If a general recovery does materialise this year, it will be slow and painful, according to marine insurers meeting in London last week. International Union of Marine Insurance (IUMI) president Deirdre Littlefield told journalists that underwriters were braced to tackle new problems which were emerging as a result of the ongoing slump. Ms Littlefied was speaking after IUMI's annual winter meeting at Lloyd's.

She said: "Newbuild cancellations and deferments are increasing, but a huge amount of tonnage still is due to be delivered this year and next. Regrettably, we have not seen a significant leap in the scrapping rate of old ships, which is almost beyond belief in the present crisis. She continued: "Understandably, owners and charterers are doing all they can to reduce costs. If this means skimped maintenance and deferred repairs, however, it's bad news for insurers who cover hull, cargo and liability risks. The situation is compounded by the emergence of new problems. These are mainly technical but could lead to big headaches for underwriters.”

Normally IUMI uses its London meeting to announce the latest loss statistics and explain what the insurers think lies behind them. This year, however, the figures were not ready. This is not, it appears, because IUMI has been slow in gathering information, but this year there is more uncertainty than normal. The current economic conditions are behind this. The big uncertainty is how many ships that have becomes casualties will end up being declared constructive total losses (CTLs) and be judged not worth repairing.

Every year it takes some time for such cases to be sorted out, but this year the picture is further complicated by both the fall in ship values and the problems with estimating a value at all in the current depressed market. The insurers were, though, prepared to say very tentatively that the claims situation appeared to look better than the previous year, except in the offshore industry.

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The latest very large cruise ships can carry over 6000 passengers

Around half of the risks of the latest very large cruise ships are being covered by Lloyd's of London

In a Lloyd's website article Richard Close-Smith, executive director, Willis Marine, says: “Lloyd’s plays a very prominent leading role in cruise ship insurance and we estimate that as much as 50% of both the shipbuilding risk, and thereafter the hull and machinery insurance of the newest breed of super ships, is placed in Lloyd's,” he says.

“For war and piracy risks the Lloyd’s market is even more important as, when it comes to underwriting net lines without reinsurance protection, most roads tend to lead to Lloyd’s.”

Lloyd's notes that cruise ships have been in the news a lot recently, but sometimes for the wrong reasons such as when passengers have been stricken with norovirus, or stranded in the Antarctic ice.

However, “such incidents are in the tiny minority, and for most people, a cruise is the holiday of a lifetime”.

The article coincided with the entry into service of the 225,282 gross tonnage Oasis of the Seas at three times the size of the QE2, and carrying up to 6,292 passengers plus a crew of up to 2,291.

One of the main insurable risks for cruise ship owners and operators is the loss or damage to the vessel, notably fire and engine damage, Mr Close-Smith is quoted as saying. “Slightly more surprising are the grounding claims which may be partly a result of the continuing appetite for new and yet more adventurous itineraries. Piracy is potentially a huge theoretical concern but in practice less so, as cruise ships tend to be few and far between in the Gulf of Aden and Nigeria. It would also require a larger and more organised pirate attack to maintain control of a cruise ship versus a cargo ship.”

Another important insurable risk for owners is loss of earnings or business interruption. The challenge for brokers, according to Mr Close-Smith, is to include perils beyond conventional physical loss or damage such as infectious diseases, blocked ports and the inability of passengers to reach the vessel through say airport closure or even cancellations arising from a terrorist attack.

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Companies operating in the shipping sector should check their Directors & Officers (D&O) insurance cover in the light of their continued and increased exposure in the current difficult financial climate to liability claims from a variety of interests, including shareholders, employees, regulatory authorities and associated companies. The warning comes from The International Transport Intermediaries Club (ITIC) in the latest edition of its e-newsletter, The Wire.

ITIC cites a number of recent instances which illustrate the value of D&O cover. These include a case in which a shipmanagement company and its entire board of directors, individually, received a claim from shareholders alleging that one or more of the directors were in breach of their duty to act in the best interests of the company in failing to ensure that the company had a reasonably comprehensive liability insurance programme in place to protect its assets. The year before, two incidents had occurred. An employee had been killed in a car crash while on a business trip, and employment liability underwriters had declined to pay the family compensation based on a provision in the policy which required the company to declare certain information at renewal. Due to an oversight, the company had failed to do this. Later that same year, fire damage to one of the company’s offices had not been reimbursed due to the insolvency of the insurers.

Both claims resulted in significant losses on the balance sheet of the shipmanagement company, and a sum close to $1m was paid in total. The individual director on the board of the shipmanagement company who was responsible for ‘risk management’ received a claim in person from the company shareholders. D&O underwriters agreed to consider the claim on the basis that the alleged ‘wrongful act’ required a defence.

Shortly before going to trial, the case was settled. D&O underwriters agreed that, although the claim could be defended, there was a significant chance that the shareholders would be successful in bringing their action. As a result, a settlement was negotiated for two-thirds of the claimed amount.

ITIC communications director Adam Jacobson says, “Such claims from shareholders often follow in the wake of a poorer-than-expected financial performance by the company. Those in the shipping industry without D&O cover will be especially exposed to liability if they do not have proper insurance protection.”

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Maritime London will be publishing a directory containing the contact details of UK based companies providing professional services to the international shipping industry.

Available online, the directory will also be distributed at the Maritime London pavilion during Posidonia 2010 and by post to shipping companies globally.

All companies will be provided with a free entry, but advertising space and enhanced listings are also available.

See www.maritimelondon.com/media_pack2010.pdf for full details or contact Will Bixby.
E: wbixby@navigatepr.com

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The International Union of Marine Insurance's (IUMI's) executive committee has reinforced the warning of the dangers associated with laying up ships highlighted recently by BMT Marine & Offshore Surveys (BMT MOSL) which has also expressed considerable concern about the way lay-ups are being managed. Increasing numbers of merchant ships left without work during the trade downturn are being involved in costly and unnecessary casualties, the BMT Group subsidiary told a London insurance market seminar.

BMT says that despite the insistence of maritime authorities and insurers on detailed precautions and supervision, ships have been damaged or written off while laid up in Far East anchorages.

despite the insistence of maritime authorities and insurers on detailed precautions and supervision, ships have been damaged or written off while laid up in Far East anchorages

IUMI cautions: “Underwriters need to pay close attention to the various degrees of lay-up we are seeing, including the conditions of cover for trading for vessels which have been idle without being deactivated, or just lying at anchor or drifting awaiting firm orders, often with minimum maintenance and prone to collisions or typhoon damage.”

BMT MOSL operations director Paul Jackson, gave examples of recent losses, including a containership that had been laid up for most of the summer off Hong Kong, in a known typhoon zone, with a reduced crew. As the ship tried to manoeuvre clear in fierce winds, it was sent rolling at up to 35 degrees, causing extensive damage and resulting in the death of the third officer. The ship had to be repaired at a cost of at least $250,000.

Another large containership laid up in a typhoon zone was pushed onto rocks south west of Macao amid violent rolling which repeatedly tripped out the engine; it became an expensive constructive total loss.

Under conditions recommended by the London Joint Hull Committee, underwriters have to agree to location and lay-up arrangements, including proper supervision and marine survey. Mr Jackson asked: “Is it that shipowners do not want the reactivation issues related to the safer locations, when they think the first sniff of movement will come from the Far East? Are they informing insurers? And do flag states know that these vessels have reduced manning?”

A list of 400 approved lay-up locations was compiled by the London market in the 1980s, but had not been updated as it was thought unlikely there would be such demand again. Since then there have been changes in infrastructure and other conditions at such sites. The former Joint Hull Returns Bureau approved only a few locations in the Far East because of the propensity to storm damage.

In the 1980s, some 300 ships were laid up in the benign conditions of Elefsis Bay, Greece. However, despite initial enquiries, the current recession has seen just 30 ships moor there. The vast majority of operators preferred to keep their vessels waiting in the east, not formally laid up, but described as “awaiting orders.”

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Out-of-date onboard charts and other nautical publications help cause shipping accidents, the London P&I Club warns. In the latest issue of its StopLoss Bulletin, the club notes, “The International Convention for Safety of Life at Sea (SOLAS) requires that, ‘All ships should carry adequate and up-to-date charts, sailing directions, lists of lights, notices to mariners, tide tables, and all other nautical publications necessary for the intended voyage’.

However, London Club says, from time to time, the club receives a report from a P&II ship inspector that the charts or other nautical publications on an entered ship are out of date. Two incidents reviewed recently by the club emphasise why compliance with the requirement is imperative. In the first case, a telecommunications company alleged that a submarine cable had been damaged by a ship’s anchor.

The first assumption was that, if the anchor had contacted the cable, then it must have been because it was dragging and the ship had not been able to recover the anchor in due time. However, the club-appointed surveyor quickly established that the ship had, in fact, anchored directly over the cable but that the bridge team had been completely unaware of the hazard beneath them.

The surveyor identified that the ship had used an old edition of the chart, which pre-dated the laying of the cable. Apparently, on preparing the passage plan, the second officer had not checked that he had the current edition of the chart. In the second case a ship suffered damage as it struck a hazardous wreck the chart had not been properly corrected even though a chart correction showing the wreck had been issued some three years previously.”

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London Gateway ceo Simon Moore will be publicly discussing its port centric logistics project in detail for the first time since the project was formally approved by UK Prime Minister Gordon Brown in January.

Speaking at the Port Centric Logistics conference in Manchester next month, Mr Moore is expected to champion London Gateway as the ultimate in port centrics - a unique logistics platform that combines a world-class deep-sea container port with Europe's largest dedicated logistics park and offering short-sea feeder services, rail and dual-carriageway connection to the UK motorway network. The port claims it will be the most efficient in the country, adding an additional 3.5million TEU to the nation's port capacity and incorporating storage, distribution and warehousing units in excess of one million square feet.

Other speakers at the event will include Marks & Spencer head of logistics Emile Naus, Peter Livey, head of logistics at Hyundai Merchant Marine (Europe) as well as PD Ports, Hutchinson Ports, Port of Tyne and Port of Zeebrugge.

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BIMCO has endorsed a Federation of National Associations of Shipbrokers and Agents (FONASBA) initiative aimed at setting quality standards for ship agents and brokers. The Quality Standard (QS) is intended to assist shipowners and operators in their selection of who is to represent them.

The Quality Standard was discussed in detail at the recent FONASBA General Meeting in South Africa, where BIMCO also participated in its capacity as a Club member of the Federation. At the meeting, it was confirmed that so far ten FONASBA member associations, representing nearly 200 companies in Argentina, Australia, Belgium, Brazil, Denmark, Great Britain, Slovenia, Spain, Sweden and the United States now apply the standard. A number of other associations are currently developing the relevant criteria. The initiative appears to be gaining in stature and is becoming accepted as the global standard for professionalism and quality performance in the ship brokers and agency sector.

In a statement BIMCO's deputy secretary general Søren Larsen says: “BIMCO fully endorses this initiative as an important step in raising quality standards, generally, as well as specifically for the agents and brokers sector”.

Mr. Larsen continues, “In a regulatory environment with increasing focus on maritime safety and qualify and significant liability risks for shipowners and operators it is important that the industry strives to self-regulate. The QS provides shipowners and operators with a degree of protection, sets minimum standards and ensures a coherent provision and application of services in this important segment of our industry”.

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InterManager, the international trade association for shipmanagers, has appointed a new secretary general to replace Guy Morel, who retires this summer. Kuba Szymanski, who moves from MOL Tankship Management where he has worked for the past two years will join InterManager on 1 March and will work alongside Mr Morel until his official retirement in June.

Based on the Isle of Man and with an office in London, Capt Szymanski's previous experience includes management roles at Dorchester Maritime and MOL Tankship and commands on LPG, chemical product and gas carriers.

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The super-yacht market needs high quality seafarers

Maritime London member and International shipping recruitment specialist Faststream has launched a new service for the owners and operators of super-yachts looking for high quality crew. With a 65 strong team of specialist recruiters, the company is already a leading recruiter for shore and seagoing technical and operational roles in the merchant shipping, marine and offshore industries.

Faststream ceo Mark Charman said: "We are bringing a new level of professionalism to the super-yacht crewing market and will be applying the same high standards to super-yachts that our blue chip corporate customers such as Royal Caribbean, BP and Shell expect in the commercial shipping sector. With the increasing sophistication of super and mega yachts, owners need to know need to know that they are employing the best qualified and vetted crew and should not settle for a second rate and amateur service."

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Sea Vision UK, the campaign to raise awareness and understanding of the sea and maritime activities, has appointed the Cowes-based publisher The Knowledge Zone (TKZ) to produce career information.

According to Sea Vision UK, the UK maritime sector is the largest in Europe, directly employs over 410,000 people and has an annual turnover of £56 billion. Yet research shows that few people understand how crucial the sector is to modern life. Fewer still are aware of the vast range of diverse, interesting and exciting maritime activities and careers.

To help encourage interest in the sector and recruit new, young talent TKZ will produce careers information that will be available in print, online, on mobiles and PDAs, and via learning channels direct to schools. TKZ is well-known within the leisure marine sector as the publisher of Cowes Online, Cowes TV, and the iZone network of out-of-home screens in Cowes, which provides targeted content to the sailing and boating audience.

Sea Vision UK's Maritime Careers magazine will be revitalised by TKZ to deliver valuable maritime careers information into schools, colleges, and universities for use by students and careers advisors. The magazine will carry information on all the key areas within the overall maritime sector. These will include seagoing careers, leisure marine, defence, search and rescue, oil and gas, environment, harbour operations, and many more.

Anyone interested in being featured as an industry case study, advertising or for more information should contact TKZ on 01983 245505

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