News / More accidents caused by hazardous cargo shipments, but higher insurance premiums unlikely

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The rise in major incidents involving hazardous ocean cargo and growing concerns about danger to aircraft and flight crews from dangerous goods – especially improperly declared shipments – is a major concern for operators and the transport industry overall.

Insurers might be worried, but structural changes to the insurance market mean they do not anticipate a rise in premiums in response, and they have called for training standards to be improved.

According to the UK P&I Club, 27% of incidents on cargo ships in 2013 and 2014 were attributable to mis-declared hazardous cargo, second only to poor packaging.

Peregrine Storrs-Fox, director of risk management at cargo insurance specialist TT Club, noted that a number of serious incidents had occurred over the past couple of years.

The most prominent was the explosion at the Chinese port of Tianjin in 2015, which resulted in insured losses of $2.5bn-$3.5bn. The same year saw a fire in the port of Vancouver, while this year there was a fire at the port of Santos.

There have been at least 20 major incidents on ships reported over the past two years–  likely to be the thin end of the wedge, he added.

“The issue of mis-declared cargo is massive in the maritime industry,” he said.

The UK P&I Club says around 10% of all container cargo is made up of dangerous goods, which means these issues affect virtually all containership services.

At the same time, the rise of e-commerce shipments moving across borders has sparked serious worries over mis-declared air cargo – especially lithium batteries, which have been identified as the cause of several incidents on aircraft, including the tragic demise of UPS flight 006 from Dubai in 2010, in which the flight crew died.

The ensuing industry debate led to the decision by the International Civil Aviation Authority to issue an interim ban on lithium-ion batteries on passenger aircraft, effective 1 April, 2016, which is supposed to remain in effect until a new, safer packaging standard for this cargo has been designed.

The Portable Rechargeable Battery Association and IATA are critical of the ban, arguing that the real threat lies in counterfeit batteries and mis-declared shipments of such batteries. They have called on national authorities to clamp down on violations.

This year, the US Federal Aviation Authority has slapped steep fines on several shippers – including Amazon – for mis-declared hazardous cargo sent by air.

Mr Storrs-Fox said that training needed to be seriously improved.

“This is beyond textbook training. It’s not just ‘do A, B then C’; it is to help people understand this is why you do A, B and C,” he said.

Faced with potentially huge claims, insurers would be inclined to raise premiums, but in the current market this is not likely to happen, he reckons.

In recent years, a lot of capital has moved into the insurance sector, so the industry is over-capitalised, which has driven prices down, he said, adding that the pressure on forwarders’ yields had prompted them to push for lower premiums.

At the end of the day, firms hit by disaster recover only a fraction of the value of the damages through insurance, so it is in their interest to safeguard against such scenarios as best as they can, he said.