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contents3 Introduction

The TT Club has come along way since its inception 40 years ago

5 EconomyEconomic indicators predict global demand-side growth untilthe end of the decade

9 HistoryConquering the world – 50 years of containerisation

12 SafetyHow does container shipping maintain its relatively goodsafety record?

16 Hazardous CargoThe importance of observing the correct packing procedures

18 DatelineA catalogue of world events since the establishment of TT Club

20 LegalGetting up to speed with the current regulatory environment

22 Port SecurityThe complex issue of implementing security in ports worldwide

24 MegashipsBigger ships bring increasing challenges for operators and ports

27 EquipmentDemand for larger container sizes starts to gather momentum

30 AustraliaTT Club’s Sydney office looks to expand into new markets

32 Far EastAsian ports continue to dominate global container shipping

34 InsuranceThe industry is awash with capital. What does this meanfor the marine sector?



Congratulate the TT Club on its 40th anniversary

Barristers practising in Admiralty, Aviation, transport and logistics law inAustralia, SE Asia and the South Pacific

Advice, ADR and LitigationTel +61 2 9232 4671 Fax +61 2 9221 4951

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QSC 11/2/08 11:52 Page 1


TT Club: 40 years young

T he year 1968 was quite a memorable one in con-tainer shipping history. TT Club was born, ofcourse, but of least equal consequence the first

ever purpose-built cellular containership took to theocean – in fact, several of them did.

Two years ago we were celebrating the first 50 yearsof containerisation and rightly extolling the significanceof the maritime container and the vessels that carrythem in such profusion around the world. However, interms of the development of the containerisation con-cept, that early period of the box’s life history between1956 and 1968 was very much its infancy. In 1968,one could say the onset of puberty came early and theadolescent certainly developed quickly from then on.

Though tiny by comparison with today’s leviathans,this first generation of containerships represented therevolutionary concept in its true form. NYK’s HakoneMaru, Hapag-Lloyd’s (or its predecessor’s) WeserExpress and US Lines’ American Lancer all went intoservice in 1968, and although the biggest of thesecould carry a mere 1,200 teu, they were each part of amulti-vessel building programme and the beginning oftrue global liner services.

Within just a few years TT Club was providing thecontainer asset and liability cover for each of these lines,and many more. With global trade growth at an averageof 5% per annum every year over the past 40 years –stronger still at more than 10% for each of the last fiveyears – the development of the containership fleet andthe boxes it carries has been unbroken and relentless.

Lion’s share of container riskThis year the total capacity of the fleet stands at wellover 10m teu and the orderbooks for new ships are fullfor the next three years. This fleet will move around120m containers a year and TT Club, I am proud tosay, will cover around 70% of them.

TT Club’s 40-year history has followed the indus-try’s development in many other ways. The Club

introduced container/terminal and depot cover in 1969and mirroring the extensive building of port-handlinginfrastructure that was required to load and unload theever-growing container cargoes, TT Club introducedport authority cover in 1988.

China, of course, has been the engine of tradegrowth over the last decade and in 1997 the Clubopened representative offices in Beijing and Shanghai,adding to the existing regional presence in HongKong, Singapore and Sydney.

Once more reflecting the direction taken by theindustry and indicative of the container’s increased usemulti-modally within more complex and lengtheningglobal supply chains, TT Club introduced freight for-warder and transport operator cover in 1969 and logis-tics operator cover in 2005.

Looking ahead the Club is now thinking outside thebox and planning to expand its activities in the bulkcargo sector, as well as enhancing its extensive rangeof loss prevention services to its global membership.

The TT Club has come a longway since its inception in1968. Chief executive PaulNeagle outlines some of thedevelopments

Paul Neagle, chiefexecutive of TTClub.

INTRODUCTION



In the past year, in line with the general success of thecontainer industry as a whole, the Club’s recent per-formance has been encouraging in several key areas.Our claims experience overall during 2007 has seen animprovement compared with the previous year andcompared with expectations.

However, concerns remain over the rising tally ofbodily injury and handling equipment claims, resultingfrom port facilities under pressure from the ever risingvolumes of trade passing over the berths.

Also, it is pleasing to note how TT Club is handlingintense market competition. The Club managed toachieve a very high retention of business on renewal inrecent years. In particular, thanks to the efforts of ourpeople in New Jersey and San Francisco our leadingposition in the North American chassis market hasbeen maintained, with all our major accounts renewingfor 2008 and, in some cases, for 2009 as well.

This creditable result was no doubt supported bythe high levels of satisfaction that continue to berecorded in our independent customer surveys, andthe Club remains the clear market leader in the insur-ance of containers, chassis, ports and terminals.

The final piece of good news is our investment per-formance, where a conservative policy of investingaround 95% of our assets in cash and, mainly short-dated, government bonds produced a robust return of6.25%. As a result TT Club will announce anotherpositive financial result for 2007, the sixth year in a row.

Our third chairmanIt is with some sadness that I must draw attention tothe impending retirement as chairman of the TTClub of Sir David Thomson. He has served in thatposition since 1983 – succeeding our founder chair-man Peter Carlsson – and has been a director since

1973 which, as we have seen, was a period of enor-mous change and evolution for the Club.

As Sir David steps down, we welcome Knud Pon-toppidan of AP Møller-Maersk. Mr Pontoppidan wasappointed deputy chairman of the TT Club last sum-mer. He has served on the main and the subsidiaryboards since 1998, on the Chairman’s Committeesince 2001 and he has been closely involved in thedevelopment of the Club’s business during the past 10years. Mr Pontoppidan is a highly respected figure inboth shipping and political circles, with a great deal ofindustry knowledge and experience.

The TT Club is well positioned to meet the chal-lenges that we face in 2008 – its 40th year of operationhaving been established as the Through Transit Clubon June 6, 1968. It is financially strong with a veryhigh level of solvency and has a solid reputation as amarket leader in its sector. It also has a highly skilled,experienced, dedicated and motivated work forcethroughout the world.

On behalf of the Club, I thank all of you – ourmembers, brokers, reinsurers, suppliers and, last butnot least, managers – for your continued support overthe years, and hope to see many of you in the comingmonths as we celebrate the Club’s 40th anniversaryand the beginning of our fifth decade of serving theglobal transport and logistics industry. n

Sir David Thomson,who has beenchairman of the TTClub since 1983, isdue to step downin June.

Knud Pontoppidan of AP Møller-Maersk becomes chairman ofthe TT Club this year.

Photo:

JakobDa

ll

INTRODUCTION

4 TT CLUB IS 40 LLOYD’S LIST 2008 2008 LLOYD’S LIST TT CLUB IS 40 5


Positive outlook for worldtrade and shipping

H ead to any of a number of ports in Asia for aquayside view of global trade, and you wouldfind it difficult to square talk of a world eco-

nomic slowdown with the sheer volume of vessels andcargo on the move.

It is often claimed that the best litmus test of thehealth of the global economy is what is loaded andunloaded by the shipping industry, and from this water-front perspective there is a rosy hue on the horizon.

What lies behind that glow is well documented –the economic take-off in China, India and the develop-ing nations and finished exports to the US and Europe– and there is a general sense that with these factorsthe outlook for world trade and shipping is positive.

Most economic indicators are predicting demandside growth until the end of the decade, bringing bigopportunities for seaborne trade and a continued runfor the shipping boom of recent years. However, lookbeyond the world’s ports and shipping lanes and over

the last six months all has not been picture perfect.Storm clouds are gathering in the shape of the

credit squeeze in the wake of the US sub-prime mort-gage crisis last summer combined with the rising priceof oil and fears over the status of the US dollar.

Together, these three factors pose a significant riskfor the world economy and seaborne trade volumes,but as 2008 progresses there is a sense that each ofthem might not be as great a threat as feared.

Financing across the shipping markets during therecent boom years has been relatively easy for shipping,with strong demand lifting newbuild prices, keepingscrapping levels at an all-time low and ensuring a hotmarket for more readily available secondhand tonnage.

Meanwhile, investment funds have been attracted toshipping, eager for exposure to a sector enjoying itsrole serving the global trade boom.

Now, with global financial markets reverberatingfrom the US financial shock, the industry finds itself ina unique position – it is enjoying one of the best timesfor shipping markets on record as it heads into whatsome warn could develop into the worst of times forthe global economy.

Leading ship financiers, including NIBC Bank’smanaging director Taco van der Best recently talkingto Lloyd’s List, note that there has been a knock-on

Jerry Frank discerns a rosyglow despite the credit squeezeand rising oil prices

Singapore: yet again the world’s busiest container port in 2007. Annual boxship trades between Asia and Europe are growing at more than 12%. Photo: Bloomberg

ECONOMY

2008 LLOYD’S LIST TT CLUB IS 40 5 2008 LLOYD’S LIST TT CLUB IS 40 5


effect in the marine lending market since last summerwith repricing under way. But fundamentals are suchthat shipping will survive the correction and the end ofcheap money. The optimistic view widely held amongmarine insurers and bankers is that booming intra-Asiatrades and currency reserves in the region can offsetthe affect of a US recession on sea trade.

Fears spread last year that the US mortgage marketcrisis would hit domestic spending, with the US con-sumer confidence index dipping to its lowest level intwo years in December. That also raised the prospectof a fall in US imports from China, causing a surplusof vessels on the Asia to North America routes anddownward pressure on containership rates.

The evidence in the first months of this year is clearthat containerised imports into the US are on the slide,with latest figures from US ocean trade database Piers

suggesting that overall teu volume growth will be downby 1.1% for 2007.

Recessionary signs are already coming through inthe important US transpacific trade, which Piers’ latestforecasts predicting growth of 0.4% last year, com-pared with 10.6% in 2006. However, projected figuresfor 2008 imports from Asia look more healthy at 5.1%.

London shipping consultancy Drewry’s PhilipDamas said at the beginning of February that a drop incontainer imports are as sure a sign as any that theworld’s largest economy is already in recession.

Confidence questionFigures for the imports of manufactured goods intoports such as Long Beach and Los Angeles have fallenfor five months in succession since August 2007,claimed Drewry. “Container trades are much moresensitive to a lack of confidence compared with oiltanker markets, or the shipping of dry commodities,”said Mr Damas. However, with intra-Asian and Mid-dle East and India trades still growing this year, andAsia-Europe volumes also strong, Mr Damas holds theview that the container shipping market is largely insu-lated from the US downturn.

That is the view of the likes of Mike Davies, chair-man of the cargo committee of the International Unionof Marine Insurance and Axa’s Asia Pacific marinedivision managing director, who said that from the van-tage point of Singapore, the container trade has seen asignificant increase in volumes, as has bulk shipping.

Containership trades between Asia and Europe aregrowing at more than 12% per annum, said Mr Dav-ies, while transpacific and intra-Asia are both growingat around 10%.

“With the ever increasing consumer demand for man-ufactured goods among Asian countries, the intra-Asiacontainer market is showing no signs of weakening,” headded, pointing out that in 2008 more than 50m teu is isforecast to move between Asian ports. With larger vesselsbeing reassigned by the major shipping lines to Asia, thisincreasing trade is set to continue flourishing.

Singapore last year was again the world’s busiestcontainer port handling 27.9m teu, a 12.7% increasefrom a year earlier, although Shanghai looks set toovertake the city state this year. That expansion comesas China has become Europe’s main trading partnerfor the first time, exceeding imports from the US bymore than €15bn ($22bn) in 2006. “It appears thatthe container shipping market is largely insulated fromthe US downturn so far,” said Mr Damas.

Meanwhile, the economic indicators for the US andthe developed nations, at least, are hardly encouragingfor 2008. US gross domestic product last year onlygrew by 2.2%, which was the slowest advance for GDPsince 1.6% was recorded during the last economic

Figures for theimports ofmanufacturedgoods into portssuch as Long Beachand Los Angeleshave fallen for fivemonths insuccession sinceAugust 2007.

Photo:

Portof

Long

Beach

ECONOMY



slowdown of 2002. Washington statistics also indicatethat the US may have already gone into a formal reces-sion, with output rising by only 0.6% at an annual ratein the last three months of 2007.

Economist Intelligence Unit chief economist RobinBew said: “We certainly think the US is in recessionand that average growth this year will be 0.8%. Thatimplies for the first six months of the year that theeconomy has contracted, so we have got negative GDPgrowth in the first two quarters. The news coming outof the US is pretty bleak.”

Europe will be directly affected through trade andwhat is going in its own financial markets, said MrBew, with problems in the UK, Spain and other conti-nental economies slowing and Japan suffering badly.

“The bigger question is what is happening with theemerging markets – coupling or decoupling,” headded. “Our view is that emerging markets are morerobust than 10 years ago, with more domestic demand,but there is no way they are going to decouple as a lotof the emerging markets will slow.”

A recession for the world’s largest economy and asqueeze on consumer spending will produce challengesfor the container shipping industry, but optimists inshipping are holding on to the view that the scale oftrade between the emerging economies in Asia mightwork in their favour.

There is a sense in many quarters that the sheerscale of demand for shipping services should carry itrelatively unscathed through this storm.

From a shipowners perspective the present eco-nomic difficulties come as the newbuilding orderbookvalue exceeds $300bn, but balance sheets remainstrong due to high freight markets. Record oil pricescombined with a weak US dollar are also causing con-cern across the industry, creating volatile conditionsamong other marine insurers looking to assess risks.

While oil prices rose last year by 58% to reach $100a barrel, the weak dollar also squeezed business in theUS. The dollar weakened steadily against the euro lastyear, with the daily average US dollar/euro rate for2007 at 0.731, or 8.3% lower than the rate for 2006.

At the beginning of February crude oil prices inNew York started to fall below $89 amid growing signsof a deepening slowdown in the US, the world’s largest

oil user. The Organisation of Petroleum ExportingCountries has also left its production targetsunchanged faced by a slowdown in global demandgrowth and a rise in world inventories.

However, when oil reached a record of $100.09 abarrel on January 3, the rise was accredited to long-term fears that supplies will not be able to keep upwith demand from countries such as India and China.

Oil analysts are also suggesting that prices ofaround $90 a barrel already reflect flattened demandfrom a US economy in recession, holding out the pros-pect that as demand rises in 2008, prices could againmount the $100 mark.

Global broker Aon points out that a weaker US dol-lar is also taking its toll on cargo insurers outside thecountry, who earn much of their premiums in dollarsbut lose out when converted to other other currencies.

However, for the insurance industry – and marineand cargo insurers in particular – the underlyingstrength of maritime trade in recent years does coun-teract some of these wider economic uncertainties.

The cargo insurance market, in particular, isfavourable for cargo owners and underwriters alike,who are both enjoying strong global economic growth,as well as a relatively low level of claims despite grow-ing volumes that reflect improved safety, regulationand handling efficiencies.

Global broker Aon in its assessment of the 2008marine insurance market talks about a “clearer andgenerally encouraging” outlook. “Most will see furtherprice cuts and some will be able to obtain wider coveror negotiate favourable long-term agreements,” saidthe company. For marine insures in these global eco-nomic conditions the trick will be to hold premiumsamid rising risks. n* Jerry Frank is insurance editor, Lloyd’s List.

February saw crudeoil prices in NewYork starting tofall below $89 abarrel amidgrowing signs of adeepeningeconomicslowdown in theUS, the world’slargest oil user.

‘Container trades are much moresensitive to a lack of confidencecompared with oil tankermarkets, or the shipping ofdry commodities’Philip Damas, Drewry Shipping Consultants

Photo:

Bloomberg

ECONOMY




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Fifty years of containers

I t was an idea whose time, half a century ago, hadfinally come. The idea of ‘unitising’ cargo to makeit easier to lift, and to stow, was not new. During

the First World War there was an extraordinary cargooperation which took military cargo and ammunitionto the front in Flanders from a freshly constructed portin France.

Units designed to fit into specially adapted shipswould cross the Channel with vast quantities of warstores, to be carried on special rail trucks and wagonsto where it was all needed. The ‘empties’ would be thereturn load.

The military, and the railways in a number of coun-tries were early exponents of unit loads, as the term“containerisation’ would be a long time coming. Theconcept of a detachable body, which could be liftedfrom a flat wagon by a simple crane in a goods yard, tobe placed on a trainer and trundled off into the hinter-land became well established in the UK, US and sev-eral European countries during the 1920s-1930s.

Curiously, there was no attempt to export the con-siderable savings in time and manpower in the rail-road interface to shipping and the docks. Was this con-servative shipping at work? Or perhaps the problemsanticipated in dealing with entrenched attitudes on thevarious waterfronts did not encourage such radicalthinking in cargo handling.

However, it was these same attitudes that keptincreasingly expensive cargoships on their berths forweeks on end as cargo was manhandled in and out ofthem, which would eventually provide the catalyst forchange. Here, the credit must be given to the truckerMalcom McLean, whose long hours in the docks wait-ing for dockers to unload his vehicles, gave him thetime and incentive to ponder what might be done toaccelerate this process.

The concept of lifting the truck body bodily on tothe ship may not have been entirely original, but theexecution, which saw the first load of speciallystrengthened ‘containers’ loaded on to a spar deck on

Michael Grey looks back to thebirth of containerisation andhow the simple steel box haseffectively conquered the world

Above: father ofcontainerisation –Malcom McLean,whose long hoursin the dockswaiting for dockersto unload hisvehicles, gave himthe time andincentive to ponderhow to acceleratethis process.Left: the historicloading ofstrengthenedcontainers on to aspar deck on thetanker Ideal X inPort Newark in1956.

HISTORY



the tanker Ideal X. The first coastal passage of this shipin 1956, with 37 such boxes embarked, has been iden-tified rightly as marking the birth of the container age.

Within a few short years Mr McLean had expandedhis shipping operations, operating a number of con-verted general cargoships equipped with their own gan-tries and operating a liner trade between his own ter-minal at Port Newark to Texas and Puerto Rico.

Mr McLean showed it could be done domesticallyand eventually across the Atlantic, and successfully puthis ideas into practice. But throughout the 1950s andwell into the 1960s, the traditional breakbulk opera-tions of the traditional cargo liner companies persisted.

It was not that there was no development in thefield of ship design – to the contrary, the entire periodwas characterised by the commissioning of fast, beauti-ful, thirsty and heavily geared cargo vessels.

While they would save time on their sea passages,these ships would remain at the mercy of the dockersin every port, with such small savings as there were

coming from a modest amount of mechanisation, withgreater use of forklifts, pre-slinging and pallets.

And as the costs of running these ships on theirextended voyages steeply increased, owners were lookingfor something rather more radical – a more useful wayof increasing ship productivity. Containerisation was toprovide the key to this desperately needed advance.

It took creative naval architecture, ingenious engi-neering, great management skills and an astonishingdegree of international diplomacy and political skill tointernationalise and standardise containers. Just design-ing the ordinary dry box itself in a form that could beaccepted internationally took all these skills and more.

A container could not be just any old box. Deter-mining the dimensions alone would occupy thousandsof hours of executive time in local, national and inter-national committees, with the proponents of several

different sizes of box fiercely defending their own.Strongly held views, backed up with money and experi-ence, would not meekly be surrendered without a fight.

Mr McLean might have been a force in the US eastcoast intercoastal trade, but he was a parvenu in thePacific, where Matson was establishing its own con-tainer operation to the islands. In Australia, wherewaterfront costs were perhaps higher than anywhere onearth, the Adelaide Steamship Co was intent ondesigning a purpose-built vessel to shuttle boxes acrossthe Bight to Western Australia.

In Europe and Japan, the lords of the deepsea linerswere themselves conferring. Throughout much of the1950s, German lines, along with the railways, wereoffering small sea-transportable containers capable ofbeing handled by the conventional gear on their vessels.

Establishing the principlesCautiously, the principle of unitisation was beingestablished. The advantages were self-evident – of asecure, portable enclosure for cargo, which wouldhugely reduce the number of individual lifts in and outof a ship and minimise the handling between shipperand consignee dramatically.

The work of engineers and designers were also cru-cial to the emergence of a workable, universal, stack-able box. To contemplate a container cornerpost forany length of time is to view a multifunctional deviceof considerable utility, but it had to be designed to pro-vide strength sufficient to stack containers one aboveanother without risk of collapse, support the frame ofthe box itself and provide the means for securing thecontainers within the stack.

To an engineer a simple twistlock is an object ofsome elegance. There was an ‘optimum’ design whichrequired to be developed and sold to the world; a boxthat was strong enough to withstand the stresses of asea voyage, but not so heavy that it would be difficultto lift. Locking bars to prevent the containers beingwashed overside had to be designed, while the novelconcept of the cellular ship – which itself would onlywork if there was a container of standard dimensions –would have to be worked up.

The significance of this particular period in the longhistory of the shipping industry is that sufficient influ-ential shipping people recognised the importance ofstandardisation. That itself was a major miracle, in aninternational industry where there was fierce competi-tion on virtually every route, with lines operated bypeople with markedly individualistic views, and nogreat history of compromise.

But somehow these lords of the liner routes recog-nised the benefits that might come from a generalagreement on the specification for the basic hardwareand, above all, the exchangeable container. Perhaps

Early containers atthe port of Seattle,US west coast: theport was one ofthe first equippedin the US toaccommodatecontainer traffic.

Photo:

Portof

Seattle

HISTORY



they were helped by the growing realisation that con-tainerisation, if it was to be undertaken properly as athrough-transport, multimodal operation, would notbe cheap. New purpose-built containerships to replacethe elegant, fast liners which in the normal course ofevents would have been retained for many years,involved fabulous expense.

The outfits of containers which would be suppliedwith each ship was a further cost, while the specialistterminals that would serve them were, financially, in aleague of their own. The techniques of containerisa-tion, if it was to provide the productivity gains thatwould justify this huge price, would require specialistterminal equipment of great sophistication.

Stevedoring in the container age would be trans-formed instantly from a labour to a capital intensivesystem. Great ship-to-shore gantry cranes and meansof moving the boxes around the stackyard would beneeded, along with substantial quantities of land.

Revolution in portThe traditional design of a port, with its finger piers andsheds and warehouses – even enclosed docks – wouldbecome redundant, as would tens of thousands of docklabourers, in a new unitised, automated and mechani-cally handled world. Containerisation was, if anything,more of a revolution in port than it was at sea.

This colossal reorganisation of liner shipping andport cargo handling also required a revolution in theorganisation of shipping, to spread the costs and man-age the investments that were necessary. There might

have been a history of co-operation in the liner trades,through the liner conferences, but something ratherdifferent and more detailed was required with the newconsortia formed by the operators. It was the consor-tia, with their various participants, which would formthe shape of the new container age.

Nobody can doubt that containerisation, a change asrevolutionary as the move from sail to steam, has been amajor success, making possible so many different facetsof modern life. Globalisation could not have advancedwithout the precision of container shipping and theastonishing productivity of its ships and systems.

The internationalisation of components, the mod-ern science of supply chain management, and above allglobal shipping at an affordable price are all productsof container shipping.

It is unlikely that any of the pioneers of containeri-sation half a century ago would have forecast howeffectively the container would have conquered theworld. They would doubtless be astonished at theamazing automated terminals, the dedicated feedernetworks, the trains, the hardware of post-panamaxships and the computer-driven technology that facili-tates the systems.

All, it might be thought, owe their existence to theone common factor of the container, the ubiquitousbox that made this astonishing system possible. Therevolution developed around the container, and the 50years of spectacular growth can be traced back to thiscommon root of a simple steel box. n* Michael Grey, correspondent, Lloyd’s List.

Fifty years ofprogress:automated guidedvehicles at the ECTDelta containerterminal inRotterdam.

HISTORY



Counting the cost of safety

C ontainerships have, in general, an excellentsafety record, which has been maintained fromthe very first generation of ships that came into

service in the 60s and 70s. They have been long-livedships, this saying something about the standards ofengineering which have gone into the construction of aclass of ship which was many times more productivethan their break-bulk predecessors.

Where the old liners would spend half their yeartied up in port, the containership would be thumpingaround the sea lanes, racking up the miles and machin-ery operating hours, year after year. The record of theclass speaks for itself and is a tribute to good designand robust construction.

If there have been any major questions asked aboutcontainership safety, these have generally revolvedaround the safety of the deck cargo, with an increasingproportion of the ship’s cargo carried above decks.

A certain regulatory laxity that emerged from the1969 Tonnage Measurement Convention, largelybecause containerships were scarcely considered in thedevelopment of this international treaty, provided fordeck cargo to be considered ‘unregistered’ and thus notcontributing to port, canal and other dues and charges.

While deck cargo was perhaps a few tonnes of haz-ardous material, or wool stowed on the hatches, thiswas not a major issue. But what those framing the con-vention obviously did not contemplate was the emer-gence of a ship type which carried a huge part of itscargo routinely outside the hatches and above theuppermost continuous deck.

There was thus a strong financial incentive to max-imise the cargo carried on deck and reduce the free-board of the ship, and successive generations of con-tainerships have seen this trend develop. Today, it is notunusual for deepsea containerships to carry boxes up toseven high on deck, and feeder tonnage where there aremore containers stacked on deck than there are below.

The trend has clearly been a contributory factor inthe number of boxes that have been lost overside ordamaged by boarding seas. There have been a numberof significant casualties where feederships have losttheir stability, both because of excessive weight beingcarried high up in the ship, and because of the small

Michael Grey examines howcontainer shipping hasmanaged to maintain a fairlyhealthy safety record

Modern trends: itis not unusual fordeepsea boxshipsto carry containersup to seven highon deck, and feedervessels where thereare morecontainers stackedon deck than thereare below.Ph

oto:

MT

SAFETY



freeboard when in a fully laden condition. Safety, it hasbeen argued, has been compromised because of theinability of the ship’s crew to exercise any meaningfulcontrol of the cargo and its stowage.

While remaining the responsibility of the master,the pace of cargo handling in a modern terminal prac-tically precludes any realistic intervention, with theship being presented almost with a fait accompli overstowage plan approval, which will be undertaken exclu-sively by the planners in the terminal.

While this need not necessarily lead to any hazard,if the terminal staff are not properly trained in mattersof hazardous cargo and ship stability, nor are formermariners, problems can arise.

The source of other safety problems tend to ariseoutside the terminals, in consolidation stations orwhere containers are loaded in shippers’ premises.Here, there may be no knowledge of the stresses of aship in a seaway, and the cargo may be inadequatelysecured within the box.

All too often weight is an issue – the shipper believ-ing that because he has rented the container he can fillit until he can barely close the doors, regardless of themaximum permissible weight. Recent investigationshave revealed substantial numbers of boxes that are farin excess of their declared weight.

There has also been a similarly casual attitude overthe shipment of hazardous cargo, which has led to thesector’s worst losses after cargo inside containers hasoverheated, ignited or exploded, leading in a numberof cases, to constructive total losses of large ships and anumber of deaths.

One of the major changes which has emerged fromthe globalisation of trade has seen the tonnage ofIMDG cargo soar, so that the amount of hazardouscargo on board a single post-panamax vessel on a voy-

age from the Far East to Europe could amount to10,000 tonnes and upwards. Such cargo needs to bediligently logged, properly secured and stowed and ,above all, honestly declared.

In a number of these spectacular accidents therehave been deficiencies, and such incidents demonstratethe sheer impossibility of the ship’s crew intervening tocontrol, let alone extinguish, a deep-seated fire in acontainer stow.

The securing of these deck stows has also been iden-tified as an area which requires attention. Despite eachship having a cargo securing manual and mandatoryrequirements that should control the lashing of the con-tainers, these are sometimes honoured in the breach,such are the demands of schedule keeping and the needfor the ship to get off the berth with the minimum ofdelay. Here again, the ability of the ship’s crew to exer-cise any meaningful intervention is limited by theirnumbers, the prevailing weather and the size of the ship.

Naval architects have pointed out the difficulties inmaintaining tension on the securing arrangements thathold a deck stack of containers in place, given that theship flexes in a seaway, and the hatches themselves willmove on their coamings. And while some companieshave invested in fixed guide systems that hold the lowertiers of the deck container stack secure, there is a priceto be paid in that port crane operators cannot exchangecargo as fast once they start digging into the holds.

In addition, while twistlocks have been a majorboon, and semi-automatic and fully automatic twist-locks regarded as the securing systems for the future,they have not been without their problems, and critics.The need to wrestle with locking bars and recalcitranttwistlocks high on the stack remains a risky business,while the height of the stacks requires elaborate arrange-

A casual attitudeover the shipmentof hazardous cargohas often beenattributed to thesector’s worstlosses after cargoinside containershas overheated,ignited or exploded.

Under pressure: ship’s masters appear to have been professionallyput upon, with their administrative burdens generally increasedand the pressure upon them to maintain schedules.

Photo:

DanielStokes,U

SNavy

SAFETY



ments to ensure the health and safety of lashing gangs.Meanwhile, the demand for rapid turnrounds

increases, as the expectation of timely deliveries andlogistic precision increases. Are short cuts in thisdepartment responsible for the increase in stack col-lapses and the number of boxes which end up in thesea, or seriously damaged?

A worrying survey by the Finnish maritime authori-ties, which see only feederships in their waters, revealsthat lashing deficiencies were discovered in more thanhalf the vessels inspected.

The sheer intensity of containership operations,notably among the feedership fleet and the linehaulvessels during their rotations through several ports ateither end of their deepsea passages is, some suggest,stretching the abilities of the crews to the limit.

Fatigue has become a very live issue, and there havebeen a growing number of complaints about hard-driven containerships being involved in incidents. Mas-ters, in particular, appear to have been professionallyput upon, with their administrative burdens generallyincreased and the pressure upon them to maintainschedules overwhelming.

The fact that the International Chamber of Ship-ping, along with the Box Club, is undertaking thedevelopment of a code of practice for containerships isa recognition that all is not right in a sector which hashugely increased in size, but which has yet to developthe sort of sectoral specialist requirements that havelong been found in the tanker or chemical ship sectors.

The liner trades, which have experienced hugegrowth in recent years in both the size of ship andnumerically, are in concert with the remainder of theshipping industry, faced with a seagoing manpowershortage. They have regarded themselves as a ‘quality’shipping sector, and number some of the biggest ship-ping companies in the world, but are still having tocope with the disappearance of so many of their long-serving senior officers who are retiring, and recruit andretain competent successors.

Competition for good people is increasingly intenseand it is likely that wage costs will continue to rise.

The sector is increasingly using third-party ship-managers, which themselves are experiencing difficul-ties in selling the sea life to recruits, and assuming agreater burden for training and ensuring the compe-tence of those whom they employ.

Recent accidents, notably those involving pollution,have reminded the sector of its liabilities in an agewhen the spectre of criminal action hangs over anymarine incident. The sheer windage on a laden 10,000teu ship is causing concern among those responsiblefor their safety in ports and their approaches.

The number of ‘crane strikes’ shows no signs ofdiminishing as miscalculations are made when ships arehandled in tight places. The fact that a post-panamaxcontainership may carry as much fuel as will fill thecargo spaces of a product tanker is a matter to exercisethe minds of operators, especially with the escalation ofalmost any incident into one involving criminal charges.Recent events have demonstrated that big container-ships represent something of a nightmare for salvors.

It is also becoming evident that this containershipsector, which in profitability terms has hugely under-performed the tanker and bulk carrier sections of theindustry, is increasingly vulnerable, faced with fuel costincreases that have caused owners to reduce speedwhile the vast newbuilding programme is ‘digested’.

It is an essential sector, one of the most productivetransport drivers of the global economy. It is one thatis fundamentally safe, but also one that faces no short-age of challenges. n

Shipping companiesare increasinglyusing third-partyshipmanagers,which themselvesare experiencingdifficulties inselling the sea lifeto recruits.

The liner trades, which haveexperienced huge growth inrecent years in both the size ofship and numerically, are inconcert with the remainder ofthe shipping industry faced witha seagoing manpower shortage

SAFETY

14 TT CLUB IS 40 LLOYD’S LIST 2008



No matter what.

Hamburg Süd congratulates the TT Club on achieving a magnificent milestone. With our own proud pedigreeand extensive experience Hamburg Süd also plays an important part in furthering the special interests of our shippers. And we are continuing to help – by developing new, far-sighted technologies and interconnecting services throughout the world. For more, visit us at www.hamburgsud.com

Always thinking ahead.


Observingthe correctprocedures

N o one knows for sure, but the container linesestimate that between 5% and 10% of allboxes carried on their ships contain dangerous

goods. So long as those goods are packed and con-signed in accordance with the provisions of the Inter-national Maritime Dangerous Goods Code, thereshould be no problem for the ship or the crew.

However, that is not always the case. The Interna-tional Maritime Organization estimates that as many as30% of dangerous goods shipments fail to comply withthe IMDG Code, and this is supported by occasionalsurveys by port authorities and maritime administra-tions, which in the past have indicated an even higherlevel of non-compliance.

What can go wrong when the hazards posed byimproperly packaged dangerous goods run out of con-trol has been illustrated graphically too many times inthe past. Calcium hypochlorite and fireworks are justtwo of the articles that have caused major container-ship losses – from DG Harmony and CMA Djakarta inthe late 1990s to Hanjin Pennsylvania and Hyundai For-tune more recently.

Even when dangerous goods are an ‘innocent’ partyin containership incidents, as was the case with the EverDecent collision and theMSC Napoli beaching, theirpresence can provide headaches for salvors and responsecrews. And whatever their role in an incident, they causeenormous costs to owners and their liability insurers.

When DG Harmony had a fire in a container withcalcium hypochlorite off the coast of Brazil in Novem-ber 1998, the ship was a total loss. General averagewas declared and the total liability was around $60m.CMA Djakarta suffered a similar incident off Egypt,with a total insured loss of $40m, and between these

there were other fires, probably involving calciumhypochlorite, on board Sea Land Mariner off Crete andAconcagua off Ecuador. This latter fire may in fact havebeen started by magnesium ingots, which have alsobeen suggested as a possible cause of the explosion onHyundai Fortune in March 2006.

The cost of these incidents keeps on rising. HanjinPennsylvania, which suffered a fatal fire in November2002, cost insurers $130m and the likely ultimateinsured loss on Hyundai Fortune could be $300mor more.

What concerns insurers is that, were a similar inci-dent to befall one of the new generation of super-carri-ers, fully laden, with the complete loss of the ship andall its cargo, the bill could run to more than $2.1bn.

Key role in minimising risksThe IMO certainly has a role to play in minimising therisks of a repeat incident. For instance, once the haz-ards of calcium hypochlorite were properly assessed,changes were made to the provisions of the IMDGCode to reduce the likelihood that a consignmentwould self-ignite. However, there are still shippers who

Peter Mackay stresses theimportance of packing anddeclaring dangerous goodsshipments properly

Damage sustainedto CMA Djakartaafter explosions andfire in containerswhile in transit:what can go wrongwhen the hazardsposed by improperlypackaged dangerousgoods run out ofcontrol has beenillustrated too manytimes in the past.

HAZARDOUS CARGO



fail to comply with the code, either knowingly, in orderto avoid the additional costs imposed by sea carriers,or unwittingly out of ignorance of the code.

In theory, the ship’s master or first officer is respon-sible for ensuring that each container loaded on thevessel is in compliance with the relevant regulations. Inpractice, this is simply impossible – there are too manycontainers and not enough time. Therefore, it is shore-side staff who represent the first line of defence againstthe hazards posed by incorrectly packaged or unde-clared dangerous goods.

However, there is at present no requirement forshoreside staff to be trained in the IMDG Code or inrecognising and packaging dangerous goods. In Sep-tember 2007, the TT Club, with the support of theUK, put forward a proposal to the IMO’s DangerousGoods, Solid Cargoes and Containers Sub-committeethat would impose a training requirement.

Some delegations felt that the IMO has no businessregulating land-side operations, but a similar provisionexists in the air mode and the very real risks posed bydangerous goods carried the day.

The regulations have not yet come into force – theywill have to be approved by the Maritime Safety Com-mittee this year before appearing in Amendment 34-08to the IMDG Code, which will take effect on January1, 2009 and become mandatory a year later. However,training providers are already reporting an upsurge indemand for IMDG Code training.

Another significant change approaching for theIMDG Code is the revision of the requirements relat-ing to marine pollutants. This follows on from achange to the classification criteria resulting from workdone for the globally harmonised system of classifica-tion and labelling of chemicals.

At present, the IMDG Code provides a list of sub-stances that are to be considered as marine pollutants,some of which are shown as ‘severe marine pollutants’

in the dangerous goods list. Each requires additionallabelling and placarding of containers. As fromAmendment 34-08, however, the list of marine pollut-ants will only be indicative – it will be the responsibilityof shippers to check whether the products they areputting into the transport chain meet the criteria.

It has been suggested that, rather than go to theeffort and expense of testing each of their substances,shippers will merely mark everything as ‘marine pollut-ant’ – especially as there is as yet no indication as tohow this provision will be enforced. This solution,while elegant and inexpensive, misses the point and itmay be that the IMO has to go back and revisit theway the regulation is written.

Providing guidance for shippersThe TT Club and a number of other leading mutualliability insurers have an interest in reducing thenumber of claims related to the carriage of dangerousgoods and are in a position to provide guidance toowners and shippers on the best ways to minimise risk.

The Club has a specific guidance document in itsStop Loss series on dangerous goods and is currentlylooking at ways in which historical incident data can beutilised to identify trends and high-risk areas.

Indeed, those major incidents highlighted above areonly the tip of the iceberg. It is believed that smallspills and fires occur each week but are rarely reported.

In fact, it is the insurance community that has oftenthe information necessary to support new safety initia-tives and we now seem to be moving towards a situa-tion where the underwriting community is gettingready to share that information more widely, with theaim of reducing losses and, let us not forget, injuriesand fatalities to seafarers andshore personnel. n* Peter Mackay is managing editorof Hazardous Cargo Bulletin.

The presence ofdangerous goodscan provideheadaches forsalvors and responsecrews, as was thecase in the EverDecent collision(left) and the MSCNapoli beachingincident (above).

HAZARDOUS CARGO



1973 Sydney Opera House is opens after14 years of construction. Sir David Thom-son joins the TT Board of Directors.

1974 The ‘Rumble in the Jungle’ –Muhammad Ali regains the heavyweightboxing title. World population reaches 4bn.

1975 The Vietnam war ends. Junko Tabeibecomes the first woman to reach the sum-mit of Mount Everest. Volkswagen intro-duces the Golf.

1976 Apple Computer Company isformed by Steve Jobs and Steve Wozniak.TT Club general correspondent officeopened in Sydney, Australia.

1977 Pele plays his final professionalgame as a member of the New York Cos-mos. Star Wars opens in the cinemas. ElvisPresley and Charlie Chaplin die.

1978 Louise Brown, the first ‘test tubebaby’ is born. TT Club general corre-spondent offices open in New York andHong Kong.

1979 Mother Teresa is awarded theNobel Peace Prize. Idi Amin is forced toflee Uganda. US and China establishdiplomatic relations.

The birth of the container…M alcom McLean, a North Caro-

linan road haulier, first conceivedthe idea of using a container in

1937 while waiting at the dock for the cargoon his truck to be loaded to a ship. Hewatched as every crate was loaded individu-ally by the stevedores and realised how slowand labour intensive the process was.

In 1955, he diversified into shipping withthe purchase of the Pan Atlantic SteamshipCorp, and a year later – on April 26, 1956 –his converted tanker, the Ideal X, carriedthe first load of 58, 35-ft containers fromthe port of Newark, New Jersey, to the portof Houston, Texas. This marked the begin-ning of containerisation as we know it, with2006 commemorating 40 years of MalcomMcLean’s world-changing idea.

Since the introduction of the container,international trade has grown more thantwice as fast as the global economy. Asmuch as 60% of world trade travels inoceangoing containers, and while most ofus do not have daily contact with a steelbox, it is unlikely that any of us do not ownsomething that has been shipped in one.

This timeline illustrates a selection ofmilestones that have occurred during the 50years of containerisation, while highlightingkey developments in TT Club’s mission tobe at the heart of the international transportand logistics industry that it serves.

…leads to the creationof the TT ClubThe TT Club is the international transportand logistics industry’s leading provider ofinsurance and related risk managementservices. Established in 1968 as a mutualassociation, the Club specialises in theinsurance of liabilities, equipment andproperty for multimodal operators. Cus-tomers are drawn from a wide range of theworld’s shipping lines, port operators,freight forwarders and logistics companies.Membership benefits include:

l Underwriting expertise in key locationsglobally;l A worldwide network of offices providingclaims management and advisory services;

l A philosophy based upon processingclaims as efficiently as possible;l First-class risk management and lossprevention advice.The TT Club operates in the following

sectors: ports and terminals; transport andlogistics operators; ship operators; andcontainer lessors.

1968 TT Club established. MartinLuther King (Jr) is assassinated. The laststeam passenger train runs in the UK.

1969 – One small stepTT Club incorporated in Bermuda.Terminal and depot operators coverintroduced. Neil Armstrong takes historicfirst steps on the moon.

1970 China’s first satellite (Dong FangHong 1) is launched into orbit. Concordemakes its first supersonic flight.

1971 The South Tower of the WorldTrade Centre is ‘topped out’. A new stockmarket index called Nasdaq debuts. WaltDisney World opens in Florida.

1972 - Bigger is betterThe first cellular phone call is made. Thefirst containerships with capacity of morethan 3,000 teu are delivered.

DATELINE



1980 John Lennon dies in hospital afterbeing shot. Spain and the UK agree to reo-pen border between Gibraltar and Spain.

1981 Greece enters the European Com-munity, which later becomes the EuropeanUnion. Lady Diana Spencer marriesCharles, Prince of Wales.

1982 Sony launches the first consumercompact disk player. The first Rubik’sCube World Championships is held inBudapest, Hungary.

1983 Bjorn Borg retires from tennis afterwinning five consecutive Wimbledon cham-pionships. Microsoft Word is released.

1984 In the US, the first Stacktrain isintroduced, doubling rail capacity. DNA issuccessfully cloned from an extinct animal.

1985 Heysel disaster: 38 spectators arekilled on the terraces during the EuropeanCup final between Liverpool FC andJuventus.

1986 The Soviet Union launches the Mirspace station. The world’s worst nuclearpower accident occurs at Chernobyl.

1987 Construction of theChannel Tunnel is initi-ated. Black Monday:stock market levelsfall sharply onWall Street andaround theworld.

1988 TTClub offerscover forport opera-tors. Thefirst post-pan-amax shipsappear – too largeto transit the Pan-ama Canal.

1989 The Berlin Wall comes down.The Exxon Valdez spills 11m gallons of oilafter running aground. Sky launches satel-lite television in Europe.

1990 Nelson Mandela is released fromprison after 26 years behind bars. EastGermany and West Germany reunify intoa single country.

1991 The Soviet Union officially ceases toexist. Warsaw radio mast, at 646.38 m –the tallest construction ever built, collapses.

1992 The Olympic Games open in theSpanish city of Barcelona with all countriespresent for the first time in modern history.

1993 The World Wide Web is born atCERN. The Maastricht Treaty takeseffect. The IOC selects Sydney to hold the2000 Summer Olympics.

1994 The Channel Tunnel opensbetween England and France. NelsonMandela becomes South Africa’s president.Ayrton Senna dies in a racing accident.

1995 TT Club establishes offices inGenoa and Antwerp. Barings Bank col-lapses after broker Nick Leeson loses $1.4bnby speculating on the stock exchange.

1996 Dolly the sheep, the first mammalto be successfully cloned from an adultcell, is born in Scotland. TT Club

launches ClaimsTrac™.

1997 TT Clubachieves ISO9002:1994Certifica-tion. TTClubrepre-sentedinShang-hai andBeijing.Sovereignty

over HongKong handed

back to China.

1998 Russia circulatesnew rubles to stem inflation and

promote confidence. TT Club repre-sented in Taiwan and Singapore officeopens.

1999-2000 Millennium celebrationstake place across the world. 500 couplesmarry on the Great Wall of China to markthe beginning of the new millennium.

2001 World shocked by 9/11 terroristattacks in New York. TT Club achievesISO 9002:2000 Certification. MalcomMcLean dies at the age of 87.

2002 NATO summit in Prague: Bulgaria,Estonia, Latvia, Lithuania, Romania,Slovakia and Slovenia are invited to joinNATO. A total solar eclipse occurs.

2003 Concorde makes its last commercialflight, bringing the present era of commer-cial supersonic travel to a close.

2004 Tsunami hits Asia in one of theworst natural disasters in recorded history.TT EurAsia Board streamlined tofacilitate faster decision making.

2005 Lance Armstrong wins a record sev-enth straight Tour de France before hisscheduled retirement. TT Club launchesits logistics operator cover.

2006 Emma Maersk becomes the largestcontainership ever built, around 200 timesthe capacity of the Ideal X. TT Clubregains AM Best A-rating.

2007 ‘Green’ concerns start to influenceshipping – cleaner fuels and cold ironing.Bunker prices hit $500 per ton. TT Clubcompletes 40 years of business.

DATELINE



Working in perfect harmony

D ealing with the regulatory regimes in which theTT Club operates may present challenges, butthe outlook is not necessarily oppressive. One

of the trends compliance director Ian Rosenthal identi-fies is the move, in the UK and Europe at least,towards a principle-based regulatory approach andaway from prescriptive rules.

This approach places more reliance on senior man-agement to get it right and in the UK goes hand inhand with the Financial Service Authorities risk meth-odology Arrow, which the FSA uses when it visits com-panies to assess risks. The FSA will benchmark com-panies against their own marketplace, Mr Rosenthalexplains, which allows senior management to see howthey fit into their own market.

Marketing director Ian Lush says while there wasundoubtedly less regulation imposed on mutuals suchas the TT Club 20 years ago, it is perhaps more a caseof mutuals being brought up to speed with a regulatoryenvironment that is affecting every sector of industry.

Mr Rosenthal points to other regulations like theInsurance Mediation Directive of 2005 and the Sol-vency 2 directive, which are trying to create a levelplaying field and consistency across Europe. Harmoni-sation, he feels, is perhaps less of a problem in the UKin meeting capital adequacy requirements. The UK hesays has a “bit of a head start” in this respect, althoughthere is “certainly going to be work to be done”.

Addressing inconsistenciesA recent survey carried out by law firm Norton Rosesuggested that senior industry players in the insurancesector were in favour of greater harmonisation of glo-bal insurance regulations.

However, its research suggested that while theEuropean Union has a particularly harmonised regimeand has tried to address some inconsistencies throughdirectives such as the draft Solvency 2, the Reinsur-ance and Insurance Mediation Directive, there werestill major inconsistencies even in the EU.

Speaking at the launch of the Norton Rose surveyrecently, Robert Purves, of 3 Verulam Buildings, sug-gested: “Initiatives towards harmonisation are not nec-essarily consistent with the parallel desire for regulationthat is principle-based and less strict.”

Compliance with the regulatory regimes of thecountries in which it operates is clearly essential for theTT Club. Mr Lush explains that the club is regulated

Sandra Speares emphasises thenecessity for mutuals to bebrought up to speed with thecurrent regulatory environment

There is a growingrequirement insome jurisdictionsfor insurers to putup capital locallyto cover potentialclaims.

LEGAL



as an underwriter in four jurisdictions: Singapore,Hong Kong, the UK and the US. Mr Rosenthal,meanwhile, points to a lightening of the regulatoryenvironment in Singapore, which is keen to promoteitself as a centre for insurers. Singapore, he says is alsomoving to a more risk-based approach to insurance.

Other jurisdictions like the US adopt a more pre-scriptive approach, and the club needs to be licensedin each individual state, barring two states that do notaccept foreign insurance. Mr Lush says he is not surewhy the US adopts such a prescriptive approach, par-ticularly as the Club has a 40-year record of trading inthe US and is “totally solvent”.

Another trend Mr Rosenthal points to is a growingrequirement in jurisdictions for insurers to put up capi-tal locally to cover potential claims. Australia has putsuch a system in place, and it may also become arequirement in Canada.

The regulatory regime in Brazil has also changed toa capital requirement approach. The level of capitalthat needs to be lodged tends to relate to the level ofpremiums being written and the value of the liability inthat country, Mr Rosenthal explains. The fact thatclubs may need to lodge money in a number of juris-diction may mean that they get less benefit than theywould do if managing it centrally. n* Sandra Speares is legal editor, Lloyd’s List.

The TT Club isregulated as anunderwriter infourjurisdictions:Singapore, HongKong, the UKand the US.

Newsletter keeps members on the ball

T he TT Club produces a regularmonthly online newsletter TT Talk tokeeps its members abreast of cur-

rent legal and regulatory developmentsaround the world. The Club’s legal direc-tor, Ian Hyslop, gives as a recent examplelegal changes in Russia.

In December 2007, the Supreme Arbi-tration Court of the Russian Federationheld that the CMR Protocol 1978 didapply in the country. At issue was whetherthe carrier’s liability was limited toSDR8.33 per kg or whether the gold francvalue applied to the claim.

The Supreme Court confirmed that theSDR8.33 limit applied.

Other issues raised in TT Talk includechanges to the IMDG code covering dan-gerous goods. “The TT Club has previouslynoted that in the IMDG Code, training forshore staff who handle dangerous cargoesis currently recommended only. The Club

has lobbied for this to be changed tomandate training for all shoreside per-sonnel and the matter will be decided atthe IMO’s Maritime Safety Committee inMay 2008.”

The club has also highlighted theimportance of declaring goods correctly,citing a recent ruling on a five-year dis-pute in China, which involved a cargo ofoxalyl chloride being misdeclared. Thecargo leaked during a Malaysian Airlinesflight, resulting in the evacuation of pas-sengers and crew and the constructivetotal loss of the aircraft.

“The TT Club stresses the importance ofpacking and declaring goods correctly.Any money saved by not declaring dan-gerous goods is dwarfed by the potentialcost of liability in the case of an accident.This is not only a question of financialgamble but reputation risk, and the loss oflife and property,” the newsletter warns.

Turning to claims, Mr Hyslop told dele-gates at a Lloyd’s List Events conferenceon cargo claims recently, that while thelaw had developed specifically to meet thedemands of intermodalism, the conven-tions governing it often only apply to oneform of transport. “This often provokesfairly frantic forum shopping.”

He said that another difficulty was,during an intermodal carriage, establish-ing at what stage of the carriage thedamage occurred. “This generally makesthe convention system ineffective andclaimants and carriers have to fall back onstandard trading conditions and the gen-eral law of the jurisdiction concerned.

Commenting on the draft Uncitral doc-ument that is expected to cover all modesof transport, Mr Hyslop said: “Nobodyexpects it to do this and there are stillconsiderable technical and political obsta-cles to be overcome.” n

LEGAL



Tackling the security issue

P ort security has never been more firmly in theeye of legislators. Over the past few years therehas been a torrent of rules and regulations,

forced by an upsurge in terrorism and the recognitionof ports’ vulnerability to attack – whether it is in formof a ‘dirty bomb’ concealed in a container, or personsbreaking into terminal areas.

However, the response to the need for stricter secu-rity in the world’s ports has varied greatly from countyto country, and politicians who have pressed the case forhigher levels of security have found some of their ambi-tions thwarted by the limitations of current technology.

Steven Hogan, European director of governmentalaffairs for Rapiscan Systems, a UK-headquarteredsecurity technology provider, says that there are signifi-cant differences in the way different countries havetackled the problem. “The US and Europe have com-pletely different approaches, which is made wider bythe fact that this is an area where there is still a lot ofresearch and development. The Americans tend to ear-mark a certain amount of funds first, and then doleout blocks of it with the message: ‘go and developsomething that will make our ports more secure’.

“The European Commission’s approach is to developa whole series of requirements which are integrated witheach other – they really want all-dancing, all-singingsolutions, but unfortunately the funds being made avail-able are rather small. The problem as a provider of this

technology is that the goalposts keep shifting.”Not all those in the US, where port security is far

more of a key issue than in other countries, feel thatthe government has so generously endowed the indus-try. While the Port Security Grant Programme budgetfor this year is likely to be $388m, distributed acrossthe US’ port authorities, the Bush government is pro-posing to almost halve that figure in 2009, to $210m.

The American Association of Port Authoritiesbelieves that $400m per year is the minimum that itsmembers need if they are to implement the signifi-cantly tighter security measures that are supposed tobe delivered by the programme.

Washington’s policy hinges around two centralpoints: implementation of the Transportation WorkersIdentification Credential, and the 100% scanning ofimport containers coming into the US. The TWICproject will see up to 1m individuals issued with bio-metric identification cards, from longshoremen andcrane drivers to truckers and even chaplains.

The first applicants were enrolled into the system,and the first TWIC cards were issued at the east coastport of Wilmington in October. During 2008, anyonewho has anything to do with a port is likely to findhimself posing in front of digital camera, providing fin-gerprints and undergoing a security threat assessment

Gavin van Marle reveals thatports in the US and Europehave differing approacheswhen it comes to implementingsecurity measures

The AmericanAssociation of PortAuthorities believesthat $400m a yearis the minimum itsmembers need ifthey are toimplement thesignificantly tightersecurity measuresin the US.

Photo:

Bloomberg

The Americans tend to earmarka certain amount of funds first,and then dole out blocks of itwith the message: ‘go anddevelop something that willmake our ports more secure

PORT SECURITY



by security agencies in which their background is thor-oughly checked.

Each individual will have to pay $132.50 for theirTWIC card, which will have a five-year validity andconsist of their name and photograph, while an elec-tronic chip will store the individual’s fingerprint tem-plate, a PIN and other unique ID information.

The ongoing pilot programme in 2008 will seeworkers present the cards as they enter port areas inmuch the same way as a passport is presented to immi-gration officials at an airport. However, the develop-ment of automatic card readers at security areas is alsounder way with the testing of systems developed by dif-ferent technology providers, and it is still likely to besome time before the system is fully operational.

Meanwhile, the requirement of 100% scanning ofcontainers has moved out of US ports. The originalrequirement for all boxes to be scanned before beingreleased from US terminals has been extended, withpoliticians now calling for all US-bound containers tobe scanned at the ports of loading.

A pilot project was launched late last year that saw sixnon-US ports – Southampton, Port Qasim in Pakistan,Salalah, Singapore, Busan and Puerto Cortes in Hondu-ras – begin passing US-bound containers through portalscreening monitors that check for radioactive materials.Of course, this represents only a fraction of the numberof boxes that annually enter the country, and thereremains considerable disagreement over whether 100%scanning is even possible, let alone desirable.

It is one of the richer ironies of recent history thatthe very operator that was so publicly ejected from its

US operations on grounds of security – DP World – isnow in control of scanning US-bound containers at twoof the pilot ports, Southampton and Port Qasim. Andthis contradiction has not been lost on the industry

In one of the most brutal assessments of the plan,Bill Ferguson, group security officer for NYK GroupAmericas, told delegates at the Terminal OperationsConference in Panama, in November, that the meas-ures are ‘draconian unilateral actions’, and warned thatthe plans put around $500bn of trade per year at risk.

“The US Congress does not have the ability toorder who in the overseas arena will perform the scan-ning. Is Congress willing to rely on foreign-owned enti-ties to perform the scans? Recall the Dubai PortsWorld attempt to acquire P&O Ports,” he added.

Nevertheless, technology firms are continuing todevelop a range of solutions to the requirement, whichis set to become law on July 1, 2012. These mostlyconsist of portal scanners, which screen for radioactiv-ity, as well as providing gamma ray imaging as a truckpasses through. Some of these devices are already inoperation at ports across the world, as well as a varietyunder testing.

However, a more innovative approach is also beingdeveloped in the US by VeriTainer, which has installedscanners on container crane spreaders. The system hasbeen on trial at the port of Oakland and it is claimedto have solved one of the most fundamental problemsfor scanning technologies – the issue of delineatingradiation within a box from background radiation.

These developments are encouraging because it indi-cates that the technology should be ready to answer thelegislative requirements. What is perhaps more pressingat this stage is to make sure that the regulatory bodiesacross the world, and not just in the US, are ‘linked up’as the systems are deployed. n* Gavin van Marle is editor ofCargo Systems.

Containerinspection systemin operation at theport of Hamburg.

Innovative approach: VeriTainer has developed a security system inthe US, which has installed scanners on container crane spreaders.

Photo:

HafenHa

mburg/Hettchen

PORT SECURITY



Bigger ships - the challenges

A rguably, the delivery in August 2006 of theEmma Maersk to the Copenhagen-based APMoller –Maersk Group changed the liner ship-

ping industry for ever. The massive size of this newship and the huge perceived economies of scale thatMaersk Line would realise from deploying an armadaof these vessels in its liner network, resulted in severalother carriers feeling that they had to follow suit.

While rivals did not immediately place orders forsimilar-sized tonnage, within six months liner compa-nies such as Mediterranean Shipping Co, CMA CGMand Zim Integrated Shipping Services had signed con-tracts for mega containerships.

Since this time, a flood of orders have been con-firmed, with about 140 ships having the capability toload more than 10,000 teu contracted for delivery overthe next four years. According to Liner Intelligence

(www.ci-online.co.uk), their combined slot capacityamounts to more than 1.7m teu. These ships nowaccount for over a quarter of the total cellular order-book, which stands at 6.52m teu (see table 1).

Maersk now has eight of these monsters in service,with all of them deployed in its Far East-Europe service.Meanwhile, the operator has concluded a long-termcharter contract with Rickmers Maritime for the charterof four 13,100 teu vessels being built at Hyundai HeavyIndustries in South Korea, which are due for deliverybetween August and November 2010. A further 13 shipsin the 8,600 to 9,200 teu size range are also on order.

Interestingly, though, it is Maersk’s E-class shipsthat are still the biggest, and as things currently standare the only ones that will not be able to transit thenew locks being built on the Panama Canal.

While the E-class ships have been officially rated by

The past 18 months have seen a rush by shipowners and liner operators toorder super-generation containerships of 10,000 teu plus. But John Fosseyasks whether these behemoths are really the right ships for the future andwhat impact they might have on the overall structure of the liner industry

The Maersk Groupstarted the ballrolling for megacontainerships withthe delivery in2006 of the11,000 teu EmmaMaerskPh

oto:

Bloomberg

TABLE 1: POST-PANAMAX VESSELS IN SERVICE AND ON ORDERLess than 5,000 teu 5,000 - 7,999 teu 8,000 - 9,999 teu 10,000 - 11,999 teu 12,000 teu+Active Newbuild Active Newbuild Active Newbuild Active Newbuild Active Newbuild

Number 8 0 167 97 140 163 2 40 8 102Total teu 39,066 0 1,099,527 621,084 1,198,882 1,415,182 20,124 414,574 100,064 1,306,896Source: Liner Intelligence (www.ci-online.co.uk)

MEGASHIPS



Maersk at 11,000 teu, many in the industry believethey are capable of loading a substantial 13,600 teu,which places them well above the 12,500-13,000 teuupper size range being ordered today.

The dimensions of the 170,794 dwt Maersk vesselsperhaps give a clue as to their actual size: length of397.6 m; beam at 56.4 m – sufficient for the loadingof 22 containers across the weather deck; and a maxi-mum draught of 16.5 m.

The rush to operate big ships has meant a dearth oforders in other size ranges. While this might have animpact on some trade lanes, a massive cascading of ton-nage is expected to take place over the next two-threeyears as more of these large behemoths enter service.Therefore, this should help to fill any gaps in slot supplythat may occur on secondary and intra-regional routes.

For instance, it is currently trades, such as thosebetween Asian countries and between the Far East –most notably China – and emerging country trades,where some of the strongest growth is being registeredand where additional slot capacity is needed. However,the cascading of the large east-west ships into otherliner markets is not always a straightforward exercise.

Containerships built over the past 10-15 years, forexample, tend to have poorer teu/dwt ratios than ear-lier generation tonnage, as they are designed for load-ing lighter cargoes. Consequently, they are not so wellsuited for carrying heavier commodities that are associ-ated with north-south and/or emerging markets.

This has also become a bigger issue in the industryon account of the increasing shift of neo-bulk (steel,lumber, cars) and even some bulk cargoes (rocks, seedgrain) into containers because of ‘sky high’ rates forbulk carriers. But the relatively low value of such cargomeant that in some cases on trades between the FarEast and India and Europe, ocean carriers were havingto shut out better paying freight. As a consequence,several operators imposed surcharges on heavy con-tainers, or refused lifting them as a consequence.

Persuasive economies of scaleThe big ships can certainly result in persuasive econo-mies of scale – both on the capital front and operationally– with per slot costs estimated to be anywhere between15% and 20% lower than for a 6,000 teu and as much as40% for a panamax vessel of 4,500 teu. However, this isonly the case when utilisation levels are good (95%+).

Therefore, a half full 10,000 teu ship would be at adistinct disadvantage to a 95%-100% loaded 6,000 teuvessel. Nonetheless, the bigger the tonnage the morechallenging the operation can become. These ships, forinstance, are likely to spend much longer times in porton account of the higher number of containers beingloaded and discharged.

In turn, this means that they cannot call at the same

number of ports in any schedule as their predecessors,which leads to the ocean carriers having to use moretranshipment hubs. Therefore, a requirement for addi-tional feeder services, which, depending on individualcarriers strategies, are maintained in-house or con-tracted from third-party specialists.

This can work out to be very expensive. Withoutdoubt it leads to more complex liner networks and theneed for more intensive management systems to be putin place. Clearly, the success of such operations hingeon efficient terminal management/stevedoring practicesand the ability of the ports and terminals used toaccommodate adequately the increased numbers offeederships needed to meet the main liners.

It is one of the reasons why ocean carriers have beeninvesting in their own terminals and/or securing exclu-sive deals with specialist terminal operating companies.Either way, the port operation can be fine-tuned to thatcarrier’s specific requirements, while, invariably, addi-tional handling capacity is secured for future expansion.

In addition, such a strategy gives operators closercontrol over what has become one of the most impor-tant components in the supply chain and better controlover their total system costs.

Carrier No of ships Teu size Total teuCMA CGM 9 12,600 113,400

8 11,400 91,2008 9,700 77,6003 9,600 28,8006 8,500 51,000

34 362,000MSC 5 13,200 66,000

8 12,600 100,8002 11,300 22,600

10 9,700 97,00025 286,400

COSCON 8 13,092 104,7366 10,062 60,3728 8,495 67,960

22 233,068Zim 9 12,600 113,400

8 10,000 80,0004 8,200 32,800

21 226,200Maersk Line 4 13,100 52,400

2 9,200 18,4006 9,000 36,0005 8,600 43,0002 8,400 16,800

19 166,600China ShippingContainer Line

8 13,300 106,4003 8,530 25,59011 131,990

TABLE 2: LEADING CARRIERS WITH SUPER-GENERATION,POST-PANAMAX SHIPS ON ORDER

Source: Liner Intelligence (www.ci-online.co.uk)

MEGASHIPS



Maersk, MSC, Evergreen, CMA CGM, the Japa-nese majors MOL, NYK Line and K Line, and Hanjinhave all moved in this direction and have dedicated ter-minals in some of their key ports.

While hub and spoke networks have been a way oflife for shippers and consignees for many years now,there is still a general dislike of them – partly becausethe risks involved are higher. There is a much greaterchance, for instance, that cargo will not arrive on timebecause of missed connections.

This has become a much bigger problem, particu-larly over the past four years or so as ports, especiallythose in Europe, have become more congested. Therisk of cargo being tampered with, stolen and/or dam-aged is greater the more times it has to be moved fromone mode of transport to another.

While trades such as the Far East-Europe continueto power ahead, arguably the use of these big super-generation, post-panamax ships makes sense. Operatorswill always argue that a vessel is built for 25 years trad-ing anyway and will never be full from day one. But ashistory has shown, when several carriers introduce newservices and/or tonnage at the same time, pricingbecomes more intense and freight rates tend to soften.

Clearly, a huge surge in new slots will take place in2009, 2010 and 2011 in the Far East-Europe trade,and soon after liner shipping conferences in the Euro-pean trades will have been abolished. In addition, thiswill possibly occur in a slowing market.

For instance, according to CI Market Analysis:Future Supply and Demand for Liner Services Update2008-09, demand growth on the Far East/Europe trad-ing leg is set to fall from almost 20% last year to 17%this year and 15% in 2009.

In this climate, the deployment of so many big ships

could lead to huge pricing instability as carriers setcompetitive rates to maintain market share. This, inturn, could fuel further industry consolidation asmerger and acquisition activity picks up on the back ofan overall decline in individual companies’ profitability.

Further space-sharing arrangements are a likely con-sequence too, as liner companies look at ways of achiev-ing higher slot utilisation levels for their large tonnage.

So could the introduction of these bigger vesselslead to operators and consortia rationalising their exist-ing service networks and consolidating existing servicestrings into one. Currently, operator and servicegroupings such as Maersk, the Grand Alliance, NewWorld Alliance and Cosco, K Line, Yangming andHanjin grouping have as many as five sailings a weekbetween the Far East and Europe, and more thanseven between the Far East and North America.

Should such consolidation occur, then this wouldrepresent a significant change in ocean carriers’ strate-gies of recent years. Moreover, shippers have becomeused to multiweek arrivals and departures and wouldnot likely take too kindly to such a shift. In fact, thetrend as far as many importers and exporters are con-cerned is for direct call services to and from moreports on a more regular basis as this allows a reductionin inventory and warehousing costs.

Interestingly, while super-generation, post-panamaxships give ocean carriers the opportunity to exploitvery powerful operating economies, they do presentmany network challenges and they seem to be alien towhat ocean carriers’ customers really want – apartfrom even cheaper freight rates that is. n* John Fossey is editorof ContainerisationInternational.

Carriers such asMSC have beeninvesting in theirown terminalsand/or securingexclusive dealswith specialistterminal operatingcompanies.

MEGASHIPS



A t first sight everything about the container ship-ping industry appears quite simple. After all,nothing can be more straightforward, surely,

than loading cargo into a steel box and then shipping itaround the world.

There are around 26m teu of containers in theworld today and more than 95% of them – in teuterms – are either 20 ft or 40 ft maritime boxes (seetable 1). Additionally, there are several regional(domestic) types, principally in North America andEurope, but also in Australia, China and Russia.

Most of the fleet is 8 ft wide and 8 ft 6 in high,although this is changing. Height-wise, 9 ft 6 in is inhuge demand as a higher proportion ofthe cargoes being carried are light-weight and require additional spacewithin the container.

For this reason there is also a movetowards the use of longer containers,but this is fraught with difficulty as mostcountries in the world have limits on thesizes of trailers that can be moved ontheir roads. Build a box that is too bigand its ‘multimodal usefulness’ isdestroyed. Moreover, cell guides in shipsare mainly designed for 20 ft and 40 ftcontainers, necessitating that any outsizeboxes are loaded on the weather deck.

Having said this, 45 ft maritimecontainers have been in service –mainly in the transpacific trade wherethey were introduced by APL – sincethe late 1980s, while even bigger 53 ftunits have been used in selected trades

this decade. The latter-sized unit is fully compatiblewith the US domestic highway trailer and so it is onthe US trades where it is being used. Once again, itwas APL that made the move on the transpacific,introducing a few hundred units on its southernChina-US southern California services last November.

Up to this point, 53 ft containers had been confinedto the US east coast-Puerto Rico trade, with TrailerBridge Company deploying about 4,000 of them as amainstay of its barging operation. Essentially, though,Trailer Bridge is a domestic trucking company and thisuse of the equipment was purely domestic.

APL’s decision to phase in larger containers was

The multimodalfreight containerhas been a regularfixture in theworld’s generalcargo trades formore than 50 years.Moreover, its designand standard sizelengths havechanged very little.John Fossey reports

Size mattersAPL introduced afew hundred 53 ftcontainers on itstranspacificservices inNovember 2007.

Photo:

Nordcapital

TABLE 1: WORLD TEU CONTAINER FLEET AT MID-2007 BY OPERATINGCATEGORY, LENGTH AND SUMMARISED TYPE

Dry freightstandard

Dry freightspecial

Integral reeeferand insulated

Tank (liquidbulk) Total

Maritime: 8 ft width20 ft 6,740,952 371,667 153,055 183,190 7,448,86440 ft 14,070,624 456,518 1,272,580 1,106 15,800,82845 ft 392,787 19,485 810 - 413,082Other 6,990 21,006 1,227 5,937 35,160Subtotal 21,211,353 868,676 1,427,672 190,233 23,697,934Regional: 8 ft 6 in width (North American domestic)48ft 112,704 4,740 8,400 - 125,84453ft 280,423 2,650 8,109 - 291,182Other 24,963 2,490 2,538 - 29,991Subtotal 418,090 9,880 19,047 - 447,017Regional: 2.5 m width (non-cellular pallet-wide and swapbody)20-25 ft (6-8 m) 293,848 59,463 2,020 24,200 379,53130-35 ft (9-10 m) 2,820 45,495 - 4,680 52,99540-45ft (12-14 m) 170,949 17,191 8,048 900 197,08848 ft and greater 5,015 - 144 - 5,159Subtotal 472,632 122,149 10,212 29,780 634,773Grand total 22,102,075 1,000,705 1,456,931 220,013 24,779,724

EQUIPMENT



made for several reasons, but principally it came out ofcustomer demand. Toys ‘R’ Us and New Balance,which manufacture and then ship out huge numbers oftoys and sporting apparel from southern China,wanted greater economies of scale and they wantedstreamlined logistics flows.

The 53 ft box gives them both. First they can stuff upto 60% more in the containers than a 40ft. Second, thecontainer can move straight into each company’s US dis-tribution system without the need for transloading. Pre-viously, a large number of 45 ft and 40 ft boxes would bestripped at warehouses on the US west coast and thecargo reloaded into 53 ft domestic containers or trailers.

Operationally, APL has cited that the use of thesebigger containers should result in a reduction in itsequipment inventory and to faster ship turnroundtimes as fewer boxes will have to be loaded and dis-charged. On land a similar situation prevails in that bybeing able to load the same volume of cargo in fewerboxes, less drayage is needed. This means a cut intruck traffic – which is good for the environment.

However, there are challenges, most notably onboard the vessels. These containers can be loaded onlyon deck and too many of them could impact overallvessel utilisation levels.

While the move by APL is modest, it is, nonethe-less, exciting and it could with time lead to somethingof a transformation in the structure of some tradelanes. However, the use of 53 ft containers will alwaysbe quite limited because of highway regulations inmany countries. Such units are not allowed on Euro-pean roads or in Japan, for example.

Even so, there is a demand for outsize containers inthese regions. In Europe, 45 ft maritime containershave been shipped into and out of ports for well over15 years as shippers, particularly those trading with theFar East, have used the larger boxes to take advantageof their greater cubic capacity.

Such containers, though, did not meet the Euro-pean Union criteria on highway regulations as theywere only able to meet the admissible swing clearanceby overhanging the trailer end by 8 cm. Hence, in adirective 96/53/EC these units were to have beenbanned on the EU’s roads from January 1, 2007. Thishas not happened up until now.

So what about the use of the 45 ft Euro-pallet box,which is used extensively within Europe by carriers,such as Samskip and Eimskip, in the deepsea linertrades? These containers can be stacked seven high, theyare capable of loading 33 Euro-pallets. Therefore, theyhave the same cubic capacity as the highway trucks inEurope, and due to their chamfered style of corner fit-ting/end post they can legally be moved over the roads.

The problem is their width of 2.5 m, as most cellguides in the deepsea vessels can only cater for stand-

ard 2.4 m wide boxes. While various companies,including Bell Lines, GESeaCo and more recently Sea-Axis, have developed cellular pallet-wide containersthat can be used in the long-haul liner business, thetake-up so far has been muted.

The designs of GESeaCo and Sea Axis both featurecorrugated sides so that when the containers arestacked side-by-side, providing they are out of phase ofeach other they will lock together.

In common with the 53 ft containers recently intro-duced on to the transpacific by APL, there is the feel-ing that the next two-three years will see a rise in thenumber of Euro-pallet boxes used in the global tradeswith Europe. After all, it is not only the additional pay-load that is available to importers and exporters that isadvantageous, but it is the logistics and operationalbenefits that can accrue to the service providers.

For example, to ship 100,000 Euro-pallets requiresonly 167 of the new Sea Axis-designed SeaCell2 con-tainers compared with 200 standard 40 ft dry freightunits, which means less emissions from the ship andtruck and by reducing the inventory, hopefully lesscongestion in the supply chain.

With the liner trades maturing and the generalweight of cargo being moved getting lighter, the inter-est in bigger boxes will remain strong. It is probable,therefore, that cellular ships will be designed with

The 45 ft Euro-pallet container isused extensivelywithin Europe bycarriers such asSamskip andEimskip.

EQUIPMENT



longer holds so that some of this equipment can beloaded under-deck. Even with some of the vessels cur-rently on order, cell guides could easily be widened toaccommodate oversized containers, with several ana-lysts suggesting that such moves are already under way.Apparently, APL has vessels in service that have thecapacity to carry 45 ft, 48 ft and 53 ft containers.

Of course, the past 50 years have not only seen thismove to bigger containers, but also to the developmentof a range of specialised equipment for carrying projectand oversize cargo modules, garments, liquids and refrig-erated goods. However, the heyday of the specialisedcontainer was probably back in the 1990s when therewere many thousands of flat racks, open-top, side-door,reefer and ventilated boxes in operation. Now, apartfrom reefers and recent growth in the tank containerfleet, the others appear to be in decline (see Table 2).

The design of refrigerated containers has alsochanged considerably, with porthole equipment – thoseboxes where cold air from ships machinery was blown

through the containers – phased out and integral unitsnow the order of the day.

Currently, there are around 1.42m integral reefers (inteu terms) in service, with future growth prospects rela-tively strong. Indeed, recent years have seen liner ship-ping companies attract significant volumes of perishableproducts cargo from the specialised reefer shipping sec-tor, which has an ageing and fuel-inefficient fleet.

Moreover, as contracting in the business has largelyswitched from the southern hemisphere producers andgrowers boards to the retailers, so have the demandson services provided. The latter tend to want cargodelivered in smaller consignments and more regularly.

They tend to demand direct delivery to their ownregional distribution centres and/or cold store ware-houses. In addition, many of these retailers, such as Wal-Mart, Tesco, Waitrose, Marks & Spencer and Carrefour,already have established relationships with the linercompanies and are familiar with the use of containers.

All of these factors have, therefore, played into thehands of the container, which now moves the majority ofdeciduous fruit out of Chile, Australia and South Africato Europe. Like the dry freight unit, reefer containershave become bigger with the demand for 40 ft high cube9 ft 6 in boxes exceptionally strong. In fact, practicallyno other size of reefer container is being built at present.

Partly, this need stems out of the wider use ofsophisticated controlled atmosphere systems to managethe humidity and gas mix, as well as the temperaturesinside the container. These systems have led to a muchwider variety of perishable and time sensitive cargoesbeing moved, with many of them lighter in weight thanthe meat, fish and dairy products that were the originalmainstay of the reefer box.

Hence, it would appear that just like the ships andthe cranes, the humble steel container is also gettingbigger. Consequently, the future is likely to be charac-terised by many more 45 ft, 48 ft and 53 ft units beingdeployed in ocean services.

It is, after all, another stage in the evolution of thecontainer shipping industry and one which can savecosts and help save the environment. n

53 ft containers arefully compatiblewith US domestichighway trailers.Photo: Bloomberg

TABLE 2: WORLD TEU FLEET OF MARITIME CONTAINERS(8 FTWIDTH) ATMID-2007 BY DETAILED TYPE AND HEIGHT

8 ft andbelow 8 ft 6 in 9 ft 6 in* Total

Dry freight standardSubtotal 2,590 12,639,369 8,569,394 21,211,353Dry freight specialOpen-top 4,307 259,689 9,113 273,109Folding flatrack 15,582 162,266 13,299 191,147Cellular pallet-wide - 36,798 104,581 141,379Bulk/silo** - 40,490 3,928 44,418Fixed flatrack 27,550 11,856 770 40,176Platform 20,667 - - 20,667Ventilated - 10,429 - 10,429Other*** 300 139,869 7,182 147,351Subtotal 68,406 661,397 138,873 868,676Integral reefer** and insulatedSubtotal 395 195,380 1,231,897 1,427,672Tank (liquid bulk)Subtotal 194 190,039 - 190,233Grand total 71,585 13,686,185 9,940,164 23,697,934* includes few hundred cellular pallet-wide units of 9ft height; ** includes a few hundred units ofcellular pallet-wide construction; *** includes open-side, car-rack and military module.

EQUIPMENT



Sydney office eyesnew markets

W hile the TT Club gears up to celebrate fourdecades of existence, the Australian armwill have to wait a few more years for its

own such occasion.The Club’s Sydney office is one of its earliest inter-

national expansions and two years ago passed its ownmilestone – more than 30 years in Sydney. And whilethe local celebrations will not be on a par with interna-tional festivities, they will reflect a certain satisfactionfor one of the Club’s earliest international expansions,following that into Bermuda.

By then, it should be obvious that no laurels hadbeen rested on, as the Australian arm is currently look-ing to expand into new markets.

The Sydney office’s innovation appears to know nobounds, with a co-branded reinsurance deal recentlybeing launched with Australian insurer Lumley forsmall to medium-sized freight forwarders, in an initia-tive warmly welcomed by the sector after a hiatus earlyin the decade.

“The Club recognised the need to provide a solu-tion for the small to medium-sized freight forwardermarket,” account manager Christopher Collins says.“Being too small to qualify for conventional Clubentry, it can prove difficult for these forwarders to finda cost-effective market with the experience and serviceto handle the often complex liability.”

There is also a high level of trust between the Cluband Lumley, whose marine division is run by an ex-TTClub manager. The partnership with another insurer isan exciting move for the Club and something that couldpotentially be replicated overseas, Mr Collins believes.

In stretching the limits of conventional Club busi-ness, the Sydney office has also recently launched aheavy motor truck insurance facility through under-

writing agency Jardine Underwriting Agencies. Sydneymanager Marcus John is confident in the success ofthis facility given the office’s long history in the area.He believes that the Club’s partnership with Jardinewill provide a viable alternative in the ultra competitivetruck insurance market.

However, it is not all plain sailing for the Australianoffice, with its commitment to the local market beingtested following changes to the law governing foreigninsurers. These have necessitated the Club embarkingon the long road to local prudential regulation – a proc-ess that should be complete by the middle of this year.

“The significant effort and cost involved withbecoming regulated locally underscores the Club’scommitment to the valuable role it plays for membersin the Australian market,” Mr John says.

Modest beginningsIt is all a long way from the modest beginnings in Aus-tralia in 1976, when one man, Geoff Abrahams, cameto look after Australia National Line’s then stevedoringoperations. Now, the Sydney office boasts nine staffsupporting members in Australia and now in NewZealand, with the help of P&I Services in Wellingtonand Auckland.

Membership includes a significant percentage ofport authorities in Australia – Melbourne, Brisbane,Newcastle, Flinders Ports in South Australia – NewZealand, Fiji and Papua New Guinea and covers manyfreight forwarders, warehousing and logistics operators.

The TT Club board is represented in Australiathrough Port of Melbourne Corp chief executiveStephen Bradford. Since the early days, the Australian

One of the TT Club’s earliestinternational expansions wasinto Australia. Rob McKayfollows the progress the officehas made over the last 32 years

‘Portsgenerallydon’tmakemanyclaims atall butwhenthey dothey tendto be verybig ones’Marcus John,manager, TT Club’sSydney office

The Jodie FMillenniumincident proved avery demandingcase for theSydney office.Ph

oto:

MattFlyn

n

AUSTRALIA



operation has moved from a heavy emphasis on freightforwarding, which once took up 70%-80% of its portfo-lio, towards port-related enterprises, Mr John says. Thetrend has been confirmed in the past year, with the localarm bolstering the Club’s international expertise in lur-ing Laurence Jones to the new position of manager riskassessment in the key ports and terminals sector.

Mr Jones, the former BHP Billiton bulk materialsterminals engineer and P&O Ports global engineeringand asset management general manager, has a globalremit, managing third-party risk assessment surveys.

This recalibration is expected to extend into bulkliquids handling in the near future and has already,since 2001, encompassed property cover.

Challenging incidentsMr John, who has been with the Club’s Sydney officesince 1995, counts three incidents involving ships asbeing the most challenging: wharf damage by the Ama-rantos in 2000; coal loader damage by the Fortius in2002 and the grounding of the Jodie F Millennium offNew Zealand, in the same year.

Of those, the Jodie F Millennium was the latest to besettled, running up to just before Christmas.

“Ports generally don’t make many claims at all butwhen they do they tend to be very big ones,” Mr Johnsays. This, he observes, led high-powered lawyers to be“creative” in their arguments, nominating the attemptedintroduction of the Trade Practices Act into pilotageissues in the Fortius case as one of the more bizarre.

David Katte, managing director of BCR Australiaand vice chairman of the Customs Brokers and

Forwarders Council of Australia, praised especiallythe legal services of the cargo liability insurer whichwas with his firm from its inception 13 years ago.

“They have proven to be very reliable and the per-sonnel they’ve got there are very capable,” Mr Kattesays. “While we haven’t had a huge number of casesover the years, [when we have] they’ve looked after usvery well. Just as far as going through the legal processwith them and getting issues resolved, they are just avery good organisation to deal with.”

On a broader level, the Club has worked closely andwell with, Australian Federation of International For-warders, AFIF managing director Brian Lovell says.The two organisations share members, “so we have amutual interest, if you’ll forgive the pun”, he says.

“It’s of interest to us as to the cover provided by TTClub because we are concerned that our members arecovered in relation to events that may occur and areprotected should some matter need close attention andreview. And that information will flow on for the benefitof all people if an area of insurance needs tightening up.

“The TT Club also provides generic advice to theindustry on matters [such as] risk management tech-niques, how to care for cargo better to avoid insuranceproblems, and also they assist us with a claims preven-tion course we do for our members.” That joint coursehas run for more than a decade.

Mr Lovell is glowing about the Club’s local repre-sentatives’ understanding of his members’ needs. “Thesepeople take the mystery out of insurance,” he says.

High praise indeed. nRob McKay is Melbourne bureau chief, Lloyd’s List DCN.

The TT Club’sSydney officerecently celebrated30 years. Back:Christopher Collins,Marcus John, IainSharples, BryanLim, Tom Irving.Front: HelenTyreman, EttiaPoole, AnoukSireude, MariaPollard.

AUSTRALIA



China portsdominateAsia sector

A sia is the dominant force of global containertrades with huge export volumes moving fromthe region to Europe and North America, as

well as rapidly growing trade with the region itself ascountries become more affluent.

Of the world’s top 10 container ports by through-put, Asian ports make up nine of them – taking all thetop nine places – and of the top 20 a total of 13 ofthese box ports are in Asia. The last decade has wit-nessed the rise of China as a major force in the globaleconomy and, with this, a rapid growth of the con-tainer shipping and logistics sectors.

The enormous rise of China in the container tradesrepresents an unparalleled event in world shipping.While a decade ago top container ports in Asia includedno mainland Chinese ports, today they dominate. Since2001 Chinese container port throughput has grown ahuge 5.1 times since 2001, with an annual growth rateof 26.1%, and in 2007 China’s ports handled 112m teu.

This year the Port Research Centre of the ChinaPort and Harbour Association estimates that through-put will hit 130m teu, a growth of 16% year-on-year.The volume is well over half of all containers handledworldwide – just a decade earlier, in 1998, global con-tainer volumes stood at 175m teu.

The development of the new mega port of Yangshanclose to Shanghai symbolises China’s rapid rise tobecome a key player in the Asian shipping and logisticsmarkets. The country continues to build container portinfrastructure at a rapid rate and has 639 new deepwa-ter berths on the drawing board that will become oper-ational by 2010. Similarly, Chinese container lines havegrown to be major forces in world shipping with thelikes of China Shipping Container Lines and CoscoContainer Lines now major players on the global stage.

Despite the huge growth in container shipping fromChina, experts say that the overall rate of containerisa-tion in the country remains low compared with thelikes of Europe and the US.

It is estimated that containerisation rates for cargoin China are just half that for the US and Europe, par-ticularly for cargo that moves from inland destinations.This means there is still huge potential growth in termsof cargoes being switched into containers.

However, the rapid growth of container transporthas brought with it a number of problematic issues.Mis-declared dangerous cargoes have been a problem,with fireworks being one that has particularly come tothe fore. The rapid growth of container handlingacross the region brings with it a skills shortage in keyareas such as crane drivers.

Best practice adviceThe TT Club has developed its Stop Loss informationsheets that provide best practice advice on a range ofsubjects relating to international transport and logisticsavailable in Chinese language.

While such rapid growth does give rise to challenges,Chinese growth has helped power the regional and

Marcus Hand reviews China’semergence as the leading forcein global container shipping

Huge potential forgrowth: it isestimated thatcontainerisationrates for cargo inChina are just halfthat for the US andEurope, particularlyfor cargo thatmoves from inlanddestinations.

FAR EAST



global container trades. Data from Drewry and Nep-tune Orient Lines shows that the Asia-Europe tradegrew an estimated 20% last year, while intra-Asian vol-umes grew an estimated 11%. Intra-Asian trades arenow the world’s largest, with a volume of 44.3m teu in2006 reflecting the economic growth that is takingplace within the continent as nations develop rapidly.

Clearly, then, other countries in Asia have benefitedfrom China’s growth. Singapore sat on the nexus of theAsia-Europe trade lane and has been able to success-fully ride the wave of Chinese export growth. Singa-pore has been able to retain its position as the world’slargest container port, handling 27.8m teu in 2007,and is on the expansion trail.

PSA Singapore is currently building up phase II ofits state-of-the-art Pasir Panjang Terminal. Over thelast decade the company has also grown into a majorglobal player with ports spanning Asia, Europe and theAmericas.

Malaysia’s rapid riseIt has been a similar story for Malaysia, where the lastdecade has seen the rapid rise of the Port of TanjungPelepas into a major player acting as a transhipmentpoint between Asia and Europe.

Joining the rise of China in the last few years hasbeen Vietnam, which has rapidly emerged as a choicefor outsourced production in Asia. However, the coun-try’s port facilities and infrastructure are beginning toburst at the seams as a result of containerised shippinggrowth of 20% per annum over the last decade.

Huge developments are taking place in the south ofthe country around the industrial heartland of Ho ChiMinh City. Virtually all the top names in the world’sterminal operating industry are investing in new deep-water capacity at Cai Mep-Thi Vai, with the area set tobe a major container port by the turn of the decade.

At present, though, the country is restricted tofeeder vessels, with none of the country’s ports capable

of handling deep-draughted vessels. Huge inland infra-structure investments will also be required with thecountry’s road and rail networks not able to handle therapidly rising volumes of trade.

Asia’s container ports are in areas prone to naturaldisasters, ranging from earthquakes to typhoons whichcan have devastating effects. This was clearly illustratedin September 2003 when Typhoon Maemi rippedthrough the port of Pusan causing an estimated $25min damage, according to the TT Club at the time.

The Club was able to put in a quick response to thedisaster with its emergency response team in placewithin just two days. Damage was extensive with pic-tures of the twisted wreckage of quay cranes flashedaround the world. The storm left four badly hit con-tainer terminals involving 11 damaged cranes andmore than 3,000 waterlogged containers.

As Asia continues to grow as a driving force of theglobal economy more and more infrastructure develop-ments will accompany this to help meet the demandsof logistics and transport, both within the region andbeyond. nMarcus Hand is associate editor (Asia), Lloyd’s List.

Prone to naturaldisasters: Pusanport sufferedextensive damageas the 125 mphTyphoon Maemiswept through theregion – 11 of the52 gantry cranesused at thecontainer terminalscollapsed orderailed.

Bursting at theseams: Vietnam isgrowing inprominence as achoice foroutsourcedproduction in Asia.

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Making haywhile the sun shines

T he global insurance industry is not short of capi-tal, and while that spells good news for brokersand their clients, it is bad news for the underwrit-

ers. Nowhere are the adverse effects of the impact ofthis huge capital injection being felt more than in themarine sector.

It may come as a shock to many in the maritimetrade, but to investors the insurance and reinsurancemarkets are never more attractive than after a majorcatastrophe. The attack on the World Trade Centre in2001 saw insurance rates leap at a time when the mar-ket was struggling to recover from more than a decadeof prices, which in the vast majority of classes were at alevel where only investment income was balancing theunderwriters’ books.

The devastating US hurricane seasons of 2004 and2005 saw rates harden once again. While both 2001and 2005 saw the launch of new insurance and reinsur-ance entities keen to cash in on the fact that manyinsurers were shying away from offering, for instance,

Gulf of Mexico windstorm cover, or had both increasedthe price and reduced the amount of capacity they hadallocated to the class.

The rising rates have seen the capital providers,including hedge funds, look to invest in insurance asthe potential returns outstripped some of those availa-ble on the bond and equity markets.

Indeed, it seems to have shown no real sign oflet-up and the reaction of the insurers to the hurri-canes, particularly in the marine and energy market,see limits now of around $500m. Those limits havehad the effect of forcing both energy companies andinsurers to look to the capital markets for solutions.

Creating more capacityThe capital markets have been keen to create capacitygiven the fact that insurance and reinsurance vehiclesare seen as a non-correlation risk with their otherinvestments, and they can in many ways effectivelydecide the level of risk they want to take.

For instance, the securitisation of an insurer’s motorbook carries little unknown risk and in effect you canalmost plot the loss curve before it starts. However,Gulf of Mexico energy risks remain an area wherethere are big rewards given the level of premiumscharged, but they correspond with the level of risk.

If there is an active hurricane season the insurancevehicle could well take a bad financial beating. Twomajor US hurricane-free years have only encouraged

The insurance industry is awashwith money at present. Jon Guylooks at what this means forthe maritime sector in particular

Gulf of Mexicoenergy risks remainan area wherethere are bigrewards given thelevel of premiumscharged, but theycorrespond withthe level of risk.

INSURANCE



investors, and the market is now at a stage where acrossmain classes the availability of capacity well in excess ofthe risks that are being placed has done little more thendrive down rates.

Bob Deutsch, president and chief executive of Ber-muda-based insurer Ironsure, summed it up when hesaid: “It is easier to attract new capital than it is toattract talented individuals at present.”

New entrants wishing to make a quick impact haveonly price on which to compete, given their lack oftrack record on service and claims. It has given brokerswho are keen to acquire new business the opportunityto aggressively market their ability to get significantreductions in a potential policyholder’s insurance ratesin an attempt to steal a march.

Softening premium cycleThe insurance market is now entering a softeningcycle, but does not have buoyant equity and invest-ment markets on which to rely for a sizeable return onpremium income amassed, so the mantra has been thatunderwriting discipline has been vital.

In the marine classes, which have for so long beenseen as a sector where rates have been bouncing alongat the bottom of the cycle despite price rises elsewhere.It has seen some major insurers dramatically reducetheir participation in classes such as marine hull in aneffort to keep on a client’s programme without takinglarge amounts of exposure at rates well below thosewhich would be deemed as adequately priced.

Prior to hurricanes Katrina and Rita, broker Aonhad issued a report which said that the market was see-ing wheels within wheels as the cycles for the variousclasses moved at differing speeds, leaving clear differ-ences between some of the classes in terms of wherethey were in their respective underwriting curves.

Those cycles have returned over the past 18 monthsand in the majority of classes the market continues tobe driven and dampened by overcapacity.

The plain fact remains that in many classes the lev-els of capacity far outstrip the risks to be placed, there-fore the prices remain under extreme pressure.

As one leading broker said: “The underwriters workfor companies which have to meet the expectations oftheir shareholders, and despite the falling rates theywant to turn around and say to those shareholders thatrevenues are up.

“If they turn around and say that because of mar-ket conditions they have reduced their revenues butmade better profits they are scared of the impact ontheir share price. They don’t seem to recognise that asmall company that makes a profit is far more usethan a big companies that makes a loss.” A case inpoint has to be the marine market.

Global maritime trade continues to be at almost

record levels and freight rates, while slightly down fromthe record high of a few years past, are still at extremelyprofitable levels. Judging by the booming shipyardorderbooks, and the reluctance of owners to drydockvessels for all but the most urgent of repairs, the own-ers continue to make hay while the sun shines on theworld’s shipping lanes. However, as P&I clubs havebeen telling members, the record claims levels of 2006do not seem to be a blip. Instead, 2007 looks set tomatch and even surpass those levels.

More bad news came from the International Unionof Marine Insurance when it held its executive com-mittee’s winter meeting in London. While unable asyet to go into finer details, the committee said the lev-els of both total and partial hull losses for 2007 was onthe increase, and a ballpark figure of 20% was put onthe year-on-year comparison with 2006.

IUMI president Deirdre Littlefield said that marineand P&I insurers were facing “one of the most damag-ing claims situations in recent memory, exacerbated bythe values of newbuilding and commodities”. Howevershe admits while claims are best described as an “ava-lanche”, underwriters had been struggling to obtain

IUMI presidentDeirdre Littlefield:marine and P&Iinsurers are facing‘one of the mostdamaging claimssituations in recentmemory’.

INSURANCE


Photo:

JakobDa

ll


“realistic” increases in their risk pricing. The hope isthat the credit crunch will force some of those whohave provided this capacity to think again, but hope isexactly what it is rather than any cast iron evidencethat the capital providers are starting to think twice.There remain those, however, who believe there ismoney to be made.

One leading marine hull underwriter said: “There ismoney to be made in the marine market. You have toensure you have a broad portfolio across the classes,but you have to be very sure of the risks that you arewriting and also firm on the premium you will charge.

“There will be those who will always be part of themarine market because of their domestic allegiances –Germany and the Nordic nations, for instance, where anumber of established insurers will never dream ofleaving the market whatever the state of the cycle. Ifyou choose the risks and you explain why you need tocharge a technical rate, you will make money, but thecompetition in some areas remains intense,” he added.

If the premium levels were bad news for insurers,talk of an economic slowdown and the correspondingslowdown of the maritime trade is set to provideanother financial challenge to the marine market.

Those shipowners who have been working crewsand vessels at maximum capacity will find that the lev-els of trade will start to slip. IUMI says it believes themarket has to brace itself for a sudden upsurge in

claims from shipowners for repairs to vessels for inci-dents which occurred over the past two years but hadnot impaired performance of the vessel. But now pres-sure on owners to utilise every vessel will ease andtherefore the opportunity for repairs will have arrived.

“We expect that many ships’ repairs and replace-ments, which had been deferred or ignored because ofthe huge and profitable tide of water-bourne tradeenjoyed by shipowners for so long, will start to surfacealong with the results of skimped maintenance, leadingto further escalation in claims,” said Ms Littlefield.

The global insurance market is now entering a sof-tening premium cycle, with pressure on rates at a timewhen the underwriters were saying they were deter-mined to hold their underwriting discipline.

Lloyd’s franchise performance director Rolph Tollehas long said that the best way to underwrite through asoft cycle is to keep your pen in your pocket. Therehave been signs that the insurance market has heededthat advice, with insurance and reinsurance entitiesundertaking share buyback programmes and returningcapital to shareholders in the form of additional divi-dends. But that remains the exception to the rule.

Capacity has flooded the market in the past threeyears and the wise money is on a year that will bedefined by mergers and acquisitions as some playersfind they simply do not have the financial weight tofight it out with their larger peers and decide that theyneed to build through mergers, or buy the market pres-ence that will allow them to ride out the softening rates.

There has been talk over the best strategies to facethe challenge of significant falls in premium rate levelssince 2001 and now those strategies will be put to thetest – none more so than those who underwrite themarine accounts. nJon Guy is managing director, Editorial Solutions Limited.

Rolph Tolle: thebest way tounderwrite througha soft cycle is tokeep your pen inyour pocket.

Photo:

Lloyd’sof

London


‘If you choose the risks and you explain whyyou need to charge a technical rate, you willmake money, but the competition in someareas remains intense’

INSURANCE


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