P&I Runs For Cover As A Gloomy 2008 Hovers

Steve Harris, a Lloyds marine broker who trains P&I Club personnel and administers the Maritime Web Award gave a gloomy prediction of prospects for 2008 in a comment on this blog:

“There has been a seemingly inexorable rise in the number and severity of crew related incidents, that has caused alarm bells to be rung within the P&I insurance world. The rapidly expanding world fleet has now exhausted the available, experienced pool of seafarers. More and more vessels are having to use greater numbers of inexperienced crew members. Add to this a cocktail of some operators, desperate to keep their vessels operating (with the current enormous freight rates), cutting back on any regular maintenance that might delay the vessel and also vessel charterers, pushing for “corners” to be cut off vessel operating costs, and we end up with a dangerous recipe leading to increases in accidents and crew injury/deaths. 2008 will see more hefty increases in P&I club calls (probably over 20% increases across most of the mutual clubs) and this will continue until someone starts taking maritime safety a bit more seriously.”

Most shipowners are members of a protection and indemnity club – a mutual insurance association or P&I Club. The largest P&I Clubs are members of the International Group which operates a pool to which its members contribute and out of which claims that are too big for a single member are paid.

To judge by the sound of the pitter patter of P&I Clubs running for cover, Steve’s gloomy prediction is coming to pass. The Japan Club recently announced an increase of 20 per cent in premiums for its members. It’s a thought provoking move in a highly competitive industry.

With the past week the American Club has also announced a 20 per cent increase due, in part, to “rising wage settlements and enhanced employment benefits in response to a diminishing global crew resource are driving up death and personal injury claims.  At the same time, a lack of experienced crew may be increasing the current incidence and future likelihood of maritime casualties, given the importance of the “human element” in the causation of large claims in particular” says the Club’s chairman, Joseph Hughes.

Frans Malmros of the Swedish Club says: “Last year was difficult, in terms of the number and cost of major P&I claims. This year, so far, has seen a return to normality. In fact, during the first six months P&I claims costs were significantly lower than budget. This positive trend ended in the Summer, however, with a number of significant, incidents.” The Club will be announcing its response anytime now.

Meanwhile, Shipowner’s Mutual, in a circular to its members last month, said: ” During the 2006 policy year and throughout the first half of 2007, we have seen a sharp increase in the value of claims from every vessel sector without exception.”

Last month Britannia came to the decision: “an advance call increase of 15% was
necessary to address the anticipated continuing high level of claims costs.”

he UK P&I Club considered increasing it’s premiums by 17.5 per cent but fell back to 10 per cent. Most notable, the UK P&I Club comments: “The increase in P&I claims across the shipping industry has made – and continues to make – heavy demands on the International Group of P&I Clubs’ Pool…claims on the 2006/7 policy year which ended on February 20th are expected to be the worst for 15 years. A record payout of more than US$550 million by the clubs is envisaged…Further, the Pool claims for the first half of the 2007/8 policy year (up to August 20th) were even higher than in the first half of 2006.” It’s been the highest for 15 years.

One reason why the UK P&I Club dropped back to 10 per cent was that the 17.5 per cent would have “impacted unfairly on some members”. To read this as a straw in the wind, an omen that the clubs are heading towards forcefully telling shipowners to shape up or ship out when it comes to safety are not far-fetched, indeed, senior P&I Club executives have said as much privately.

What the P&I Clubs are doing is battening down the hatches to weather what they see as a stormy 2008.

Part of the problem is that the current growth of demand means that older vessels with aging equipment are not being retired as early so maintenance issues are ever more critical. Poor maintenance plays a significant part in equipment-related maritime incidents and almost certainly will increase.

Another issue: experienced seafarers are leaking away from the industry because it doesn’t provide the conditions and pay to justify the hardships of the job, many are discouraged from seeking promotion so officer levels are not being filled, so maritime manpower is becoming less and less experienced. Less experience means less aware of the hazards that lead to maritime accidents.

Then there is the issue of training standards, which are often low in many of the countries  seen as potential providers of seafarers, and key manpower providing nations are in denial about the situation. Much training is aimed at getting a certificate, not acquiring competency and, indeed, as pointed out in an earlier post, the industry has yet to get its head around the concept of competency.

Until competency is taken on board and embraced we’ll simply be developing incompetent seafarers and insurance premiums will continue to rise.

Poorly trained, inexperienced seafarers on undermanned ships don’t promise a rosy future.

There is, frankly, a further issue. Look at the key manpower providing today and it’s fairly obvious that the main recruiting agent for the maritime industry today is poverty.  It might come up with the necessary numbers of warm bodies but it isn’t going to come up with recruits with the drive, discipline and leadership skills necessary for senior positions aboard ship.

Indeed, to be brutal, in many of those jurisdictions anyone with the sort of gumption and skill needed by the maritime industry is likely to be incommunicado behind bars or face down dead in a ditch. Initiative and leadership is often discouraged in those domains among the very people that the industry is recruiting.

Traditionally the maritime industry as a whole is conservative. It changes slowly and learns slowly.

Some might argue that such gloomy predictions are inappropriate as the festive season of joy and jollity hovers on the doorstep waiting to be let in, but then it’s likely that for an uncomfortable number of seafarers this could be their last Christmas.

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