Share this Mister Wong Digg Del.icio.us Slashdot Furl Yahoo Technorati Newsvine Googlize this Blinklist Facebook Wikio Hear this text Export PDF Print E-mail Tags cargo brooks marine risk vessel insurance aground south uninsured damage risks financial players industry loss companies running africa and/or market Taryne Eastwood

Cost of salvaging uninsured MT Phoenix oil tanker

The recent announcement that the cost for salvaging the uninsured stranded oil tanker, MT Phoenix, in Durban is estimated at over R30m highlights the potential devastating financial impact for players in South Africa’s growing marine sector.

This is according to Andre Brooks, Marine Customer Relationship Manager of Lion of Africa Insurance, who says although the maritime industry has always played a huge role in the South Africa’s economy, a worrying trend has emerged whereby industry players are, as a result of market conditions, taking on dangerous amounts of risk by cutting expenses such as insurance.

“If you are an importer or exporter who is reliant upon goods being transported by sea, without adequate insurance cover you are exposed to potentially myriad risks during a voyage. Your cargo could be exposed to loss and/or damage arising from, among others, piracy, fire, and the vessel sinking or running aground.

This was especially evident in the recent MSC “Napoli” casualty. The container vessel had suffered structural damage in January 2008 resulting in a number of containers being lost overboard. It is estimated that 40% of the cargo on board the vessel was uninsured, with the insured cargo costing the South African Insurance market in excess R120m.

“Uninsured losses of this nature could have a crippling effect on smaller to medium businesses with very few companies being able to absorb these types of catastrophe losses to their bottom line.   A factor often over-looked by international traders is that of the commercial terms of sale between the parties.  These commercial terms usually govern the transfer of the financial risk and responsibility between the traders and they need to be carefully scrutinised and negotiated to ensure cargo is adequately covered throughout,” says Brooks.

Also of utmost importance, according to Brooks, is that the international trader pays close attention to the classification of a vessel on which their cargo is being transported, with specific reference to vessel age and seaworthiness.

Brooks explains that most marine insurance is split between hull and cargo, covering loss of and/or damage thereto. The concern is that Marine Insurers don’t always fully comprehend the risks faced by companies transporting cargo.  It is therefore important that Insurers do an extensive risk analysis to enable them to underwrite the risk effectively.  This, more than often, involves consideration of all aspects of the risk and accordingly determining things that could possibly result in a loss.

In the past five years, South Africa has experienced an increase in ships running aground, which includes, among others, the Seli 1, which ran aground in Blouberg, Cape Town in 2009 and the Safmarine Agulhas which was stranded in East London in 2006.

Brooks says that climate change is steadily having more and more of a profound effect on the shipping industry globally and the potential for greater storm conditions increases the chance that cargo vessels will get into difficulties, run aground or sink.

“It is paramount that the players in the marine sector look to minimise risks by taking adequate financial precautions,” concludes Brooks.

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