26 April 2007

Releasing its 2006 annual results at the end of March, transport insurance specialist TT Club revealed that its biggest single loss during the year had been a man-made one - the explosions and huge fire on board the Hyundai Fortune, in the Gulf of Aden on passage from the Far East to Europe. The incident, the direct cause of which has still to be identified, resulted in the loss of over 500 containers. The total cost arising from this and similar incidents is anticipated to exceed US$100 million.

At the same time TT Club's risk management director, Peregrine Storrs-Fox, spelled out some of the stark realities concerning dangerous goods in an address to delegates at a conference organised by the SE England Branch of the Nautical Institute. At the conference, entitled 'Undeclared Hazardous Goods - Causes & Consequences', Mr Storrs-Fox voiced the insurance industry's deep concern at the dangers of mis-declared or undeclared dangerous goods and its fears that, combined with the current trend towards ultra-large container ships with capacities of 13,000 teu or more, wrongly declared dangerous goods will at some stage result in a catastrophic loss of enormous proportions.

The odds against such an incident happening are not good, said Mr Storrs-Fox, pointing out that there have been 16 major container ship casualties between 1998 and 2006 - an average of two per year. Describing dangerous goods incidents as a "persistent and growing problem", Mr Storrs-Fox called on not just the maritime industry but "all parties involved in the supply chain" to reduce the incidence of non-compliance with the International Maritime Organization's IMDG Code, which governs the sea transport of packaged dangerous goods.

Scale of the problem

Mr Storrs-Fox stated that between five and 10 per cent of the world's containerised cargoes comprised declared dangerous goods, and the proportion was rising. Separate research by Drewry Shipping Consultants identified the total volume of global containerised trade in 2006 as 127.8 million teu, up about 10 per cent over 2005, indicating shipments of between 6.4 and almost 13 million teu of declared dangerous goods per year.

Of that number, limited IMO sampling over the last decade had uncovered a deficiency rate averaging about 30 per cent on the details of declared IMDG cargoes while, of course, the volume of undeclared dangerous goods remains unknown. However, the IMO has previously estimated that over 95 per cent of the world's dangerous goods are carried in accordance with the IMDG Code. If this is so, the balance could amount to well over half a million undeclared containers per year.

Exacerbating the problem of rising volumes is the concentration, or aggregation, of the risk as ship sizes get larger. The largest ships now entering service are more than double the capacity of Hyundai Fortune, noted Mr Storrs-Fox, leading to the potential for a worst-case scenario loss on a 14,500 teu ship of over US$2.1 billion based on figures provided by reinsurer Munich Re.

Drivers of non-compliance

Mr Storrs-Fox highlighted that there were both deliberate and non-deliberate factors causing non-compliance with the IMDG Code. Among non-deliberate were lack of experience and training, volume pressures, the complexity of the rules for different modes of transport and the lack of effective controls and enforcement. "Each part of the supply chain has to rely on trust of others," he noted, pointing out that that out of 166 IMO member states only an average of five per year have reported on systematic inspections.

Of more concern were deliberate reasons for non-compliance, including cost cutting and lack of a safety culture, a desire to avoid dangerous goods surcharges and increased insurance premiums, limited sources of some products and the necessity to ship cargoes that some lines ban.

"Ignorance may not be a defence, but it is less culpable than deliberate actions," said Mr Storrs-Fox.

Risk mitigation advice

Mr Storrs-Fox offered delegates some practical and achievable recommendations to reduce the risks inherent in mis- or undeclared HNS. Urging all parties in the supply chain to "know their customer" - basic business advice in relation to credit-worthiness - he argued that it was proper for forwarders and carriers to understand enough about their customers' business activities to identify whether dangerous goods may be involved.

He also urged that, if flag states were not equipped or interested to mount systematic compliance inspections, industry in the form of carriers, terminals and potentially forwarders should take inspections into their own hands.

"All contracts of carriage allow for carriers to inspect and charge back," he reminded his audience. "Years ago major container consortia used to spot-check about 10 per cent of shipments. Simple random checks, with penal charges back to errant customers could be an effective deterrent. What is monitored tends to be obeyed," he observed.

Further industry moves to improve compliance should include vigorous support for modal standardisation of dangerous goods requirements, the removal of disincentives to honesty such as hazardous surcharges and, most importantly, improved information and training. In relation to this, Mr Storrs-Fox said that the TT Club is participating in an insurance industry initiative to support the UK government's proposal to mandate shore-side training in relation to dangerous goods within the IMDG code and urged liner operators to lobby the flag states of their fleets to accept this amendment at the IMO.

ENDSNote to Editors:

The TT Club is the international transport and logistics industry's leading provider of insurance and related risk management services. Established in 1968, the Club's membership comprises ship operators, ports and terminals, road, rail and airfreight operators, logistics companies and container lessors. As a mutual insurer, the Club exists to provide its policyholders with benefits that include specialist underwriting expertise, a world-wide office network providing claims management services, and first class risk management and loss prevention advice.

Photo Note:

A high-resolution digital image of Peregrine Storrs-Fox is available from the ISIS Communications Press Room at www.isiscomms.com or on request frominfo@isiscomms.com

For further information please contact:

Ian Lush, Marketing Director, TT Club

Tel: +44 (0) 20 7204 2642

E-mail:

ian.lush@thomasmiller.com www.ttclub.com

Media contact:

Peter Owen, ISIS Communications

Tel: +44 (0) 1737 248300

E-mail:

info@isiscomms.com

A full archive of all TT Club news releases and photographs is available from the ISIS Communications Press Room at www.isiscomms.com