Scrapping of 15 year old commercial vehicles

Shipwrecks around the world

Inspection of the containers

NEWS

PHOTO(S) OF THE MONTH

LEARN MORE

BACK TO BASICS

Question of the month

Volume 4 Issue 10

MarineNewslink

210

In our previous issue we covered maritime incidents that took place around Indian waters. The news update on one of the incident was that MV BENITA sank off Mauritius during towage. It was bound for Alang in Gujarat for demolition. A correction received from a reader was that M.V. Kumar grounding was not due to cargo liquefaction but bad weather.

Covering all International maritime incidents would be out of the scope of this newsletter. and thus, a study feature on international maritime incidents in last one decade has been attempted and the probable exposures that such incidents can pose for general insurance industry.

On the domestic front, Government of India is mulling at scrapping all commercial vehicles that are older than 15 years. This comes after air quality of major cosmopolitan cities was found to be very poor and this was blamed squarely on diesel vehicles of all types, especially trucks & LCV’s. Though this could lead to vehicle’s shortage in the interim period but it would also bring on road, newer, safer and better trucks. India has one of the highest accident rates for commercial vehicles in Asia and with the introduction of new and safer trucks’ this issue would also be addressed in the long run. With this issue we also introduce a fresh look of the newsletter and hope that you will like it. Do attempt the QOTM on page 9 and send your replies as per instructions on page 10. Happy reading…

Government of India is planning to scrap nearly 16 lakh heavy vehicles that are more than 15 years old, mostly trucks and buses in the first phase of the proposed Voluntary Vehicle Fleet Modernisation Programme (V-VMP). The govt. has indicated that the draft policy would be ready, in a shortly.It is assumed that 65 per cent of the vehicular

pollution is caused by heavy vehicles and scrapping of these will be done at industrial clusters like Kandla to be set up under the government’s ambitious Sagarmala project. The government is also expected to take permission from the GST Council as “the tax structure is likely to change”.

’

103

The benefits of the policy will include additional net revenue of over Rs 21,000 crores on account of additional automobile sales, besides crude oil savings of Rs 7,700 crore due to improved fuel efficiency.Once the policy is finalised, it is estimated to result in domestic steel scrap generation worth Rs 5,500 crore to substitute imported scrap. Govt. is positive about another outcome of

employment generation as there will be a huge demand for workforce for scrapping/recycling operations and automobile manufacturing. According to the ministry, the proposed policy has the potential to reduce vehicular emission by 25-30 per cent and save oil consumption by 3.2 billion litres a year.

Shipwrecks around the world

410

International Maritime incidents in last the decade

Safety of international shipping vessels is critical to the global economy. More than 90% of trade is estimated to be transported by sea.

More than a third of total losses were in two maritime regions. South China, Indo China, Indonesia & Philippines had the most losses followed by Japan, Korea, North China, British Isles and surrounding waters. A third of vessels lost were cargo ships.

For the past decade foundered (sunk/ submerged) has been the most common cause of loss, accounting for almost 65% of losses. Wrecked/stranded (grounded) is second. However there is a significant reduction in fires/explosions resulting in total losses down by 73% year-on-year in last one decade. Some notable incidents were collisions between MV Khalijia & MSC Chitra in our own waters, MV Al Riffa & MV San Filipe near Malaysia and fatal grounding incidents of MV Rena near Tauranga, New

Zealand and cruise ship Costa Concordia near Italy.

Last decade saw mega ships being introduced one after another, especially in container ships segment. In 2006 Emma Maersk was hailed as one of the biggest ships with container carrying capacity of 15500 TEU's but soon it was dwarfed by Maersk Mc-Kinney Moller in 2013 with container carrying capacity of 18270 TEU's. However even Mc-Kinney Moller was soon encapsulated by MSC Oscar in 2015 with container carrying capacity of 19224 TEU's. Container-carrying capacity has increased by approximately 1,200% since 1968. However container ship safety is under the spotlight in light of inconclusive findings from the investigation relating to the cause of 2013's largest loss – MOL Comfort.

The findings into the sudden sinking of the 2008-built 8,110 teu MOL Comfort in 2013

510

are now complete, but the industry is only fractionally closer to determining a definitive cause for the casualty. The investigation by the ship's classification society Class NK found uncertain factors for structural failure but could not definitively answer if design and construction or operational flaws had led to the disaster.

The ship broke into two approximately 200 nautical miles off the coast of Yemen in June 2013. There were 11 sister ships of similar design which were all inspected for structural weaknesses shortly after the MOL Comfort incident but nothing of concern was found. This lack of a definitive cause is quite concerning. What it does is pose a lot of questions and raise a lot of concerns about the safety of container ships, particularly as they grow bigger. 2015 saw the entry of container ships able to carry 19,000+ containers. This raises concerns about

whether risk management needs reviewing after an 80% capacity increase in just a decade. TEU = (20-foot-equivalent unit) However these are not the largest ships in the world as that title is held by four TI class tankers that can carry about 441,893 MT of liquid cargo at any given time. Two of these tankers have been converted into floating storage and offloading (FSO) units.

The appetite for ever-larger ships has seen cargo-carrying capacity of the largest vessels increase by over 70% in container trade in the past decade. Grounding Incidents of two “mega ships” in February 2016, raised safety concerns about what could happen, should a more serious incident occur. It is estimated that the industry may need to prepare for a one billion plus dollar losses in future.

610

Container-carrying capacity has increased by approximately 1200% since 1968

Graphic : Allianz Global Corporate & Specialty.Approximate ship capacity data: Container-transporta�on.com

Average age of vessel lost in such maritime incidents is found to be around 29 years. However vessel construction is not always the weak point. Level of crew training, experience and emergency preparedness can also be inadequate. Minimum manning levels are reducing levels of on-board training. Meanwhile, the problem of overreliance on electronic navigation aids has not gone away and was the root cause of a number of incidents in 2014, with the Rickmers Dubai

collision a case in point. On January 11, 2014, the Liberia-registered multipurpose cargo ship collided with Walcon Wizard, an unmanned crane barge which was being towed by the tug Kingston in the south-west traffic lane of the Dover Strait Traffic Separation Scheme. Also today these mammoth ships are moving much faster than about a decade ago, the rest hours of crew and officers are getting compromised resulting in fatigue.

710

TRIVIA: December is the worst month for losses in the Northern Hemisphere whereas in the Southern Hemisphere it is August. It is estimated that for every total loss in the Southern Hemisphere there are approximately seven inthe Northern Hemisphere

Total Losses 2006-2015: When and Where In The World

Thursday is the most frequent day for shipping incidentsImage: Allianz Global Corporate & Specialty

Shipping industry has its unique sets of issues and is impacted by direct results of any worldwide outbreaks. From EBOLA virus to human trafficking to Piracy , which has now shifted from Somalia to other concentrated locations like west coast of Africa, around Nigeria and Straits of Malacca. Though these have not caused any direct ship loss but the danger always looms high. What if pirates kill the crew and leave the ship adrift or underway.

Other rising concerns include Human trafficking and Search and Rescue issues, particularly in the Mediterranean, which are s t r e t c h i n g r e s o u r c e s a n d r e s c u e infrastructure. Changing tactic by human traffickers in the Mediterranean also proved to be a rising safety concern in 2014. This new ploy saw smugglers take migrants onboard, set the ship on a course towards Italy and then abandon it. More than 207,000 migrants crossed the Mediterranean in 2014, almost

three times the previous known high of about 70,000 in 2011 since the Libyan civil war. This migration has been fuelled by those seeking asylum in Europe from the civil war in Syria. In the case of the 1976-built 2,560 dwt Blue Sky M, the ship was abandoned by its crew carrying 796 migrants in December 2014, while the 1966-built 2,329 dwt Ezadeen was left adrift off the Italian coast in October 2014 with 359 migrants onboard.

On the cargo front, the threat of rapid liquefaction of cargo with catastrophic results continued after incidents in 2013. At least two recent total losses are suspected to be a result of liquefaction. At the start of 2015, the 2006-built 56,009 dwt Bulk Jupiter sank off the coast of Vung Tau, Vietnam, just a day before the 1984-built 2,327 dwt Cemfjord foundered off the coast of Scotland. The Bulk Jupiter was carrying bauxite, while the Cemfjord had a cargo of cement.

810

Causes of Total Losses 2006-2015Source: Lloyd’s List Intelligence Casualty Sta�s�cs. Data Analysis & Graphic Allianz Global Corporate & Specialty

As liquids, both cargoes are hazardous to ships. Though not confirmed but rapid liquefaction may well have caused both incidents. For the Bulk Jupiter in particular, the IMO's categorization of bauxite cargoes has come into question. On the container front, mandatory weighing of containers has become a requirement after the Maritime Safety Committee (MSC) adopted the amendments this year. Misdeclared cargo and overweight containers – and their impact on safety have long been a problem in the maritime industry. The entry into force date was July 1, 2016. This should greatly control the container ship incidents involving m i s d e c l a r e d c a rg o e s a n d w e i g h t s compromising the stability of the ships.

It is a fact that ship sizes are growing. Not just for container vessels but also for very large ore carriers and very large bulk carriers, as well as specialized large floating offshore facilities which don't have any predecessors. It is human nature to explore and test the limits and existing maritime infrastructure and insurance will have to follow. In future, maximum exposure will not necessarily be limited by the value of a vessel and carried cargo but also environmental, social or business interruption costs. The cost of claims may be very difficult to estimate and looking at the history of the most expensive shipping a c c i d e n t s , m a y b e s i g n i fi c a n t l y underestimated. Probably the law of Average Adjusting will be rewritten.

910

Losses by Type of Vessel 2006-2015Source: Lloyd’s List Intelligence Casualty Sta�s�cs. Data Analysis & Graphic Allianz Global Corporate & Specialty

APPRECIATION:

Mr. Surajit Gupta - Technopolis Insurance Brokers Pvt. Ltd., AhmedabadMs. Divya Gandhi - Emkay Insurance Brokers Ltd.Mr. Nikhil Ghorpade - SchaefflerMr. Shiv Bhaskar - Tata-AIG, Mumbai

LAST MONTH'S QUESTION & ANSWER:QUESTION A biscuit company has an open policy covering their exports on CIF terms against All Risks as per ICC-A + War + Strikes.

One such consignment was loaded from their warehouse to the truck to be taken to the nearest sea port for stuffing into a container. The truck reached the factory gate by which time news spread of a rioting happening in the city. So to be on the safer side the vehicle was kept inside the compound only. However little later rioters got entry into the compound and looted the cargo from the truck. Is the claim payable?

ANSWERThe claim is payable (under both 1982 & 2009 clauses) as the goods have left the warehouse for the purpose of commencement of transit and the vehicle has also moved towards the gate, and hence the loss caused by rioters is payable.

QUESTION OF THE MONTH Under a Marine cargo Policy, when is Service Tax not charged on a Policy issued to an Indian entity ? What documents are required to grant the exemption for Service Tax?

CORRECT ANSWERS SENT BY:

Mr. Sridhar Lahoti - Kadel Insurance Brokers Pvt. Ltd.Mr. Nishant Sharma - Aon Global Insurance Brokers Pvt. Ltd. AhmedabadMr. Kiran Kumar K - ITUS Insurance Brokers Private Ltd. HyderabadMs. Vaidehi Desiken - Edelweiss Insurance Brokers Ltd.Ms. Hema Raghav - Optima Insurance Brokers, New DelhiMr. Shiv Kumar Chugh - Prudent Insurance Brokers Pvt. Ltd. Mumbai

1010

?

ü

BACK TO BASICS

IF YOU HAVE ANY COMMENTS / FEEDBACK PLEASE SEND IT TO

S. Balachandran Marine - HeadShioram.Balachandran@tata-aig.com

CONTACT US

Tata-AIG General Insurance Company Limited,

Peninsula Business Park, thTower A, 15 Floor,

G.K.Marg, Lower Parel, Mumbai 400013. www.tataaiginsurance.in

DISCLAIMER

The publication is for private circulation only. It is for internal additional information of employees and associates. Views expressed in the article are personal views of author and the publisher, editor does not own any

responsibility legally or otherwise. Though due care is taken to give accurate information, the readers are advised to verify independently the correctness of the information given.

For all earlier months Marine Newslink issues, please do visit our website link

http://www.tataaiginsurance.in/taig/taig/tata_aig/resources/knowledge-center.html

1110

Vijay Pal Singh Marine Loss Control Manager – India vijaypal.singh@tata-aig.com