Vessels built in China have a higher claims frequency than those of other major shipbuilding nations, according to an analysis of tanker, bulk and container vessels built in Asia in the period 2007-2015 conducted by the Nordic Association of Marine Insurers (Cefor).
In 2015, shipyards in South Korea, Japan and China built almost 90% of all vessels including crude, product and chemical tankers, as well as bulk and container vessels, and yards in the rest of the world only 11%. For other ship types, the country of build is more balanced towards other countries.
Cefor’s findings show that the claims frequency has been 89% higher for vessels built in China and elsewhere in the world, compared to vessels built in Japan or South Korea. The difference between Japan and South Korea is mainly caused by the fact that very few container vessels are built in Japan, and that container vessels have a higher claims frequency than tankers and bulk carriers, the analysis shows.
For claims in excess of USD 500,000, the frequency is 75% higher for Chinese than for Korean and Japanese built vessels combined, while for claims in excess of USD 2 million, it is 52% higher.
“The frequency is particularly high in machinery claims on Chinese-built vessels, but a similar pattern can also be observed for the other types of claims. Part of the reason is that Chinese yards deliver a higher number of smaller vessels than Korean and Japanese yards,” the alliance said.
Best performing are Chinese-built bulk vessels in excess of 75,000 DWT, where the frequency is in line with vessels built in South Korea and Japan. In the tanker segment, the high frequency is dominated by small claims, while the frequency of claims in excess of USD 500,000 is similar to that of South Korean and Japanese built vessels.
“While the differences in frequency are considerable, the country of build may not be the only explanation. China has also made major strides in modernizing its shipbuilding industry in the past few years. It will be interesting to follow the performance of these vessels in the years to come,” Helle Hammer, Cefor’s Managing Director says commenting on the newly released marine hull claims statistics.
Nevertheless, the observed differences are considerable and unlikely to be purely incidental.
Another notable feature from 2015 is the very strong drop in the average sum insured for supply/offshore vessels. The oil price positively correlates to the sum insured. On renewals, the decrease in values was on average 17.8%, which is significantly higher than the 8% average for all vessels combined.
“And with the low oil price come new challenges related to the lay-up and reactivation of vessels and offshore mobile units that are concerns to insurers,” he added.
Hammer added that based on the findings of the statistics, overall the claim cost per vessel is on the rise, and there is no longer a softening market for claims.
“Last year we predicted that the exceptional low number of high value losses would not last, and unfortunately we were right. While 2014 showed very few claims above USD 10 million in our portfolio, 2015 saw thirteen of these. And out of the thirteen, seven are what can be considered constructive or actual total losses,” he added.
What is more, there seem to be more clouds on the horizon as depressed shipping markets that have driven down the average sum insured, have not been followed by equal fall in the average (partial) claim.
“As a result, the probability of a constructive total loss has increased”, warns Hammer.
On the positive side, the association said that proportion of claims below USD 10 million remains stable at a long-term low, and the costly machinery claims are now down to levels last seen before the shipping boom in the early 2000s.