By Dr Nick Chapman, Marine Loss Control Manager UK, AIG
Rapid growth in containership size has brought industry concerns over the accumulation of value on mega container vessels (those with capacity of >10,000 Transport Equivalent Units or TEU), the concentration of value flowing through a limited number of ports and along just a few routes, and the potential for major losses impacting multiple lines of business. In this article we look at whether these concerns are supported by existing data and what the future direction of mega container vessel growth might mean for the London Marine Insurance Market.
The Remarkable Transformation of the Containership
The first containership, the Ideal X, held just 58 containers. Today's largest mega container vessel has a capacity of 23,992 TEU; much of that growth is recent. According to the 2021 UNCTAD Review of Maritime Transport within the last 10 years the number of mega container vessels grew from around 60 to more than 600, of which over 500 were 10,000-19,990 TEU. Within the last five years, 74 new ships were 20,000 TEU and above. Bigger vessels are due for delivery this year and at least another 3.9 million TEU is schedule for delivery in 2023-24 (Container Intelligence Quarterly).
Has Recent Rapid Growth Led to More Major Losses?
Lloyds List Intelligence Data and IUMI Statistics for 2021 indicate that large loss frequency is down and total losses were cut in half over the past 10 years. In addition, the number of groundings has decreased since 2010i. Two separate studies spanning 2000 to 2019 found that mega container vessels had far fewer fire losses than smaller container vesselsii,iii. And until recently, World Shipping Council data showed that the average number of containers lost at sea each year had been on a downward trend.
Despite this encouraging picture, recent high-profile incidents have demonstrated that mega container vessels are still incurring major losses for the London Market. The EVER GIVEN grounding in the Suez Canal highlighted the fine margins for mega vessels navigation at choke points on major shipping routes, as well as the vulnerability of global supply chains to such an event. And a closer look at the above fire study data reveals that the frequency of containership fires drastically increased since 2010, with an upward trend for those occurring on mega vessels, as was seen on the MAERSK HONAM. In addition, in the last couple of years there have been several container-stow stack collapse incidents on mega vessels, such as the ONE APUS. This has contributed to a 7-year spike in the number of containers lost overboard, with 4,000 containers lost from January 2020 to April 2021 reported by Bloomberg, compared to an annual average of around 1,382 according to the World Shipping Council.
So, are the mega containership concerns starting to be substantiated or are these recent major losses driven by something other than size? There are various narratives and theories being put forward, but the reality is to answer accurately we need better data.
Where are the Data Gaps?
Efforts were made in 2018 through Lloyd's and the Cambridge Center for Risk Studies to adjust the modelling of marine exposure for mega vessels losses, and the industry must now update its expected loss scenarios. In the last two years, there has been unprecedented supply chain disruption, leading to congestion and long delays at anchorage or in port. Consequently, a navigational incident (e.g. grounding) or natural catastrophe (e.g. typhoon) at a key port on the Asia-US trade lane today, affecting two mega container vessels at full capacity with a significant cargo value on board and in port, could now be a USD 5 billion incident that the London market needs to better understand.
Mis-declared dangerous goods (DG) containers have been identified as causal in several recent containership fires. As many as 57% of DG containers inspected in a US study by the National Cargo Bureau were found to have been incorrectly secured, labelled or declared. Not all of these deficiencies would necessarily give rise to serious fire or explosion incident, but many will be at increased risk of doing so. This is especially true for the 6.5% of mis-declared DG cargoes which could be incorrectly treated as normal 'safe' cargo by the port or vessel. Simply having larger numbers of containers aggregated on a single mega vessel, or stored within a port awaiting such a vessel, could therefore increase the likelihood of one or more of those mis-declared containers being present, and thus also a fire or explosion developing that puts the surrounding accumulated value at risk.
So far industry efforts to tackle the issue of containership fires have largely addressed improving vessel firefighting capacity, but this is increasingly difficult when it comes to the scale and size of today's mega container vessels. The industry additionally needs focused efforts on the cargo, specifically improved understanding of the frequency and volume of mis-declared DG containers and their geographical distribution among the few ports servicing mega containerships.
In terms of spike in containers lost overboard, more data is needed to answer the 'why' question. Bad weather, winter deep sea crossings, augmented trading pressures during substantial supply chain disruption, decreased time in port, and hierarchical procedures on routing decisions, may all have played a role, but robust data is lacking. Similarly, there is also a great deal more understanding required on the role of mega vessel design and performance in different sea conditions, particularly stack heights, lashing arrangements and the effect of different types of rolling under heavy laden conditions.
Of course, mega containership risks are continually changing. Mega-vessels are getting bigger, ports and infrastructure will likely follow, and new shipping routes through the Arctic are opening up. If an over-supply of capacity drives down freight rates, or if infrastructure cannot keep pace, then we could see the current economies of scale level off. And in terms of disruptors, the current shipping green revolution has the potential to impact mega container vessel performance. Focussing efforts on better understanding the tipping points for economies of scale and the likely impact of alternative fuels would both assist with more accurate emerging risk horizon scanning.
Filling the Data Gaps
The London Market is strongly placed to bring together the expertise and the technology to better understand the exposures, as well as improving the ability to monitor and mitigate that exposure in real-time. Significant efforts may be needed to address all of the above gaps, but for now the industry could yield greater insight by bringing together existing data, such as:
The Way Ahead
Current practice suggests that bigger is better for mega container vessels, although this could change in the future if economies of scale begin to level off. Either way, a data-led approach will drive improved understanding, monitoring and mitigation of mega container vessel risks.
This article was first published in The Marine Insurer London Market edition https://marineinsurer.co.uk/the-marine-insurer/