Loss drivers in the shipping industry: larger vessels 

When in trouble, emergency response and finding a port of refuge can be challenging. Large vessels require specialist salvage equipment and port infrastructure, which all adds time and cost to a response. The experience of the container ship X-Press Pearl, which eventually sank after it was refused refuge by two ports following a fire, is a case in point. Too often, what should be a manageable incident on a large vessel ends in a total loss.

Of particular concern is salvage. Re-floating or wreck removal for large vessels is a complex task, requiring specialist equipment, tugs, cranes and barges. The salvage operation for the car carrier Golden Ray, which capsized just outside the US port of Brunswick in 2019, took almost two years and cost in excess of $800mn. Environmental, social and governance (ESG) concerns are also helping drive up costs of salvage and wreck removal as ship owners and their insurers are expected to go the extra mile to protect the environment and local economies.

Higher salvage costs, along with the burden of larger losses more generally, are a cost increasingly borne by cargo interests. General average, the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture, has become a much more frequent event with the growth in container shipping and increased size of vessels.

Values at risk continue to rise with the size of vessels and inflation, while the costs of responding to incidents and clean-up are now typically many multiples of the ship’s value, explains Captain Khanna, Global Head of Marine Risk Consulting at AGCS. “Larger vessels mean larger losses. An incident involving a workaday container ship or car carrier – like the Golden Ray – can now cost as much as $1bn, once salvage and environmental considerations are factored in. A major incident involving two mega container/passenger vessels in an environmentally-sensitive region could cost in excess of $4bn."

A fire on board car carrier dummy Felicity Age [1] , beginning in February 2022, led to the vessel sinking in the Atlantic Ocean, along with its cargo of 4,000 vehicles. The incident occurred less than one year after a fire led to the sinking of the large container ship dummy X-Press Pearl [2] in May 2021 off Sri Lanka.

“Fires on board large vessels remain the top issue for the shipping industry. We continue to see major incidents involving fires on large container ships, and now the emphasis is also shifting to car carriers and ro-ro vessels,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

Catastrophic fires on large vessels typically begin with combustible cargo, which then spreads rapidly and outpaces the firefighting capabilities of the crew. The size and design of large vessels makes fire detection and fighting more challenging than traditional shipping, and once crew are forced to abandon ship, emergency response and salvage operations become more complex and expensive, and the risk of a major or total loss increases.

“The size and design of large container ships and ro-ro car carrier vessels makes fighting fires extremely challenging. Fires need to be contained quickly, yet it may take several hours to get to the base of a fire on a container ship with as many as 20,000 containers on board, stacked ten high,” says Randy Lund, Senior Marine Risk Consultant at AGCS.

“Fires that result in the capsizing and sinking of a vessel leave a learning void in terms of determining the root cause of the incident, which can help avert similar occurrences in the future,” explains Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Once a vessel has capsized or sunk the forensic fire investigations cannot be conducted and valuable information is lost forever."

Safety & Shipping Review analysis shows there have been over 70 reported fires on board container ships alone in the past five years, including incidents such as the 

dummy Yantian Express [3] (2019), and the dummy Maersk Honam [4] (2018), which made headlines around the world. More recently, a fire broke out on board the large container ship dummy Zim Kingston [5] in October 2021 after a container of dangerous goods was damaged in a storm.

There have also been many near misses. In 2021, a container of flammable products caused a large fire and explosion at dummy Dubai’s Jebel Ali [6] port. Protection and indemnity insurer Gard estimates that there was at least one fire involving containerized cargo every two weeks in 2020 [7].

Fires can take hold quickly and spread rapidly, yet container ship crews are relatively small in number, while detecting, locating and accessing a fire within a stack of containers is time-consuming. Fire-fighting equipment currently required under the International Convention for the Safety of Life at Sea (SOLAS) means crew face considerable risks when tackling a container fire, and are often unable to do so successfully.

“The X-Press Pearl [8] sinking (off the coast of Sri Lanka in May 2021) demonstrates how a relatively small fire can escalate and result in a total loss,” says Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Despite efforts by the crew to extinguish the fire and previous attempts to discharge the cargo at several ports, fire services were unable to save the vessel.”

Reducing the risk of fire on board large container ships will require a combination of regulatory action and industry initiatives, and there are encouraging signs that these are underway. Following proposals by insurers (dummy IUMI [9]), ship owners’ associations and the flag states of Germany and Bahamas, the International Maritime Organization’s (IMO’s) Maritime Safety Committee agreed last year to amend SOLAS with the aim of enhancing fire detection and fighting capabilities on new container ships. Although the review was held up by Covid-19, the amendments are expected to enter into force on January 1, 2028.

However, with the regulatory changes some years away, the emphasis will be on the shipping industry to tackle the issue in the short term, says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS: “We now have ships that are almost too large for the crew to fight fires effectively. There needs to be an urgent review of fire detection and fighting protections and equipment on board large container ships. We hope the IMO will soon come up with revised safety regulations with enhanced fire protection measures for large container ships.”

A number of blazes at sea in recent years have been traced back to combustible or mis-declared cargos in containers, including batteries, charcoal and chemicals such as calcium hypochlorite, an ingredient in cleaning products.

In March 2022, the dummy US Coast Guard [10] (USCG) issued a safety alert about the risk posed by lithium batteries following two separate container fires caused by mis-declared cargo. The first, saw a shipping container waiting to be loaded onto a container ship bound for China catch fire. According to the USCG, the bills of lading indicated that the container was carrying ‘synthetic resins’ when, in fact, it held used lithium-ion batteries.

In a similar incident in August 2021, a container full of discarded lithium batteries caught fire while being transported by road to the Port of Virginia, where it was due to be loaded onto a container ship. The cargo was mis-declared as ‘computer parts’. These incidents would have been potentially “catastrophic” had the containers caught fire after being loaded aboard the container ships, the USCG said.

It is estimated that around 10% of all containers loaded on board ships contain declared dangerous cargo. However, around dummy 5% of containers shipped [11] consists of undeclared dangerous goods — either due to administrative error or being deliberately mis-declared. For example, this would equate to 1,000 teu or more of undeclared dangerous cargo on board a 24,000 teu ultra-large container vessel.

According to Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS,regulators and the shipping industry must take urgent action if the problem of container ship fires is to be solved: “The key is to tackle mis-declaration. Some shipping companies are now imposing fines for customers not complying with requirements for declaration, but not all. This is an issue that the IMO could help solve.”

In 2019, the International Union of Marine Insurance (IUMI) and other stakeholders co-sponsored a submission to the International Maritime Organization (IMO) Sub Committee on Carriage of Cargoes and Containers proposing a comprehensive review of the International Maritime Dangerous Goods Code (IMDG Code), which defined and classified dangerous goods, as well as procedures for declaration. At present, some of those commodities are not considered dangerous and do not need to be declared as such by the shipper to the carrier.

Car carriers, the largest of which can hold as many as 8,000 vehicles, are susceptible to stability issues and fires, explains Justus Heinrich, Global Product Leader Marine Hull at AGCS. “Ro-ro vessels were already under scrutiny following a string of incidents, including the dummy Golden Ray [13], which reports indicate are set to cost the insurance industry more than $800mn. And now we have the Felicity Ace. These casualties are very complex and expensive to resolve.”

Fires have become a consistent loss driver for car carriers over the past decade. In many cases, fires involving vehicle cargos have resulted in the total loss of cargo and the vessel. The dummy Grande America [14] sank in 2019 carrying 2,000 cars following a fire. A few months earlier, in an incident reminiscent of the Felicity Ace, the car carrier dummy Sincerity Ace [15] caught fire and was abandoned whilst transiting to Hawaii from Japan, with the loss of 3,500 new vehicles.

Car carrier fires typically start in cargo holds, caused by malfunctions or electrical short circuits in new or used vehicles. A National Transportation Safety Board (NTSB) incident report into the dummy Hoegh Xiamen [16] incident in June 2020, attributed the fire — which led to the total loss of 2,420 cars — to an improperly disconnected car battery in a used vehicle. NTSB recommended improvements to car carrier regulations and improved oversight of vehicle loading and training by the ship’s operator.

Vessel design and commercial pressures are key risk factors for car carrier and ro-ro vessels. Vessels are under time pressure and have relatively short turnaround times at port. However, the stability of these vessels is dependent on complex pre-departure loading and ballast calculations, while vehicle cargos must be made safe and properly secured to reduce the risk of fire or cargo shift.

“The wide-open deck spaces on ro-ro vessels create additional risks for stability and fire, with very little margin for error. Any breach or water ingress will affect the stability of the vessel, while the open decks allow fires to spread quickly. However, these vessels are under huge commercial pressure with short turnaround times at port, which can result in vessels sailing before the crew has verified ballast calculations or completed lashing and securing watertight doors,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

“Fast turnaround times in ports put crews under immense pressure, leaving little or no time to complete critical checks and verifications,” agrees Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “Crews often work around malfunctioning instruments or make assumptions in order to keep to schedule, while there are also gaps in maintenance due to time constraints.”

In the case of the Golden Ray, the dummy NTSB accident report  [17] concluded that inaccurate stability calculations had probably caused the vessel to capsize. It also found that open watertight doors had allowed flooding into the vessel. It recommended that the ship’s operator revise its safety management system to establish procedures for verifying stability calculations and implement audit procedures.

“Incidents involving car carriers can be very expensive, given the value of cargo, and the cost of wreck removal and pollution mitigation. It’s in the interest of both operators and insurers to address this problem,” says Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS.

The fire and subsequent sinking of the ro-ro car carrier Felicity Ace [18] in March 2022, with the loss of some 4,000 vehicles, has further shone the spotlight on risks associated with EVs, and lithium batteries in particular. Given the vessel sank, the exact cause of the fire may never be known. However, it is thought the presence of lithium-ion batteries on board aggravated conditions.

“Lithium-ion batteries are a known issue for the shipping industry and the wider logistics industry, where there have been a number of near-misses in ports and during transport,” explains Régis Broudin, Global Head of Marine Claims at AGCS. “Batteries are not only a potential cause of fire, they also aggravate the problem, as battery fires are very difficult to extinguish and have the potential to reignite, days or weeks later.”

An emerging bank of research in the car manufacturing and shipping industries point to an increased fire risk on car carriers and ro-ro vessels from EVs. Test carried out by dummy P&I Clubs [19] have shown that ship water sprinkler systems alone are not effective at extinguishing an EV fire.

The growing popularity of EVs over traditional combustion engines will mean more vehicles with lithium-ion batteries transported by sea. Meeting global emission targets in line with the Paris Agreement could see dummy 70 million EVs manufactured by 2025 and 230 million by 2030 [20].

“However, EVs represent a significant change in risk profile for shippers when compared with traditional combustion engine vehicles and may require changes in vessel design, fire detection and fighting capabilities and cargo loading procedures,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “For example, EV batteries could potentially ignite if damaged, and therefore be susceptible to fire during a cargo shift in rough seas, if not adequately secured. Batteries can also combust with an increase in temperature from a fire in the surrounding area, or during on-board charging of an EV.”

EVs will particularly challenge existing fire detection and fighting capabilities. For example, battery fires require a large volume of water to extinguish and cool the surrounding area, which would endanger the stability of the ship if run-off channels become blocked. Crews will also need to be specially trained and equipped with appropriate detectors and fire extinguishing equipment, to ensure fires are detected and extinguished quickly.

“While EVs are inherently safe, transporting them is likely to represent an enhanced risk for the maritime industry, at least in the near-term,” says Chris Turberville, Head of Marine Hull and Liabilities UK at AGCS. “As the number of EVs increase, it would be prudent to ask the question if ro-ro car carriers are fit for purpose in terms of fire detection and fighting capabilities. These concerns should be addressed as a matter of urgency.”

General average (GA) is a complex and specialist legal process and has become a much more frequent event with the increase in the number of large container ships involved in fires, groundings and container losses in recent years.

“Our analysis shows an increase in GA cases with the increasing size of container ships. Up until five years ago, GA for cargo was a major event. Now GA has become a frequency event, as well as an intensity event,” says Régis Broudin, Global Head of Marine Claims at AGCS. “We now have clients that have been involved in multiple general average loss events.”

GA was declared on the dummy Ever Given [21], the ultra large container ship that blocked the Suez Canal after grounding in March last year. It was also declared following separate incidents of engine fires on the container ships dummy NYK Delphinus [22] and dummy Northern Jupiter [23] in 2021. Other general average events include the dummy Maersk Honam [24] container ship which caught fire at sea in March 2018 and the dummy Yantian Express [25], which suffered a container fire in 2019. Then, in March 2022, GA was also declared on the Ever Given’s sister vessel, the dummy Ever Forward [26], which ran aground in Chesapeake Bay on the US Eastern Seaboard, after it had been stuck for 18 days. Ship owner Evergreen said the GA decision came in light of the increasing costs arising from the continued attempts to refloat the vessel.

GA tends to be more complex and costly for large container ships, due to the sheer numbers of cargo interests involved, and the higher costs of salvage associated with these vessels. Typically, general average contributions are set at around 10-20%, but for larger vessels this can be as high as 50%, says Broudin.

“Incidents involving larger vessels are more likely to involve a complex response and face difficulties finding a suitable port of refuge,” says Broudin. “They will also typically involve a higher cost of salvage and wreck removal, requiring specialist tugs, cranes and salvage equipment. All these factors drive up cost, and lead to a higher contribution to general average.”

General average for the Ever Given is likely to end up at around 25-30%, but the loss could have been much higher. The vessel was floated on a Spring Tide, just six days after it grounded. Had the vessel, with 18,000 containers on board, not been released, it would have likely required a costly and time-consuming transhipment. 

A number of incidents involving large losses in recent years have ended in costly salvage and wreck removal operations, such as that of the car carrier 

dummy Golden Ray [27], which capsized just outside the US port of Brunswick in 2019, took almost two years and cost in excess of $800mn. The operation, the largest ever of its kind in the US, involved three million man hours and specialist equipment to cut the ship into eight pieces for removal.

The Golden Ray was one of the most expensive salvage operations ever, second only to the cruise ship Costa Concordia [28], which cost over $1bn after it capsized off the Italian coast in 2012. The container ship Rena, which grounded off New Zealand in 2011, took four years to clean up at a cost of $500mn [29].

“The rising cost of salvage and wreck removal for large vessels is a particularly worrying trend for the insurance industry. The complexity is compounded by environmental concerns, which continue to drive up the average cost of such incidents. Wreck removal for a large vessel can now easily run into the hundreds of millions of dollars, and in some cases upwards of $500mn,” says Randy Lund, Senior Marine Risk Consultant at AGCS.

Large container ships are of particular concern, as salvage techniques have yet to be tested on a 20,000+ teu vessel in a major incident, although there have been some close calls. In the Suez Canal, the dummy Ever Given [30] highlighted the potential challenges in refloating a large container ship. The safe discharge of thousands of containers from a stricken vessel, even in favourable conditions, would take time and is likely to stretch the capabilities and scope of equipment of the salvage industry.

“If you have an incident involving an ultra large container vessel it will most likely be a long, costly and painful salvage procedure. The question is whether the salvage industry can keep pace with the increasing size of vessels, and whether it is investing in upscaling equipment,” says Régis Broudin, Global Head of Marine Claims at AGCS.

The ESG effect on casualties is beginning to have a serious impact on claims, says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “In the past, a wreck might be left in-situ if it posed no danger to navigation. Now, authorities want to see wrecks removed and the marine environment restored, irrespective of the cost. The environmental responsibilities for owners and insurers will push up the cost of these events exponentially.”

“This is an area of concern for insurers and reinsurers. Over the past five years we have seen more and more claims over $100mn, with the bulk of the claim due to wreck removal and pollution mitigation,” adds Broudin.

The X-Press Pearl [31] sank off Sri Lanka in May 2021 following a container fire, resulting in one of the country’s worst environmental disasters. Prior to the sinking, the vessel had called at Hamad Port in Qatar and Hazira Port in India, but both were unable/unwilling to discharge a leaking cargo of nitric acid, which is thought to have caused the blaze.

The vessel is the latest in a growing list of container ships that have had difficulty finding a port of refuge following fires or problems with cargo. The dummy MSC Flaminia [32], dummy Maersk Honam [33] and dummy Yantian Express [34] all had to wait several months before they were granted refuge and their cargo could be safely discharged. Such delays increase damage and salvage costs.

“The X-Press Pearl loss is just the latest incident in which ports have been unable to provide timely assistance to a vessel. While port states may have valid concerns, the first reaction is often to turn a ship away, even when this endangers the vessel. This is an issue we have seen time and time again, and it is now time for the International Maritime Organization (IMO) and coastal states to address the problem,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.

These losses raise broader questions about how cargo-related incidents, and container fires in particular, should be handled in future, adds Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. “The X-Press Pearl incident raises questions for the obligations of port authorities with regards to vessels that are not in distress, but are under the threat of a total loss.”

“We need to review how port authorities can help the ship’s master, but also how the ship owner could have raised the level of the incident and involved other stakeholders – including insurers – to get a better response from the authorities. Changes to procedures and safety management systems might help avoid a repeat of this incident.” 

In March 2022, the container ship Dyros [35] lost around 90 containers and saw another 100 damaged in rough weather in the North Pacific Ocean. The incident was just the latest in what has become a worrying and expensive trend for insurers. Recent years have seen a number of container stack collapses at sea, resulting in losses overboard and damage to cargo on deck.

In January 2022, another container ship, the dummy Madrid Bridge [36], lost some 60 containers overboard and another 80 collapsed on deck when the vessel was hit by a large swell en route to New York from Singapore. In October 2021, more than a hundred containers fell overboard from the container ship dummy Zim Kingston [37] in heavy weather off the coast of Canada. The container stack collapse caused a serious fire on board, while the resulting debris spread for over 100km. These losses followed an unusually high number of container losses in the prior year.

Around 3,500 containers were lost at sea in four separate incidents over a three-month period in late 2020 and early 2021, including 1,800 containers lost on the dummy One Apus [38] and over 1,000 from the dummy Maersk Essen [39] and Maersk Eindhoven [40]. These incidents occurred in rough seas while the vessels were en route from China to ports on the US west coast. The loss of so many containers in such a short period was unprecedented, compared with an annual average of 1,382, according to the dummy Word Shipping Council [41].

“Container loss can result from a number of root causes, including mis-declaration, poor packaging and/or stowing of containers, and the use of sub-standard container lashing equipment and corner castings,” says Captain Anastasios Leonburg, Senior Marine Risk Consultant at AGCS. The large size of modern container ships is also likely to be a contributing factor, as larger vessels behave differently at sea to smaller vessels. Container stacks are exposed to huge forces on a modern container ship, especially when a vessel experiences parametric and synchronous roll in rough seas.

Container stack collapse and the loss of containers at sea can have serious safety and environmental consequences, particularly if dangerous cargo is involved, says Régis Broudin, Global Head of Marine Claims at AGCS. “There are questions around the potential for mis-declared cargo weights and lashings, but the problem may be another consequence of large vessels. The larger the vessel, the higher the containers are stacked, and this may cause issues in bad weather, which is likely to become increasingly severe given climate change.”

Such losses are also likely to be linked to the commercial pressures that container ships now operate under, Broudin adds: “Vessels have to keep to a tight schedule, which increases the risk of human error. Historically, the captain was the only boss when a vessel was at sea. But that is no longer the case with modern communications, which connect the bridge to shore. Transport by container vessel now requires a specific risk management approach, much more logistics-focused rather than traditional shipping.”

In a move designed to mitigate the loss of containers at sea, dummy the International Maritime Organization (IMO) [42] agreed last year to introduce a compulsory reporting system.

Under the Safety of Life at Sea (SOLAS) convention, flag states are required to submit accident reports to the International Maritime Organization (IMO). However, of the 526 serious shipping incidents that involved loss of life, major pollution or the total loss of a vessel that took place between 2017 and 2020, just 63% had an accident report submitted as of March 2021, according to data compiled by 

dummy Lloyd’s List [43] from the IMO. This was a slight improvement on the 50% rate of filing recorded two years previously, but well below the IMO’s target rate of 80% by 2022.

“Maritime investigation reports by flag states often take too long, in many cases they are not published until several years after the incident, and in some cases, never at all,” says Mara Blagojevic, Senior Marine Risk Consultant at AGCS. “Clearly this is not sustainable. Investigation reports are critical for learning from incidents and avoiding a repeat of mistakes in the future.”

With a worrying number of complex accidents involving large vessels in recent years – several of which have led to a loss of life – there is an urgent need to learn from these accidents and improve regulation, controls and processes, says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “The IMO should now table stricter regulation to speed up the production of casualty investigation reports so we can learn from these incidents in a timely manner.”

Even when reports are published, more could be done to understand the root causes of incidents, according to Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS. The National Transportation Safety Board (NTSB) investigation report in the US into the loss of the Golden Ray took two years to complete, and had just two recommendations. Although the 46-page dummy report [44] (with 1,700 pages of supporting factual information) was detailed, it left many questions unanswered, and potential lessons unlearned.