Hell on high water
War and piracy may capture the headlines, but smouldering in the background are growing concerns about ship fires
By Claire Heaney
With about 90 per cent of international trade sent across oceans, the marine insurance industry is being tested by conflicts in Ukraine and the Red Sea, plus piracy forcing ships to travel longer routes – adding costs, time and risk.
But increasingly large vessels, misdeclared or undeclared cargo, poor firefighting equipment and crew training, the transportation and inadequate storage of lithium-ion batteries, and so-called shadow fleets with unclear ownership and poor maintenance have also raised safety concerns.
In August, freight insurance group TT Club repeated its “long-standing, fervent message for shippers and those facilitating the supply chain to be more diligent over how their cargoes are classified, packaged, packed, declared and handled”.
The plea followed a spate of container ship fires.
“The sad list of both explosions and fires extends from Northern Juvenile in the South China Sea in May to Maersk Frankfurt in the Indian Ocean, to more recent incidents in quick succession which involved MSC Cape Town III in Colombo and YM Mobility in Ningbo,” TT Club says.
TT Club risk expert Peregrine Storrs-Fox says: “There are strong indications that potentially explosive chemicals and fire accelerators, such as lithium-ion batteries, may be involved in at least two of the cases.
“As with historic incidents, it is likely that various errors occurred as the shipments were initiated and the exact nature of the cargoes was communicated to supply chain counterparties, giving rise again to ‘perfect storms’.”
Allianz Commercial’s latest Safety and Shipping Review says global fleet losses were at a record low at the end of last year. But the report, released in May, says 205 fire incidents were reported in the year, the second-highest figure – behind 2022 – over the past decade.
“Fires remain a key safety issue on larger vessels given the potential threat to life, scale of the damage, and the fact associated costs can be severe, a factor contributing to the long-term increase in the cost of large marine insurance claims,” the report says. The 13th annual Allianz report says a blaze caused by misdeclared cargo in the hull of a large vessel could be catastrophic.
“I would not be complacent about the fact that the number is a little bit lower than [2022]. I think misdeclared cargo remains one of the key concerns,” Allianz Commercial global head of marine risk and consulting Rahul Khanna told a webinar.
“It does not give me any sense of security that the number is down. If anything, I am still pretty much concerned about this.”
The Maersk Frankfurt ablaze in the Indian Ocean in July. Credit: Indian Coast Guard
According to Allianz, several roll-on, roll-off (ro-ro) ferry and car carrier operators are cautious about transporting electric vehicles, and insurers have pointed to additional risks from lithium-ion batteries.
Upgrading firefighting capabilities on ro-ros, improving transportation of consumer goods such as e-scooters with lithium-ion batteries, and better training so crews can recognise and deal with damaged or suspect batteries are all being floated. “The cost of training will be infinitesimal compared with the cost of any major incident involving lithium-ion batteries,” the Allianz report says.
Underwriter Chubb says as the demand for lithium-ion batteries has increased, brokers have struggled to get battery risks placed in the London market.
“In the cargo sector there has been a degree of caution around insuring lithium-ion batteries due to the common, but perhaps unfair perception, that they have heightened fire risk,” Chubb’s April risk bulletin says. It says lithium-ion batteries being shipped tend to be new, in original manufacturer packaging and in a low state of charge. And it notes batteries have varied compositions and sizes, affecting their risk profiles.
“Misunderstandings about lithium-ion battery risks have resulted in a lack of capacity in our market to provide insurance coverage,” Chubb says. “For those syndicates and carriers that were willing to provide coverage, doing so required a huge investment in time and resources due to the complex nature of the interest.”
Firefighters tackle a container blaze after the incident on the MSC Cape Town III in Colombo, Sri Lanka. Credit: Sri Lanka Ports Authority/X
Chubb turned to fire engineers and transport and property risk management teams to inform risk profiles and underwriting guidelines. It now leads the Lloyd’s Lithium Battery Consortium of 11 syndicates writing business up to $50 million.
The Australian Maritime Safety Authority says there has been a marked increase in reports of ship fires since 2020.
“In 2021, there were three very serious and 11 serious fire incidents reported on board foreign-flagged vessels in Australian waters. In addition, 13.6 per cent of all port state control detainable deficiencies in 2021 were fire safety-related issues,” it has reported.
“Most fires were initiated in machinery/workspaces, followed by cargo spaces.”
A European Maritime Safety Authority CargoSafe report from early last year says increased focus on cargo fires is tied to the rising size of ships. It says there was a 30 per cent capacity increase among the very large container ship and ultra large container ship categories over the previous two years.
Australia is one of 22 signatories to the Tokyo Memorandum of Understanding that oversees a port state control regime in the Asia-Pacific region, promoting co-operation to eliminate substandard shipping and safeguard conditions.
The MSC Cape Town III in Colombo, Sri Lanka. Credit: Sri Lanka Ports Authority/X
Late last year, a three-month joint Paris MOU and Tokyo MOU inspection campaign identified fire safety measures, lifesaving appliances and safety of navigation as the top three deficiencies found on ships. While type of cargo is an issue, there are concerns about lack of training, fire drills and equipment needed to fight lithium-ion battery fires.
Lloyd’s List Intelligence says the number of parties involved in a single passage can be vast, and challenging for the insurance industry. “Both risk managers and trade finance teams must know the origin and destination of any given shipment, the price of the commodity and its volume,” it says. “The ability to track its journey and ensure that all documentation surrounding the transaction meets agreed standards is crucial.”
Broker Marsh says policyholders should work with their brokers or insurance advisers to confirm they are covered for liabilities arising from the transportation of lithium-ion batteries.
“Some of the consequences may not be covered, or may actually be excluded, such as resultant pollution, demurrage (the cost of delaying the vessel) and general average declarations.”
