ships contain declared dangerous cargo. However, around 5% of containers shipped consist of undeclared dangerous goods — either due to administrative error or being deliberately is-declared. For example, this would equate to 1,000 teu or more of undeclared dangerous cargo on board a 24,000 teu ultra-large container vessel.

According to Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS, regulators and the shipping industry must take urgent action if the problem of container ship fires is to be solved: “The key is to tackle mis-declaration. Some shipping companies are now imposing fines for customers not complying with requirements for declaration, but not all. This is an issue that the IMO could help solve.”

In 2019, the International Union of Marine Insurance (IUMI) and other stakeholders co-sponsored a submission to the International Maritime Organization (IMO) Sub Committee on Carriage of Cargoes and Containers proposing a comprehensive review of the International Maritime Dangerous Goods Code (IMDG Code), which defined and classified dangerous goods, as well as procedures for declaration. At present, some of those commodities are not considered dangerous and do not need to be declared as such by the shipper to the carrier.

Car carrier incidents are now a major cause of loss

Roll-on roll-off (ro-ro) car carriers are back in the spotlight following the total loss of the Felicity Ace. The incident follows the grounding of the Golden Ray, which resulted in one of the costliest marine insurance losses in recent times.
The Felicity Ace sank in March 2022 with 4,000 vehicles worth an estimated $400-$500mn on board while being towed by salvors, two weeks after a fire broke out en route from Germany to Rhode Island, US. The vessel was also carrying electric vehicles, raising concerns about the risks associated with lithium-ion batteries. 

Car carrier losses: a growing list 

The Felicity Ace joins an ever-growing list of car carrier/ro-ro incidents in recent years, including:

  • The Hoegh Osaka ran aground in January 2015 on its way from Southampton to Bremerhaven carrying over 1,400 high-end cars
  • The Modern Express developed a list in the Bay of Biscay in January 2016, while carrying earthmoving equipment, trucks, and logs
  • MV Honor suffered a fire on its upper vehicle deck in February 2017, which led to extensive damage to the vessel, as well as to its cargo of about 5,000 vehicles
  • Grande America suffered a fire in March 2019 and subsequently capsized and sank. The resulting oil spill stretched for 10km and the ship was carrying 2,000 cars and 365 containers, of which 45 were deemed to hold hazardous substances.
  • The Auto Banner caught fire on its 11th deck in May 2018, allegedly originating in a used vehicle on board.
  • Sincerity Ace caught fire in the Pacific on New Year’s Eve, 2018 with more than 3,500 cars on board. The crew had to abandon the vessel, and five tragically died.
  • The Diamond Highway had to be abandoned by its crew in the South China Sea in June 2019, due to a fire, while carrying more than 6,000 cars.
  • The Golden Ray capsized just outside the US port of Brunswick in September 2019 with over 4,000 cars on board. Its salvage took close to two years – one of the most expensive ever.
  • The Höegh Xiamen, caught fire in June 2020 in Jacksonville, Florida, resulting in the total loss of the vessel and its cargo of 2,420 used vehicles. An improperly disconnected battery in a used vehicle led to the fire, according to the official investigation.
  • The ro-ro car carrier Al Salmy 6 capsized and sank in the Persian Gulf in rough seas in March 2022.

Car carriers, the largest of which can hold as many as 8,000 vehicles, are susceptible to stability issues and fires, explains Justus Heinrich, Global Product Leader Marine Hull at AGCS. “Ro-ro vessels were already under scrutiny following a string of incidents, including the Golden Ray [13], which reports indicate are set to cost the insurance industry more than $800mn. And now we have the Felicity Ace. These casualties are very complex and expensive to resolve.”

Fires have become a consistent loss driver for car carriers over the past decade. In many cases, fires involving vehicle cargos have resulted in the total loss of cargo and the vessel. Grande America sank in 2019 carrying 2,000 cars following a fire.

A few months earlier, in an incident reminiscent of the Felicity Ace, the car carrier Sincerity Ace caught fire and was abandoned whilst transiting to Hawaii from Japan, with the loss of 3,500 new vehicles.

Car carrier fires typically start in cargo holds, caused by malfunctions or electrical short circuits in new or used vehicles. A National Transportation Safety Board (NTSB) incident report into the Hoegh Xiamen incident in June 2020, attributed the fire — which led to the total loss of 2,420 cars — to an improperly disconnected car battery in a used vehicle.

NTSB recommended improvements to car carrier regulations and improved oversight of vehicle loading and training by the ship’s operator.

Allianz Global Corporate & Specialty | Business insurer

Vessel design and commercial pressures are key risk factors for car carriers and ro-ro vessels. Vessels are under time pressure and have relatively short turnaround times at port.

However, the stability of these vessels is dependent on complex pre-departure loading and ballast calculations, while vehicle cargos must be made safe and properly secured to reduce the risk of fire or cargo shift.

“The wide-open deck spaces on ro-ro vessels create additional risks for stability and fire, with very little margin for error. Any breach or water ingress will affect the stability of the vessel, while the open decks allow fires to spread quickly.

However, these vessels are under huge commercial pressure with short turnaround times at port, which can result in vessels sailing before the crew has verified ballast calculations or completed lashing and securing watertight doors,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

Profile photo of Capt. Nitin Chopra

“Fast turnaround times in ports put crews under immense pressure, leaving little or no time to complete critical checks and verifications,” agrees Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Crews often work around malfunctioning instruments or make assumptions in order to keep to schedule, while there are also gaps in maintenance due to time constraints.”

In the case of the Golden Ray, the NTSB accident report concluded that inaccurate stability calculations had probably caused the vessel to capsize. It also found that open watertight doors had allowed flooding into the vessel. It recommended that the ship’s operator revise its safety management system to establish procedures for verifying stability calculations and implement audit procedures.

Profile photo of Anastasios Leonburg

“Incidents involving car carriers can be very expensive, given the value of cargo, and the cost of wreck removal and pollution mitigation. It’s in the interest of both operators and insurers to address this problem,” says Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS.

Lithium batteries are an emerging risk for shippers

Lithium-ion batteries are increasingly impacting shipping safety, with a number of fires. The issue raises questions about the design and firefighting capabilities of ro-ro vessels carrying electric vehicles (EVs), as well as the declaration, storage, and packaging of battery container cargos.

The fire and subsequent sinking of the ro-ro car carrier Felicity Ace [18] in March 2022, with the loss of some 4,000 vehicles, has further shone the spotlight on risks associated with EVs, and lithium batteries in particular. Given the vessel sank, the exact cause of the fire may never be known. However, it is thought the presence of lithium-ion batteries on board aggravated conditions.

Profile photo of Regis Broudin

“Lithium-ion batteries are a known issue for the shipping industry and the wider logistics industry, where there have been a number of near-misses in ports and during transport,” explains Régis Broudin, Global Head of Marine Claims at AGCS. “Batteries are not only a potential cause of fire, they also aggravate the problem, as battery fires are very difficult to extinguish and have the potential to reignite, days or weeks later.”

An emerging bank of research in the car manufacturing and shipping industries point to an increased fire risk on car carriers and ro-ro vessels from EVs. Tests carried out by P&I Clubs [19] have shown that ship water sprinkler systems alone are not effective at extinguishing an EV fire.

Batteries are not only a potential cause of fire, they also aggravate the problem 

The growing popularity of EVs over traditional combustion engines will mean more vehicles with lithium-ion batteries transported by sea. Meeting global emission targets in line with the Paris Agreement could see 70 million EVs manufactured by 2025 and 230 million by 2030.

AGCS warns marine transport risk managers to focus on cargo storage and transit risks - Commercial Risk

“However, EVs represent a significant change in risk profile for shippers when compared with traditional combustion engine vehicles and may require changes in vessel design, fire detection and fighting capabilities, and cargo loading procedures,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “For example, EV batteries could potentially ignite if damaged, and therefore be susceptible to fire during a cargo shift in rough seas, if not adequately secured.

Batteries can also combust with an increase in temperature from a fire in the surrounding area, or during on-board charging of an EV.”

EVs will particularly challenge existing fire detection and fighting capabilities. For example, battery fires require a large volume of water to extinguish and cool the surrounding area, which would endanger the stability of the ship if run-off channels become blocked.

Crews will also need to be specially trained and equipped with appropriate detectors and fire extinguishing equipment, to ensure fires are detected and extinguished quickly.

Profile photo of Chris Turberville

“While EVs are inherently safe, transporting them is likely to represent an enhanced risk for the maritime industry, at least in the near-term,” says Chris Turberville, Head of Marine Hull and Liabilities UK at AGCS. “As the number of EVs increase, it would be prudent to ask the question if ro-ro car carriers are fit for purpose in terms of fire detection and fighting capabilities. These concerns should be addressed as a matter of urgency.”

Source : Allianz Global Corporate & Specialty (AGCS)

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