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P&I, claims management and loss prevention Volume 31 Issue 1 February 2017

n Insurance buying proves trickyn Engine room fire risk reviewedn The future of LOF?

Maritime threats

Major claims analysis

© Informa UK plc 2017. No copying or sharing of this document is permitted. Enquiries: [email protected]

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CONTENTSFEBRUARY 2017

REGULARS4 News 8 Our Mutual Friends26 Classified directory of services

FEATURES9 Talking shop: Making Asian shipbuilders’ voices more audible

Nazery Khalid, of the Association of Marine Industries Malaysia, reports on a recent shipbuilders’ conference

10 Talking shop: Changes and challenges are tough on ship masters

Masters often face the wrath of all after a major incident, as the 14th Cadwallader Debate explores

12 Heavier weather, increased safety concerns, emerging risks threaten shipping industry

Rahul Khanna, at Allianz Global Corporate & Specialty, considers recent safety threats to mariners

14 Shipping faces challenging yearRichard Greiner, of Moore Stephens, looks into a crystal ball to consider the prospects for the marine sector

16 Lloyd’s Open Form: a contract on the rocks?

Sam Kendall-Marsden, at The Standard Club, questions whether LOF is likely to have a future

EDITORIAL BOARDCharles B Anderson – Senior Vice President, Skuld North America IncDr Phil Anderson – Managing Director, ConsultISM LtdRuben T Del Rosario – Managing Partner, Del Rosario & Del Rosario, PhilippinesNazery Khalid – Honorary Secretary, Association of Marine Industries Malaysia (AMIM)LeRoy Lambert – Partner, Blank Rome LLP, New YorkDerek Luxford – Partner, Hicksons, SydneyDr Colin Y C Ong – Managing Partner, Dr Colin Ong Legal Services, Brunei; Associate Member & Arbitrator, Stone Chambers, LondonDr Z Oya Özçayir – Maritime Law consultant and Author, Izmir Law Bar, Turkey, Member of the IMO Rosters of Experts

In this issue

Maritime Risk International is the definitive magazine in its field. It provides critical information, keeping you abreast of key issues affecting maritime businesses around the world. Established in 1987, Maritime Risk International provides you with detailed coverage of legal, technical and insurance issues facing the shipping industry.

u Independent, expert advice from leading industry practitioners, organisations and P&I Clubsu Spot trends and developments in your industryu A broad base of contributors from around the world ensuring full international coverageu The latest advice on loss prevention, carriage of goods, salvage, ship security, pollution and maritime lawu News round-up of all the important risk issues facing the maritime industryu Information about the activities of your competitors and their members

Find out moreVisit www.maritime-risk-intl.com, call us on +44 (0)20 7017 7565 or email [email protected]

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18 Maritime risk: a thin line between profitability and exposures

Suki Basi, of the Russell Group, reports on the challenges for shipping interests in finding the right insurance

20 Supply and demand in marine insurance as risks change

Simon Schnorr, of StarStone, considers the changing patterns of marine insurance worldwide

22 Technical brief: Reducing the risk of fire in the engine room

Tony Watson, of the UK P&I Club, reviews ways in which the risk of fires in engine rooms might be diminished

24 Two Supreme Court shipping judgments to set scene for 2017

David Osler takes a look at upcoming litigation likely to shape 2017

25 2017 will be the real digital dawn for shipping

Craig Eason observes that shipowners and operators that ignore the digital march will start to be left behind

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Editor: Liz [email protected]

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Maritime Risk International is published by Informa Law, Christchurch Court, 10-15 Newgate Street, London EC1A 7AZ. Maritime Risk International provides detailed coverage of legal, technical and insurance issues facing the shipping industry. This ensures you are fully aware of the implications of key court decisions as well as providing in-depth analysis and expert advice on topical issues such as loss prevention, carriage of goods, salvage, ship security, pollution and maritime law. Our maritime content is available online via single-user subscriptions or multi-user licences at https://www.i-law.com/ilaw/maritimelist.htm including our major reference works, Voyage Charters (ISBN 978 0415833608) and Time Charters (ISBN 978 1843117513).

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4 | Maritime Risk International

IN BRIEF

IMO chief speaks outInternational Maritime Organization (IMO) secretary-general Kitack Lim has written to senior European officials expressing his concern that including shipping in the European Union’s Emission Trading System (EU ETS) could undermine efforts to reduce greenhouse gas emissions from shipping on a global basis. In a letter to Martin Schulz (president of the European Parliament), Jean-Claude Juncker (president of the European Commission) and Donald Tusk (president of the European Council), Lim acknowledged that the EU had an ambitious policy for addressing emissions and recognised that member states might wish to enhance the progress made to date. However, he cautioned against extending the EU ETS to include ships.

UK maritime studyThe UK government’s Transport Committee is launching a new inquiry into industry and government action in response to the Maritime Growth Study, a report on the UK’s maritime sector, published by the Department for Transport in September 2015. The report was the culmination of an in-depth study of the whole UK maritime sector: shipping and ports, as well as the range of associated business services. It set out a number of recommendations, to the maritime industry and the government, designed to ensure the UK’s maintains its status as a world-leading maritime centre and can take advantage of opportunities for global growth. The Committee intends to monitor progress towards implementation of the study’s recommendations and consider the adequacy of the overall strategy for the UK maritime sector.

New safety bookMany maritime incidents could have been prevented by a navigation assessment. The way that an assessment should be conducted to the best advantage of ship operator and crew alike is the subject of a new book from The Nautical Institute. Navigation Assessments explains how an assessment conducted in a positive and constructive way can provide tangible benefits for maritime safety while contributing to the professional development of bridge team members.

NEWS ROUND-UPFEBRUARY 2017

International Transport Intermediaries Club (ITIC) said the misreading of tariffs in shipping documentation is a common cause of costly claims. ITIC cited the case of a South American port agent asked by the owners of a vessel to quote for the costs of

discharging a shipment of project cargo. The agent reviewed the port authority’s official tariffs and advised the stevedoring costs would be US$28.90 per mt of cargo. The cargo weighed 296 mt, so the owners calculated the stevedoring costs at approximately $8,500 and quoted that in turn to the charterers of the vessel. The voyage was duly fixed on that basis. After the cargo had been discharged, the stevedores invoiced the agent for $130,000. When questioned by the owners, the agent realised the $28.90 rate it had quoted to the owners was the rate per cubic metre, not per metric tonne. After discussion, the stevedores agreed to offer a discount on the costs and the claim, which was covered by ITIC, was ultimately settled for $75,000.

In another recent case, ship agents in Australia quoted the incorrect port charges for a local port to their customer. The customer then fixed on that basis and suffered a loss of AUS$86,000. The claim against the agent was reimbursed by ITIC. MRI

ITIC warns owners on the price of not watching for misreading tariffs

The mandatory Polar Code, for ships operating in Arctic and Antarctic waters, entered into force on 1 January 2017, marking a historic milestone in the work of the International Maritime Organization (IMO) to address this key issue, the

organisation said. Its requirements, which were specifically tailored for the polar environments, go above and beyond those of existing IMO conventions such as MARPOL and SOLAS, which are applicable globally and will still apply to shipping in polar waters.

The IMO said trends and forecasts indicate polar shipping will grow and diversify in the coming years. In the Arctic, commercial shipping can make significant reductions in voyage distances between Europe and the Far East by sailing northern routes, while both the Arctic and Antarctic are becoming increasingly popular tourist destinations.

Meanwhile, a new set of industry standards, POLARIS, provides critical risk mitigation directives and support to underwriters writing marine risk in polar waters. Led by London-based lawyer Michael Kingston, representative of the International Union of Marine Insurance (IUMI) at the IMO on polar matters, Lloyd’s, in conjunction with the Nordic Association of Marine Insurers (CEFOR), IUMI, and Lloyd’s Register, with the close cooperation of the Arctic and Antarctic states, has helped establish POLARIS, a single ice regime system, to give guidance for a range of planned and possible situations that might emerge when operating a ship in polar waters, for use in pre-planning and actual operations.

Kingston said: “Lloyd’s and Lloyd’s Register have helped improve significant international regulation for the protection of seafarers, the environment and the indigenous peoples of the polar regions. This is an example of what we can achieve when we work together in industry and with governments and international regulators. It is also a demonstration of the importance of the maritime strength of the City of London.”

In readiness for the introduction of the code, Norsafe has become the first life-saving appliance (LSA) supplier to have executed full-scale tests and trials during a joint stakeholder SAR-EX (Search and Rescue) expedition in April 2016 with the following stakeholders: Norwegian Coast Guard, Norwegian Maritime Authorities, Norwegian Petroleum Safety Authorities, ENI, DNV-GL and five different universities.

Using a standard Norsafe Miriam 8.5 lifeboat, the expedition simulated a full-scale escape, evacuation and rescue operation (to accommodate minimum five-day survival with the lifeboat as a habitat), in ice-infested waters 80 degrees north of the Barents Sea. During the expedition Norsafe conducted tests to address lifecycle issues with LSA equipment which may be exposed to polar conditions. This included a study to determine how to avoid the loss of warmth from a heated lifeboat in conditions of -30°C. Studies were also carried out to test the performance of installed sprinklers when used in icy conditions. MRI

Mandatory Polar Code enters into force


Maritime Risk International | 5

BIMCO is seeking to drive the improvement of standards for ships at dry bulk terminals across the world with the launch of its first report on terminal performance. Looking at the overall experience at terminals, a total of 93 per

cent of respondents reported average or better. BIMCO said this painted a very positive picture of the overall interaction between ship and terminal. Positive feedback was given on the communication between ship and terminal, the loading and unloading and finally the standard and maintenance of equipment and piers. Some negative comments were received due to lack of language skills, permanent pressure on ship/crew and master, unexpected claims, unnecessary bureaucratic and offensive port authorities. Only three reports were rated as poor and this was due to insufficient moorings and services.

Since 2015 BIMCO has been collecting feedback on the performance of port terminals to report the results to members and, ultimately, to give further guidance to ships. BIMCO has received 443 feedback reports so far. BIMCO members will be able to access performance information on terminals on the BIMCO website. Aron Sørensen, head of maritime technology and regulation at BIMCO, explained: “The dry bulk vetting scheme makes it possible for companies to compare terminal performances by using actual experiences provided by the crew of the bulk carrier. In general the performances of terminals have been rated positively in this first report and shows a high degree of care and good service shown to ships.” MRI

BIMCO launches report on global dry bulk terminals allowing comparisons


IN BRIEFNew crew coverP&I Club Steamship Mutual and Allianz Worldwide Care have agreed a preferred partner agreement with the aim of ensuring a ship’s crew have complete insurance coverage. While Steamship Mutual cover an owner’s liability to his crew, Allianz Worldwide Care insure the crew themselves for medical and healthcare expenses. The insurance is personal to each crewmember and provides cover for their medical costs, without deductible, irrespective of a shipowner’s liability.

Hazard awareness driveThe International Chamber of Shipping and The Standard Club have announced the conclusion of their “Spot the Hazard” competition for seafarers – part of a joint initiative to promote hazard awareness. Seafarers were invited to identify 10 hazards within five typical scenes – bridge, deck, engine room, galley and port terminal. More than 1,300 entries were submitted by seafarers from 78 shipping companies. Winners were those who identified the most hazards and whose safety ideas were the most original and potentially effective. Each winner received US$2,000.

Belarus joins IMOThe Republic of Belarus has become the latest member of the International Maritime Organization (IMO), following the deposit of an instrument of acceptance of the Convention on the IMO with the secretary-general of the United Nations. With the acceptance of the Convention by Belarus, the number of IMO member states stands at 172, with a further three associate members.

New research programmeHuman Rights at Sea has launched a legal research programme published through its online maritime human rights platform. Established in January, the programme provides a free public platform for seafarers, fishers and students to showcase their academic work in tackling maritime human rights issues that are important to the charity and that are in support of the charity’s charitable objectives.

Smart ships are likely to be carrying cargoes within 10 years but all in the logistics chain need to adapt to make good use of the new technology and the huge amount of data that will be available as a result, according to Sue Terpilowski,

president of WISTA UK – the Women’s International Shipping & Trading Association UK.Terpilowski, who is also managing director of Image Line Communications, said the

change would see “talking” ships within 10 years. She added: “Ship intelligence will be the driving force that will determine the future of the industry, the type of ships at sea and the competencies required of tomorrow’s seafarers.” Legislators, ship finance and service sectors will all need to make changes to cope with the advent of the smart ship and new skills will be required from operating companies, she suggested.

Meanwhile, Braemar SA’s Far-East regional director, Graeme Temple, spoke of the root causes of machinery damage, citing a lack of focus on traditional training as a major concern. He said: “The rising number of crew errors is a concern to me, but I believe this can be addressed with the right training and commitment. Too often, we see the use of technology increasing at a faster rate than the employment of traditional training. This puts human vigilance and interaction in jeopardy.

“We should embrace new technologies, but not at the expense of undermining, and possibly even foregoing, traditional training. These must be used together, to help cover every eventuality and to prevent casualties from occurring. For example, a watch keeper relying on navigational systems to guide the vessel is potentially putting the ship at risk if the watch keeper does not actively engage with their duties in the traditional way – with their eyes and ears.”

And George Devereese, loss prevention executive at UK P&I Club, suggested: “While electronic chart display and information systems (ECDIS) have proved extremely helpful for navigation at sea, there are issues that should be considered when it is in use. Seafarers should always ensure that ECDIS charts are updated on a weekly basis. When paper charts were in common usage, this could be a time-consuming and laborious process. With ECDIS, updates can be downloaded through various applications such as Chart Tracker in a matter of minutes.

“While the vast majority of vessels ensure that charts do remain up to date, failing to do so can result in significant penalties, including the vessel being deemed unfit to be put to sea and being detained in port.” MRI

Debate over technology continues



The Liberian Registry said that, in today’s challenging shipping markets, flag states must be proactive in the best interests of shipowners, operators and managers, rather than simply fulfilling their traditional role as certification bodies. Alfonso

Castillero, vice-president of the Liberian Registry, told a recent Liberian port state control (PSC) seminar in Tokyo: “In the current difficult market conditions, flag states can no longer afford to regard themselves as mere factories for issuing registration certificates. It is necessary to evolve and to embrace new challenges. Shipping registers need to combine quality and innovation with tradition, experience, reputation and flexibility.”

Castillero was speaking at a seminar organised by the Liberian Registry. The objective of the seminar, which was attended by representatives of the Australian Maritime Safety Authority, was to promote among clients of the Liberian Registry a clear understanding of the PSC process in Australia, so that owners, operators, and managers can achieve full compliance with – and facilitate efficient inspections under – Australia’s PSC regime. Benson Peretti, managing director of the Liberian Registry’s Singapore office, outlined for the seminar the Liberian Registry’s PSC results for the year to date, showing a major reduction in detentions in China, Australia and the US, thanks in large part to the free compliance assistance programmes being implemented by Liberia to help owners ensure full compliance, and reduce the incidence of PSC detentions worldwide.

Takeshi Okamoto, general manager of LISCR Japan, meanwhile, explained how and why the Liberian Registry is leading the campaign to extend the implementation date for the Ballast Water Management Convention. The seminar was attended by more than 100 industry professionals. As the chief executive of one leading Japanese shipowner emphasised: “We must comply with all international regulations and that is why we need a flag that will always stand beside us.” MRI

Flag states must be more proactive

IN BRIEF


IMarEST learning awardIMarEST’s learning arm MLA College has won the Gold award for the “Best Online Distance Learning Programme” at the Learning Tehcnologies Awards 2016 in London recently for their submission, “Delivering degrees to seafarers without internet”. The panel of independent academics judging the submission were impressed with the way MLA College combined innovative technology with traditional academic tutoring that was personalised to each student, enabling a whole new generation of seafarers to gain a higher qualification. The Awards gathered 800 people to celebrate the best learning technologies across the world, with shortlisted entries from Canada, Australia, New Zealand, India, US, Turkey, Germany, Hungary, Switzerland, Spain and Italy.

100 years onThe American P&I Club was founded in New York a century ago. To celebrate its first 100 years, a book entitled The American Club: A Centennial History has just been published. The book tells the story of the Club across 10 decades of maritime and marine insurance history both within the US and across the world. Back in 1917, P&I insurance was available primarily from clubs in the UK and Scandinavia. In consequence of UK government trade-related sanctions which had been imposed on certain US shipowners in 1916, the American Club was established to provide a reliable source of coverage in the US.

Guangzhou owner growthAfter the launch of the partnership with Guangzhou Port America LLC one year ago, Guangzhou Port Group is extending its network of offices into Europe with the partnership of Guangzhou Port (Europe). Operationally, Port of Nansha achieved best in class productivity combined with increased space. Recent expansion at Nansha was completed earlier in the year so all three terminals are fully operational with extra berths and yard capacity. The berths are deep water, which has allowed the Port of Nansha to work more than 15 mega vessels this year.

The International Chamber of Shipping (ICS) has welcomed the extension of EU NAVFOR Operation Atalanta, following a decision by the EU Council, which will continue to see military forces deployed for counter-piracy operations in the

Western Indian Ocean until December 2018. ICS secretary-general, Peter Hinchliffe said: “The presence of military forces is an essential component of the package of government actions that has helped to suppress the activities of Somali pirates, in support of the protective measures that continue to be taken by the shipping industry. Ship operators and seafarers will be very pleased that EU NAVFOR has announced its ongoing commitment to these vital counter-piracy activities.

“While other security concerns now draw the attention of the international community, it is a fact that the threat which Somali piracy presents to international trade is still extremely high, as the secretary-general of the IMO has recently observed. Alongside a strong military deterrent, it remains essential that ships maintain compliance with the industry’s best management practices to prevent a resurgence of hijacks and kidnappings by these violent criminal gangs. The extension of the EU NAVFOR mandate will also play a critical role in achieving this.”

Meanwhile, for the price of one mile of motorway, the UK government could create thousands of much-needed jobs in the maritime sector to protect the UK’s reputation as a global shipping centre, according to the maritime professionals’ union, Nautilus International. The trade union, which represents 22,000 maritime professionals at sea and ashore, has carried out analysis along with shipowners and the Merchant Navy and found that for just £15 million a year, the UK could bridge the skills gap currently impacting the maritime sector.

Nautilus has warned the House of Commons defence committee that Britain was in danger of “sea strangulation” as a result of the dramatic decline of its Merchant and Royal Navies and is becoming increasingly dependent on foreign shipping. A joint paper from Nautilus, the UK Chamber of Shipping and the Merchant Navy Training Board suggested investment “would deliver more cadets and thus more UK seafarers, enhancing the UK’s seafaring base and – over the long term – its status as the global centre for maritime business services.” MRI

Security extension welcomed




More shore-based employees in the shipping industry are concerned with their job security than ever before according to research conducted by leading international maritime jobs specialist Halcyon Recruitment and

online training provider Coracle. The 8th Maritime Employee Survey, based on nearly 3,000 responses, found 63 per cent of participants were concerned about their jobs and that more expected to change jobs in the next 12 months than ever before. Responses were drawn from all the key maritime centres and included respondents representing all the major trades working in both commercial and operational roles. Other key conclusions from the report include:

• 37 per cent of respondents are considering a job change within the next year, and a further 25 per cent within two years.

• 38 per cent of respondents have received a salary increase and 49 per cent have received a bonus in the last 12 months (both significantly down from 2015).

• 69 per cent of respondents are happy with the bonus they received this year, which has increased from 63 per cent in 2015.

• Those working in the technical/health and safety markets are faring best with 53 per cent receiving a salary increase and 60 per cent a bonus.

• The tanker segment is one of the more positive markets with 56 per cent receiving a bonus and 42 per cent a pay increase.

• 80 per cent of respondents will go to specialist maritime recruiters when considering a job change before considering other avenues such as LinkedIn, Facebook, etc.

• The relationships that individuals have with their line managers is the area employees are most content with, with 49 per cent of respondents putting this first.

Halcyon Recruitment chief executive officer, Heidi Heseltine, said: “The results this year are unlikely to surprise most, as shipping markets have been, and continue to be, depressed. Save for some short-term improvements, there is no evidence to suggest any notable change on the horizon in the next 12 months. With a severe lack of promotion and advancement opportunities, morale is low and one of the leading reasons for dissatisfaction among employees in their current role.” MRI

Confidence in shipping jobs at new low

IN BRIEFNew gas code in forceA new mandatory code for ships using gases or other low-flashpoint fuels entered into force on 1 January 2017, along with new training requirements for seafarers working on those ships. Amendments to the International Convention for the Safety of Life at Sea (SOLAS) require new ships using gases or other low-flashpoint fuels to comply with the requirements of the IGF Code, which contains mandatory provisions for the arrangement, installation, control and monitoring of machinery, equipment and systems using low-flashpoint fuels.

Antarctic warningDingjing Huang, underwriting and legal analyst at UK P&I, has been warning shipowners trading in the Antarctic to be aware of their potential liabilities. “Annex VI of the Environment Protocol has not yet come into force, but shipowners trading in the Antarctic should be aware of their potential liabilities under this regulation.”

A-rating for ClubThe Shipowners’ Club has been upgraded by Standard & Poor’s (S&P) credit rating, from A- to A. The Club’s CEO, Simon Swallow, said: “The recent brand research exercise that the Club undertook noted the importance of our financial strength to our members and their brokers. The Club is pleased to note that our ongoing financial strength has been reiterated by S&P and that this strength will help the Club to remain the number one P&I choice for small and specialist vessels.”

“Favoured” status from ChinaBermuda’s ship registry has been granted ‘Most Favoured Nation’ status from China. Bermuda received the status as part of an existing UK/China agreement, which will offer several advantages to the Island’s maritime industry. Bermuda-registered vessels that are trading into Chinese ports will benefit from reduced fees associated to conducting business in the region, allowing them to be more competitive on a global scale. In addition, this allows the jurisdiction to retain vessels that may have been looking to domicile in other regions, as well as attract new business to the area.

In the 20 years since UK P&I Club first established its pre-employment medical examination (PEME) programme, the number of crew members failing their PEME examination has fallen from 11 per cent in 1996 to a current figure of 3.25 per

cent, reflecting a combination of increased fitness and well-being of crew globally, as well as tighter selection criteria. The PEME programme began in the Philippines with just five clinics located in Manila and six members who employed approximately 1,000 crew. Today, it boasts 65 clinics in 24 countries. In the past 20 years more than 355,000 medical examinations have been conducted under the programme.

Having originally been created as a loss prevention initiative for the benefit of UK P&I Club members, with an aim to reduce the increasing cost of crew illness and repatriation claims arising from a pre-existing medical condition, participation in the PEME programme is now open to split fleets and wholly non-UK P&I Club entered fleets, and also attracts enquiries from outside the world of shipping.

Sophia Bullard, PEME programme director, said: “Initial crew fitness failures came from crew who had liver disorders, Hepatitis B, high blood pressure and pulmonary tuberculosis (PTB). Today we see a similar picture with the exception of liver disorders which has disappeared completely from our ‘top 10’ reasons for failure. Despite localised initiatives of immunisation and safe health practices crew with Hepatitis B are still the highest group of crew failing the medical examination process. High blood pressure and PTB remain endemic in our findings. The additional reason of hearing defects joined the list of preventable illnesses detected amongst the majority of crew going through the scheme.

“During the last 10 years we have noted a growth in medical failures attributed to lifestyle conditions. Health problems such as kidney disease, hypertension and diabetes remain within our ‘top 10’ unfit reasons and these ‘silent killers’ are the focus of our attention and prevention activities moving forwards with the PEME programme.” MRI

Crew well-being still on the up



OUR MUTUAL FRIENDSFEBRUARY 2017

North P&I ClubEXPANSION IN ASIA AND UKNorth P&I Club has opened an office in Shanghai, headed by director Gary Chen, who was previously based in North’s Hong Kong office. Gary joined North in 2003 and is supported in Shanghai by executives Gao Baohai and Linus Wang, both of whom have also relocated from Hong Kong. Gao joined North in 2012 from Chinese shipping law firm Wang Jing & Co, while Linus started in 2014 after 10 years with a leading state-owned Chinese shipping company.

North is also strengthening its Tokyo office. Robert Crichton has relocated from North’s head office in Newcastle to lead claims and service delivery while P&I claims executive Ryota Kitazawa has also joined the team from Japan P&I Club.

Meanwhile, in the UK, North has strengthened its loss prevention team with the appointment of loss prevention executive John Southam, a master mariner. Together with the recruitment of survey executive Stephen Maclennan from the Royal Navy earlier this year, his appointment boosts the Club’s international loss prevention department to 14. John was previously a consultant and surveyor with Braemar Technical Services in London. Stephen served in the Royal Navy for 28 years, rising to the rank of warrant officer first class.

ShipownersNEW DIRECTORS NAMEDShipowners’ Protection, appointed managers of The Shipowners’ Mutual Protection and Indemnity Association (Luxembourg), has appointed Louise Hall, Marcus Tarrant and Ian Ferns as directors to the management board with effect from 1 January 2017. Louise assumes the role of director – loss prevention, Marcus becomes director and chief actuary while Ian becomes director – product development.

UK P&I BOLSTERS LOSS PREVENTION TEAMThe UK P&I Club has appointed George Devereese as loss prevention advisor in London. George has more than a decade of insurance and shipping experience, including service with a leading container line and the Royal Navy. George joins from Edge Brokers London where he handled a wide variety of marine claims.

Liberian Registry STRENGTHENS ASIA TEAM

Wan Ching Chiang has been promoted to registrations manager for the Liberian Registry in Singapore. Wan is embarking on her fifth year with the Liberian Registry,

which she joined as registrations and corporate coordinator.

Meanwhile, the Liberian Registry’s Greater China team has been bolstered by the additions of Pao Chi Hsu and Owen Fu as technical managers. Pao has previously worked as a lead class surveyor in the Greater China region and as a vessel superintendent for a leading bulk carrier owner. Owen is taking on this new challenge following a successful career as a leading port state control officer and department head for China’s Maritime and Safety Administration in the port of Ningbo.

Barbican InsuranceNEW MARINE DIVISIONBarbican Protect, the UK insurance arm of Barbican Insurance Group, has set up a new marine insurance division with the appointment of Sarah Joiner as a marine underwriter. Based in London, Sarah reports to Stuart Kilpatrick, managing director of Barbican Protect. Sarah has more than 10 years of experience in the marine sector. Most recently, she was director and underwriter at Argosy Underwriting Agency which specialises in cargo insurance, hauliers and freight forwarders liability insurance, having joined the firm in 2013.

Global Maritime EAGLE LYON POPE RELAUNCHED

Global Maritime Consul-tancy & Engineering, provider of offshore marine warranty, dyn-amic positioning and engineering services, has re-launched Eagle Lyon Pope (ELP), its

ports and shipping, marine casualty investigation and loss adjusting division.

It will be headed by Peter Lyall, former head of risk insurance services at Global Maritime. ELP will be based out of London with other offices in Hamburg, Abu Dhabi, Oslo, Houston and Singapore.

RSA LONDON MARINE APPOINTMENTCommercial insurer RSA has announced that former chief executive of Scottish Boatowners Mutual Insurance Association Stuart Forsyth has joined its London market hull underwriting team. Stuart has been appointed as London market hull business leader and will oversee RSA’s team of marine hull and construction underwriters.

He started his career as a marine trainee at the broker Willis Faber & Dumas, where he worked for 10 years. From there, Stuart joined broker Sedgwick (now Marsh) before taking up the position of CEO of the Buckie-based fishing vessel mutual Scottish Boatowners.

In a further appointment, Danny Bell has joined RSA’s London market hull team as an underwriter. Danny is a hull claims specialist having spent the past 10 years working as an adjuster.

Markel NEW HEAD OF CARGO Markel International, the specialist insurer, has appointed Ryan Godfrey as senior underwriter and head of the cargo team within its marine, energy and property division. He joins senior underwriter Richard Burnett, under marine managing director Chris Fenn. Ryan has more than 20 years’ experience in the marine market and for the last eight years has been cargo class underwriter at XL Catlin Group. He previously held positions at Allianz Group and Eagle Star. The news follows four further appointments in the division as well as the acquisition of Galleon Marine, the marine professional indemnity and cargo liability MGA.

Thomas Miller EXCLUSIVE ARRANGEMENT WITH HDI Thomas Miller Specialty has announced the arrival in London and Aberdeen of its new offshore marine and energy team led by Bernt Hellman. The team’s insurance specialism of offshore marine & energy is complementary to Thomas Miller Specialty’s existing marine, space, cyber and corporate K&R product range. Thomas Miller Specialty Offshore Marine & Energy has entered into an exclusive arrangement with HDI in the UK to become their global insurance partner.

For even more industry updates, visit maritime-risk-intl.com and i-law.com



TALKING SHOP: ASEF

FEBRUARY 2017

Active Shipbuilding Experts’ Forum (ASEF, formerly known as Asian Shipbuilding Experts’ Forum), held its annual gathering in Tokyo, Japan recently, where a series of meetings including its 10th Forum,

3rd Council Meeting and 2nd Assembly Meeting were held. Rebranded in 2015 after its initial establishment in 2007, ASEF’s principle objective is to contribute to the discussion and discourse on various technical issues in the marine industry covering shipbuilding, ship repair/conversion and offshore structures. ASEF includes shipyard and marine industry associations from China, Indonesia, Japan, Korea, Malaysia, Sri Lanka, Thailand and Vietnam which represent an estimated 90 per cent of the world’s newbuilding deliveries.

The 10th ASEF Forum kicked off on with a speech by Shigeru Murayama, chairman of ASEF and president of Kawasaki Heavy Industries. He highlighted the progress made by ASEF in gaining observer status as an NGO at the International Maritime Organization (IMO) which would enable ASEF to have an audible voice in the formulation of international conventions, standards and protocols in shipbuilding, ship emissions and ship safety. Murayama expressed his confidence that with observatory status secured, the Asian shipbuilders’ voice can be more audible on the international stage and be more influential in steering the course of regulatory formulation in marine technical matters discussed at IMO and other international bodies such as the International Standards Organization (ISO) and the International Association of Classification Societies (IACS).

This was followed by an overview of recent developments on regulations drawing the deliberations from the 70th meeting of the Marine Environment Protection Committee (MEPC) of the IMO on 24 to 28 October 2016. These include the following areas pertinent to Asian shipyards:

• Adoption of mandatory data collection system of fuel consumption.

• Initial review of the EEDI (Energy Efficiency Design Index).• Development of ship power propulsion guidelines.

• Formulation of a roadmap for developing a comprehensive strategy for the reduction of greenhouse gases.

• Efforts to put a cap on global sulphur content (of 0.5 per cent) by 2020.

• Preparation for the entry into force of Ballast Water Management Convention on 8 September 2017.

The forum also featured reports by ASEF Working Groups on the Performance Standard for Protective Coatings (PSPC) and ship vibration by their respective heads. ASEF members from Japan, China and Korea have done impressive research work on these areas which the association hopes would be helpful in the formulation of regulations and standards related thereto. It is ASEF’s fervent hope that the results of this research could contribute towards more environmentally friendly and economically operated ships and cleaner oceans.

The 2nd ASEF Assembly was also held recently, during which the Turkish Shipbuilders’ Association (GISBIR) was accepted as ASEF’s newest member. The assembly also admitted its new chairman, Yong-Ju Suh, Korea Offshore & Shipbuilding Association (KOSHIPA) executive vice chairman and an ASEF council member. The meeting then heard a presentation of the ASEF Assembly’s second year Working Plan by KOSHIPA which will host the next ASEF meetings in Busan, Korea in 2017.

Following relentless efforts since the 9th ASEF Forum held in Nantong, China in November 2015 and the 8th ASEF Forum in Jeju, South Korea in October 2014, ASEF is inching closer towards attaining observatory status at the IMO. Its admission as an observer NGO at the IMO will be a milestone in ASEF’s history and will mark a major achievement for Asian shipbuilders in gaining an official and firm foothold at IMO meetings to present their perspective and safeguard their interests in discussions on shipbuilding and shipping at the august body.

Given the calibre of its members, ASEF should be able to contribute significantly towards the formulation of international regulations and standards that lead towards cleaner ships and safer shipping. MRI

Nazery Khalid is honorarysecretary of the Association ofMarine Industries of MalaysiaNazery Khalid

ASEF 10th Forum in progress

ASEF members posing at the end of the 2nd ASEF Assembly

Gaining momentum for Asian shipbuildersNazery Khalid, of the Association of Marine Industries of Malaysia, reports from the recent shipbuilders’ conference in Japan



“Masters should not face the prospect of going to jail for simply doing their jobs” was one of the key messages of the 14th Cadwallader Debate which examined the changing role of the master in today’s shipping world.

“Masters Under Attack – Authority and Responsibility in an Age of Instant Access” was discussed by an expert panel brought together by the London Shipping Law Centre (LSLC) in London recently.

The panel, chaired by Lord Clarke of Stone-cum-Ebony, consisted of debate moderator Captain Kuba Szymanski, secretary-general of InterManager; Michael Chalos, partner at K&L Gates LLP (New York); Michael Kelleher, director at West of England P&I Club; Jeff Lantz, director of commercial regulations and standards at the US Coast Guard; and Faz Peermohamed, partner and head of global shipping at Ince & Co. The audience comprised more than 200 maritime professionals.

The panel members also discussed how bullying and micro-management of the master’s activities remain major pressures for the masters of merchant ships – and the situation is “only getting worse”.

Peermohamed posed a series of key questions, including: “Does the perception reflect quality? Is the master truly under attack? Do the commercial pressures on the master impinge more significantly than previously? Are the legal burdens on the master more significant than before? Is there bullying? Is there interference by the authorities? Is criminalisation on the rise?

“Sadly, having been involved in many significant casualties, I have to tell you that the perception is indeed the reality in many parts of the world. Masters are often treated as poor relations.

In my view, their treatment is different to that which would be afforded to an airline pilot in similar circumstances.”

He asserted that bullying was active among sea crews and that masters’ activities were at times micro-managed, giving rise to a lack of trust between ship and shore, and adversely affecting operational efficiency. He added: “Pilots sometimes refuse to engage sensibly with the master and make unreasonable demands. In the middle of the Suez Canal, they have refused to take the ship further unless given cigarettes. Given the UK’s Bribery Act and awareness thereof within the seafaring community, masters do not want to do this.” In one example, he spoke about how a pilot threatened to put the ship aground – although this

threat was never followed through.

Peermohamed cited a particular instance of pilot harassment. He said: “As a large LNG carrier was going into port, the pilot insisted the master sign the conditions of use form for the terminal. The master refused to give priority to working through a four-page form, given the immediate need to focus on the main task of negotiating the channel safely. Furthermore, terms had already been agreed in advance between the owner and charterer, so the conditions of use form was not relevant. The pilot threatened to turn the ship around and take it back to anchorage unless the form was signed. The master stood his ground and made contact with his owners who promptly solved the problem with the charterers.

“Such bullying and pressure is not uncommon. Good owners should support their masters, contact the charterers and find a solution. Many owners in this room would do exactly that but not all are in a position to do so. Some owners and managers seek to micro-manage every step the master takes. Obviously, this breeds a lack [of trust] that leads to its own problems.”

Whenever there is an accident in the US, masters face the possibility of going to jail just for doing their job, said Chalos.

“The master and crew are often seen as the soft underbelly for

putting pressure on an owner, and possibly his P&I insurer to gain an advantage in a casualty situation”

He explained that he had represented several masters in high-profile matters, including defending the master of Exxon Valdez, Captain Hazelwood, when more than 11 million tonnes of crude oil was spilled in the ocean after a collision, in what was generally considered one of the most devastating man-made environmental disasters.

Chalos said: “The government, industry and the press were all interested parties. Worst of all, politicians saw an opportunity to get their names and faces in front of the cameras. Although there was nothing intentional about what happened, when the various interests come together they ask who can they blame? The captain is in charge of the ship, so blame the captain. They did.

TALKING SHOP: THE CADWALLADER DEBATEFEBRUARY 2017

Changes and challenges are tough on the world’s ship masters Masters often face the wrath of government, communities and the media after a major incident, as the 14th Cadwallader Debate explores

Michael Chalos

Lord Clarke



TALKING SHOP: THE CADWALLADER DEBATE

FEBRUARY 2017

“Captain Hazelwood faced a number of very serious, but phoney charges. Happily, we obtained acquittals for all the charges except for a minor misdemeanour offence for which he received 400 or 500 hours of community service. It was the very first case in the US and probably around the world, where a captain was held completely liable. Until then, there was confusion as to the standard for prosecuting a master. Should it be negligence, recklessness or a ‘mens rea’ standard?”

Prior to this case, there had been no real criminalisation of maritime accidents in the US – and probably nowhere else in the world. The Exxon Valdez incident was a major game changer for the industry.

“Now the government charges captains under a welfare statute, which does not require a ‘mens rea’ element, just a simple negligence element. If you are the captain and you have an accident and a spill, you are liable. It’s that simple. It’s very hard to defend such cases. Every master who comes into the US faces the possibility of going to jail after an accident. The same thing is happening around the world.

“With high visibility, press and politicians get involved and captains get charged and convicted. They are sometimes

held for an inordinate amount of time, while the authorities investigate and pursue the matter at their own pace,” added Chalos.

With the rise of modern technology, he pointed out that “every crew

member becomes an agent for the US government,” given the considerable incentive offered to whistle blowers. They could use mobile phones and other devices to record supposed errors and shortcomings and send them to the authorities. If convictions ensued, the whistle blowers could expect up to 50 per cent of the fine.

Lantz explained how masters’ responsibilities had become more shared with others over the years.

He said: “Some laws and regulations place equal burdens on several parties and some place a higher responsibility on the master, particularly for operational decisions, navigational safety, shipboard training, drills and vessel safety. The International Convention on Standards of Training, and Certification and Watchkeeping for Seafarers (STCW) defines the master as the officer having command of the vessel. He remains in charge of the overall vessel operation, particularly at sea and most importantly when there is a vessel incident.”

He added: “Today’s interconnected shipping industry and increased communications and oversight while the vessel is at sea have pushed the regulatory regime ashore, mainly through the International Safety Management Code. This lays out the company’s responsibilities and names the designated persons responsible for making sure the Code is complied with. Shore-side management is now responsible for ensuring the master has adequate resources and shore-based support to ensure compliance with safety and pollution prevention requirements.”

Kelleher highlighted the role P&I Clubs play. He explained how Clubs were wary of providing specific financial support for masters in the early stages of a case, as the authorities’ intentions and the culpability of parties involved were by no means clear.

He said: “The master and crew are often seen as the soft underbelly for putting pressure on an owner, and possibly his P&I insurer, to gain an advantage in a casualty situation. More and more crew members are being detained in jail or under house arrest while an investigation is being mounted.

“What else can Clubs do to protect masters? First, provide training for members to assist them in learning lessons from events, even near misses; and to work with them on better procedures to avoid repetition of incidents.”

From the floor, Chris Adams, from Steamship Insurance Management Services, asked the panel if the type of incidents discussed would turn people away from a seagoing career.

“What else can Clubs do to protect masters? First, provide training for members to assist them in learning

lessons from events, even near misses; and to work with them on better procedures to avoid

repetition of incidents.”

Kelleher replied: “For crew members employed worldwide, I think the attraction is still there.” He said some Asian comm-unities took considerable pride in their people making careers at sea. “However, we are not talking about European cultures where there is a fear factor. Maybe in the more mature jurisdictions in Europe there maybe less incentive to a seagoing career, courtesy of the stories about what is happening to masters.”

Szymanski declared: “If I may bust the myth, there are 2,000 cadets in the UK today wishing to go to sea and Ireland is pulling in a lot of youngsters. So, I do not think we have a big problem at the moment with youngsters being attracted to sea. We have a problem placing those youngsters because shipowners are not taking them on board.”

Should flag states provide more assistance to masters? Chalos expressed his belief that flag states could be doing more when a master is pulled over in the US. Szymanski added that there are some very good flag states that take matters very seriously.

“They are in the same game as stakeholders and do not want their flags tarnished. We have great support from them but not necessarily from other flags. There are problems in relation to who pays the bills. P&I Clubs are not going to look after seafarers; they are going to look after owners. So owners will use the flag state most convenient to them which, I am afraid, is not necessarily the case for us masters.” MRI

Faz Peermohamed

Jeff Lantz



MARKET CONDITIONSFEBRUARY 2017

Source: Allianz Global Corporate & Specialty Safety & Shipping Review 2016

On Thursday morning, 1 October 2015, the US Coast Guard received distress alerts from the 737-ft-long ro-ro cargo ship El Faro. The US-flagged vessel, owned by Sea Star Line and operated by

TOTE Services, was 36 nautical miles north-east of Acklins and Crooked Islands, Bahamas, and close to the eye of Hurricane Joaquin, en route from Jacksonville, Florida, to San Juan, Puerto Rico, with a cargo of containers and vehicles. Just minutes before the distress call, the El Faro master had notified TOTE’s designated person ashore that the ship was experiencing some flooding, adding that the crew had controlled the ingress of water but the ship was listing 15 degrees and had lost propulsion. The Coast Guard and TOTE were unable to re-establish communication with the ship.

The 500 page transcript (Sean Payne, “Group Chairman’s Factual Report of Investigation: Voyage data recorder-audio transcript – SS El Faro, DCA 16MM001”, National Transportation Safety Board (NTSB) Vehicle Recorder Division), released 12 December 2016 by the US National Transportation Safety Board (NTSB) included 26 hours of data from the ship’s audio black box found in the wreckage. It captures the final, anxious conversations of some of the crew as they try to persuade Captain Michael Davidson to alter course through intense seas in the teeth of the storm. Captain Davidson is sure the course that he plotted the day before would take the ship well south of the storm’s centre and ignored the crew’s counsel. One of the last things captured on the tape is an unidentified seaman yelling for help, shouting: “I’m a goner!” The entire crew of 33 perished as El Faro sank into 15,000-ft waters off the Bahamas, one of the worst shipping losses of the year.

Causes of the largest vessel losses Two hurricanes and intense tropical weather were contributing factors in at least three of the five largest vessel losses in 2015. Besides El Faro, the bulk carrier Los Llanitos ran aground off the coast of Mexico during Hurricane Patricia. Meanwhile, gale force winds led to the grounding of the bulk carrier Goodfaith in the Aegean Sea. Causes of the losses vary, according to the Allianz Global Corporate & Specialty (AGCS) Safety & Shipping Review 2016, although the vast majority were caused by foundering (sinking or submerging). The number of foundered losses in the period since 2006 was 614, or more than 50 per cent of the total number of losses. Wrecked/stranded (grounded) losses followed at second place with 249 incidents, or 21 per cent of the losses. Fire/explosion was third at 123 total losses, or 10 per cent. There were 63 foundered vessels, 12 wrecked/stranded vessels, three collisions, three fire/explosion losses, two machine damages/failures and two losses due to hull damages. The 85 total losses for the year represented the lowest number during the entire decade from 2006 to 2016.

Cargo and fishing vessels accounted for more than 60 per cent of ships lost during 2015, with both types seeing a reported increase in losses year-on-year. This represents the first time there has been an increase in cargo ship losses for three consecutive years, a potentially concerning development. One reason for this increase in losses could be attributed to “exceptional” weather events becoming more commonplace and particularly with human errors in responding to those extreme events becoming more routine. As safety awareness improves, more crew training is introduced and crew fatigue issues are resolved, human error losses during heavy weather events hopefully will decline.

Needless to say, 2015 was an active year in the shipping industry, culminating a busy decade going back to 2006. During the 10-year span, there were 1,231 total identified losses worldwide. Notably, the 2015 accident year, in which there were 85 total losses, represents a significant improvement on the 10-year loss average of 123 per year.

The South China, Indochina, Indonesia and the Philippines region has been the top hotspot for a decade, with a total of 252 losses during that time. The East Mediterranean and Black Sea region was next with 162 followed by the Japan, Korea and North China region with 145. Those three regions again were first, second

Heavier weather, increased safety concerns, emerging risks threaten shipping industryRahul Khanna, at Allianz Global Corporate & Specialty, considers the safety threats to mariners in the past year

Causes of total losses 2006-201520

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Foundered (sunk, submerged) 64 69 73 61 64 45 55 70 50 63 614Wrecked/stranded (aground) 29 35 34 23 23 28 26 21 18 12 249Fire/explosion 19 18 16 14 11 8 13 15 6 3 123Collision (involving vessels) 23 17 12 13 10 3 5 2 2 3 90Machinery damage/failure 11 14 8 7 4 6 15 2 5 2 74Hull damage (holed, cracks, etc) 4 11 4 7 4 3 6 1 4 2 46Miscellaneous 1 3 1 2 6 1 1 1 2 18Contact (eg harbour wall) 2 2 1 1 2 1 9Piracy 1 1 2 1 5Missing/overdue 1 1 1 3

Grand total 154 171 149 129 125 95 123 112 88 85 1,231

10 largest vessels lost from 1 January 2015 to 31 December 2015(showing approximate location of loss and type of vessel)




Captain Rahul Khanna, global head of marine risk consulting at Allianz Global Corporate & SpecialtyCaptain Rahul Khanna

and third, respectively, in 2015: South China, Indochina, Indonesia and the Philippines totalled 22 losses; East Mediterranean and Black Sea was second with 11 and Japan, Korea and North China third with eight losses.

Recent developments in shippingThe global shipping industry has been weathering economic rough seas for years. According to Euler Hermes (“Rough Seas For The Shipping Industry – Consolidation Wave Still Rolls”), this situation is not likely to change soon given evidence in the container segment where insolvencies rose by more than 10 per cent by the end of 2015 and into 2016, driven by the collapse of Hanjin Shipping. While the long-term downward trend in shipping losses is encouraging, the continuing weak global economy, depressed commodity prices and excess number of ships are putting pressure on costs and raising safety concerns about crew effectiveness and persistent human error. It is estimated that around 80 per cent of marine accidents can be attributed to human error.

In addition to impacting vessel maintenance and repair – one of the first shipboard expenses to suffer in the wake of cost-cutting measures – cost pressures also are impacting crew conditions and training, which has been addressed with amendments by the International Maritime Organization (IMO) to the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW). The new rules establish minimum requirements for the training and qualification of masters, officers, ratings and other personnel. Meanwhile, training remains subpar in certain regions and with certain tools such as navigational aids.

Also, the IMO responded to the mounting number of accidents involving passenger ships by issuing the “Manila Statement”, urging states to review and update national passenger ferry regulations and to vigorously enforce those regulations. Significant concerns remain, particularly around non-international voyages especially in certain heavily traversed Asian routes. Developing a safety mentality despite economic pressures is critical. Laying up vessels in extremely depressed economic conditions is a long-lasting tradition in shipping however only by strictly maintaining maintenance schedules and developing standardised lay-up procedures can vessels be reactivated without increasing the likelihood of accidents.

New risks are emergingThe maritime sector’s reliance on interconnected systems brings risks as well as benefits. Threats can result from improper integration and interaction of cyber systems/updates or attacks from external sources and are not always detected. More needs to be done to educate companies. While the likelihood of a cyber event that cuts off a significant portion of trade remains low at present, cyber exposure is growing. Technological advances, allied with increasing reliance on e-navigation, means insurers need to prepare for a cyber-attack or incident materialising into a hull and machinery loss.

There was an increase in the number of piracy attacks (246 according to the International Maritime Bureau) during 2015, although incidents are down in Nigeria and Somalia despite the fact that the risk remains high. Attacks in south-east Asia continue to increase, with the region accounting for 60 per cent of global incidents and Vietnam emerging as a new hotspot. Pirates may also be abusing holes in cyber security to target specific cargoes.

Other rising concerns include: supply chain and accumulation risk in the wake of the Tianjin explosion in China in 2015; cargo risk, particularly around accurate weighing of containers and shifting cargo (liquefaction); and the return of Iran to the global shipping stage after easing of sanctions raising safety questions about vessel and port standards in Iranian waters. With any luck, the industry will continue to see fewer losses and more technological and educational progress as it becomes more aware of strategies to mitigate both physical perils like the changing climate and fire/explosion and increasing non-physical perils like cyber, human error and economic pressures. MRI

Total losses by top 10 regions: 1 January 2006 to 31 December 2015South China, Indochina, Indonesia and the Philippines 252East Mediterranean and Black Sea 162Japan, Korea and North China 145British Isles, North Sea, English Channel and Bay of Biscay 91Arabian Gulf and approaches 83West African Coast 55West Mediterranean 48East African Coast 39Bay of Bengal 34Russian Arctic and Bering Sea 33Others 289

Total losses by region 1,231

Total losses by top 10 regions: 1 January 2015 to 31 December 2015South China, Indochina, Indonesia and the Philippines 22East Mediterranean and Black Sea 11Japan, Korea and North China 8British Isles, North Sea, English Channel and Bay of Biscay 4Arabian Gulf and approaches 3East African Coast 3Red Sea 3West African Coast 3Bay of Bengal 2US Eastern Seaboard 2Others 24

Total losses by region 85

Source: Lloyd’s List Intelligence Casualty Statistics. Data analysis: Allianz Global Corporate & Specialty Piracy 2015: the year around the world

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Making predictions about the shipping industry is as volatile an undertaking as the business of shipping itself and predicting shipping’s fortunes for 2017 is as precise a science as foretelling

the English weather. But some things are at least more likely to happen than not. Oil prices should continue on an upward trend on the strength of the recent OPEC production cuts. Calls for higher levels of ship demolition will increase significantly, although not ship demolition itself. The cost of meeting regulatory requirements will become clearer as the industry and its financiers grapple with the financial consequences of having to burn lower-sulphur bunker fuel whilst ensuring that their ballast water management systems are fit for purpose.

In common with other industries, shipping will be waiting to see whether Brexit really does mean Brexit. Orders will be placed for new ships. If they are not, a number of shipyards will go to the wall. Freight rates will continue to struggle to reach the levels required to ensure commercial viability, while consolidation will remain the buzzword in the liner trades. Both traditional and innovative sources of funding will remain accessible to those with sound business plans. And cyber security will move nearer the top of shipping’s list of things to address.

Meanwhile, if operating costs do not increase, concern will spread about whether quality and safety are being sacrificed. According to the Moore Stephens “Future Operating Costs Report”, vessel operating costs are expected to rise by 2.5 per cent in 2017. Responses to the survey on which the report is based revealed that repairs and maintenance, as well as spares, are the cost categories which are likely to increase most significantly in 2017. The cost of repairs and maintenance is expected to increase by 1.9 per cent in 2017, while expenditure on spares is predicted to rise by 1.8 per cent. Drydocking expenditure, meanwhile, is predicted to increase by 1.8 per cent in 2017. The corresponding projected increase for stores is 1.7 per cent.

The survey revealed that the outlay on crew wages is expected to increase by 1.8 per cent in 2017, with other crew costs thought likely to go up by 1.4 per cent. The increase in outlay for lubricants, meanwhile, is predicted to be 1.4 per cent in 2017, and that for management fees, 1.2 per cent. The cost of hull and machinery insurance is predicted to rise by 1.1 per cent in 2017, while for P&I insurance the projected increase is 1.2 per cent. Container ships headed the expected cost increases for 2017, at 3.4 per cent compared to the overall survey average of 2.5 per cent. Tankers featured in second place, at 2.9 per cent, followed by bulkers at 2.3 per cent and offshore at 1.4 per cent.

The mood of respondents to the survey was generally quite pragmatic, with many referencing the need to address such familiar problem areas as overtonnaging, excessive competition, a paucity of finance, rising fuel costs and burgeoning regulation and legislation. “An even greater discrepancy is expected between operating costs and freight rates,” said one respondent. “Owners will manage to make ends meet, but barely.”

Despite the expectation of increased crew costs, one respondent predicted: “Crew wages will drop as owners look for cheaper nationalities or mixed crewing,” while another said: “Reduced global trade demand will offset pressure for higher crew salaries.” Elsewhere it was noted: “Crew costs are very much dependent on the employment of ships. The whole

Shipping faces another challenging yearRichard Greiner, of Moore Stephens, looks into the crystal ball to consider the prospects for the marine sector in 2017

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management process will undergo substantial restructuring, with flags and other stakeholders needing to be more pragmatic regarding Maritime Labour Convention (MLC) compliance and vessel operation.” Another respondent, meanwhile, said that sourcing good quality crew could be a problem as “many have changed profession.”

The cost of meeting regulatory requirements was high on the list of concerns cited by respondents, one of whom noted: “Operating costs will rise for technical expenses such as maintenance and repair held over from previous years, while the cost of ballast water treatment plant will have to be taken into consideration in 2017 drydocking budgets.” Another respondent pointed out: “With the Ballast Water Management (BWM) Convention due to come into force in 2017, drydocking costs will increase significantly, depending on the type and size of ship involved.” And yet another warned: “As the quality and reliability of machinery and equipment in general deteriorates, then so the cost of maintenance increases.” Elsewhere it was noted: “The new international standards for limiting NOx, SOx and PM emissions from vessels will substantially increase operating costs.”

“The anticipated increase in repairs and maintenance costs for 2017

is not a surprise given increases in global steel prices and the fact that

regulation and legislation, mandated and enforced mainly by the IMO and port state control, are now so tight

in terms of safety and environmental preparedness and responsibility”

More than one respondent emphasised the need to keep down labour and management costs without sacrificing quality. One said: “Operating budgets have been pushed further and further south, with numerous managers willing to ‘low-ball’ operating budgets to catch the eye of new and existing owners. This can cause severe risk to the operating condition of vessels, but it appears that owners are willing – or have no choice but – to accept operating budgets which include unattainable assumptions and to fund additional cash call requirements where they become necessary.”

Survey respondents were asked to identify the factors that would most affect operating costs, by answering the following question: which three of the following factors will most influence the level of vessel operating costs in the next 12 months?

Overall, on a weighted average basis, 20 per cent of respondents (compared to 22 per cent in the previous annual survey) identified finance costs as the most significant factor, followed by competition at 19 per cent (down from 22 per cent last time). Crew supply was in third place with 18 per cent (up one percentage point on last time), followed by demand trends (up by one percentage point to 17 per cent) and labour costs, unchanged at 13 per cent. The cost of raw materials was cited by 11 per cent of respondents (compared to 8 per cent in the last survey) as a factor that would account for an increase in operating costs.

The predicted increases in ship operating costs for 2017 compare to an average fall in operating costs in 2015 of 2.4 per cent across all main ship types recorded in the recent Moore Stephens OpCost study. And, while the level of predicted increases for the next year will undoubtedly be of concern to owners and operators, seasoned market operators and observers alike will not need particularly long memories to call to mind increases of more than six times the levels predicated for 2017. In 2008, for example, the average operating cost increase absorbed by the industry was no less than 16 per cent.

The anticipated increase in repairs and maintenance costs for 2017 is not a surprise given predicted increases in global steel prices and the fact that regulation and legislation, mandated and enforced mainly by International Maritime Organization and port state control respectively, are now so tight in terms of both safety and environmental preparedness and responsibility. Above all, shipping needs safe ships and safety-minded crews to stay afloat, and both come with a heavy price tag.

One highly influential factor behind the anticipated rise in drydocking costs in 2017 is the entry into force of the BWM Convention in September 2017, before which date some owners may choose to put their ships into drydock to ready them for the new legislation. The anticipated rise in crew wages and other crew costs, meanwhile, is arguably lower than anticipated, and there was indeed a feeling on the part of some respondents that, despite the entry into force of the MLC 2006, wages could stabilise this year or even go down, due largely to the combination of a reduction in global trade and wider recourse to cheaper, less experienced manning alternatives. The compliance issues with which shipping is currently contending include an impending 0.5 per cent global cap on sulphur emissions. A further challenge involves predicted increases in the price of fuel, albeit from comparatively low levels, as OPEC looks to reduce production levels. This will have a knock-on effect on lube oil costs.

Shipping is an industry suffering from an imbalance in supply and demand, as illustrated by chronic overcapacity in many trades, never mind that BIMCO recently reported that the shipbuilding sector faces its lowest level of newbuildings for 20 years. But it is an industry with a guaranteed future. Just how healthy that future will be depends on the ability to generate sustainable profits after operating costs have been met. Confidence in shipping increased steadily for most of 2016, underlining just how robust the industry can be in difficult times. The inherent volatility of the industry will continue throughout 2017, during which time shipping will resort to tried and trusted methods and to fresh innovation alike in an effort to keep its head above water. Shipping will find a way. MRI

Richard Greiner, Moore Stephens partner, shipping & transportRichard Greiner



SALVAGEFEBRUARY 2017

The decline of LOFSome 12 months ago, the International Salvage Union (ISU) published its 2015 annual review. It showed that 2014 saw the fewest LOF cases on record (37), and that revenue from LOF cases in 2015 (US$83 million) was the lowest it has been for a decade. This is despite the total number of services performed (212) being the second-highest since 1999. In contrast to the decline in the use of LOF, the ISU reported that “revenue from operations conducted under contracts other than LOF was the second highest at $98 million and shows a gently rising trend.” The ISU noted that “safer ships and better operating practice have generally reduced the amount of emergency response work for salvors”. This is significant in the context of a decline in the use of LOF – a contract specifically designed for emergency situations.

The importance of LOFIn his foreword to the ISU’s review, its President, John Witte, stated: “better understanding of the value and place of the Lloyd’s Open Form … continues to be important for us – most commentators agree that, in many emergency response situations, it is the best contract. ISU and Lloyd’s are committed to continuing to promote better understanding of the contract.” However, he later added the caveat: “For all parties, it is important to use the right contract in the right circumstances.” It is also important to remember – as the ISU’s legal advisor, Rob Wallis, points out – “(LOF) was created by Lloyd’s more than a century ago for the benefit of the marine insurance market, not salvors”. And that: “At its heart is the intent to encourage investment in salvage services to help prevent loss”. LOF was, therefore, in its genesis a contract for the benefit of the market as a whole, not just salvors.

LOF v commercial contractsLike the ISU and Lloyd’s, the International Group P&I Clubs are, in principle, supporters of the LOF regime. The contract is well-known, it is simple and straightforward (which obviates the need to negotiate terms in an emergency situation), the principles of recovery set out in the International Convention on Salvage, 1989 (the Salvage Convention) are well-established and a reliable dispute resolution process is in place with Lloyd’s arbitrators.

However, despite the positive aspects of the LOF regime, the decline in its use suggests there are reasons for this which are explored below.

SpeedIt could be argued the speed of modern communications undermines the need for an emergency-type contract. A master is not always required to make a unilateral decision in the heat of the moment as he once was. Now, he can obtain advice from shore-based colleagues, which opens up the possibility of alternative forms of contract. Against this though, it may be argued only the master is in a position to appreciate all of the relevant circumstances he faces that will dictate the speed and nature of response required, and LOF may be the best contract for the situation.

Ease of useThe essence of LOF is that it does not require amendment. However, there have been recent instances where this has occurred. An example is where the parties have agreed to cap the exposure under article 13 of the Salvage Convention in a case where SCOPIC has been invoked. This may have the effect of increasing the SCOPIC exposure on the P&I Club concerned. However, agreeing a cap of this nature would prejudice a shipowner’s P&I cover, leaving them with an uninsured exposure to SCOPIC costs.

Lloyd’s Open Form: a contract on the rocks?In recent years, there has been a marked decline in the use of the Lloyd’s Open Form salvage contract (LOF) in favour of commercial contracts, often the 2010 versions of the BIMCO Wreckhire, Wreckstage and Wreckfixed forms. Sam Kendall-Marsden, at The Standard Club, explores possible drivers behind this trend, questions whether LOF is likely to have a future in the modern world of salvage and wreck removal and proposes some solutions to arrest its decline

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Principles of recoveryWhile the principles of recovery (under the Salvage Convention) are well-established, they are inherently uncertain as they depend on consideration of listed factors (for example, the nature and degree of the danger faced by the salvors) which introduces at least some degree of subjectivity not seen in a commercial contract for services with prescribed rates, or for a lump sum. If agreement cannot be reached on the level of salvage remuneration then the only way to resolve the issue is to proceed to arbitration, which inevitably involves time and cost.

“While LOF is ideally suited to emergency situations, it may not be

the most appropriate form of contract in all situations”

ArbitrationWhile a fixed cost arbitration procedure (FCAP) exists “where the amount of the salved fund is small or where no point of law arises and the facts are uncomplicated”, it is thought to have been used fewer than 10 times since 2005. To put this in context though, according to the Lloyd’s Open Form Report 2015, approximately 78 per cent of LOF cases from 2004 to 2013 reported to the Lloyd’s Salvage Arbitration Branch were settled amicably between the parties without recourse to arbitration.

Salvage rewardsCould the size of rewards be a factor in the decline in use of LOF? Article 13.1 of the Salvage Convention relevantly provides the reward to a salvor “shall be fixed with a view to encouraging salvage operations”. That said, the reward must not be out of proportion to the services performed and their cost. Returning to the Lloyd’s Open Form Report 2015, for the period in question, the average award was 23 per cent of the value of property salved. In its 2015 review, the ISU notes average LOF revenue as a percentage of average LOF salved value was 13 per cent, having fallen for the second consecutive year. However, the ISU also notes SCOPIC revenue “increased significantly” in 2015 (to US$139 million) which may be having a deterrent effect.

Contractual freedomThere is concern in some quarters that LOF may restrict commercial and contractual freedom. LOF can only be terminated “when there is no longer any reasonable prospect of a useful result leading to a salvage reward”. The problem is exacerbated in cases where LOF incorporates SCOPIC and it is invoked by a salvor where there is concern about whether the operation will be a success and/or the likely residual value of the property salved. If the relevant authorities prevent the salvor from demobilising then clause 9(iii) of SCOPIC operates to prevent termination, which may frustrate a shipowner and their insurers’ wish to move to a commercial contract. There have been recent cases where this has significantly added to the cost of wreck removal. Also, a shipowner terminating SCOPIC does not automatically terminate the underlying LOF.

To echo the words of the ISU’s president quoted above, while LOF is ideally suited to emergency situations, it may not be the

most appropriate form of contract in all situations. It is also worth noting it is not just shipowners who have a say but also their underwriters – both hull and machinery and P&I. If there is sufficient time, negotiating a bespoke commercial contract allows complete flexibility in terms of the scope of work, standard of performance, allocation of risk and remuneration.

Salvaging LOFIt is concerning that there have been cases where parties have sought to amend LOF in a way that could leave a shipowner partially uninsured. To the extent it is felt the regime requires amendment, it is submitted that changes should follow dialogue and agreement within the Lloyd’s Salvage Group, comprised of relevant stakeholders including representatives from the ISU, the P&I clubs and property interests. Concerns about the cost of proceeding to arbitration for a salvage award might be addressed by revising the FCAP. Two reasons why the FCAP is little-used are perhaps because the indicative threshold for a dispute qualifying for the procedure (where security of less than $1.5 million has been requested by salvors), and the level of costs that may ultimately be recovered are both too low. The forthcoming review of the FCAP is welcomed.

The potential for clause 9(iii) of SCOPIC to frustrate termination and the transition to a commercial contract remains a concern. A review of the SCOPIC termination provisions is to be conducted as a result and is a positive step. Sharing the financial consequences of the relevant authorities preventing a salvor from demobilising is one option which would serve to align the parties’ interests. In the meantime, Clubs would expect salvors to work with them and their shipowner-members in transitioning from LOF to a commercial contract in appropriate cases. In his general manager’s report, the ISU’s Mark Hoddinott stated: “In 2015 … (the ISU) commenced a joint project with Lloyd’s of London to try and improve the use of the Lloyd’s Open Form contract through education and information. This is a long-term project as, in many cases, attitudes and positions have been established for decades. It may be some time before we see an increase in the use of LOF but ISU remains resolute in its determination to see it used more than at present.” This initiative is also welcomed.

ConclusionThe fact the LOF regime is supported by the relevant stakeholders but its use is declining suggests there is a need for reform if the contract is to remain viable. Reforms ought to reflect the original aims of LOF: to encourage investment in salvage services and the rendering of assistance to ships in need in a way that fairly benefits the marine industry as a whole. MRI

Sam Kendall-Marsden, head of division, UK & Americas, The Standard Club, representing the Club on the International Group’s salvage subcommittee and large casualty working group

Sam Kendall-Marsden



INSURANCEFEBRUARY 2017

The maritime industry has never been short of risks. The fact is that ancient mariners thrived on risk, which they saw as an opportunity to make their fortunes. Pirates, scurvy, sultry sirens, navigating

around improbably sized white whales while braving mountainous waves were all in a day’s work for your everyday ship’s captain and crew. They never had to contend with Donald Trump, however. I jest, but only in part! Trump and the geopolitical unrest he has come to represent, like Brexit, clearly do not present a direct threat to a ship’s captain – unless you happen to be piloting his mega yacht – but if his promises to pull the US back from its “global policeman” role are borne out, there could be major consequences for maritime risk managers and their insurers.

For example, the removal of the US’s role as the supervisor of the unruly geo-political playground could result in anarchy as fights break out on the football pitch, bullying becomes endemic and health and safety rules are cast aside, except this analogy would be played out on the high seas through which the world of commerce continues to flow. That is one plausible scenario but in what other ways could the maritime sector be affected by today’s geo-political, technology, economic as well as business risks such as today’s squeeze on shipowners’ profit margins?

Vessel numbers are moving upShipping is a global industry. Its owners are located around the world. What is particularly interesting from a risk and exposure point of view is that ownership is also very fragmented with more than 90,000 vessels owned by more than 24,000 shipowners, with an average of around four ships per owner, according to the World Fleet Register. There is a multitude of small owner companies. At the same time the relatively limited number of owners with big fleets also wields a major influence in today’s shipping markets.

The world fleet currently stands at 92,867 vessels with 1.25 billion gross tonnage (GT), owned by 24,090 companies. Globally the most common company size is “very small”, that is companies which own between one and five vessels. There are 20,797 “very small” companies with a combined fleet of 32,781 vessels. World Fleet Register statistics show that these owners, which account for 86 per cent of all companies, only own 188 million GT, which is 15 per cent of the world’s total gross tonnage. By contrast, 14 per cent of companies own 85 per cent of the world’s total gross tonnage. Furthermore, to highlight the concentration of exposure, 1 per cent of companies that have a fleet size of more than 50 vessels account for 362 million GT, representing a more significant 29 per cent of world total gross tonnage.

Marine exposures are on an upward trendThe point is that global fleet ownership and location by territory is fractured so there is a lack of clarity as to who holds the exposures. At the same time, global competition is fierce and

will grow as new markets open up. In this environment, better risk management techniques and models are required to make sure the market is protected. Ultimately in a market, which is experiencing severe pricing pressures, if you cannot control the price you have got to know your exposures to risks. After recent costly, unforeseen loss events, the marine cargo insurance market understands a change is needed in the way it prices and manages its catastrophe exposures. And, as with the sinking of Costa Concordia, the nature and the extent of the losses suffered by the market as a result of the Tianjin explosion have caused some in the industry to question the market’s ability to understand and manage its exposures.

Cargo competition is moving upAn important part of the problem is that cargo insurance, for example, is a “mass-market” product and typically a very efficient one, where underwriting limits are set and delegated across different regions of the world. The problem is that the information flow of what is underwritten – the values at risk, at what location and at what time – is not as efficient. Indeed, it is mostly inconsistent and sometimes missing altogether. The accumulation of multiple policies and the liability accumulating at a location is not really being performed because of the lack of consistent and efficient underlying information flow. The insurance industry and its clients in the maritime sector are pricing-led rather than exposure-led. If it were the latter, then the liability being generated by these events would not be such a surprise.

“The marine industry has little choice but to mend its ways. As these

loss events become more complex, maritime risk managers will need to improve their understanding of the

liabilities emanating from such events” Although the cargo market is particularly culpable in this

regard, the issue of poor information flow is a characteristic feature across the three other sub-classes of the marine insurance market – hull, P&I and port authorities. This is something that will need to change if the maritime industry is really going to deal with the systemic exposures being generated by a major catastrophe event whether they are business, geo-political, economic or even cyber related.

Risk of collision or significant event at a portMarine underwriters have concerns on other fronts. UK government ministers, for example, have highlighted passenger ferries as a weak link in Britain’s defence against Islamist terrorists. The fear is that terrorists could hijack a ferry in the Channel then

Maritime risk: a thin line between profitability and exposuresSuki Basi, of the Russell Group, reports on the challenges for shipping interests in finding the right insurance




commit slaughter before security forces could reach the vessel. To counter this potential threat, one security expert has called for the introduction of sea marshals – armed officers – to be introduced on ferries, as well as on trains, to protect passengers in the event of a terrorist attack. A senior government source admitted that security at ports and on ferries was a major concern.

There is also more competition between ports, which creates new challenges not the least of which is the potential crisis of complexity. What we mean by this is that ports are having to adapt to a world surge in consumer demand, which requires bigger ships, therefore bigger ports that have to handle more containers which work according to “just in time” methods, which in turn rely on new digital technologies that are vulnerable. These ports operate in a global system that is connected so competition is fierce, which places new pressures on pricing in an environment of increasing exposures.

Knowing exposure at a port is imperativePorts are complex entities, which involve interactions between national and supranational markets, private enterprises and governmental organisations and regulators. Ports straddle the natural and built environment. In short, they are exposed to a wide variety of exposures. Furthermore, ownership of different parts of port authorities and of the enterprises that use those facilities is fragmented.

That means that the impact of events at ports is not confined to that single geographical location. Whatever the event – a tsunami, a collision between two ships, a terrorist incident – creates risks and affects many external parties potentially, particularly from a liability perspective. The risk may not be directly controllable

by the port that was directly and most obviously affected by the event. For example, if a port in Thailand is closed for whatever reason, it could delay the delivery of silicon chips to smartphone manufacturers, which delays production – in other words, supply chain risk. Hence knowing the port’s exposure is essential.

Cargo operators are trading on thin marginsThe ClarkSea Index, an average of earnings for tankers, bulkers, box ships and gas carriers, averaged US$10,574 per day in November 2016, down 11 per cent on the average since the start of 2009. This number shows that cargo operators are trading on thin margins, which, as we have noted previously, increases risk. The responses on the part of owners are wide and varied. They can respond by scaling up, create new efficiencies, rationalise, reduce overheads, merge businesses, or build bigger and more complex vessels. In other words, the response is pricing led, rarely exposure led.

The size of contemporary vessels is both impressive and terrifying. At 400 m long, 59 m wide and 73 m high, Maersk’s Triple-E class containership set new standards. The size of such cargo vessels raises interesting challenges for underwriters. According to Munich Re, the insured value of the cargo is frequently in the range of €1 billion or more. This isn’t merely a cargo insurance issue as a collision may not only result in the total loss of cargo and vessel, but the shipowner’s liability insurance may also have to pay the cost of remedying possible environmental damage. Of course, while such projects present huge opportunities for the insurance market, they rarely raise the bar in terms of understanding the increasingly complex nature of the risks which risk managers and underwriters must now tackle. The industry needs to capture and track their underlying exposures with much greater precision to better understand the relationship between risk accumulation and risk pricing.

New risk modelsThere is a genuine problem for the marine market faced not just with the rise of super-sized vessels but the growing volumes of vessels. As matters stand, the industry does not properly capture underlying data in a granular format and there are no adequate models which support an integrated approach to accumulation control and risk pricing. This leads to a disjointed position, where premium pricing and accumulation control are separated processes. The marine industry has little choice but to mend its ways. As these loss events become more complex and draw more marine sub classes into the same event, maritime risk managers will need to improve their understanding of the liabilities emanating from such events. It will start with better data capture and standards for such, from which models will then evolve. MRI

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Suki BasiSuki Basi, Russell Group managing director




Familiar, cyclical ups and downs in marine insurance pricing are caused by multiple factors. As most buyers will be well aware, the price of marine insurance has been trending downwards for some time. The soft

market has been influenced by circumstances of two kinds: those internal to global insurance markets; and those external developments related to other industries or economic and political conditions that fuel insurance pricing trends.

From an internal perspective in 2016, almost all pricing pressure across the major marine lines helped to push prices lower. The greatest force acting here was supply and demand. In short, more capital than necessary has been chasing a shrinking pool of marine risks, which has driven competitive price-cutting, and competition over the terms and conditions of cover.

Hull and machinery has proved a particularly competitive line. Recently further new risk carriers have been attracted to the segment in spite of its historically relatively unattractive loss record. This is despite figures from the International Union of Marine Insurance showing a long-term, consistent decline in losses as a percentage of global tonnage since 2000. Marine liability insurances have also proved competitive, but for example with risk ceded as reinsurance from the P&I Clubs to international insurers continuing to be viewed as potentially sufficiently profitable, further capital has been attracted into this sector of the market also. The calamitous 2011/2012 year, with losses including Costa Concordia and Rena, brought only a relatively short-term blip in the pricing trend for certain segments of the marine market. 2015, which saw large losses such as the Alpine Eternity collision, had little pricing impact.

As the total amount of insurance capital increases, certain classes of marine risks at first sight may look somewhat more attractive to insurers as they can be more uncorrelated with natural catastrophe risks. The cargo market has also become even more competitive with many sectors of cargo pricing sliding further and faster than even hull insurance over the past few years. This is despite some recent major losses brought about by the Tianjin explosion and potentially Hanjin Shipping’s bankruptcy. At the same time policy terms and conditions have often been expanded.

Externalities affecting marine insurance pricing are more varied, and have squeezed the demand side of the equation. Macroeconomic factors such as low international oil and commodity prices had a major impact. Generally muted global economic growth, including in China, somewhat tapered international insurance demand. More specifically, ongoing depressed freight rates continued to strain the economics of the shipping industry, negatively impacting vessel deployment and values. Little is set to change in 2017, although demand has held up or even risen for some niche types of marine insurance cover, which means that prices may show a little more resilience in certain sectors of the industry.

As alluded to above, the hull and machinery sector has been weighed down by the egregious state of the shipping market for some time now. Shipowners are enduring one of the freight market’s longest downturns in a generation, which shows no sign of an early recovery in 2017. The perceived slowdown of the Chinese economy is one cause of waning shipping demand; the fall in global commodity prices is another (and of course these two factors are connected). Neither looks set to rebound in 2017, with the bulk sector having been particularly hard hit.

“The perceived slowdown of the Chinese economy is one cause of

waning shipping demand; the fall in global commodity prices is another” From July 2015 until late in 2016, the price of oil remained

stubbornly below US$50, after falling by more than half. A significant number of offshore support vessels have gone into lay-up, as producers and contractors significantly scaled back their exploration and production activities. Together these factors have pushed down demand for vessels and yet despite the reduction in tonnage, the market remains oversupplied. Insured values and trading activity both continued to reduce throughout 2016, which have also had an impact on underwriters, hull and war insurance

Supply and demand in marine insuranceNow Simon Schnorr, of StarStone, considers the changing patterns of marine insurance worldwide




Simon Schnorr

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Simon Schnorr, global head of marine, StarStone

portfolios, as well as on the wider market too. This combination of factors does not look likely to reverse swiftly in 2017.

Sectors of the marine cargo market have similarly suffered from the downturn in global oil and commodity prices. Insured values and volumes for these raw materials have fallen within certain segments of insurers’ portfolios as a result. These metrics have fared better for general manufacturing and consumer goods. Hesitant, cautious consumer confidence remains in North America and to a lesser extent in Europe. It has allowed insured values and trading volumes to hold up well in this sector of the market. Only a very brave man would forecast, for all to read, the direction of consumer confidence in Europe and America through 2017, but it is unlikely that we will begin the year with any major rebound in the oil and commodities cargo market, despite the slight year-end upticks seen in both areas.

Surprisingly, perhaps, the woeful oil price did have an element of positive impact in one area of the shipping market for a limited period in 2016: tankers. Both the low level and the volatility of the oil price appear to have stimulated an element of speculative oil trading activity. That in turn provided a modest stimulus to the tanker market, by driving a rise in chartering activity. Crude was more actively traded, which increased demand for tankers both for transportation and for short-term on-vessel storage. The latter seems to be the result of oil traders holding out for marginal upward movements in the oil price. Tanker demand increased towards the end of 2015, driving up charter rates and raising vessels’ overall asset and insured values by around 50 per cent through the year. As a result of the aforementioned during 2016, an element of upwards movement in the insured values for certain tanker fleets was experienced in the hull market as well as some positive uplift in trading activity of certain clients in the cargo market.

Despite a backdrop of ongoing excess insurance supply, the marine liability insurance market has at least been bolstered

by continued expansion of statutory liability requirements across the globe. These stimulants of demand have been seen in jurisdictions with established legal regimes, as well as in emerging markets and developing economies, and under international conventions. While removal of wrecks has attracted considerable attention, liabilities ranging from pollution to crew provisions have further supported the demand and need for marine liability insurance around the world. The direction is unlikely to change in 2017 and beyond.

The energy liability market is another story, again driven by the oil price. The considerable decline in activity and revenues for many clients in this sector has resulted in a meaningful contraction in premium spend during 2016, as underlying exposures and revenues have continued to reduce. This will change when the oil price rises substantially, which will happen eventually, but perhaps not before the end of 2017, in the view of many experts.

All of these macroeconomic factors have combined to frame a challenging trading environment for insurers in all marine lines and solid buying opportunities for those in the market creating demand. While underwriters have recently observed that price decreases have slowed – if not halted – in certain marine lines, the downward trend is potentially set to continue overall. Sadly, too, the perceived value of specialty underwriting expertise is at risk of being eroded due to the facilitisation and commoditisation of marine insurance, at a time when it is arguably most needed. These developments are unlikely to recede suddenly in 2017.

“While underwriters have recently observed that price decreases have slowed – if not halted – in certain

marine lines, the downward trend is potentially set to continue overall”

With prices still low, buyers have opportunities. One is to expand coverage, for example by considering the genuine threat of cyber risks and exploring the possible coverage options. Another is to consider the quality of the insurers they are using. Some of the weak ones may not survive the current soft pricing environment, or may not provide the levels of service and support that customers deserve and should expect. The best marine insurance underwriters are no longer competing aggressively on pricing. Instead they are differentiated by their financial wherewithal and their service levels in this difficult environment. Until the macroeconomic challenges which have descended upon us have lifted, high-quality insurers will be a major ally in difficult times. MRI



TECHNICAL BRIEFFEBRUARY 2017

Considering the wide range of both sources of fuel and sources of ignition within the engine room, it should come as little surprise that it is the origination point for a large proportion of fires on board

ships. Research coordinated by the International Maritime Organization (IMO) has indicated that between 30 per cent and 50 per cent of all fires on merchant ships originate in the engine room and 70 per cent of those fires are caused by oil leaks from pressurised systems. Following a major engine room fire it is relatively rare that a ship is able to proceed under her own power. This leads to expensive costs of salvage, towage, repairs, downtime, and cancellation of cruises, which can typically run into millions of dollars. Special attention should be given towards maintaining a clean and tidy engine room where machinery and emergency control equipment are installed and operated in accordance with SOLAS Regulations and IMO Guidelines, as well as that the equipment is routinely serviced and maintained in good working order and subject to routine testing.

Causes of firesOil fires are invariably the most serious category of engine room fires. Two ships entered with the Club recently suffered significant engine room fires with remarkable similarities. Both fires originated in the region of the generators when leaking oil sprayed onto hot exhaust surfaces and the subsequent efforts to extinguish the fires were hindered because of a failure to maintain the fire smothering systems correctly and/or a lack of understanding by the crew of the correct method of deploying the systems. In one case, two crew members suffered smoke inhalation injuries and in the other, one died while trying to fight the fire. In both cases significant damage to the engine room occurred, resulting in towage and expensive repairs. Oil fires can result from a failure to attend to small persistent leaks that can, for example, spread across machinery surfaces to reach parts operating at a high temperature and from larger leaks that develop suddenly.

Leaks, for example, caused by:• Loose joints.• Fractured pipes and mechanically damaged (perforated)

pipes on both high and low-pressure fuel lines.• Bleed cocks on generator fuel filters working loose. • Pipe unions that are over or under-tightened.• The fracture of flange bolts if over-tightened.• The fracture of cyclically stressed bolts or studs that are

under-tightened, such as those securing fuel injector pumps.

• The use of unsuitable seals or gaskets which deteriorate due to the effects of heat.

• The rupture of high pressure oil and hydraulic fluid hoses due to mechanical damage or ageing.

Correct maintenance procedures should be strictly adhered to. High-pressure pipes should be sheathed and flange joints enclosed where they are in proximity to hot surfaces in order to comply with SOLAS Regulations. Any hot surface shielding should also be effectively maintained. Oil fires usually occur when oil from a large leak or a smaller but persistent leak comes into contact with a nearby hot surface at a temperature that exceeds the “minimum auto ignition temperature” (MAIT) of the oil. MAITs of diesel and fuel oil are typically about 250°C, but MAITs as low as 225°C have been reported. Lube oils and hydraulic oils have somewhat higher MAITs. High-pressure sprays comprising

Reducing the risk of fire in the engine roomTony Watson, of the UK P&I Club, reviews ways in which the risk of fires in engine rooms can be diminished

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TECHNICAL BRIEFFEBRUARY 2017

fine droplets of oil can ignite immediately on contact with the hot surface and liquid leaks can ignite after a short period of time sufficient to evaporate the oil and generate a flammable concentration of fuel vapour. Under certain circumstances, such as where flammable concentrations of vapour form in confined spaces, the fire may be preceded by an explosion. Clearly, all oils should remain contained within their intended systems. Oil fires often develop and spread quickly compromising the safety of engine room personnel and, in the case of generators, damaging associated main electrical cabling feeding the switchboard which can lead to a loss of electrical and motive power. It is essential to employ good maintenance systems and engineering principles to reduce the risk of oil leaks. This includes:

• Attending to minor leaks without delay. • Tightening connections to fuel injectors and fuel injection

pumps to the correct torque to prevent leakage and/or fatigue fractures caused by cyclical stresses induced by operation of the pump.

• Maintaining oil leak detection and alarm equipment that can warn of the presence of oil leaks in concealed areas such as a “hot box” enclosing fuel pumps on some types of generator.

“The lives of crew members and their ability to carry out effective

fire fighting to minimise damage is dependent on the operability of the fire safety systems aboard ships and

the familiarity of crew with them” The maintenance of leak detection/alarm equipment is

especially important where oil vapour from a leak of hot oil at a temperature above its flashpoint can, for example, migrate from the hot box of a generator, across the engine entablature to exhaust system enclosures where the vapour can auto-ignite on exhaust components that are otherwise properly shielded from leaks. Preventing oil leaks is one half of the problem, the other being effective cladding or shielding of hot surfaces so that they do not present a source of ignition if an oil leak occurs. This is possibly the most effective way to prevent engine room fires and is quite simple to implement onboard.

Fire detection and suppressionThe lives of crew members and their ability to carry out effective fire fighting to minimise damage is dependent on the operability of the fire safety systems aboard ships and the familiarity of crew members with them. Delays in the detection of a fire and in the implementation of fire fighting will inevitably be critical. Fire detection is normally achieved by smoke or heat detectors. Ideally these should be of the addressable type so that the precise location of the fire can be determined from the fire alarm panel. Under no circumstances should detectors be covered, eg while conducting hot work in the vicinity. A sample of detectors and manual call points should be tested on a monthly basis so that all detectors will have been tested within five years, while all detectors should have been visually examined within a one-year period to ensure that they are not damaged and that they have not been tampered with.

Except in certain specialist ships, the engine room is invariably a large enclosed space with limited divisions and compartmentation, with restricted access and with only defined walkways between equipment. It is not surprising, therefore, that engine room fires often present very challenging fire-fighting conditions where effective first-hand fire fighting may be limited in time for reasons of safety, and where visiting fire parties may have to fight the fire from above when there is little or no visibility. Frequent and realistic fire drills that are tailored to address foreseeable fire scenarios specific to the particular engine room are essential. Moreover, some ship operators choose to engage specialist fire training companies to provide more advanced training aboard their ships. The UK Club’s risk assessors frequently note defects in the area of fire suppression. Fire hydrant caps are often found to be difficult to remove by hand (requiring the use of a spanner) and hydrant valves are found to be leaking. Leaking hydrants in an engine room may be tightened with a wheel key and this may render them inoperable by hand in the event of a fire. It is recommended that the high-risk threat of engine room fires is recognised and that ship’s crew pay particular attention to training and the care, maintenance and correct operation of all fire-fighting equipment. Fixed fire suppression systems should not be considered as a “last resort” as they are possibly the most effective and least dangerous method of fire fighting. As such, the crew must be familiar with their operation. CO2, high expansion foam, high-pressure water mist and water sprinkler systems should not be activated during fire drills. Despite this, ship’s staff must be trained on and be familiar with their operation so that they can be correctly deployed and with minimum delay. Fire mains can, however, be tested by pressurising with designated fire pumps, including the emergency fire pump, and connecting fire hoses on deck to ensure that the correct water jets are provided. All crew members should be trained in the use of all fire pumps, as it is possible that the crew members most familiar with the fire pumps could be incapacitated or unavailable when a fire occurs.

Engine room fires are one of the most common fires on ships owing to the presence of a wide range of sources of fuel, sources of ignition and running machinery. An extended period of time on board a ship without a fire incident can lead to complacency and a failure to prioritise fire prevention measures and simulated fire incident practices. Crew members must ensure that machinery and emergency control equipment are installed and operating in accordance with SOLAS regulations and IMO guidelines and that frequent fire prevention and fire-fighting training is undertaken. This reduces the chance of fires occurring and the associated significant costs that shipowners may have to bear. MRI

Tony WatsonTony Watson, risk assessor at the UK P&I Club



LEGALFEBRUARY 2017

On the shipping law front, 2017 is likely to start with the UK’s Supreme Court handing down judgments in two cases that were actually heard in November 2016. After that, expect a spate of litigation related to the

collapse of Hanjin, and a further tweak to insurance legislation.The first matter on which the Supreme Court must make a

determination is Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly TravelPlan SAU) of Spain, usually known as The New Flamenco after the name of the cruiseship involved.

The central issue here is the correct measure of damages for loss of profits following accepted repudiation of a charter, in a situation where this enabled the sale of the vessel just before the S&P market collapsed. In the event, New Flamenco fetched around US$24 million on the secondhand market, as opposed to the $7 million it is likely to have been worth at the end of the originally agreed charter period.

At arbitration, it was held that the early sale was “a benefit”, and as such should be factored in to the owners’ claim for loss of earnings. By contrast, the first instance judge ([2014] 2 Lloyd’s Rep 230) ruled that the windfall was irrelevant for the purposes of calculating damages. In turn, the Court of Appeal ([2016] 1 Lloyd’s Rep 383) found for the charterers.

The area of calculation of damages for early termination of long-term charters is always a complex one, lawyers point out, and thus a fertile ground for disputes. Given the contrasting judgments so far, The New Flamenco is being watched with interest.

But of potentially more widespread applicability is the second pertinent Supreme Court shipping case, Gard Marine & Energy Ltd v China National Chartering Co Ltd, known as The Ocean Victory case. This concerns breach of the safe port warranty in a time charter following attempts to discharge a cargo at Kashima, Japan. The vessel was lost after leaving the port in weather conditions that were an abnormal combination of high winds and considerable swell. According to Stephenson Harwood, the first instance judge ([2014] 1 Lloyd’s Rep 59) said that these conditions were foreseeable, so charterers had nominated an unsafe port and were liable to the owners. The Court of Appeal ([2015] 1 Lloyd’s Rep 381) allowed the appeal, and held that the port was safe.

A yardstick to judge byWhat we need to get from the Law Lords is a yardstick to judge when something intrinsically foreseeable should be deemed a characteristic of the port, rather than an abnormal occurrence. The Supreme Court has also been asked to address an issue relating to whether damages for breach of the warranty were in any event precluded as a result of a joint insurance provision.

Meanwhile, the insolvency of South Korea’s biggest shipping company, Hanjin, which filed for receivership in August last year, will mean a lot of work for a lot of lawyers. Indeed, we hear that the in-house lawyers many P&I Clubs employ to take on freight, demurrage and defence work are already busily undertaking the necessary preliminaries prior to legal action. A number of arrests have been made and other actions and enforcements arising out of Hanjin’s collapse are likely to follow. The betting is that all this will prove at least as complex as the fallout from OW Bunker, and will hold the feet of Korean rehabilitation proceedings to the fire.

Finally, low oil prices have already taken a toll on the offshore contractor market, and unless things change sometime soon, more restructurings and even insolvencies are likely to result.

Watson Farley & Williams advises keeping an eye on the judgment of Brazil’s Supreme Court as to whether that jurisdiction will recognise foreign mortgages where the country of mortgage ratification has not ratified a legal convention on recognition of security interests to which Brazil is a party. But don’t hold your breath — the ruling may or may not come in 2017, and it could take until 2018 before we get a decision.

Last, note that new provisions on the late payment of insurance claims in the Insurance Act 2016 come into force in May 2017.

This article first appeared in Lloyd’s List, a sister publication to Maritime Risk International. For more, please visit www.lloydslist.com MRI

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Two Supreme Court shippingjudgments to set scene for 2017Spate of litigation related to the Hanjin Shipping collapse also expected to shape maritime law in coming months, writes David Osler



TECHNOLOGYFEBRUARY 2017

If one can cut through some of the hype surrounding smart ships, perhaps with a digital knife, one will still see that the connectivity agenda is set to continue in 2017 as vendors and developers push their data-

related products onto the market for both onboard and onshore maritime business.

Digital platforms such as Clearmetal, Xeneta, Hive Maritime and some of what Rightship has been pushing out, are offering a more connected, more data-savvy vision of shipping. The key driver to this is the ability of programmers to write analytic algorithms that can make sense of the vast amount of data becoming available, thus offering customers actionable information.

Automatic identification system (AIS) data will be increasingly used to better understand global fleet positions. Our own parent company, Informa, has invested vast amounts of money in improving its AIS coverage this year, including more positioning beacons in more locations around the world.

Shore-based data analysis of rates, freight assets and vessels will increasingly allow cargo owners and shippers to get a better and more immediate picture of shipping and logistics chains as they increasingly seek out financial efficiencies. This ability gives charterers much more power in their discussions with owners.

Ship-to-shore connectivity will increaseIncreased levels of communication between ship and shore is set to revolutionise this connectivity. UK-listed Inmarsat will spend 2017 pushing its Fleet Xpress service relentlessly after finishing the launch and deployment of its fifth set of satellites in 2016.

Inmarsat entered the K-band market with Ka-band satellites, which, combined with its L-band, offer resellers and shipowners more communication options. In a bid to recoup the US$1.6 billion investment, Inmarsat is targeting a new maritime customer

base – the technology companies that are incorporating the cost of connectivity in their offering to shipowners.

Tie-ups between land-based communication service providers, such as Ericsson, and maritime service providers are likely to continue. For the last two years Sweden’s Ericsson has worked with Inmarsat, PoleStar and Speedcast as it targets the as yet untapped shipping market with its Maritime ICT Cloud solution.

This is a promise of what is to come more than a reality at present, but as these ICT solutions largely borrow from successful land-based services, there is every reason to expect success, barring of course shipowners that remain steadfast in taking a more traditional approach to technology development.

Engineering investment will still count for somethingLow oil prices throughout 2015 and 2016 have severely dented interest in fuel-saving technologies, but many experts recognise this as a temporary lull, albeit of an unknown duration.

The regulatory landscape, already being shaped by rules that are in force and about to come into force, will compel owners to invest in technologies such as ballast water systems and exhaust gas cleaning systems.

“This is a promise of what is to come, but there is every reason to expect success, barring shipowners that

remain steadfast in taking a more traditional approach to technology”

There remain questions regarding the robustness of the technologies of course and the agreement by the International Maritime Organization to increase the testing standards for ballast water treatment systems is aimed at easing those concerns.

LNG won’t save the planetThere has been an increase in criticism of promoting LNG as a panacea for shipping’s global warming challenge. As it is free of sulphur it meets the sulphur emission rules and it produces fewer NOx emissions than most liquid fuels, but there is a growing question about “methane slip”. LNG-fuelled engines reportedly emit less CO2 than their equivalent sized liquid fuel engines, but as methane is a substantially more destructive greenhouse gas than CO2 there are questions surrounding its overall benefit.

Engine makers naturally point to the low levels of methane slip, while detractors of LNG point to the total LNG supply chain and the slippage in it to demonstrate the risks.

The debate for 2017 will be whether LNG is a technological dead end or really a suitable step to a decarbonised shipping industry.

This is an extract of an article which first appeared in Lloyd’s List, a sister publication to Maritime Risk International. For more, please visit www.lloydslist.com MRI

2017 will be the real digital dawn for shippingShipowners and operators that ignore the digital march will start to be left behind, writes Craig Eason

For more in-depth analysis of the year to come, see the Lloyd’s List Annual Shipping Outlook 2017

www.lloydslist.com/ll/incoming/article543407.ece



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