CSCMP's Supply Chain Quarterly
Logistics
August 17, 2019
Forward Thinking

Industry tracks dramatic rise in container ship fires

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A series of fires on container ships this year alone has left importers with delayed, damaged, or destroyed cargo—and big insurance bills. Experts say there could be more to come.

In the first three months of 2019, the maritime industry set what may be a record for the largest number of container ship fires in the shortest amount of time. Between January 1 and the middle of March, fires on board six ships had delayed, damaged, or destroyed hundreds of cargo containers:  

  • On Jan. 3, a container on the Yantian Express caught fire off Canada's Eastern Seaboard. More than 260 boxes were destroyed.
  • On Jan. 29, the Olga Maersk was sidelined in Panama after a fire broke out in its engine room.
  • On Jan. 31, the APL Vancouver was stricken off the coast of Vietnam by a fire that started in a cargo bay.
  • On Feb. 13, fire broke out in containers of charcoal on the E.R. Kobe near China. The ship was diverted to Hong Kong to unload the damaged boxes; three more containers caught fire as the ship continued on to Shanghai.
  • On Mar. 6, the giant Maersk Honam caught fire off of India, killing five crew members. It took five days to get the fire under control.
  • On Mar. 10, a container on the combined container/auto carrier Grande America caught fire off the coast of France. As the ship became engulfed in flames, crew members evacuated in lifeboats and were later rescued by a British naval vessel. The ship capsized and sank the following day.

There have been other fires on board container ships in recent years—more than 20 major ones since the middle of 2012, according to Richard W. Bridges, vice president, client development, for the cargo insurer Roanoke Trade. But the unusually high number of incidents should prompt importers and exporters to take a fresh look at their cargo insurance to make sure they have adequate coverage, he said during a panel discussion at the recent Coalition of New England Companies for Trade (CONECT) 23rd Annual Northeast Trade and Transportation Conference in Newport, R.I.  

When ships and cargo suffer damage or delay, ship owners may declare "general average." This contractual obligation requires cargo owners to shoulder part of the loss, based on the value of their cargo and its percentage share of the "value of the voyage;" that is, the total value of the ship plus all cargo on board, Bridges explained. The freight is seized, and in order to get their goods back, cargo owners—or, more typically, their insurers—must pay a security deposit to cover the initial estimated cost of salvaging the ship as well as a bond to guarantee payment of any future adjustments to the general average liability.

Historically, Bridges said, Roanoke has seen demands for 10 percent to 20 percent, but lately, these amounts appear to be rising, Bridges said. For example, the salvage security for the Maersk Honam was set at 42.5 percent of the CIF (cost, insurance, and freight) value of the cargo, with an additional 11.5 percent required as general average security, he said. Fail to put up the required deposit and bond, Bridges warned, and the vessel owner can hold and even auction off your cargo. (For more about general average, see "Ship in distress? Get out your wallet," DC Velocity, July 2016).

WHY SO MANY FIRES?

Experts say several factors are behind the recent flurry of conflagrations. One is the increasing size of container vessels coupled with the shrinking size of their crews.

"The smaller crews we have today don't have enough people to fight a shipboard fire," said Capt. Glenn Walker of the marine surveying and consulting firm Atlantic Marine Group, speaking on the same panel. "Their chances of quickly finding the source of a fire and putting it out are small."

Another factor is that today's bigger container ships are carrying a greater variety of cargo, and in larger quantities, said fellow panelist Kathy Schricker, regional vice president for cargo insurer Avalon Risk Management. That means more containers carrying hazardous materials are likely to be on board, she said. The widespread and well-documented problem of incorrectly declared and improperly packed and secured shipments of dangerous goods also increases the risk of a fire, she added. (Editor's note: Just days after this article was written, fire broke out on board the container ship KTMC Hong Kong in the Port of Laem Chabang, Thailand. A subsequent explosion injured more than 100 people. Authorities there reportedly blamed the incident on nearly 20 containers of undeclared volatile chemicals.)

Regardless of how promptly cargo owners pay the deposit and bond, they are in for a long wait before they can retrieve any cargo that is undamaged or salvageable. That's because it can be difficult to find a port that is willing and able to store both ship and containers for months while the physical damage and legal issues are sorted out. It was seven weeks before the Maersk Honam arrived under tow at the Port of Jebel Ali in the United Arab Emirates, and the Yantian Express spent almost four months in Freeport, Bahamas, before finally sailing back up the East Coast to Halifax, N.S., with the remaining intact containers on board.

For shippers, the wait can be excruciating, as information can be difficult, if not impossible, to obtain. Two importers in the audience at the mid-April CONECT conference, including one that had $30 million worth of merchandise on the Yantian Express, said that more than three months after the fire, they still did not know the location or condition of their containers.  

Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Editor at CSCMP's Supply Chain Quarterly. and Senior Editor of SCQ's sister publication, DC VELOCITY. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.

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