MARINE MARKET REPORT - Gallagher · HULL & MACHINERY REPORT 2017 2 INTRODUCTION Welcome to the March 2017 Arthur J Gallagher Marine Hull and War Risks Market Report. The main topic

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HULL & MACHINERY REPORT 2017

MARINE HULL & MACHINERY AND WAR RISKS MARKET UPDATEMARCH 2017

MARINE MARKET REPORT


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Founded by Arthur Gallagher in Chicago in 1927, Arthur J. Gallagher & Co has grown to become one of the largest insurance brokerage and risk management companies in the world. With significant reach internationally, the group employs over 21,500 people and its global network provides services in more than 150 countries.

Outside the US, we use the brand name Arthur J. Gallagher.

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CONTENTSINTRODUCTION 2

MARKET MOVES 2

CASUALTY REPORTS 3

INSTITUTIONAL DEVELOPMENTS IN THE CREWING SECTOR AND THEIR MARKET IMPLICATIONS 5

WAR AND PIRACY 9

REFERENCES 11

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INTRODUCTION

Welcome to the March 2017 Arthur J Gallagher Marine Hull and War Risks Market Report.

The main topic of discussion during the busy first few months of the year has been when the market softening will begin to slow. There are a wide range of views on this although the general consensus is that the insurance market is still favourable for buyers. The recent withdrawal of WR Berkley from Marine Hull insurance may be an indication of the ever reducing profitability in the sector and there is a good chance of further capacity reductions in the future as capital providers look for better returns elsewhere.

In this report, we are pleased to present a guest article from Epsilon Hellas regarding recent developments in the crewing sector. We hope that the insights provided here will be of interest to all those involved in shipping.

As mentioned above, WR Berkley have ceased writing Hull & Machinery via their Lloyds Syndicate platform.

Mike MacColl has now started in his new role as Marine Hull Underwriter at XL Catlin Syndicate 2003. Mike joins from Talbot Syndicate. Mike Talbot continues in his role as Global Head of Marine Hull for XL Catlin.

MARKET MOVES

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CASUALTY REPORTS03

KANZAM EXPRESS

The 1994 built catamaran ferry Kanzam Express sank off Itbayat Island in Batanes, Philippines on 28th November 2016. The ferry sank during a typhoon with no passengers, but with seven crew on board. Five crew members were rescued by the passing bulk carrier Ingrid C and the remaining two went missing.

MAERSK SEARCHER AND MAERSK SHIPPER SANK OFF FRENCH COAST

Two decommissioned Maersk Supply Service anchor handling tug supply vessels (AHTS) sank off Ile de Sein on December 22 as they were being towed to a scrapyard in Turkey for recycling. According to the Maritime Herald both vessels were unmanned at the time of the incident, whereas according to other reports ten people were on board the Maersk Battler which was undertaking the tow and were all well and accounted for. The two vessels had left Fredericia, Denmark on December 12 under tow. According to later reports the Maersk Searcher sank first due to a leak 60 nautical miles off Ile de Sein followed by the Maersk Shipper which sank approximately 70 nautical miles off Sein (gcaptain.com).

Above: Kanzam Express

Above: Maersk Searcher

Above: Starlire Atlantic

Above: Shuttle Roro 5

TYPHOON NINA

The 634 dwt ro-ro ferry ‘Starlite Atlantic’ sank off Barangay Corona in Tingloy, Batangas, Philipines on 26th December 2016 after she was caught at the height of Typhoon Nina (Nock- Ten) and subsequently ran upon the rocks. Multiple hull breaches led to water ingress and capsize. The body of one of the passengers was recovered while eight were reported at the time as missing. During the incident the ferry was carrying 23 people.

On the same day another incident related to the same typhoon took place at Batangas, Philipines where the ro-ro ferry ‘Shuttle Roro 5’ ran aground after being struck by heavy wind. The crew decided to abandon the ship and all 25 people on board were later rescued.

The typhoon caused several vessels, with 7 more passenger and ro/ro ferries reported, to run aground the Philippines at Puerto Galera, Oriental Mindoro.


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CABRERA SANK

The 2007 built general cargo vessel Cabrera ran aground on the Greek island of Andros at approximately 0430 hours local time on 24th December 2016. According to Roose & Partners casualty newsletter no. 196, the vessel was on route from Larymna, Greece to Tornio in Finland loaded with a cargo of ferronickel. At the time of the incident the weather was stormy with winds of around 7 to 8 force and forced the vessel to the rocky coastline of North Andros, at the Kampanos area. Following the grounding the vessel partially sank making the evacuation of the crew very difficult. With the help of the Hellenic coast guard all nine crew were evacuated by helicopter. The grounding caused breaches of the hull and some fuel tanks with unknown quantity of oil leaking into the water, forming according to reports water pollution in an area of approximately 500 sq.m. The following days of the incident the weather deteriorated further with winds in the area of approximately 9-10 leading to the vessel sinking.

Megatugs Salvage, a specialised Piraeus based company have been appointed by the shipowner to assist in the oil removal operation and salvage and the tug Pantanassa was dispatched in the area. This was the second serious incident in the same area in recent years, following the grounding of the vessel Good Faith in 2015 in the Peza area.

MSC CLORINDA GROUNDING

The 165960 dwt Ultra large container ship MSC Clorinda ran aground on 4th January 2017 on the Suez Canal near the 145 kilometer mark according to Shipwrecklog.com. At the time of the incident The MSC Clorinda was headed northbound. Three tugs were dispatched to the scene and refloated the boxship a few hours later. During the accident no injuries, damage or pollution were reported. Reports stated the MSC Clorinda continued on its voyage from Singapore to Izmit later the same day.

This is the third large containership that grounded in the Suez canal since April 2016 following the groundings of ‘MSC Fabiola’ and ‘Maersk Shams’.

Above: Ultra large container ship MSC Clorinda

Above: Cargo vessel Cabrera

Above: The diving teams on board the tug Pantanassa

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INSTITUTIONAL DEVELOPMENTS IN THE CREWING SECTOR AND THEIR MARKET IMPLICATIONS04


By Dr Konstantinos Poulis General Manager of Epsilon Hellas

Crewing has historically been treated as an epiphenomenon to the core operational routines of many shipping firms. Crewing or manning departments were often portrayed at the periphery of a firm’s formal organizational structure, occupied a rather limited physical space within the firm’s premises and were normally understaffed. This marginalized perceived importance was aggravated by the lack of a relevant curriculum in maritime universities and departments. The latter could have contributed to the much-needed professionalism in the sector through dedicated crew management modules thus, nurturing the next generations of crew managers; professionals who combine solid human resource management knowledge and unconditional love for the sea and her people. Instead, there has been a striking absence of relevant programs of study and a rather dire image of crewing as a value-adding function within the shipping value network.

Up until recently, this paradoxical observation (considering the importance of seafarers for a shipping entity) was only counterbalanced through the heroic efforts of individual crew managers (normally ex-seafarers) and their intuition and practical wisdom. While those latter qualities are still needed in the sector, three additional elements are now in place, which altogether put crewing concerns and manning procedures firmly at the very core of a contemporary shipping firm’s operation:

i) The shipping sector is firmly characterized by a rigorously implemented and recently amended institutional/regulatory framework which governs the state of affairs between employers (ship owners/managers) and employees (seafarers). A particular focus here is on the amended STCW and MLC. The institutionalization of education and training arrangements and employment relations has offered a lot to the sector and keeps doing so. However, as with every major change, it has also aggravated challenges in relation to the efficient management of resources and the need to keep up with a shifting regulatory landscape through significant internal adjustments and trustworthy external collaborations (e.g. with a partner such as a manning agent).

ii) Shipping operations suffer from the increasing shortage of competent seafarers. As if this was not enough, this shortage is taking place in the midst of enhanced requirements by even more discerning Principals and Charterers (e.g. in terms of navigation schedules, incidents records, cargo operations, crew

synthesis etc.). Such strict and over-and-above STCW requirements make crew selection a highly delicate task and proper crew training a rather complex endeavour.

iii) The aforementioned institutionalization and professionalization of the field is taking place in the contemporary, rather gloomy economic climate that affects us all in the industry. In such a context, crewing-related costs (wages, provisions, air transportation etc.) are the most or one of the most costly items out of all operational expenses of a shipping company. Therefore, prudent crew management is as imperative as ever before.

Hereafter, I will attempt to shed some light on these entangled elements which highlight the contemporary importance of crewing.

INSTITUTIONAL REGULATIONS AND THEIR RECENT AMENDMENTS

STCW and MLC are two of the main institutional pillars in the shipping sector and constitute the regulatory bedrock for seafarers’ training, competence and welfare management. Both have arguably contributed to safety and the overall professionalism in the field while solidifying an ethics of care in our labour-intensive sector. Compliance to their mandates is an undeniable reality by all parties concerned but the fair enforcement and monitoring of compliance (primarily in terms of interpretation by competent authorities) is still an area of controversy that sparks debates and tensions. This controversy can be attributed to institutional complexity, diverse cultural norms, interlocking of variable interests, time concerns and other more or less pragmatic and fair reasons.

This sensitive issue of compliance and enforcement is destined to be even more pronounced from this year onwards. January 2017 is a milestone for STCW and MLC; new certificate-holding expectations kick in (more specifically, the implementation period ends) and, among other things, MLC requires financial cover for abandoned seafarers through dedicated insurance instruments. My purpose here is not to bombard the reader with the technicalities of these amendments. These can be credibly sourced elsewhere i.e., through relevant newsletters and information packs issued by e.g. IMO or ITF. The main takeaway of this article is that these amendments generate important market-level implications for various stakeholders, which I aim to delineate below.

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STCW AMENDMENTS AND THEIR IMPLICATIONS

The new amendments create a requisite pressure to seafarers to renew their skillset and demonstrate this through relevant certification (e.g. bridge and engine resource management as well as leadership requirements for senior officers or new competency requirements for electro-technical officers). For pragmatic reasons (such as time constraints or inadequate local training infrastructure) and for less ‘legitimate’ reasons (of mere negligence or poor scheduling by manning agents), such demonstrated renewal is not necessarily achieved at the industry level. Therefore, the aforementioned tensions related to enforcement and compliance are expected to increase while the available pool of seafarers is destined to shrink even further as a result of non-compliance.

Such increased requirements are of course aiming towards enhanced professionalism. Nevertheless, they take place in a context of a diminishing global seafarers’ pool, which is not enough to meet the levels of demand for competent and experienced seafarers by judicious Principals. Therefore, a further decline in numbers of available seamen (due to lack of proper certification) is detrimental to the smooth operational flow of many shipping firms. The industry relies on seafarers’ accumulated expertise but this reliance is not any more deployed in an era of resource abundance and immediate availability of workforce. As a result, many firms will struggle to secure access to the local talent that seafaring nations traditionally produce.

What is proposed as a solution to this increasing shortage problem is the opening up of new labour-supplying markets. Traditional seafaring nations such as the Philippines or Ukraine will continue to be at the forefront of crewing developments but alternative sources of labour supply are also needed in order to meet the levels of demand for qualified workforce at sea. In order to tap into this opportunity, many nations still have to develop the requisite educational and training infrastructure. Otherwise, they will not be deemed as trustworthy sources, which could equip the global fleet with competent crew. However, other nations have already achieved enhanced levels of professionalism. Several countries such as Vietnam, Turkey, or Romania generate thousands of qualified seafarers. Especially the younger generations in those countries are avid readers and speakers of English, have attended state-of-the-art maritime educational programs in modern facilities and are enthusiastic about a career with an international shipping company.

The flipside here though is that some of them lack an internationalized profile i.e., their perceived levels of appeal in the eyes of e.g. a Greek crew manager is limited by a lack of international sea service. However, this is not the case with all nations nor with all seafarers within individual nations. It all depends on the delicate selection and rigorous recruitment process that the collaborating manning agent follows. Manning agents are co-creators of value for shipping firms. Therefore, if their procedures are performed professionally, such nations have to offer highly experienced seafarers and thus, prove that the aforementioned crew shortage problem is to a large extent nominal and not actual.


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Our experience in Epsilon has clearly demonstrated that shipping firms that have availed of this pool in such countries have identified a solution, which meaningfully complements traditional sources of recruitment. This has resulted in a win-win situation for all with exceptionally positive performance outcomes (in terms of retention, efficient rotation, increased productivity onboard etc.). Other firms, which insist on a more conservative approach also start realizing that they cannot expect ready-made solutions. The shortage problem will be aggravated even further as a result of institutional pressures (among other reasons) and thus, a flexible and innovative recruitment policy is a necessity.

MLC AMENDMENTS AND THEIR IMPLICATIONS

2014 MLC amendments are mostly related to financial loss for seafarers in case of abandonment. Abandonment is considered any failure of the shipowner to provide timely repatriation, maintenance and support, and payment of contractual wages. This is a major advance in the relationship between shipping firms and seafarers and will act as a safety net for seafarers who may be mistreated by less prudent shipowners.

The relevant provisions in the amended MLC document note the need for a financial security system that will provide ‘direct access, sufficient coverage and expedited financial assistance’ to seafarers. Therefore, a new insurance product needs to be in place which will increase relevant costs for shipping firms. Our expert friends in Arthur J. Gallagher are in a much better position to estimate the effect that this transfer of risk will generate for the industry and the level of insurance

premium that will be established. At the moment, I can only predict that this will be a substantial expense since shipping firms (according to the relevant MLC wording) will need to care for cover of costly items such as wages, food provisions, medical care, fuel, accommodation, tickets etc. Therefore, it seems that a new, rather expensive item will be incorporated as a standardized inclusion for cover in default P&I arrangements.

CONCLUSION

Crewing, as an industry, goes through a historical transformation, increased professionalization and robust institutionalisation. The abovementioned regulatory demands cannot allow anything less than a high-quality approach when it comes to managing crewing affairs. We, at Epsilon, welcome these challenges and embrace this rate of change since these developments will benefit firms such as ours, which have always been passionate about our core task i.e., nurturing and deploying human talent at sea. Our people have done this since 1976 and we are adamant that passion and knowledge are a good enough arsenal to navigate through the clutter of manning operations successfully.

In this article, I attempted to highlight the implications stemming from two such major regulatory developments, which have topical importance and long-lasting effects. The first (STCW amendments) is expected to aggravate symptoms of crew shortage in an already resource-depleted market. A viable and tested solution was proposed based on my experience as an executive in Epsilon. The second (MLC amendments) is expected to exert a significant pressure on shipping firms’ insurance



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budget due to the centrality of crewing costs in the shipping firm’s overall expenses. Both have financial ramifications though since even the former challenge of crew shortage cannot be addressed through seamless means at no cost. Shipping firms will need to invest time and effort and take bold decisions in order to maintain a sustainable crew pool. This investment will be even more necessary in light of increasing requirements by Charterers for all types of vessels and in the midst of the gloomy economic climate described in the beginning of this article. Nevertheless, the medium-to-long-term rewards for the Principals who have the foresight to realise the positive ramifications of investing in crewing resources are plenty (both in economic and quality terms). While it may be early to estimate the actual consequences of non-investment, it is safe to say that a rigid and passive approach to contemporary crewing challenges will act as a stumbling block to the sustainable growth of a shipping firm.

It is up to all of us to assess the optimal ways through which these variegated challenges will be overcome. Shipping firms in collaboration with their manning agents have historically proved that they are ambidextrous and resilient enough to overcome or adapt to institutional constraints and demands. The question is how fast the whole industry will adjust to the new reality so that the inevitable shockwave to multiple stakeholders is as limited as possible.

Epsilon is a leading provider of crew management, manning and training services. It serves some of the most prestigious shipping houses through a portfolio that covers the entire spectrum of crewing operations. It mans an excess of 500 ocean-going vessels and trains more than 1,000 seafarers every month through its own offices and training centers in the Philippines (Manila & Cebu), Ukraine (Odessa & Mariupol), Russia (Novorossiysk), Romania (Constanta), Turkey (Istanbul), Vietnam (Hai Phong), Indonesia (Jakarta), Greece (Piraeus), and Cyprus (Limassol). It employs more than 220 employees as back-office personnel and recruits and deploys approximately 5,100 seafarers onboard at any time. More details about the company and its services can be found at www.epsilonhellas.com or, alternatively, you can contact the author directly by sending an email to [email protected]


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YEMEN UPDATE

The 1990 built general cargo vessel Jouya 8 was reported struck by a missile off the coast of Yemen near the port of Hodeidah on 21st December 2016, while sailing from Egypt to Dubai. The Iranian 699dwt vessel was speculated sank and one of the eight crew survived the attack. According to Maritime Herald, the rocket missile probably came from a boat or jet near the Yemeni coast which is controlled by Houthi militia. Nevertheless as per the newsletter regarding Yemen Security Update which was issued by the Norwegian Hull Club on 7th February 2017 all details of the incident have yet to be confirmed. According to the same report there was also an apparent attack on the cargo vessel SULTAN 2 (a landing craft type) north of Bab el Mandeb on 3rd January 2017.

Full Norwegian Hull Club report can be found at: https://www.norclub.no/news/yemen-security-update/

ROYAL 16

Accrding to the ReCAAP November 2016 Monthly report, on 11 Nov 16, the Vietnam-registered bulk carrier Royal 16, was attacked by 10 armed perpetrators who boarded the vessel around 0330 hrs while underway from Hai Phong, Vietnam towards Davao, Philippines. The perpetrators fired at the cabin doors of the ship, wounded two crew, abducted six other and fled in a speed boat. The remaining 13 crew were left on board the bulk carrier. A passing domestic cargo vessel MV Lorcon rendered assistance to Royal 16, reported the incident to the Philippine Coast Guard (PCG) Operation Station in Zamboanga and evacuated the two wounded crew to Zamboanga City for treatment.

Full ReCAAP report can be found at: http://www.recaap.org/DesktopModules/Bring2mind/DMX/Download.aspx?Command=Core_Download&EntryId=464&PortalId=0&TabId=78

WAR & PIRACY NEWS05


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PIRATES KIDNAP 8 CREW FROM CARGO VESSEL OFF NIGERIA AND TWO TANKERS WERE ATTACKED

According to World Maritime News, Pirates have kidnapped seven Russians and one Ukrainian after attacking the ‘BBC Caribbean’ vessel off the coast of Nigeria on February 5th 2017. The 2008 built cargo vessel at the time was some 120 nautical miles west- southwest of Bonny Island according to the Managers of the vessel while en route from Duala, Cameroon to Tema, Gana.

Another vessel, the crude carrier Rio Spirit was also attacked by pirates 110 nautical miles south off Akassa in Nigerian Delta on February 4th 2017. Several hours after leaving the Qua Iboe terminal port, the vessel was approached by a motor skiff with armed men on board, who tried to hijack her. The crude carrier Rio Spirit was under security cover by the operatives of the Nigerian Navy, who repelled the attack and reported the accident to the local authorities, with Nigerian navy ship Victory sent at the scene and reaching the vessel shortly after the attack.

On a third attack the LPG tanker Gaz Providence was attacked by pirates in the Bight of Bonny on 40 nautical miles south of Bonny Island, Nigeria as reported by the Maritime Herald. The vessel was approached by a motor skiff with armed men on board. The crew sent distress signal to the local authorities and Nigerian navy and locked in the citadel. The Nigerian navy ship Okpabana was dispatched at the scene and rescued the oil tanker and all the 21 crew members on board. The pirates fled away after stealing some valuables and cash, but without causing sufficient damage to the vessel and all the seamen were in good health with no injuries reported.

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ARTICLE ARTICLE SOURCE PHOTO PHOTO SOURCE

Kanzam Express https://www.shipwrecklog.com/log/2016/11/kan-zam-express/

http://www.philstar.com/na-tion/2016/11/30/1648739/boat-sinks-bat-anes-2-missing

Maersk Searcher and Maersk Shipper

http://www.maritimeherald.com/2016/two-maersk-offshore-supply-vessels-sank-in-celtic-sea-en-route-to-scrapyard/

http://gcaptain.com/sunken-maersk-supply-vessels-located-off-france/

http://www.maritimeherald.com/wp-content/uploads/Maersk-Searcher.jpg

Typhoon Nina http://www.shipwrecklog.com/log/tag/nock-ten/ http://www.shipwrecklog.com/log/2014/01/starlite-atlantic/starlite-atlantic/

www.shipwrecklog.com/log/2016/12/shut-tle-roro-5/

Cabrera http://www.rooselaw.co.uk/RoosePartners%20Casualty%20Newsletter%20-%20Edition%20196%20-%2028%20December%202016.pdf

http://enandro.gr/koino-nia/2842-%CE%BF%CE%B4%CE%B-F%CE%B9%CF%80%CE%BF%CF%81%CE%B9%CE%BA%CF%8C-%CF%83%CF%84%CE%BF-%CE%BD%CE%B1%CF%85%CE%AC%CE%B3%CE%B9%CE%BF-%CF%84%CE%B-F%CF%85-cabrera-%CF%83%CF%84%CE%B-F%CE%BD-%CE%BA%CE%B1%CE%B-C%CF%80%CE%B1%CE%B-D%CF%8C%E2%80%A6.html

MSC Clorinda https://www.shipwrecklog.com/log/2017/01/msc-clorinda

PIRACY REPORTS

MARINE CASUALTIES

ARTICLE ARTICLE SOURCE PHOTO PHOTO SOURCE

Yemen Updates http://www.maritimeherald.com/2016/seven-crew-missing-after-iranian-general-cargo-ship-jouya-8-was-hit-by-rocket-missile-in-red-sea/

https://www.norclub.no/news/yemen-security-update/

Royal 16 http://www.recaap.org/DesktopModules/Bring2mind/DMX/Download.aspx?Command=Core_Down-load&EntryId=464&PortalId=0&TabId=78

Nigeria attacks http://worldmaritimenews.com/archives/212408/itf-calls-for-safe-release-of-kidnapped-bbc-caribbean-crew/.

http://af.reuters.com/article/nigeriaNews/idAFL5N-1FT5QK

http://www.maritimeherald.com/2017/lpg-tanker-gaz-providence-was-attacked-by-pirates-in-bight-of-bonny/

http://www.maritimeherald.com/2017/pirates-at-tacked-the-crude-carrier-rio-spirit-in-gulf-of-guinea/

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NOTES

For any questions and should you wish to contribute to a future edition please contact:

Mike Ingham

Tel: +44 (0)20 7204 1864

Email: [email protected]

Haris Lagios

Tel: +44 (0)20 7204 6211

Email: [email protected]


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Arthur J. Gallagher

Walbrook OfficeThe Walbrook Building25 WalbrookLondonEC4N 8AW

Tel: +44 (0) 20 7204 6000Fax: +44 (0) 20 7204 6001

www.ajginternational.com

Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.ajginternational.com FP158-2017

CONDITIONS AND LIMITATIONS This information is not intended to constitute any form of opinion or specific guidance and recipients should not infer any opinion or specific guidance from its content. Recipients should not rely exclusively on the information contained in the report and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.

Documents

MARINE MARKET REPORT - Gallagher · HULL & MACHINERY REPORT 2017 2 INTRODUCTION Welcome to the March 2017 Arthur J Gallagher Marine Hull and War Risks Market Report. The main topic