When distances that products are shipped from their point of production to the end consumer "“ a subject covered under Warehousing in the last edition of Logistics Insight
"“ are discussed, it is often overlooked that the biggest distances are those covered by merchant ships, which can be described as the linchpin of the logistics chain.
Some 95% of world trade is seaborne, but none of the huge variety of vessels engaged in carrying cargoes hither and thither around the world can operate without the safety and security provided by the marine insurance industry.
In a word, marine underwriters oil the nautical wheels of commerce. They insure oil and gas tankers, bulk carriers, containerships, general cargo vessels, cruise ships and passenger liners, ferries, tugs, yachts and pleasure craft, and the myriad of support vessels working in the offshore energy industry and renewable energy fields such as offshore windfarms.
Marine insurers underwrite the property risks (i.e. the ship's hull and machinery), while protection and indemnity (P&I) mutual clubs and a small number of fixed-price commercial P&I insurers cover third party liability risks. Basically, marine insurers provide insurance on a door-to-door basis as overland transport and storage of cargo can be included in the insurance packages offered by underwriters, so it is not only the time the cargo is on board a ship. In logistical terms, therefore, the door-to-door concept is of immense importance.
A handful of mutual clubs are also involved in the transport and logistics industry's insurance needs and related risk management services, covering port and terminal operators and their equipment etc. To the man or woman in the street, probably the most recognisable form of marine transport is represented by the container "“ or box "“ ship. This is because they form the biggest segment of the merchant fleet and, unfortunately, also because of some high-profile casualties involving this type. Think of the huge media exposure given to the MSC Napoli, struck by bad weather in the English Channel in 2007 and deliberately beached off the Devon coast so her cargo could be saved, before she was broken up by the salvors and towed away in pieces.
The Napoli was a relatively small boxship, but very soon we will see ultra-large containerships (known as ULCS) ploughing the long-distance sealanes.
Container transport has changed global trade dramatically over the course of its 50- year history. Now it is going to change it again as the shipping industry sets out to prove that size does matter. ULCS represent the largest portion of total teu scheduled for delivery between now and 2012. According to maritime research companies, a whopping 760,000 teu is scheduled for delivery in 2012 (one teu equates to a 20ft container).
Happily, the size of oil tankers, or very large crude carriers, seems to have peaked; but the size of LNG (liquid natural gas) carriers continues to rise.
What does all this mean for marine underwriters? Our industry has always successfully responded to the needs of our clients, and so too will we respond to insuring these ever-larger vessels. However, there is no doubt that giant containerships present new challenges and demands: provision of the infrastructure, including the quality of terminals and their operators, more warehousing, competent crews to man the ships, and more powerful salvage vessels and tugs for casualty incidents. All this will tend to increase the operational risk insured by underwriters.
In the wider world of insurance, a mega insurance broking house, Aon, has recently identified 16 countries which are at "severe" risk of suffering terrorist atrocities and political violence, highlighting the fact that the wave of popular uprisings across North Africa and the Middle East has brought a new threat to international business, and that includes shipping and insurance. The 16 countries include Chad, Lebanon and Ivory Coast, as well as Egypt and Afghanistan. Last year, only six countries were rated "severe". This year, in addition to the 16, a further 38 countries have received a "high" threat ranking.
All this political turmoil impacts marine insurance both directly and indirectly. Directly because shipping trade is often seriously disrupted by military and civil actions, by trading sanctions imposed by the UN, the US or the EU, and of course by the overarching nightmare of piracy wherever that heinous crime is perpetrated.
And it is a nightmare: dozens of ships held by Somali pirates, sometimes for many months, some 500 crew members held hostage, murder and torture, and the payment of ever larger ransoms. The continuing escalation of the piracy risk, particularly in the Indian Ocean/Gulf of Aden and lately the Red Sea, represents a major disruption to world trade, and is of great concern to insurers.
Underwriters are impacted indirectly because even non-marine insurance covers, including those for natural catastrophes, invariably involve the reinsurance market. When reinsurance rates go up, the direct writers are adversely affected.
This fast-changing world scene is underlined by the theme for this year's annual International Union of Marine Insurance (IUMI) conference in September: Marine Insurance "“ the Evolution of Risk, Safety and Security. The primary role of the marine underwriting community is to keep world trade moving by providing insurance cover that is adequate, fit for purpose and secure, to give shipowners, cargo owners and charterers peace of mind. Thus, marine insurance supports global trade.
IUMI, founded in 1874, has 55 members; these are the national marine underwriting associations dotted around the world. Membership is open only to underwriting entities, not brokers. IUMI exists to protect underwriters' interests, to interface with governments, the regulators, ship classification societies and salvage organisations. It has a very active presence at the International Maritime Organization, the UN agency charged with responsibility for the world maritime industry, and IUMI will vigorously lobby when necessary.
Its other core activities include the production of annual statistics on changes in the world fleet and casualty experience; marine insurance education; the pursuit of excellence and transparency in all underwriting operations; and its annual three-day conference, which regularly attracts 500-plus delegates, and a shorter technical meeting in the spring.
It has a number of affiliate members from the maritime industry and legal profession who are welcome at its conferences. Also, it has recently established a new category of membership "“ IPPs, IUMI Professional Partners. Indeed, this type of membership, now approaching 20, may be of interest to companies concerned with logistics.
This year, our annual forum will be held in Paris, 18 - 21 September.