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Marine Log

March 5, 2007

IUMI reports continuing fall in merchant ship losses

There has been a dramatic reduction in the number of total losses of merchant ships since the year 2000. New statistics from the International Union of Marine Insurance (IUMI), which represents marine underwriters worldwide, indicate that 67 ships (of 500 gross tons and over) were total losses in 2006, compared to 140 in 2000 and a peak of 182 during the 1990s.

However, there has been an equally dramatic increase in serious partial losses, up by 200percent since 1998.

IUMI stresses these are preliminary figures for 2006 as both total and partial losses or constructive total losses can rise in the early months of this year.

The 2006 losses equate to approximately 0.1 percent of the world fleet, compared to 0.3 percent in 1996 and nearly 0.5 percent in 1990.

There was a slight increase in actual tonnage lost in 2006, particularly in the bulk carrier sector, but this is largely explained by the total loss of a capesize bulker accounting for 37percent of the total gross tonnage.

Deirdre Littlefield, the New York-based president of IUMI, said the downward trend in ship total losses is explained by a number of factors.

"Lessons learned in the past have led to better designed and more robust ships being built.," she said. "More stringent inspections and surveys demanded by insurers, classification societies, flag states and the port state control regime, enhanced safety and maintenance regulations introduced by the International Maritime Organization and other bodies, and the huge advances in technology and communications which have ushered in the new shipboard electronic age--these are the main drivers of greater safety at sea."

But she warned that the continuing rise in serious partial losses meant that "many underwriters are struggling to maintain premium income against a tide of very costly claims that shows no sign of receding."

Examining the steep rise in partial losses, Simon Beale, a leading Lloyd's marine underwriter who is a member of IUMI's executive committee and a past chairman of its ocean hull committee, said that "the highly profitable levels of maritime trade has meant ships and crews being driven very hard."

"Safety checks and routine maintenance may have been neglected by owners and managers in the rush to keep ships trading in these very lucrative conditions," he said. Other factors include the fact that many older ships which should have been scrapped have continued trading, adding to the amount of sub-standard tonnage, There is also a growing shortage of trained and experienced personnel.

Beale said that new technology had greatly helped to reduce total losses, but at the same time it made ships more expensive to repair, particularly machinery.

In fact, the IUMI statistics show that machinery continues to be the major cause of serious partial losses (35 percent in the past five years), followed by groundings, and collision or contact damage.

IUMI states: "This 200 percent-plus increase in partial losses compares with an increase of 24 percent in the number represented by the combined tanker, bulk carrier and container fleet, a 27 percent increase in the deadweight tonnage capacity of the bulk carrier and tanker fleet, and a 115 percent increase in the TEU (standard carrying capacity) of the container fleet-- all since 1998."

The world container fleet's capacity has more than doubled to over 8,000 million TEU since 1998, says IUMI.

IUMI also notes that the scrapping rate of the tanker and bulker fleets remains very low, being about 0.5 percent of the world fleet in both sectors. The strong sale and purchase market is accompanied by relatively stable repair conditions.

IUMI offshore energy sector statistics show that there has been significant growth in the size of the world fleet of mobile drilling units--currently about 920 units against 630 in 1999. However, this 46 percent increase has not been reflected in the Gulf of Mexico fleet where the number has been largely static over the same period.

There has been a big surge in newbuilding orders, with approximately 100 units scheduled for delivery between 2007 and 2009. IUMI refers to a current strong underlying industry position, with utilization about 80 percent, and a 150 percent increase in worldwide day rates since 1999.

As a result of hurricane activity, there was a very significant increase in overall claims costs during 2004 and 2005 (for losses in excess of $1million). But there are signs that the underlying trend since 1997 is improving, accompanied by a lower industry fatality record

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