The YM Efficiency hit the headlines recently when it pulled into port minus a few cargo containers.
And by a few, I mean more than 80.
Heavy weather en route from Taiwan had given the vessel a hammering and while the vast majority of its load made it to Sydney intact, it was little relief to the business owners whose cargo was now washing up on the NSW north shore.
The situation was a case study for cargo owners on the importance of arranging individual marine insurance.
The immediate aftermath highlighted three key questions.
1. How often do containers fall overboard?
2. What compensation can cargo owners expect?
3. How are containers held together on a ship?
Firstly, no central records are kept of how many containers are lost overboard each year. The number likely ranges from several hundred to 10,000 and while that might seem high, the volume of containers being moved globally each year is in the millions. For instance, SURA Marine has never had a claim submitted for the loss of a container overboard as of 2018.
It’s when it does happen that liability isn’t so straightforward. If a ship owner was fully responsible for up to 20,000 cargo containers, the billions of dollars in risk would be uninsurable and a disincentive for anyone wishing to enter the shipping business.
Liability of shipping companies is therefore limited by different conventions that countries have signed up to or incorporated into their own domestic laws. The most common of these for sea freight are the Hague-Visby Rules.
Under Hague-Visby, shipping companies have certain defences available to them by which they can be absolved of liability. One such defence is ‘perils of the sea’ where shipping companies can reject claims for damage to cargo provided they can show evidence of extremely rough weather.
The challenge that cargo owners and their insurers face in these circumstances is demonstrating that loss or damage was due to factors within the shipping company’s control. For example, poor lashing or stability of the vessel.
This is a difficult proposition given the strength of the twist lock connectors that shipping companies use to secure containers to their vessels.
Additionally, if the shipowner can show the damage to the cargo occurred by taking action for the common good of all concerned, cargo and ship losses will be proportionally split among all cargo owners. Even if the carrier is negligent they may be able to limit their liability far below the real value of the cargo.
It all adds up to cargo owners needing to spread the risk by arranging their own insurance. This, coupled with carriers paying a reasonable level of compensation, maintains the commercial viability of the shipping environment.
After all, it’s a much better option than fishing it out of the NSW north shore.
Chris Collins is the Underwriting Manager for SURA Marine.About SURA Marine
SURA Marine delivers international market quality insurance protection for marine cargo, general property, carriers load and commercial hull risks.
Find out more about SURA Marine here or call us on 02 9930 9508.