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Larger Cargo Ships Effects on Marine Insurance

Introduction

Marine insurance entails the damages and losses of cargo, ships, terminals, and the property transferred, held or acquired between a place of origin and destination about navigation. The world history indicates that marine insurance was the oldest form of security cover that has been practised for more than 800 years. Evidently, in the 12th century, when the Jews were banished from France, they brought up an insurance scheme protecting their property as it was removed (Morris par 2). The origin of this indemnity can be traced in the Roman and Greek marine loans in the 14th century when marine insurance contracts were developed. Insurance premiums then followed estimates of risks from pirates and seasons (Bonney par 3). In the early 17th century, Great Britain registered a new period of maritime history since they shifted from being done by foreigners to native enterprises. The Elizabethan Act of 1601 created by the government of England concerning Assurances established the court of Insurance became the first of its kind. Notably, marine hull and cargo insurance has evolved over the years. As early as 3000 BC, merchants from China would redistribute cargo to different vessels to avoid losses from the sinking of a single ship. In 1750 BC, a system in which traders were getting loans for shipment funding pay additional fees to cater for cancellation of the loan in case of loss started. Around the 1200’s, loans were acquired by ship owners by using the cargo as collateral such that safe arrival meant repaying the loan with high interest which includes insurance and investment (Bonney par 7). In the mid-1300s, insurance contracts separate from loans would be signed which marked the independence of insurance from the investment. In another development in the 1600’s, England established a chamber of assurance that is apart from other courts and coffee houses were used by insurers, traders, ship captains and owners to conduct business. In fact, at Edward’s coffeehouse founding of Lloyd’s of London as a central meeting place for insuring cargo and ships was around 1688. From 1720, laws and Acts governing marine insurance have been created by different countries. For instance, the 1719 Royal Exchange and London Assurance Corporation Act, the 1906 English Marine Insurance Act, and the 2015 Insurance Act (Bonney par 8). All these changes over the years have resulted in the current marine insurance and cargo ship business. The relationship there is between cargo ships and marine insurance is that insurance was designed to control and manage cargo ship risks in the form of unfortunate incidents. Meaning, the insurance covers damages on property, accidents or loss of life in cargo ships that are navigating deep waters. Therefore, these two work together to ensure safe and secure shipment and transportation of cargo from a port to destination while gaining profits.

Growth and Development of Cargo Ships

Over the years, cargo ships for the container shipping have grown tremendously. Cargo ships are vessels that transport goods, cargo, and materials from port to another. From 1980, the containerised load has been growing at 8.6%, which is attributed to the increasing importance of transhipment transactions. An understanding of the benefits accruing from the use of container shipping ports by shippers has been growing which in turn results in the growth of cargo ships at the ports. The onset of containerization can be traced from the 1950’s when the Suez canal blocked, causing an increased need for a transport means (Bonney par 4). It is from this crisis that investment as well as the supply of cargo ships, in that even after the crisis, the importance of the means was clear to merchants and ship owners. In an attempt to minimise the costs, container and LASH ships were introduced. More to this, the cargo container sizes keep increasing and have seen far-reaching reformations to the transportation industry. Introducing 20 to 40 feet containers came due to the need for shippers to increase their profitability and penetrate more markets despite lower freight rates (Morris par 8). Besides, the existence of marine insurance has been central to the rapid growth of the cargo shipping industry since it assures safety and repayment on losses of merchandise. With this development, shippers and merchants have invested more in purchasing and selling of ships and containers to increase profitability while reducing costs of delivering massive and huge amounts of cargo and goods. However, some ports have seen a challenge of growing the shipping industry due to limitations in making the appropriate changes that can accommodate the larger containers. For instance, the San Fransisco and Liverpool ports remained behind due to the inability of creating quays, having adequate berths, installing cranes and so on. Additionally, cargo containerization has enabled an increase in efficiency since a route used to take many weeks but now it is less. Taking an example, trips in Nothern Europe take eight weeks, but with containerization, it is four weeks (Morris par 5). One analyst stated that no single country could gain from shipping without engaging other nations. Profoundly, this takes us to the need for globalising the ship cargo trade because it ushers in an opportunity for shippers to expand their markets. In fact, globalising this trade comes as a result of the increased significance of investment and fewer ports making shippers and insurers thirst for profitability (StrategicRisk par 4). Since more massive cargo ships cannot reach all ports, as well as lack the financial capability for containerization, cargo ship owners now look and making intraregional and interregional trips and connections. Therefore, the growth of cargo ships has been due to advancements and changes in the industry which has created demand for globalized trade to increase efficiency and profitability of the sector.

 

 

Increase in Cargo Value, Opportunity for Risk and Insurer Caution

In recent years, the value of ship cargo globally has increased to the extent that it approximately accounts for 60% of the global marine trade. The increase in the value of cargo has been due to the expansion and development of marine transport efficiency. Truly, the past was not very attractive for shippers and other stakeholders in this industry because of the risks and uncertainties involved. There used to be a lot of piracy, accidents, and other dangers of losses (Demirci par 5). These have changed over the years due to the improvements in marine insurance and infrastructure regarding containerization. It implies that the introduction of new ways of assuring the safety and fast transactions on water has helped raise the value of cargo across borders. However, since time memorial, the risks associated with navigation and safe delivery of merchandise. In the present day, the risks involved in cargo have increased opportunities for improving its value and profitability. Some of the risks include the large sized cargo containers that require deep berths and approach channels, wider turning basins and larger container terminals with big storage capacities. Also, there is a deserving well-organised and proficient workforce to guarantee a faster ship turnaround and increased on land warehouses that assure satisfactory handling of massive volumes for import and export (Bonney par 5). The truth is that the opportunity for risk increases as the needs accruing from the development of the ship cargo industry arises. Meaning, the marine insurers, shippers, merchants, ship owners, and other investors look at these needs and work around the clock to find solutions. For instance, larger containers are being made that require bigger engines and security to ensure they land safely to their various destinations. At this, manufacturing companies look towards producing the kind of engines that can run the cargo ships transporting the huge containers (Bonney par 6). Insurance companies registered to deal in the cargo business have a task to ensure that their capacity is improved to have covers for the shipping companies, landing sites, and other infrastructure related to this industry. Mainly, the caution that insurers take is increasing in the way that they have to cater for larger portions of cargo yet the risks of damage and loss are high. It means, they have to be careful with the clients as well as the worth of shipment goods being insured because they could lose large sums on the services. There are tendencies of delays and defaulting payment of premium among shippers and merchants which creates a demand on the side of insurers to be cautious. Most insurers based on the legal structures available as a guarantee for making profits and successfully dealing with their clients. Ultimately, with the increasing value of cargo, the opportunities of risks increase creating a need for insurers to intervene cautiously.

Effects of Large Cargo Ships on Deep-water Berth, Shipping Schedule, Ports and Destination

A berth is defined as that allotted place of a ship at a dock, and in case of deep water, it has to be strategically located. Ships with large cargo unquestionably require deep-water berths as they only access as well as use specific ports. This situation makes companies be far away from the coast, thus, provision of additional exposure to harmful situations. For instance, the cargo on the ships is exposed to several risks such as theft and of which it becomes the obligation of the marine insurance to compensate for the losses if any. It is imperative to note that ships with large cargo usually have few schedules since their centres are also limited (StrategicRisk par 7). Besides, in case the ship is in the sea, and something happens it has to be moved to the next port. Because these ships usually have large cargo the appropriate port might be located very far away from the previous one, thus, more extended hours of navigating on the water. It becomes evident that it is during this time of long hours of sailing on the water that other adverse outcomes arise and if they align with the marine insurance it unquestionably has to compensate the shipping company. Most notably, it is the role of the marine insurance to protect and prevent harm from happening to their insured clients (large cargo ships) because failure to do so costs are incurred. Remarkably, the effects large cargo puts on ports is so severe and it ought not to be ignored by the involved parties. According to Demirci, it is mostly the small ports that are affected by the big cargo ships since some are built with no assumption that they will handle large cargo ships (par 1). To illustrate, big cargo ships lead to congestion as well as traffic issues at the ports and these cases are evident on some U.S ports such as Seattle, Portland, Tacoma and Jacksonville. It should be remarked that the time large cargo ships take to reach their final destination is prolonged because the speed at which they sail on water is slower compared to ships with no cargo. Eminently, the captions of the ship are advised by the responsible people on the water to navigate at an average speed so as not to cause accidents. It is noted that marine insurance does not cover for accidents caused as a result of careless sailing on water. Further, in case of weather changes the ship is asked to leave the water and rest on land to wait for it to stabilise to save the cargo, thus, delaying to reach the final destination. Given the above, the effects large cargo ships have on the deep-water berth, shipping schedule, ports and destination ought not to be overlooked by the different institutions because in the long run they also get affected as they are adverse.

Who Benefits and Makes Large Cargo Ships and the Cost of their Increase

Among the people who benefit from the large cargo ships are the insurers, in this case, marine insurance companies. Cargo ships have to pay the premium to the insurance company, and in this case, the amount is always high since the cargo is also much. Because the insurance company is only bound to intervene when there is a loss, it enjoys its premium when nothing happens to the cargo. Other people are the shippers, and these hugely benefit, for example, they admit that preservation of carrier competition is made possible through the financial lifeline offered to the ship lines offered (Demirci, par 9). The merchandisers also benefit from larger cargo ships since their goods are delivered to them fast yet at a friendly cost. The needs of their customers are met, thus, increasing consumer satisfaction. It is important to note that the merchandisers who use cargo ships to transport their goods from one place to another at a cheaper cost are the ones making them more prominent. They influence the companies building ship containers to make them bigger so as they fit only on the large ships. Most notably, these merchandisers love larger cargo ships because they meet their transport needs at a friendly cost. Another group of people who make cargo ships larger is the shipbuilding companies themselves. There is a lot of innovation in these companies and so they ahead to try out bigger and larger things such as cargo ships. The builders opt for building larger cargo ships for the reason that they identify tend to identify a big gap between the cargo being moved and the size of the ships (Bonney par 4). A lot of people use water transport for transporting their bigger cargo from one place to another, and with that, the builders decide to answer their call by building the large ships with enough space for carrying their load. The cost of increasing the size of cargo ships is unquestionably high since the requirements for making them are expensive. Making larger cargo ships needs costly material to meet the needs of both the builders and the users. For example, one of the most massive cargo ships in the world Madrid Maersk. The ship was built by Daewoo Shipbuilding Company with a capacity of 20,568 TEUs and that to carry 23 rows of shipping containers (MI News Network par 3). Madrid Maersk is estimated to have a deadweight tonnage of about 192,672MT, and it is remarked to be highly equipped with excellent facilities. The cargo ship is enough evidence that what is required for it is a lot although it is returned in the long run. For these reasons, building large cargo ships benefit not only the shippers but also the insurers as well as merchandisers who even go ahead and influence the shipbuilding companies to make ships larger.

 

Conclusion

To sum up, referring to the previous research it is revealed that marine insurance is the oldest form of security cover that has been practised for more than 800 years. In the 12th century, when the Jews were banished from France, they brought up an insurance scheme protecting their property as it was removed. Accordingly, the origin of this indemnity is traced in the Roman and Greek marine loans of the 14th century when marine insurance contracts were developed. Insurance premiums then followed estimates of risks from pirates and seasons. In the early 17th century, Great Britain registered a new period of marine history since they shifted from being done by foreigners to native enterprises. The Elizabethan Act of 1601 created by the government of England concerning Assurances established the court of Insurance, and it became the first of its kind. Notably, during the transportation process of goods from large cargo ships, there are several risks involved that entail large sized cargo containers that come with bigger storage spaces. More so, there is a risk of a deserving well-organised and proficient workforce, and this facilitates faster ship turnaround.  Increase in land warehouses is also evident in this assures satisfactory handling of massive volumes for import and export. The parties involved that entail large cargo ships and the marine insurance ought to cooperate to meet the needs of each other. The cargo ships have to comply with the terms and conditions of marine insurance while it is also fulfilling its expectation. Most notably, many people who use larger ships as a means of transporting their goods from one location to another admit that it increases profitability. Merchandisers urge that the means of transportation comes with economies of scale. Products that are moved in large quantities in these cargo ships and, thus, the cost of shipping is low yet delivered in a short period. The merchandiser meets the needs of their customers at the right time, and this enhances satisfaction, hence, attracting new customers. Despite the fact that large cargo has several effects, but it comes with benefits that ought not to be overlooked.

 

Works Cited

Boney, Joseph. “Shippers See Benefits in Mega-Ships.” JOC.com | Container Shipping and Trade News and Analysis, 2104, Accessed from: www.joc.com/maritime-news/international-freight-shipping/shippers-see-benefits-mega-ships_20140509.html

Demirci, Mehtap. “Big Cargo Ships and Small Ports Lead to Port Congestion.” More Than Shipping, 28 Nov. 2016, www.morethanshipping.com/big-cargo-ships-small-ports/.

MI News Network. “10 World’s Biggest Container Ships in 2017.” Marine Insight, 23 Dec. 2017, www.marineinsight.com/know-more/10-worlds-biggest-container-ships-2017/.

Morris, Gregory D. “A Brief History of Marine Insurance – Risk & Insurance.” Risk & Insurance, 5 Apr. 2018. Accessed from: riskandinsurance.com/brief-history-marine-insurance/.

StrategicRisk. “How Larger Cargo Ships Are Changing Marine Insurance Needs.” Strategic Risk Europe, 24 Feb. 2016, www.strategic-risk-europe

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