Beyond P&I cover: The need for a multimodal insurance option
The rapid adoption of the freight container as the dominant unit of cargo transport in the late sixties created complex and new risks as it changed the patterns of cargo operations and world trade significantly, argues Peregrine Storrs-Fox, Risk Management Director, TT Club.
Not only did shipowners assume control, and therefore the liabilities associated with the containers themselves, but also extended the scope of their contractual responsibilities from the traditional ‘ship’s rail’ to the new concept of ‘door to door’. Recognising the changing world, shipowners drove the creation of a new insurance vehicle that could provide all the benefits of the existing maritime P&I (Protection and Indemnity) mutual model beyond the maritime mode. The new insurance needed to respond to cargo liability and third party risks for containers whilst ashore, as well as covering the fabric of the containers themselves. That new vehicle was TT Club, established in 1968.
Containerisation redrew the scope of responsibilities for all parties in the supply chain, not only in terms of the activities related to packing cargo and loading ships, but also the nature of trade and contracts. TT responded to these emerging risks by expanding its offering to cover freight forwarders and NVOCs, who started contracting to carry goods both as agent and principal. Additionally it was found that there was a medley of liability and asset risks at cargo handling facilities and TT was able to respond by launching its ports and terminals cover in recognition of the nature of those risks to both inland and marine terminals. TT’s cover has continued to evolve as freight logistics operations on land, at sea and in the air have become increasingly complex.
Focus on safety
As with its brethren in the P&I sector, TT has been a long time advocate of safe and secure practices with a thriving loss prevention resource that advises of a wide range of operational risk management from cargo theft to ship fires, and from crane collisions to security. At the current time, much in the minds of container lines, forwarders, transport operators and regulators is the question of safe and secure packing of CTU’s (Cargo Transport Units, including containers).
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In regard to regulated dangerous goods specifically, the next version of the International Maritime Dangerous Good Code (IMDG Code¹), being Amendment 41-42, has now become mandatory, as of 1st January this year. TT has consequently, in conjunction with UKP&I, updated the well-established ‘Book it right, pack it tight’ publication² to provide general assistance and a route map to the industry in these important matters.
While there have inevitably been numerous changes³ embedded in this IMDG Amendment, a number of consequential debates remain underway at the inter-governmental level. IMO committees are, for example, currently seeking to finalise a revised safety framework for the transport by sea of Charcoal/Carbon (UN1361). This vexed issue⁴ has frequently been at the root cause of fires within the supply chain and has encountered protracted debate.
Another critically important safety issue in today’s global supply chain is that of the uncertain risk in involved in moving lithium-ion batteries by sea, land or indeed by air. Too many recent ship fires have been caused or exacerbated by cargo containing lithium-ion batteries, including EVs (electric vehicles). Clearly combatting this hazard is the responsibility of all involved in their transportation. However, TT argues that there are fundamental issues that need to be resolved urgently, including whether their current designation as ‘Miscellaneous dangerous substances and articles’ (Class 9 of the IMDG Code) adequately reflects the dangers.
Lithium-ion batteries are today used to power a variety of products, including handheld devices (such as phones or cameras), through to larger items such as power tools and electric vehicles of all types. The market has expanded rapidly over the last two decades due to developments in electronics and now broader energy transition globally. Understanding the risks they may present during transport and storage is crucial.
Following serious incidents, regulatory restrictions regarding the carriage of lithium batteries by air have been implemented, resulting in greater reliance on surface modes for movement around the globe.
Coupled with a further number of recently recorded incidents, safety concerns around the transport and storage of lithium-ion batteries through the entire supply chain rightly continue to grow – particularly amongst the maritime community.
The hazard that a given lithium-ion battery presents is primarily related to the amount of contained reactive substances, including lithium and other reactive material. The sharp rise in demand has been accompanied by supply of cheaper, poorer quality and untested batteries, including refurbished and even homemade power banks. E-commerce platforms have facilitated a global trade in these potentially lethal batteries, often circumventing global standards and regulations.
Those in the logistics industry, covering both land and sea modes need to have a clear understanding of the dangers inherent in transporting these batteries which can include fire, explosions and toxic gas emissions. The release of toxic fumes may be the first alert, but fire with temperatures higher than 1,000degs centigrade can be reached in a matter of seconds and, as the mix of chemicals and metals decomposes, devastation can ensue.
As with many successful technologies, market demand has outpaced the development of safety regulations. For many decades, lithium batteries have been classified under dangerous goods regulations for transport based on the weight of lithium contained in the cells or battery. As the technology has advanced, the amount of energy derived from the active material has increased by up to 50%, while the weight of cells has reduced greatly. This has been compounded by the way in which batteries are now combined in packs. At the point it was agreed that lithium batteries presented a different level of hazard to Lithium itself, the principle presentation was ‘button’ cells; what we see today is vastly different and the hazards are much closer to Class 4 ‘Flammable solids’.
Given their nature and use, newly manufactured lithium-ion batteries can be transported by themselves as individual items, packaged with products (i.e. replaceable) or within products (not intended to be removed). In addition, consideration should be given to reverse logistics, including used, damaged and faulty products being returned, batteries being shipped as waste and those being shipped to be recycled. In all instances, the state of charge of any battery is a relevant factor; less stored energy generally equates to less risk.
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Regulation is critical
Currently lithium-ion batteries are classified as one of four UN numbers, depending on power output or the weight of lithium in them and whether they are contained within devices or shipped separately. This diversity will shortly be expanded, but all these UN numbers continue to fall within Class 9 ‘Miscellaneous dangerous substances and articles’. Classification away from ‘Flammable solids’ was on the basis that the then smaller batteries presented reduced hazards compared to their larger counterparts through the supply chain.
It is now argued that there is a need for a radical review of the appropriate classification, as the size and energy capacity of these batteries has altered dramatically. Additionally, the volumes being carried in container ships and car carriers has mushroomed with the traded success of these energy storage components and devices.
It is unsurprising to note that such reclassification is not an original idea. Over the last six years there have been ongoing debates touching on this at the relevant United Nations committee. From a layman’s perspective this – apart from the elapsed time – might offer hope. Not unreasonably, much of the conversation has been driven by research around the hazards presented and the types of reaction that may ensue. It is important to understand what may initiate decomposition, the temperatures that are critical, what energy and heat may be released, and suchlike.
Perhaps frustratingly, it currently appears that these tests are less focused on the inherent hazards and more on the reduction of State of Charge or packaging requirements to mitigate the hazards. Apart from worryingly inconsistent test results, little comfort is currently brought in relation to release of toxic gases, flammability or explosion risks – which are being experienced and are not ‘miscellaneous’ in nature.
In addressing the commercial opportunities to move away from reliance on fossil fuels, there also needs to be urgent engagement from all involved in production and regulation of these batteries to resolve the justifiable concerns of the logistics industry. Perhaps it is time to recognise separately substances and articles that are prone to rapid decomposition and the expulsion of reactive energy.
Given the complex circumstances surrounding the use of CTU’s (and maritime freight containers in particular) to transport a vast and increasing amount of the world’s trade, the importance of a dedicated specialist insurer is critical. An understanding of both risks and liabilities involved in the movement of such units over land and sea with the use of several coordinated transport modes brings a vital resource to bear on the safety and indeed security of the lifelines carrying supplies for the world economy.
The views presented hereabove are only those of the author and do not necessarily reflect those of SAFETY4SEA and are for information sharing and discussion purposes only.