Bigger Ships = Much Bigger Salvage Costs

A new Lloyd's of London report points out that two of the most expensive salvage jobs to date are the Costa Concordia, which has not yet been moved, and the M/V Rena, which broke up while stranded on a New Zealand reef.

Insurers, reinsurers, and ship owners are footing the enormous and rising bills for salvaging big ships that catastrophically run aground, a new report from Lloyd's of London points out. The prime examples discussed in it are the Costa Concordia, the M/V Rena, and the MSC Napoli -- all of which will cost at least $135 million to salvage, it states. But the problem is worsening both because really large container and cruise ships are operating and still being built, and the salvagers' equipment to recover them hasn't kept pace, according to Lloyd's:

"A practical challenge facing the shipping industry is the gap that has developed between the increasing size of vessels -- notably containerships, passenger vessels, bulk carriers and LNG vessels -- and the capability and equipment available to handle them, either as casualties or wrecks. Closing this gap is an important consideration for shipowners, the ship design industry, the salvage industry and liability and hull insurers to explore together, the report suggests."

The report says the bill for removing the wreck of the Rena, a container ship that struck a reef off New Zealand in 2011 and subsequently broke apart, now stands at $240 million. Removing the MSC Napoli after it stranded on the UK's south coast in 2007 took 2.5 years at a cost of $135 million. "Vessels are usually insured by mutual insurers called P&I Clubs, which pool their larger risks and buy reinsurance in the open market (including Lloyd’s) for risks exceeding $70 million. To show how both P&I Clubs and their reinsurers have been impacted, the total cost of the top 20 most expensive wreck removals in the past decade is $2.1bn and rising," according to the company’s March 21 news release about the report, which is titled "Complex Cases, Costly Solutions: The Challenges and Implications of removing Shipwrecks in the 21st Century."

There are 51 cruise ships now in service exceeding 100,000 gross tonnes with seven more under construction, up from only 40 in 2007. While a large container ship 20 years ago carried some 5,000 twenty foot equivalent units (TEUs), the largest container ship in service today has a capacity of 16,000 TEUs.

"Global media coverage and lobbying from environmental groups has added to the pressure on international and local authorities, intensifying their oversight of wreck removal and adding to costs. Environmental considerations, related to the wreck's cargo or own bunker fuel, have a significant impact on costs, especially the removal of bunker fuel, the report explains," according to Lloyd's. "Technology has pushed the boundaries of what is feasible for wreck removal specialists. Fuel and cargo, for example, can be recovered from a wreck lying in deep water and, if it is achievable, the authorities increasingly demand for it to be done. The report notes that in three particularly expensive cases -- the Napoli, Rena and the Costa Concordia -- the influence of the authorities was the most significant factor in increasing the cost of the operation and could be the key factor determining the total cost of removals."

It urges ship owners and insurers to push for consistency and fairness by authorities in their approach to wreck removal. "The findings of this comprehensive report should encourage and inform dialogue between these stakeholders, as well as the relevant authorities, to help contain wreck removal costs. Importantly, the report will also contribute to loss prevention and risk management in the shipping industry," said Judy Knights, marine and energy class of business executive at Lloyd's.

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