Corona death .. .. this time for colossal giants on Sea ~ Ship breaking and Insurance

İzmir, a Port, is a metropolitan city in the western extremity of Anatolia. It is the third most populous city in Turkey, after Istanbul and Ankara. In classical antiquity the city was known as Smyrna  – a name which remained in use in English and various other languages until around 1930, when government efforts led the original Greek name   to be gradually phased out internationally in favor of its Turkish counterpart İzmir.

The sight of a very large vessel floating on water, carrying goods from one place to another offers imagination beyond dreams. Man has conquered the ocean sailing across with the aid of ships and boats which developed alongside mankind. Vessels have borne the key in history’s greatest explorations. The cargo - from slaves to modern day containers, dry and wet, live, frozen and refrigerated, big machineries, bulk cargo, liquid cargo – the variety is endless.

 As of date (3.10.2020) a total of 34,621,100 cases are confirmed in more than 227 countries and territories, and 26 cruise and naval ships. Thus Covid pandemic is not contained to land or Countries alone  but had  spread to a number of cruise ships.  The British-registered Diamond Princess was the first cruise ship to have a major outbreak on board, with the ship quarantined at Yokohama from 4 Feb 2020 for approximately one month. Over 700 people became infected, and 14 people died. At the time, the ship accounted for over half the reported cases of SARS-CoV-2 outside of mainland China. Governments and ports responded by preventing many cruise ships from docking and advising people to avoid travelling on cruise ships. Similarly, many cruise lines suspended their operations to mitigate the spread of the pandemic.  Covid has thus affected economically the operation of Cruise liners also affecting its passengers, crew too ..

But just as most things have a shelf life, ships also have a limited span of life. The most interesting part of insurance – the Marine insurance offers infinite variety and offers coverage from cradle to grave. Depending upon the type of vessel and nature of goods carried, generally after 25-30 years ships are at the end of their sailing life. These vessels who have outlived its existence are sold and dismantled to recover the valuable steel. A very major % of the vessel consists of steel which can be rerolled besides valuable machinery such as generators, marine engines etc., There are various other miscellaneous material as well. 

The birth of a vessel is more celebrated that the arrival of a kid. Ships are launched in big ceremonies and ceremonially named.  Its demise – ship breaking is a crude industry.  The breaking unit was a small piece of land with a make shift office. The vessel would run on full stream and in high tide run on the shore at full blast. Obviously would get struck in the sands at some level and there sighed its final breath. From then it would be hammer and tongs and gas cutting.  But to those who love sea and the sea creature – the ship, it would represent the death of an animate object which did so much for the humanity.

 

The pandemic outcome is early demise of Cruise ships.  MailOnline and many other media report in detail that Cruise ships from Britain and the United States are being scrapped at a Turkish dock after the multi-billion pound industry was smashed by the coronavirus crisis. The coronavirus cruise liner graveyard at the port in Aliaga, a town 30 miles north of Izmir on Turkey's west coast, bustled with work again on Friday as scrapyard workers stripped walls, windows and railings from five vessels.  Cruise ships were home to the some of the earliest clusters of COVID-19 as the pandemic spread globally early this year. In March, U.S. authorities issued a no-sail order for all cruise ships that remains in place, and many other countries, including the United Kingdom, have issued specific advice against travelling on the vessels.

One of the five ships in the scrapyard is the Carnival Fantasy formerly operated by the American giant Carnival Cruise Line. The vessel took her maiden voyage in 1990 and had only just been refurbished last year. In July, Carnival Corporation's CEO Arnold Donald revealed that it would remove 13 ships from its fleets in 2020. Donald insisted that the scrapping be referred to as 'recycling.' Photos sadly depict five  luxury cruise ships being broken down for scrap metal at the Aliaga ship recycling port, 30 miles north of Izmir on Turkey's west coast.  

The mighty ones that housed crazy golf courses and drained swimming pools now wear a deserted look as they fall under the hammer and would eventually be destroyed without a trace.    With the global coronavirus pandemic pushing the multi-billion dollar cruise industry into crisis, some cruise operators have been forced to cut losses and retire ships earlier than planned.  These ships do look colossal but the hit has been hardest for the cruise tourism industry that they fear that it might take longer years to be back in business. Hence the sounding of death-knell for the giants. 

Before the pandemic, Turkey's ship-breaking yards typically handled cargo and container ships  but now they have been inundated with cruise vessels. So while the World would talk of economic slowdown, business is booming for the ship breaking industry at Aliaga, Turkey.  It is reported that sooner three  more ships are set to join those already being dismantled.  It is stated that some 2,500 people worked at the yard in teams that take around six months to dismantle a full passenger ship. The vessels arrived from Britain, Italy and the United States. The shipyard aims to increase the volume of dismantled steel to 1.1 million tonnes by the end of the year, from 700,000 tonnes in January !   crisis turning  into an opportunity for those involved in breaking.  Even the ships' non-metal fittings do not go to waste as hotel operators  come to the yard to buy useful materials !

From the Insurance perspective, this was a goldmine of opportunity for generation of premium – though experts maintained this to be very risky. Some held that there was so much of profit for the person breaking – the insured value could only be the purchase price and the party would realise huge profits by cutting and selling and thereby may not manipulate a claim. This remains a mystery ~~!!

 

The Marine Hull Tariff provided ways of covering this under two different sections. Sec V of the erstwhile Marine Hull Tariff provided for coverage of funeral voyages from a place in a Port to the breakup yard or vessels lying at sheltered places awaiting break up. The SI was to represent the actual purchase price + mark up + customs duty – with voyages on vessels own power and on tow being one of the criteria for rating. This was more of transit insurance and would cease upon beaching or starting up of breaking operations.  

Sec 17 provided for Ship breaking insurance – insurance of vessels in the course of being broken up. Here the Sum insured was to be Full purchase price + customs duty + port charges + any other government levy. The period was not on voyage basis but was to be reckoned in period of full months, arrived at the basis of actual LDT of the vessel. The proposal was provide break up details in Metric tonnes & rate of Iron & steel, Non ferrous articles, Machinery including generators, main engine, panels etc., Spares, Timber & furniture, miscellaneous items which could include maps, books etc.,  

The policy though issued in Hull Department was more or less Fire Policy ‘C’ cover of the erstwhile Fire Tariff  providing coverage against Fire, Lightning, Explosion / Implosion, Impact damage, Aircraft damage, Riot, strike, malicious damage and additional cover against Earthquake, STFI perils etc.,   

For those who owned and operated such colossal giants, it would be too painful to see them getting reduced to a skeleton and eventually vanishing ! Sad !!

 

With regards – S. Sampathkumar
3.10.2020