Protection and indemnity insurers are facing their costliest claims year since the 2012 grounding of the 114,000-gt Costa Concordia (built 2006) on the Italian island of Giglio that led to a $1.2bn wreck removal.

The cost of International Group of P&I Clubs' pooled claims — representing those that exceed $10m — stood at a record high of $300m in August, which is the halfway point in the current policy year.

Many P&I clubs dismiss the current P&I year as a "one-off" that they do not expect to be repeated. However, the previous two policy years have also been costly and there is concern that a trend is developing.

There is some evidence that the growing size of vessels is impacting on the value of claims.

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This story is part of a forthcoming special report on the protection and indemnity sector. Stay tuned for the full report in our weekly edition on 22 January.

Five of the International Group’s claims involve the new generation of ultra-large ships that are becoming an increasingly significant part of the world's fleet.

The 300,000-dwt Stellar Banner (built 2016), which ran aground and was eventually scuttled off the coast of Brazil, is part of a series of VLOCs operated by Vale. The 207,000-dwt Wakashio (built 2007), which grounded off Mauritius, is a newcastlemax — the largest class of capesize bulker.

The new generation of larger containerships also contributed to some of the most expensive pool claims.

The container collapse on the 14,052-teu ONE Apus (built 2018) in November could be a massive pool claim, depending on a decision on the final insurance terms. The 13,870-teu Milano Bridge (built 2018) destroyed a container crane at the port of Pusan New Port and the 14,000-teu MSC Rosa M (built 2011) had a similar knock with a container crane in Mumbai.

Tough environmental compliance standards have pushed up the wreck removal costs of the Golden Ray. Photo: St Simons Sound Incident Response

All of these ships were part of a new generation of ultra-large containerships — the latest of which are now exceeding 20,000 teu.

A recent Canadian accident report pointed out that boxship allisions with terminal equipment are happening frequently because terminals are not designed for larger containership sizes.

However, P&I clubs say it is often the locality in which a casualty takes place that has the most influence on the final cost. The stricter the environmental monitoring and regulation in an area, the higher the cost.

Location determines cost

Swedish Club managing director Lars Rhodin, reflecting on his own experience with the $450m wreck removal of the 3,032-teu containership Rena (built 1990), which ran aground on a reef off New Zealand in October 2011, said the eventual salvage cost is often determined by "location, location, location”.

Paul Jennings, chief executive of North P&I Club, which has firsthand experience in handling the 7,700-ceu Golden Ray (built 2017) salvage — now shipping’s second costliest wreck removal after the Costa Concordia — said: “The Golden Ray was not a huge vessel but the same casualty in a less environmentally sensitive place might have been a 10th of the cost.”

Paul Jennings said location is an important factor in determining the cost of wreck removal. Photo: North P&I Club

The very exacting environmental conservation measures put in place by the US authorities at the port of Brunswick, Georgia, near to where the vessel grounded, has been a factor contributing to the high cost of the wreck removal.

The rising cost of wreck removal has caused some tension between P&I clubs and salvors.

Many salvors feel that the P&I clubs are attempting to recover the soaring cost of environmental compliance in wreck-removal contracts by beating them down on price. At the same time, they are being asked to take on more risk from pollution, cost overruns and delays.

The increasingly poor returns from wreck-removal business was one of the reasons cited for the closure last year of Ardent — one of the industry’s leading salvage companies.

The International Salvage Union (ISU) has opened up talks with the International Group to revise the wreck-removal tendering code.

Commenting on the talks, ISU chairman Richard Janssen said salvors deserve “realistic pricing” in return for high standards of professionalism.

“Contractors with a proven track record of well-managed, successful operations provide more certainty and, when performance is under government and media scrutiny, an efficient, clean and safe job is essential.

"Transparency and realistic pricing is also essential to ensure a range of contractors are able to compete fairly for work internationally and in all territories,” he said.