Port Operators Need to Expect the Unexpected

  • Date: 23/04/2013
Port Operators Need to Expect the Unexpected

Marcus John, Managing Director of TT Club’s Sydney office, examines the risks facing the cargo handling industry and urges managers of port and terminal facilities to build effective, long-term contingency plans and risk management strategies. (To be published on http://www.lloydslistdcn.com.au)

It is, of course, rare that common ship handling and cargo loading operations result in major incidents. However, when such circumstances do arise, the financial and commercial consequences can be significant. With over forty years experience in handling liability claims and underwriting risk for the cargo handling sector, TT Club is in a unique position to advise operators on the unfortunate consequences of a major port-related incident.  As a result we urge such organisations to plan for these eventualities and minimise damaging fallout.

For example, TT Club were involved in an incident where a ship dragged its anchor after a winch malfunction had prevented it from being raised. The anchor was lost overboard, along with a large part of the anchor chain, rupturing a major underwater gas pipeline. A relatively minor equipment failure in rough weather, combined with poor ship handing, immediately created a critical situation with the potential for major environmental and social impacts, together with commercial implications for the port operator and the local community as a whole.

As far as the financial ramifications were concerned, a major insurance claim resulted involving complex technical and legal issues.  Establishment of the facts turned on the weather conditions, the positioning and control of the ship, familiarity of the crew with the equipment, the clarity of communications between the parties and risk control.

As for the legal issue, the argument hinged on whether the resulting US$100 million-plus claim for economic loss (the actual repair costs were for over US$60 million) would form part of the ship’s limitation fund, and indeed how many limitation funds - that is to say how many “incidents” – actually occurred.  The harbour master had required the vessel to wait for the pilot before weighing anchor and the port’s position depended to an extent on its legal relationship with, and liability for, the acts of the harbour master and pilot.  A final tricky legal issue required arrest of the ship to obtain security to be balanced against a possible very large claim for loss of charter hire. 

Preliminary decisions and opinions on these issues tended to point away from liability on the part of the port. However, because the shipowner could limit its liability based on the Tonnage Convention to an amount significantly less than that claimed, the port authority was brought into legal proceedings. <s></s>

As a result of our experience with cases such as this, the TT Club team has designed a contingency planning model to help operators address any short-comings in their state of readiness.  The Port Risk Matrix identifies key scenarios such as berth damage, collisions with other ships and groundings.  By assessing the risks associated with such events, including collateral damage to the environment and local communities as well as loss of business and reputation, the program considers the systems, and processes required to minimise such exposure and damage.  The result is a user-friendly risk matrix which can be easily incorporated into an emergency response plan.

The Port Risk Matrix has been developed by personnel in TT Club’s Sydney office and has had considerable success in assisting both insurance brokers and port organisations in the Asia-Pacific region. Workshops have been organised to give practical guidance in the use of the matrix and its implementation in ‘real-life’ operational situations. 

The initiative has brought positive reaction from the port industry with clients valuing this proactive, practical and constructive offering. The information relating to action steps has been incorporated into claims manuals, global operations procedures and formed the basis of internal risk-bulletins to operational teams.

Our message to all port operators is not only expect the unexpected but also plan well and be prepared for the consequences of such unexpected events.

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

Through Transport Mutual Insurance Association Limited, registered in Bermuda (Company number: 1750) is authorised and regulated in Bermuda by the Bermuda Monetary Authority. 

The UK VAT Identification number for Through Transport Mutual Insurance Association Limited is: GB 564 5244 35 and for TT Club Mutual Insurance Limited is: GB 564 3375 30. The Italian VAT Identification number for TT Club Mutual Ltd is: 03627210101.

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